Government Resources
Summary of Key Aspects of the Final Stark II Rule
HHS Issues Final Rule Prohibiting
Physician Self-Referrals
Jill H. Gordon, Esq., Akin, Gump, Strauss, Hauer & Feld, L.L.P.
Introduction
On Jan. 3, 2001, the United States Department of Health
and Human Services (HHS) released the first phase of its long-anticipated
final regulations addressing self-referrals by physicians (published
in the Federal Register on January 4, 2001, 66 Fed. Reg. 856). These
regulations (the "Stark II Regs"), clarify self-referral prohibitions
under section 1877 of the Social Security Act, often referred to as
the "Stark law," which bar physicians from making referrals
to entities in which the physician has a financial relationship, and
for which no statutory exception applies. "Click
here for the Final Rule Addressing Physician Self-Referrals (Stark II)."
The original Stark law ("Stark I"), enacted
in 1989, prohibited only self-interested referrals for clinical laboratory
services. In 1993, Congress broadened the Stark law ("Stark II")
to include referrals of a broad array of "designated health services"
(collectively, "DHS"), described at greater length below.
In 1995, HHS published final regulations to implement Stark I. HHS then
proposed regulations in January 1998 that addressed Stark II (the "Proposed
Regs").
The final Stark II Regs are substantively different in
a number of respects and provide physicians and other contracting parties
more flexibility than originally anticipated under the Proposed Regs.
In fact, due to significant changes from the Proposed Regs, HHS has
announced that it will issue the Stark II Regs in phases. "Phase
I," which includes the Stark II Regs issued on January 4, 2001,
restates or modifies definitions used throughout the Stark law and also
confirms or amends the description of arrangements which are exempt
from the law. "Phase II," for which HHS has not yet set a
publication date, shall address the remainder of Stark II including
additional exceptions to the law, and shall clarify the application
of the Stark law to the Medicaid Program.
Implementation
For the most part, the Stark II Regs issued during Phase
I are effective as of January 5, 2002. However, that portion of the
Stark II Regs that addresses restrictions on the certification or recertification
of home health services or the establishment of a plan of treatment
by a physician with a prohibited financial relationship with a home
health agency will become effective February 5, 2001.
Enforcement
In general, Stark II is enforced in conjunction with other
federal laws, including the anti-kickback statute. Stark II presently
provides for civil money penalties not to exceed $100,000 for each "arrangement
or scheme" that a person knows or should know has a principal purpose
to violate the statute. Additionally, the government may withhold payments
for prohibited referrals or seek to recoup past payments. The Phase
II Regs will implement these penalties.
It is unclear at this time whether a new administration
or Congress will effect the current enforcement environment and decide
to slow the present zeal of federal and state agencies in their pursuit
of errant physicians and other providers. Nonetheless, given the significant
financial impact of a violation, physicians and other providers who
receive referrals from physicians for DHS are advised to review their
current financial relationships under the final Stark II Regs and ensure
compliance with Stark law. Furthermore, entities that avoided certain
prohibited transactions under the proposed regulations may wish to revisit
these arrangements since they may now be permissible under the more
flexible final Stark II Regs.
General Prohibition Under Stark Law
Section 1877(a) of the Social Security Act establishes
the basic physician self-referral prohibition: A physician cannot (1)
refer patients to an entity (2) for the furnishing of DHS (3) if there
is a financial relationship between the referring physician (or an immediate
family member of the referring physician) and the entity, (4) unless
the financial relationship fits within one of the specific exceptions
in the statute or regulations.
For purposes of the Stark law, DHS include: clinical laboratory
services; physical therapy, occupational therapy, and speech-language
pathology services; radiology and certain other imaging services; radiation
therapy services and supplies; durable medical equipment and supplies;
parenteral and enteral nutrients, equipment, and supplies; prosthetics,
orthotics, and prosthetic devices and supplies; home health services;
outpatient prescription drugs; and inpatient and outpatient hospital
services.
Exceptions to the Stark Law Prohibition
While many of the exceptions to the Stark law prohibition
contained in the Stark II Regs rely upon a fact specific analysis and
the application of certain defined terms, in brief, these exceptions,
as contained in the Stark II Regs, are set forth below:
· Physician Services. Physician services that are
furnished (i) personally by another physician who is a member of the
referring physician's group practice or (ii) under the supervision of
another physician who is a member of the referring physician's group
practice are exempt for the self-referral prohibition. Notwithstanding,
the Stark II Regs contain a detailed analysis as to what constitutes
a "group practice" and who qualifies as part of the referring
physician's group practice under this exception.
· In-Office Ancillary Services. Certain services
that are furnished personally by (i) the referring physician, (ii) a
physician who is a member of the same medical group as the referring
physician, or (iii) an individual who is supervised by the referring
physician or by another physician in the group, if the services are
furnished either (x) in the same building in which the referring physician
generally practices, and the receipt of DHS is not the primary reason
the patient contacted the referring physician, or (y) in a centralized
building that is used exclusively by the referring physician's group
practice, are excepted from the Stark law prohibition so long as the
medical group bills for the services using its provider number or the
physician rendering services bills using his or her provider number.
Although the in-office ancillary services exception existed
in a similar form under the 1998 proposed rule, a noteworthy change
in the Stark II Regs is an additional exception that allows physicians
to provide their patients canes, crutches, walkers, folding manual wheelchairs,
and blood glucose monitors in-office so long as certain additional requirements
are met.
Additionally, the Stark II Regs provide a new special
exception for physicians whose principal medical practice consists of
treating patients in their homes.
· Services Furnished by an Organization to Enrollees.
Otherwise prohibited physician referrals are permitted if they are made
to organizations providing services to enrollees of prepaid health plans
that contract with HCFA to provide services to Medicare beneficiaries.
· Clinical Laboratory Services Furnished in an
Ambulatory Surgical Center (ASC) or End-Stage Renal Disease Facility
(ESRD), or by a Hospice. If the charges for the DHS are included in
the ASC rate, the ESRD composite rate, or as part of the per diem hospice
rate, the referral for the DHS shall be excepted from the Stark law
prohibition.
· Academic Medical Centers. In accordance with
this new exception, referrals for DHS may be made by physicians with
a financial relationship to an academic medical center if the referring
physician (i) is a bona fide employee of the academic medical center,
(ii) is licensed to practice medicine in the state, (iii) has a bona
fide faculty appointment at the affiliated medical school, and (iv)
provides either substantial academic or clinical teaching services for
which he or she receives compensation. Furthermore, the physician's
total compensation must be set in advance, be fair market value, and
not violate the federal anti-kickback statute. The academic medical
center must also meet certain requirements with respect to its organizational
structure and use of funds.
· Implants in Ambulatory Surgery Centers. Implants,
including, but not limited to cochlear implants, intraocular lenses,
and other devices are excepted from the self-referral prohibition if
they are furnished by the referring physician or a member of his or
her medical group, the device is implanted during a surgical procedure
performed in the same ASC where the implant is furnished, and the arrangement
complies with the federal anti-kickback statute.
· EPO and Other Dialysis-Related Outpatient Prescription
Drugs Furnished in or by an End-Stage Renal Disease Facility. Certain
outpatient prescription drugs identified on HCFA's website (updated
annually) that are EPO and other dialysis-related drugs and are administered
in or by an ESRD facility are exceptions to the Stark law prohibition.
· Preventive Screening Tests, Immunizations, and
Vaccines. Certain screening tests, immunizations and vaccines identified
on HCFA's website (updated annually) that are subject to HCFA-mandated
frequency limits and are reimbursed by Medicare, are excepted from the
Stark law prohibition.
· Eyeglasses and Contact Lenses Following Cataract
Surgery. For those instances when Medicare covers eyeglasses and contact
lenses following cataract surgery, a physician may refer a patient for
such services to an entity in which the physician has a financial relationship
if the patient referral does not violate the federal anti-kickback statute
and all billing and claims submissions comply with federal and state
law.
· No Knowledge of Prohibited Referral. Under this
new exception, an entity will not be deemed to have provided prohibited
DHS if the entity did not know or have reason to suspect the identity
of the referring physician.
Exceptions to the Meaning of "Compensation
Arrangement"
In addition to the exceptions set forth above, which apply
to prohibited referrals due to a physician's ownership interest in or
compensation relationship with an entity, the Stark II Regs list additional
exceptions that apply to prohibited referral arrangements based exclusively
upon a physician's compensation arrangement with an entity. In other
words, the following arrangements are not considered prohibited "financial
relationships" under Stark law.
· Non-monetary Compensation Up to $300. In accordance
with this new exception, the payment of non-monetary compensation to
a physician up to $300 per year does not create a "financial relationship"
between a physician and an entity if the physician did not solicit the
remuneration, the arrangement does not violate the federal anti-kickback
statute, and the compensation is not determined in any manner that takes
into account the volume or value of referrals or other business generated
by the physician.
· Fair Market Value Compensation. Perhaps the most
useful exception is the exception for fair market value compensation.
Under the terms of this exception, if a compensation arrangement is
in writing, specifies the timeframe for services, specifies the compensation
that will be provided, involves a commercially reasonable transaction,
meets a safe harbor under the federal anti-kickback statute, and the
services to be performed do not involve the counseling or promotion
of an illegal business activity, then the compensation generated under
such arrangement will not be treated as creating a "financial relationship"
between a physician and an entity. It is noteworthy that under this
exception, the duration of the arrangement may be for any term, provided
that the parties enter into only one such arrangement in the course
of the year.
· Medical Staff Incidental Benefits. Under this
new exception, hospitals may provide the members of their medical staffs
with compensation in the form of items or services (excluding cash)
when the compensation is used on the hospital's campus so long as the
compensation is not based on the volume or value of referrals, it is
offered only during periods when the medical staff members are making
rounds or performing other duties that benefit the hospital, it is reasonably
related to the provision of medical services, each occurrence is of
low value (less than $25), and it is consistent with the types of benefits
offered by other hospitals within the same local region.
· Risk Sharing Arrangements. Similar to the exception
for services to enrollees above, under this new exception, compensation
exchanged between a physician and an entity pursuant to a risk sharing
arrangement (including, but not limited to, withholds, bonuses, and
risk pools) shall not qualify as a "financial relationship"
for purposes of Stark.
· Compliance Training. Compliance training provided
by a hospital to a physician who practices in the hospital's local community
or service area shall not be considered to constitute a "financial
relationship" between the hospital and physician, provided the
training is held in the local community or service area.
· Indirect Compensation Arrangements. Under this
new exception, indirect compensation arrangements between a physician
and an entity shall not be considered "financial relationships"
for purposes of Stark if the compensation received by the referring
physician is fair market value for services and items actually provided,
does not take into account the value or volume of referrals or other
business generated by the physician, the arrangement is set out in writing
and signed by the parties, the writing specifies the services covered
by the arrangement (except for a bona fide employment relationship,
which does not have to be set out in writing, but must be commercially
reasonable), and the arrangement does not violate the federal anti-kickback
law.
Additional Changes Under the Stark II Regs
Not only did the Stark II Regs expand the exceptions to
Stark originally set forth in the 1998 Proposed Regs, but they also
clarified many of the defined terms. These changes provide physicians
and other providers with greater flexibility in structuring their arrangements.
Specifically, amongst other changes, the Stark II Regs (i) clarified
many of the definitions of DHS, (ii) clarified the concept of "indirect
financial relationship," (iii) substantially broadened the in-office
ancillary exception by easing the criteria for qualifying as a group
practice and easing the physician supervision requirements, (iv) excluded
services personally performed by the referring physician from the definition
of "referral," and (v) clarified the interpretation of "volume
or value."
Although Phase II of the final Stark II Regs has yet to
be issued, physicians and other providers are advised to review their
current referral arrangements for compliance under the recently issued
Stark II Regs. Furthermore, in light of new exceptions and clarified
definitions, certain transactions that would have previously violated
Stark law now may comply. Please note that this article offers only
a very general summary of key aspects of a lengthy and complex set of
regulations.
For more information on the Stark II Regs, contact Jill
Gordon at (310) 229-3847 or jgordon@akingump.com.
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