April 2008
Proposed Revisions to Stark II, Phase III
Regulations
On April 14, 2008, the Centers for Medicare and
Medicaid Services ("CMS") issued the Hospital
Inpatient Prospective Payment Systems proposed rule
for 2009 (the "Proposed Rule"). The Proposed Rule is
the latest in a series of recent changes, both adopted
and forecasted, and other insights by CMS on what
have become known as the Stark regulations pursuant
to 42 U.S.C. § 1395nn. Other recent CMS activity
related to Stark include the proposed rule changes in
the July 2007 Physician Fee Schedule proposed rule
(the "2008 Proposed PFS Rule"), final regulations
published in September 2007 ("Stark Phase III),1 and
the publication of answers to "Frequently Asked
Questions" on the CMS website in January 2008.
In This Issue
Proposed Revisions to Stark II,
Phase III Regulations
CMS Recommendations
Stand in the Shoes Provisions
Period of Disallowance
Gainsharing
Physician-Owned Implant and
Other Medical Device Companies
Other Provisions in the Proposed
Rule
Quick Links
Health Law Practice Group
1
The effective date for certain of these final regulations was delayed,
pursuant to the final physician fee schedule rule published in November,
2007.
In the Proposed Rule released in April CMS recommends, and invites comments on,
certain changes to the Stark regulations that, if adopted, would:
z
z
z
z
Either: (a) revise the "stand in the shoes" concept as applied to physicians and
physician organizations, such that, under certain conditions, physicians would
be deemed not to stand in the shoes of their physician organizations, or (b)
create a new exception for non-abusive arrangements, potentially involving
"mission support payments" and academic medical centers and/or integrated
health care delivery systems;
Deem a DHS entity to stand in the shoes of any organization which it wholly
owns;
Clarify that a physician who stands in the shoes of his or her wholly-owned PC
also stands in the shoes of his or her physician organization; and
Define the end date for a "period of disallowance" during which referrals are
"tainted" by a noncompliant Stark relationship in one of four ways, depending
on why the financial relationship is not Stark compliant.
CMS also solicits comments regarding whether and how it should (a) re-define
"indirect compensation arrangement," (b) create an exception for certain
gainsharing arrangements, and/or (c) address physician-owned implant and other
medical device companies in the regulations.
Stand in the Shoes Provisions
Primarily in response to concerns voiced by industry stakeholders, CMS proposes two
alternative approaches to deal with the effects of the Stark Phase III "stand in the
shoes" rules as applied to arrangements involving "mission support payments"
within academic medical centers and integrated health care delivery systems.
Approach One To Physician Stand in the Shoes
The first approach would revise the "stand in the shoes" provisions such that, if
certain conditions were met, a physician would be deemed not to stand in the shoes
of his or her physician organization. This approach would have broad ranging effects
beyond addressing the "mission support" payments. Here, CMS offers several
criteria for when a physician would not stand in the shoes of his or her physician
organization: (a) the total compensation arrangement between the physician and
the physician organization satisfies the employment exception, the personal services
arrangement exception, or the fair market value exception; (b) the arrangement
between the physician and the DHS entity satisfies the requirements of the academic
medical center ("AMC") exception or any other exception in 42 C.F.R. §411.355;
and/or (c) the arrangement is mandated by graduate medical education ("GME")
requirements between hospital components of academic medical centers and
community physician groups that serve as a teaching site for AMC residents.
When any of these criteria is met, no "stand in the shoes" is applied to the physician
organization, and the parties would instead analyze, as before, whether an indirect
compensation arrangement exists between the referring physician and the DHS
entity (and therefore whether an exception needed). Crucial to this inquiry is the
definition of "indirect compensation arrangement." CMS notes that it may provide
further guidance on this definition in the fiscal year 2009 IPPS final rule, as it
believes that parties should interpret the definition more broadly to encompass
variable and percentage-based compensation, exclusive contracts, inflated fixed
payments, and explicit or implicit tying of compensation to other referrals.
CMS also solicits comments as to whether "stand in the shoes" should apply to all
physician owners of a physician organization, even those who do not have a right to
the distribution of profits, or to only physician owners of a physician organization,
and therefore not to any compensation relationships.
Approach Two To Physician Stand in the Shoes
Alternatively, CMS proposes to leave the current "stand in the shoes" Stark Phase III
rules for physicians and physician organizations as is, and promulgate a separate
exception for non-abusive arrangements not otherwise covered by existing
exceptions, such as those involving "mission support" payments within AMCs or
integrated health care delivery systems. To this end, CMS solicits comments on how
to define a "mission support" payment and an "integrated health care delivery
system."
Entity Stand in the Shoes Proposed Changes
In addition to revisiting the "stand in the shoes" rules as applied to physicians and
physician organizations, CMS also proposes that all DHS entities would stand in the
shoes of their wholly-owned organizations and be deemed to have all the same
compensation arrangements with the same parties as such wholly-owned
organizations. This proposal broadens the original entity "stand in the shoes"
proposal set forth in the 2008 Proposed PFS Rule, under which a DHS entity would
only have collapsed into a DHS entity which it owned or controlled.
Conventions For Applying Stand In The Shoes to PO and Entities
Given that CMS proposes two types of "stand in the shoes" rules, CMS also proposes
that certain conventions apply when analyzing financial relationships under these
rules. While no specific text is proposed, CMS advises in commentary that parties
will first apply the "stand in the shoes" rules to physicians and physician
organizations ("Step 1") and second apply the "stand in the shoes" rules to DHS
entities and their wholly-owned organizations ("Step 2"). If, however, applying Step
1 results in only one financial relationship remaining between the DHS entity and the
collapsed physician/physician organization and that relationship is an ownership
interest, then the entity stand in the shoes provisions will be applied first and the
physician stand in the shoes rule would not be applied. This "convention" prevents
situations in which application of both "stand in the shoes" rules would collapse
every link into one entity, thus eliminating any financial relationships between
separate entities.
Finally, CMS proposes revising the definitions of "physician organization" and
"physician," in order to clarify that a physician and a professional corporation ("PC")
of which he or she is the sole owner are always treated the same for purposes of
applying the Stark rules and that a physician who stands in the shoes of his or her
PC also stands in the shoes of his or her physician organization.
Period of Disallowance
If a financial relationship is not compliant with Stark, then there needs to be a
determination as to how long the noncompliance exists in order to apply refunds or
hold claims or referrals of Medicare patients. In this Proposed Rule, CMS offers a
period of disallowance during which a physician cannot refer patients for DHS to an
entity and an entity cannot bill Medicare as a result of any of those tainted
referrals. CMS sought comments on, but did not propose any specific text regarding
the parameters of such a period of disallowance in the 2008 Proposed PFS Rule.
Here, CMS proposes to define the end of the period of disallowance in one of four
ways, depending on why the relationship is noncompliant:
z
z
z
z
If the reason for noncompliance is unrelated to compensation (e.g., a missing
signature), then the period of disallowance ends no later than the date that
the arrangement is brought into compliance (e.g., the date when the missing
signature is obtained, not a retroactive date that a party might add to "fix" the
agreement);
If the reason is related to the payment or receipt of excess compensation,
then the period of disallowance ends no later than the date that the excess
compensation is returned to a party that paid it and all other requirements of
the exception are met;
If the reason is related to the payment of receipt of insufficient compensation,
then it ends no later than the date the shortfall (defined as the cumulative
amount of shortfall since the date of inception, including interest if
appropriate) was paid to the party to which it was owed and all other
requirements of the exception are met;
If related to compensation but not involving excess or insufficient
compensation (e.g., it takes into account the volume or value of referrals),
then the period of disallowance would be prescribed on a case by case basis.
All of the above scenarios contemplate the period of disallowance as beginning on
the date that the arrangement was first out of compliance. Additionally, CMS notes
that it may propose future rulemaking prescribing a period of disqualification during
which parties with a noncompliant financial relationship would be prohibited from
using a particular exception.
Gainsharing
CMS is also soliciting comments as to whether it should create a Stark exception for
gainsharing arrangements, under which a hospital gives physicians a share of the
hospital's cost savings attributable in part to the physician's efforts. In particular,
CMS solicits comments on what types of requirements and safeguards such an
exception should include, and whether certain services, clinical protocols, or other
arrangements should not qualify for the exception.
CMS also notes that its proposal in the 2008 PFS Proposed Rule which would provide
that percentage-based compensation arrangements may only be used to pay for
personally performed physician services and that such arrangements must be based
on revenues directly resulting from physician services rather than based on some
other factor, such as a percentage of cost savings by a hospital department, is still
under active consideration.
Physician-Owned Implant and Other Medical Device Companies
While recognizing that the indirect compensation arrangement analysis applies to
certain financial relationships created between physician-owned implant and other
medical device companies ("POCs") and DHS entities, CMS is soliciting comments as
to whether Stark should more specifically address POCs, or whether the False Claims
Act, 31 U.S.C. § 3729, et. seq. is the better enforcement vehicle. CMS appears to
focus its concerns on the subset of POCs that serve as distributors or group
purchasing organizations, rather than manufacturers. In particular, CMS solicits
comments on whether, and to what degree, POCs present risks of overutilization,
substandard care, and increased costs to Medicare and its beneficiaries. Among the
possible ways of addressing POCs, CMS lists considering POCs to be DHS entities
and/or considering physician investors who influence hospitals regarding the
ordering of medical devices to have direct compensation arrangements with those
hospitals.
Other Provisions in the Proposed Rule
While this advisory focuses on the Proposed Rule's discussion of the Stark
regulations, we note that the Proposed Rule also contains provisions (a) proposing
that hospitals complete the Disclosure of Financial Relationships Report ("DFRR")
within sixty (60) days of receipt, (b) proposing that a hospital's Emergency Medical
Treatment and Active Labor Act ("EMTALA") obligations extend to another hospital's
inpatients who have not been stabilized and are need of specialty care at that
receiving hospital, (c) proposing that a hospital may meet its on-call list requirement
with a formal community call plan that meets certain requirements, and (d) other
technical changes to the EMTALA regulations.
Kennedy Covington is one of the largest law firms in the Carolinas with offices in Charlotte, Raleigh, Research
Triangle Park, Columbia and Rock Hill. Our attorneys use their diverse experience and knowledge to counsel clients
in varied industries such as banking and finance, real estate, technology, health care, manufacturing and the
services sector. At Kennedy Covington, we give more than a legal opinion; we provide a business perspective.
This newsletter is published as a service to clients and others interested in health law issues. The information
provided herein is general in nature and should not be relied upon as legal advice as to specific factual situations.
Our health law practice group welcomes your comments or inquiries about this newsletter or about any specific
matters you may wish to discuss with us.
Kennedy Covington will continue to monitor the status of these proposed rules as related to Stark and any other
forthcoming guidance from CMS. If you have any questions regarding the matters discussed in this advisory,
please contact either:
Mary Beth Johnson
919.466.1181
mjohnston@kennedycovington.com
Patricia Meador
919.466.1180
pmeador@kennedycovington.com
Health Law Practice Group
Gina L. Bertolini
Richard P. Church
Darlene S. Davis
Amy O. Garrigues
Patricia T. Meador
Mayelin Prieto-Gonzalez
William W. Stewart, Jr.
919.466.1195
919.466.1187
919.466.1119
919.466.1275
919.466.1180
919.466.1126
919.466.1112
Tate M. Bombard
Colleen M. Crowley
Kelly Dixson Furr
Mary Beth Johnston
Carolyn F. Merritt
Gary S. Qualls
919.466.1125
919.466.1189
919.466.1240
919.466.1181
919.466.1246
919.466.1182
Kathy G. Barger (Consultant)
919.466.1185
Carol E. Jones (Consultant)
919.466.1250
Quick Links
Locations
Charlotte, NC
Raleigh, NC
Research Triangle Park, NC
Columbia, SC
Rock Hill, SC
Forward email
Email Marketing by
This email was sent to mcausey@kennedycovington.com, by
kennedycovington@kennedycovington.com
Update Profile/Email Address | Instant removal with SafeUnsubscribe™ | Privacy Policy.
Kennedy Covington | Post Office Box 14210 | Research Triangle Park | NC | 27709