May 2004 Newsletter

The Stark Truth

By: , Compliance Officer

Stark II Phase II

On March 26, 2004, the Centers for Medicare and Medicaid Services (CMS) issued the second phase of its Stark physician self referral regulation. This physician self-referral law prohibits a physician from referring Medicare and Medicaid patients for specific designated health services (DSH: see table, right) to entities with which the physician, or a member of their immediate family, has a financial relationship, unless an exception applies. CMS states that "the new regulation conforms to existing coverage and payment rules; protects beneficiary access to care; and establishes bright-line rules and administrative simplicity where possible." They will accept comments until the rule goes into effect on July 26, 2004.

Most of the modifications in the Phase II regulations appear to indicate a good faith effort by CMS to implement Stark with a reduction in regulatory burden by broadening the exceptions and creation of new exceptions. Phase II addresses the comments CMS received on Phase I, includes the remaining statutory exceptions not covered in Phase I, and expansion of the regulatory exceptions for nonabusive financial relationships.

Specifically Phase II covers:

• General exceptions related to ownership or investment in publicly traded securities and mutual funds;
• Additional exceptions pertinent only to ownership or investment prohibitions (hospitals in Puerto Rico, physician ownership of entire hospitals, and rural providers);
• Exceptions related to other compensation arrangements (rental space and equipment, bona fide employment relationships, personal services arrangements, remuneration unrelated to the provision of designated health services (DSH), physician recruitment, isolated transactions, certain group practice arrangements with hospitals, and payments physicians make for items and services);
• Reporting requirements and sanctions

Some of the highlights of Phase II include without limitation:

• Percentage compensation. These agreements are allowed as long as "the methodology for calculating the compensation is set in advance and does not change over the course of the arrangement in any manner that reflects the volume or value of referrals or other business generated by the referring physician."
• Productivity bonuses. Physician employees may be paid bonuses based on their personal productivity, but not referrals for ancillary services.
• CLIA waived tests. These tests will be included in the definition of clinical laboratory services.
• Pap smears. Screening, but not diagnostic, Pap tests are to remain on the list of codes identifying services that may qualify for the exception.
• In-office ancillary services. DSH may be offered to patients in the same building where the referring physician provides regular medical care or, in the case of a group practice, in a central building, as long as certain conditions apply.
• Professional Courtesy. Entities may extend professional courtesy to a physician, members of the physician's immediate family, or members of the physician's office staff pursuant to several conditions. (The decision to implement this exception may still be legally problematic as discussed in prior issues of this newsletter.)