This article is more than 5 years old. Information may no longer be current.
CMS delays enforcement of three key revisions to Stark regulations
These provisions will become effective next year, so physicians are urged to review their existing arrangements and make the necessary modifications.
Click Here to Manage Email Alerts
The final Inpatient Prospective Payment System Rule published Aug. 19 contains numerous revisions to the Stark regulations. The Centers for Medicare and Medicaid Services is delaying the enforcement of three key revisions to allow physicians time to restructure their arrangements with hospitals and other providers to comply with the new regulations.
 Alan E. Reider |  Allison Weber Shuren |
The Stark Law prohibits a physician from referring Medicare beneficiaries for designated health services (DHS) to a Medicare provider with which the physician has a financial relationship and the Medicare provider from billing the federal health care program for those referrals, unless an exception applies. DHS includes, among other services, radiology services, laboratory services, and inpatient and outpatient hospital services. If the physician refers any Medicare patients to the hospital or any other DHS entity for DHS, all financial relationships would need to meet an exception to the Stark Law.
Significant changes
 Nicole Liffrig Molife |
The Inpatient Prospective Payment System Rule contains numerous revisions to the Stark regulations. Three significant revisions are highlighted because they may require physicians and other providers to revise or unwind business arrangements common in the health care industry.
1. Prohibition of “per click” space and equipment leases. Currently, unit of service, or per click, payments that meet certain criteria can be used in connection with the Stark Law exceptions for the rental of office space and equipment, as long as all the exceptions’ requirements are satisfied. For example, a physician may lease equipment that he/she owns to a hospital on a per-click basis.
CMS is concerned that a physician lessor, or a DHS entity lessor, has a financial incentive to refer a higher volume of patients to the lessee when it receives a per-click payment. The aggregate rental payment increases each time the equipment is used for a patient who was referred to the hospital by the physician.
Effective Oct. 1, 2009, the Stark regulations will prohibit per-click rental payments in which the physician is the lessor or the lessor is an entity in which the physician has an ownership or investment interest to the extent that the payments reflect services provided to patients referred by the physician. This prohibition also applies in which the lessor is a DHS entity that refers patients to a physician-lessee or a physician organization lessee.
2. Prohibition of percentage compensation formulae in determining rental changes for the equipment and space leases. Currently, the exception to the Stark Law applicable to equipment and space leases requires the lease fee to be “set in advance.” Until now, fees based on a percentage of revenue have been considered to be set in advance. For example, a hospital may lease equipment from a physician and pay a lease fee that is a percentage of revenue generated from services performed using the equipment to the physician-lessor for use of the equipment.
Similar to the concerns raised about per-click leases, CMS has expressed concern that percentage-based compensation formulae present a heightened risk of program and patient abuse. These arrangements provide a financial incentive to the lessor to increase referrals for DHS to increase the rental payments generated through the lease arrangement.
Effective Oct. 1, 2009, the Stark regulations will prohibit rental payments based on a percentage compensation arrangement attributable to the services performed in the office space or using the equipment.
3. Restricting “under arrangements.” Currently, a hospital, a skilled nursing facility and other providers are permitted to contract with an outside provider or supplier for certain services and pay the outside provider or supplier a fee for the service, commonly referred to services provided under arrangements. The hospital, skilled nursing facility or other providers bill Medicare for the contracted service, not the outside provider or supplier. Historically, an entity formed by physicians to own or lease the space, equipment and staff involved in the performance of the DHS and then provides those services to a hospital pursuant to an under arrangement is not treated as a DHS entity because the physician-owned entity does not bill Medicare for the DHS provided. Therefore, referrals from physicians who owned an interest in the physician-owned entity that provides the services to the hospital were not prohibited because the hospital, not the physician-owned entity, was treated as an entity under the Stark Law.
CMS said this narrow definition of entity has contributed to the proliferation of physician-owned entities that provide under arrangements services to DHS entities to which they refer patients.
Effective Oct. 1, 2009, the definition of entity will include entities that perform DHS, as well as providers that are paid by Medicare for those services. This new definition will affect many joint venture arrangements in which an entity owned in whole or part by a physician provides services to a hospital or other provider under arrangement. It will be difficult for physicians to establish joint venture entities because, in most cases, no Stark Law exception applies for the physician’s ownership in a DHS entity.
Conclusion
Physicians should carefully review their arrangements with hospitals and other DHS entities for compliance with the Stark regulations, which affect many arrangements that are commonplace in the health care industry. Additional regulatory developments are likely to occur, and physicians are well-advised to monitor developments to the Stark Law.
Within the past year, CMS has proposed numerous revisions to the Stark regulations and the purchased diagnostic test rules, many of which remain under consideration. CMS indicated that it will continue to monitor certain arrangements and may issue new regulations in the future to prevent patient or program abuse.
For more information:
- Nicole Liffrig Molife, JD, can be reached at Arnold & Porter LLP, 555 12th St. NW, Washington, DC 20004; 202-942-6611; fax: 202-942-5999; e-mail: nicole.liffrig@aporter.com.