This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
M E M O R A N D U M
November 27, 2001
TO:
Centers for Medicare and Medicaid Services
FROM:
American Hospital Association
RE:
Stark Law Issues Involving Hospitals and Physicians
On behalf of our member hospitals, we request confirmation that the
guidance contained in this memorandum regarding certain issues arising under the
physician self-referral law (the "Stark Law") 1/ and relevant regulations is
consistent with the views of the Centers for Medicare & Medicaid Services
(“CMS”). 2/ The issues raised below relate to typical hospital activities which
arguably involve an in-kind economic benefit to referring physicians, including,
among other things, various business and social activities that are paid for by
hospitals. This memorandum describes our understandings of the Stark Law
exceptions that are likely to apply (and, in some instances, not to apply) with
respect to various activities. 3/
1/
42 U.S.C. 1395nn. In this memorandum, references to the "Stark Law" are to the law as
currently written (sometimes called "Stark II"). The law was expanded in 1993 to cover several
categories of designated health services, including inpatient and outpatient hospital services.
2/
Proposed regulations under the Stark Law were published January 9, 1998 (the "Proposed
Rule") and a portion of the final regulations (Phase I) was published January 4, 2001 (the "Final
Rule").
3/
We are aware that each of the activities referenced herein also must be analyzed under the
Federal Healthcare Programs Anti-Kickback Law, 42 U.S.C. 1320a-7b(b), (the "Anti-Kickback Law").
Certain of the Stark Law exceptions discussed herein specifically require compliance with the AntiKickback Law. This memorandum does not include an Anti-Kickback Law analysis of the activities
in question, in part because that law is generally enforced and interpreted by the Office of Inspector
General ("OIG"), not CMS.
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
I.
The General Issues
A.
"Compensation Arrangement"
In Section III below, we list several business and social activities
involving hospital representatives and referring physicians that are paid for by
hospitals. If, by paying for these activities, the hospital were deemed to have a
"compensation arrangement" with the physicians under the Stark Law, then the
physicians would be precluded from making referrals of Medicare and Medicaid
patients for designated health services (“DHS”) to the hospital, unless an exception
applies. 4/ We ask for your confirmation that the types of activities identified below
constitute "compensation arrangements" under the Stark Law and that CMS's
position is that a statutory or regulatory exception must be available in order for
the hospital and referring physicians not to be in violation of the Stark Law.
B.
Exceptions
Assuming that these activities implicate the Stark Law by creating a
compensation arrangement between the parties, several exceptions are potentially
applicable. However, for purposes of this analysis, we assume that some of the
exceptions will not be applicable. In particular, we assume that the exception for
bona fide employment relationships would not apply to these activities, since in all
cases we are referring to non-employed physicians. Similarly, most of the activities
would not fit within the personal services exception 5/ or the fair market value
exception 6/ because, among other things, in most cases there would not be a
written agreement that covers the activities at issue. 7/ Also, most of these
activities would not fit within the exception for medical staff incidental benefits. 8/
4/
"Compensation arrangement" is defined in the statute generally as "any arrangement
involving any remuneration between a physician (or an immediate family member of such physician)
and an entity . . ." (42 U.S.C. §1395nn(h)(1)).
5/
42 U.S.C. § 1395nn(e)(3); 42 C.F.R. §411.357(d).
6/
42 C.F.R. § 411.357(l).
7/
A few of the activities, most notably certain of the activities discussed in Section III.A below,
are likely to be covered by a written agreement and could be structured to fit within the personal
services exception.
8/
42 C.F.R. § 411.357(m).
-2-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
That exception requires, among other things, that the activity take place on the
hospital's campus and that compensation be less than $25.
The most relevant exceptions for many of these activities, therefore,
are the exception for remuneration unrelated to the provision of designated health
services 9/ and the exception for non-monetary compensation up to $300. 10/ We
are especially interested in confirming with you which types of activities
appropriately fit within the exception for remuneration unrelated to DHS.
II.
Potentially Applicable Exceptions
This section summarizes the current requirements of the exception for
remuneration unrelated to DHS and for non-monetary compensation up to $300.
A.
Remuneration unrelated to the provision of DHS
This is a statutory exception that specifically focuses on certain
compensation provided by hospitals to physicians. 11/ The statute states that
remuneration provided by a hospital to a physician is not considered a
compensation arrangement under the Stark Law "if such remuneration does not
relate to the provision of designated health services." In the Proposed Rule you
included a provision that appears to reflect this portion of the statute. The
provision, called "Arrangements with hospitals," would except the following:
"Remuneration provided by a hospital to a physician if the remuneration does not
relate, directly or indirectly, to the furnishing of designated health services. To
qualify as 'unrelated,' remuneration must not in any way reflect the volume or
value of a physician's referrals." 12/
You discussed this exception, which applies only to arrangements
between hospitals and physicians, in the preamble to the Proposed Rule. You
stated that the remuneration must be "completely unrelated" to the furnishing of
9/
42 U.S.C. § 1395nn(e)(4).
10/
42 C.F.R. § 411.357(k).
11/
42 U.S.C. § 1395nn(e)(4).
12/
42 C.F.R. § 411.357(g).
-3-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
designated health services: "By this we mean that the parties must be able to
demonstrate that the remuneration does not in any direct or indirect way involve
these services, and that the remuneration in no way reflects the volume or value of
a physician's referrals for designated health services." 13/
In the preamble to the Proposed Rule, you also provided examples of
activities that fit within the exception and those that do not. Those that fit within
the exception (i.e., are "unrelated" to the provision of DHS) include:
1.
Rental payments from a teaching hospital to a physician
for his or her house in order to use the house as a
residence for a visiting faculty member (assuming rental
payments are fair market value and do not reflect the
physician owner's referrals to the hospital).
2.
Payment from a hospital to a physician for teaching or for
providing general utilization review or administrative
services for the hospital.
Those that do not fit the exception (because they are related to the
provision of DHS) include:
13/
1.
Payment from a hospital to a physician to supply a heart
valve that the physician has perfected. (In the preamble
you state that the physician is receiving payment for an
item that will likely be used by the hospital in furnishing
inpatient hospital services, which are a designated health
service).
2.
Payment by a hospital for a physician's medical
malpractice insurance or other general costs to enable the
physician to provide a designated health service, such as
radiology.
63 Fed. Reg. 1659, 1702 (Jan. 9, 1998).
-4-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
Since virtually every hospital activity (including all four examples
described above) can be viewed as relating in some way to inpatient or outpatient
hospital services, the examples suggest where you have drawn the line with respect
to degrees of relatedness in order to give the statutory provision meaning. In both
of the second set of examples (those demonstrating relatedness to DHS), the
financial arrangement in fact involves the furnishing of, or referrals for, DHS by the
physician receiving the compensation. (In the case of the heart valve, it is likely the
physician selling it to the hospital would be using it to implant in his patients.) By
contrast, in the first set of examples, the financial relationship, although indirectly
related to the furnishing of DHS by the hospital, does not implicate the furnishing
or referral of DHS by the compensated physician. Thus, we understand that where
the arrangement involves services which are of an administrative nature (including
general clinical oversight activities), but do not implicate the physician's own
referrals or provision of DHS, this exception would apply.
B.
Non-Monetary Compensation up to $300
The Proposed Rule included an exception for "De minimis
compensation." The Final Rule modified the requirements of that provision and
renamed it as indicated above. 14/ This provision (as revised in the Final Rule)
creates an exception for compensation from an entity in the form of items or
services (not including cash or cash equivalents) that does not exceed an aggregate
of $300 per year, if all of the following conditions are met:
1.
The compensation is not determined in any manner that
takes into account the volume or value of referrals or
other business generated by the referring physician.
2.
The compensation may not be solicited by the physician or
the physician's practice (including employees and staff
members).
3.
The compensation arrangement does not violate the
Federal anti-kickback statute.
14/
42 C.F.R. § 411.357(k). Among other things, the Final Rule eliminates a $50 per gift limit
that would have been imposed by the Proposed Rule.
-5-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
You provide additional guidance regarding this exception in the
preamble to the Final Rule. First, you state that this exception only protects gifts to
individual physicians, not to groups of physicians. "We caution . . . that the
exception will not apply to gifts, such as holiday parties or office equipment or
supplies, that are valued at not more than $300 per physician in the group, but are,
in effect, given or used as a group gift." 15/ Also, the "gift" must be truly that – a
voluntary transfer made without consideration or compensation expected or
received in return. Finally, the preamble addresses the relationship between this
exception and the other exception discussed above (remuneration from a hospital to
physicians unrelated to the provision of designated health services). You state that
these exceptions "are totally separate exceptions with separate criteria. The
determinations as to which of these exceptions, if any, is applicable depends on the
facts and circumstances of the case involved." 16/
As discussed in Section I above, our primary goal is to confirm our
understandings about the facts and circumstances under which each of these two
exceptions would and would not apply.
III.
Analysis
Below we discuss several examples of typical hospital-physician
activities and the potentially applicable Stark Law exceptions.
A.
Meetings to Discuss Hospital-Related Issues
Several of the examples are similar because they involve businessrelated meetings with physicians. These examples, which we discuss below as a
group, include the following:
1.
Hospital pays for travel, lodging and meal expenses for its
board members, including physician board members, to
participate in a board retreat.
15/
66 Fed. Reg. 855, 921 (Jan. 4, 2001).
16/
66 Fed. Reg. at 922.
-6-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
2.
Hospital administrator meets with a physician to discuss
hospital matters, and the meeting occurs at a restaurant;
administrator pays for the meal.
3.
Hospital administrator meets with a physician to discuss
issues relating to the physician's medical directorship,
and the meeting occurs at a restaurant; administrator
pays for the meal.
4.
Hospital administrator pays for dinner at a restaurant for
Physicians A and B. Physician A is being recruited to be
on staff at the hospital, and Physician B, who is already
on the medical staff at the hospital, was asked to help
with the recruitment efforts.
5.
Hospital provides dinners at monthly hospital executive
committee meetings.
First, we note that the personal services exception likely could apply to
at least two of these examples. Specifically, the meetings with medical directors
and executive committee members (#3 and 5) would seem to involve arrangements
for the provision of ongoing services that could be structured to satisfy the
requirements of that exception. The personal services exception requires, among
other things, a written contract with a term of at least one year and compensation
that is set in advance, does not exceed fair market value, and does not reflect the
value of volume of the physician’s referrals. Arrangements for these types of
services often are, or easily can be, memorialized in written agreements anyway,
and it would be reasonable to include as compensation a certain number of meals
during business-related meetings.
With regard to the three other examples of activities (#1, 2, and 4), we
believe that the exception for remuneration from a hospital to physicians unrelated
to the provision of DHS should apply. 17/ While this exception is broadly worded
17/
We note, however, that if the meeting between the administrator and physician described in
example 2 relates to the physician's furnishing or referral of DHS (which often will be the case), then
this exception would not apply and the arrangement would need to be treated similarly to the
activities described in Section III.C below.
-7-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
with respect to the types of compensation relationships it covers, its application is
limited to physician relationships with hospitals, and not other types of providers.
Thus, in enacting this exception, it appears that Congress implicitly recognized that
hospitals and physicians share a special, multi-dimensional relationship,
presumably based upon the need for an integration of their efforts in the care of
patients. 18/ The activities listed above in examples 1, 2, and 4 each appear to
relate to joint efforts between a hospital and physicians regarding hospital-related
business. These efforts may require or be facilitated by meetings with attendant
expenses, such as meals, which it is reasonable for the hospital to cover, assuming
they are not excessive.
A relevant analogy is one of the examples you included in the preamble
to the Proposed Rule. As described earlier in this memorandum, you stated that
providing general utilization review or administrative services to a hospital is
"unrelated" to the furnishing of DHS. 19/ The activities described in examples 1, 2,
and 4 above are similar. They involve services which benefit the hospital, but do
not involve the provision or referral of DHS. Moreover, consistent with the
requirement set forth in the Proposed Rule, the remuneration involved does not in
any way reflect the volume or value of referrals. We therefore believe that these
activities appropriately fit within this exception.
B.
Hospital Celebratory Functions
The activities below include certain holiday season events, as well as
events recognizing hospital achievements to which physicians are invited.
1.
Hospital hosts a holiday party at a local restaurant and
invites its medical staff and their spouses. The party
includes dinner and musical entertainment. The total
cost per person is $100.
18/
CMS also recognized this relationship in its creation of a regulatory exception for incidental
medical staff benefits (42 C.F.R. § 411.357(m); 66 Fed. Reg. at 920).
19/
63 Fed. Reg. at 1702.
-8-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
Assuming that all members of the medical staff are invited to the party
(i.e., guests are not selected on the basis of their referrals), this activity should fit
within the exception for remuneration unrelated to DHS. The party does not in any
way involve DHS, and the remuneration does not reflect the volume or value of
referrals if all members of the medical staff are invited. Moreover, a holiday party
attended by both hospital and medical staff is not simply a gift. Rather, it is an
event intended to recognize and solidify the joint hospital-physician enterprise in
the delivery of patient care. For this reason, it is clear that the physicians
contribute to this function by attending it.
2.
Hospital annually recognizes cardiac surgeons when
annual mortality data is released. Hospital normally
presents very well in mortality data. A special dinner is
hosted each year for physicians and their spouses.
Estimated cost per person is $125.
3.
Hospital hosts a dinner at a restaurant or administrator's
home to celebrate milestone for the hospital such as the
end of a project or the launch of a new service and
includes physicians and family members.
These examples also involve an event which is intended to recognize
the effective working relationship between a hospital and its physicians. In these
examples, although the remuneration would not appear to reflect the volume or
value of referrals (assuming that all cardiac surgeons, department members, or
other relevant physicians are invited), the event is clearly connected to inpatient or
outpatient hospital services (DHS). Therefore, these activities are different from
example 1 above, which involved a holiday party unrelated to DHS. As a result, the
exception most applicable to events like these (which specifically recognize certain
hospital departments or services) is the exception for non-monetary compensation
up to $300.
C.
Other Entertainment and Gifts
1.
Hospital sponsors a team in a golf tournament benefiting
the local United Way. Sponsorship costs $1000. Stated
value of green fee and associated costs is $100 per person.
CEO invites three physicians to join him on team.
-9-
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
2.
Hospital provides sporting event tickets for physicians.
3.
Hospital provides holiday gift baskets for physicians.
4.
Hospital sends flowers to a member of the medical staff or
family member who is hospitalized, or a gift to recognize a
birthday or other family occasion.
Unlike some of the other activities above, these activities appear to be
purely social activities, not involving a discussion of business or celebration of
hospital-physician joint efforts. Thus, although the remuneration is not on its face
related to DHS, the fact that there is no consideration or contribution by the
physicians suggests that these activities are properly viewed as gifts. Therefore,
the exception for non-monetary compensation up to $300 probably is the more
pertinent one for these activities. Further, even if the activities involving a golf
tournament and a sporting event (#1 and 2) are intended to facilitate discussion of
hospital business, the likelihood is that this would focus on DHS performed or
referred by the physicians. Under such circumstances, the exception for
remuneration unrelated to DHS clearly would be inapplicable. 20/
D.
Other Hospital – Medical Staff Arrangements
1.
Hospital pays for physicians' CME program costs.
The exception for non-monetary compensation up to $300 is likely to be
the only exception that applies to this activity, unless the payment is provided
pursuant to a written contract for services fitting within the personal services
exception. Payment for CME unrelated to DHS is simply a gift to the physician;
however, if the program relates to DHS, it will not fit the exception for unrelated
remuneration. We also note that this activity is different than most of the others in
20/
Moreover, for certain of these activities (including the golf tournament and the sporting
event tickets), the compensation may be deemed excessive, which is another reason why the
exception for remuneration unrelated to DHS would not apply. In the discussion about this
exception in the Proposed Rule, you cautioned hospitals about paying remuneration that is
"inordinately high," even if the remuneration is supposedly "unrelated" to DHS (63 Fed. Reg. at
1702).
- 10 -
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
that the remuneration in this case eliminates an expense that the physicians
otherwise likely would incur themselves.
2.
Pursuant to a well-defined policy, Hospital offers
professional courtesy discounts to any physician who
receives medical services at the hospital. The discount in
the particular instance is $750.
This activity also eliminates a substantial expense that physicians
would otherwise incur, and it does not reflect joint efforts in the hospital-physician
enterprise. In fact, in this activity, the hospital and the physician are not operating
as partners in the delivery of health care, but rather as provider and patient. To
the extent this policy provides remuneration in excess of $300, there probably is not
an exception that clearly would protect it. In the Final Rule you specifically
solicited comments on the issue of professional courtesy discounts for a possible new
exception. You stated that the agency will address the matter further in Phase II of
the Final Rule. 21/ Because the issue of professional courtesy discounts is likely to
cause significant confusion among hospitals, we urge you to issue interim guidance
well in advance of release of the Phase II Final rule.
E.
Activities Involving Personal Relationships
These activities arise generally out of friendship or personal
relationships between hospital administrators and physicians.
1.
Hospital administrator, who has become friends with a
physician on the medical staff, socializes with physician
and picks up expenses out of own pocket.
The Stark Law applies only when a physician has a financial
relationship with an entity such as a hospital. Therefore, to the extent that this
activity is paid for personally by a hospital administrator, it should not trigger
Stark Law concerns. In order to qualify as a personal expense, the administrator
should not include this item as a business expense for tax purposes and should not
charge the hospital or otherwise receive reimbursement from the hospital to cover
this expense.
21/
66 Fed. Reg. at 922.
- 11 -
This memo was submitted by AHA to the Centers for Medicare & Medicaid Services as a request
for confirmation of the guidance contained herein and does not incorporate any views the agency
may have on the Stark Law issues raised here. Also, the memo does not analyze the issues raised
here under the Anti-Kickback Law or other federal laws.
2.
Referring physician who also is hospital CEO's spouse
attends certain hospital social events in capacity as CEO's
spouse.
This activity should fit within the exception for remuneration
unrelated to DHS, since the CEO's spouse attends these events in this capacity, not
as a medical staff physician. Thus, consistent with the requirements of that
exception, the remuneration does not involve DHS and does not reflect the volume
or value of the physician's referrals.
VI.
Conclusion
The activities discussed herein represent very common examples of
typical hospital-physician activities. The Stark Law implications of these types of
activities are of great concern to our members. As discussed above, we ask you to
confirm certain understandings: 1) that these activities constitute "compensation
arrangements" under the Stark Law, necessitating the use of a relevant exception if
the physicians are to refer Medicare or Medicaid patients for DHS, and 2) that our
analysis of the applicable exceptions (discussed in Sections II and III above) is
consistent with the views of CMS.
*
*
*
*
Thank you for your consideration of these issues.
- 12 -