Health Care Alert
March 30, 2004
FEDS ISSUE NEW REGULATIONS ADDRESSING PHYSICIAN SELF-REFERRALS
On March 25th, the Centers for Medicare and Medicaid Services ("CMS") issued the second phase of its final regulations addressing physician referrals to entities with which they have a financial relationship (commonly referred to as the "Stark Law"). These much-anticipated rules clarify previous government regulations interpreting the Stark Law and create new exceptions for non-abusive financial relationships. The new regulations (referred to as the "Phase II" regulations) become effective on July 26, 2004.
The new regulations are not only complex, but they are very extensive as well. As such, all physicians and other healthcare providers who render any of 11 designated health services* to Medicare and/or Medicaid patients should have their business arrangements reviewed by competent healthcare counsel to make sure that they are in compliance with the new regulations which have just been issued.
The following discussion highlights some of the more significant provisions of the new regulations:
New Grace Period. CMS has created a 90-day grace period for those financial relationships that have unavoidably and temporarily fallen out of compliance with a regulatory exception. This will allow providers a brief period of time in which to terminate their prohibited arrangement, or else bring them into full compliance.
New "Safe Harbor" for Hourly Payments to Physicians. CMS has created a new "safe harbor" for calculating hourly compensation rates for physician employees and independent contractors. The new "safe harbor" consists of 2 alternative methodologies. Hourly payments calculated under either of these 2 methodologies will be deemed to be "fair market value." CMS emphasizes that compliance with these "safe harbor" methodologies is entirely voluntary. Thus, entities that choose not to use them are free to do so, but will bear the risk that their hourly compensation rates may be challenged by governmental investigators as not reflective of "fair market value".
Clarification of "Personally Performed Services". CMS has now made it clear that designated health services personally performed by a referring physician do not constitute "referrals" or "other business generated" under the Stark Law. However, this is not the case for the technical component corresponding to the referring physician's personally performed services, or to professional or "incident to" services performed by persons other than the referring physician.
Clarification of "Group Practice" Definition. Centralized utilization review is no longer required in order for a group of physicians to qualify as a true "group practice" for purposes of the "in-office ancillary services" exception under the Stark Law. However, with respect to the existing requirement that the group have "centralized decision-making", CMS now indicates that there must be "substantial group level management and operation" which exercises "substantial control over the process and output of these activities". In other words, centralized management cannot "simply rubber stamp decisions of the various cost centers or locations."
Compensation Arrangements "Set In Advance". CMS has clarified that time-based, unit-of-service, "per click", and percentage-based compensation arrangements are generally permitted if they are set in advance, reflect fair market value, and do not change over time in a manner that reflects the value or volume of patient referrals.
Modification of "Same Building" Requirement. In order to provide physicians with greater flexibility and a more straightforward rule, CMS has substantially revised the "same building" test under the "in-office ancillary services" exception by adopting 3 new alternative tests. Only 1 of the 3 new tests needs to be satisfied in order to meet the "same building" requirement.
New Regulatory Exceptions. CMS has added a number of new regulatory exceptions under the Phase II regulations. These include exceptions for: (i) referral services; (ii) obstetrical malpractice insurance subsidies; (ii) professional courtesy; (iv) charitable donations by physicians to entities that furnish designated health services; (v) intra-family rural area referrals; (vi) retention payments in underserved areas; and (vii) technology items or services furnished to physicians to enable their participation in a community-wide health information system.
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For more information, please call any of the following attorneys in our firm's health care department:
Joel M. Greenberg
Patrick Formato
Allan A. Silver
Betsy Malik
Barbara Phair
*Designated health services are defined under the Stark Law as: clinical laboratory services; physical therapy services; occupational therapy 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.
