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CMS recently published the FY 2009 Inpatient Prospective Payment System Final Rule (the “2009 IPPS Rule”), which includes significant changes and clarifications to the federal Stark law. Set forth below is a brief summary of some of the notable changes and clarifications.
Stand in the Shoes
The 2009 IPPS Rule refines the “stand in the shoes” concept, introduced by CMS in the Phase III Stark regulations. Under the revised rule, which becomes effective on October 1, 2008, a physician is deemed to stand in the shoes of his physician organization if he has an ownership or investment interest in the physician organization. Thus, the physician’s financial interest must satisfy a direct exception under Stark.
Excepted from the rule are physicians with only a titular ownership interest (i.e., an interest that does not give the physician any financial benefits, such as, for example, with captive or friendly PCs) – these physicians are deemed not to stand in the shoes of their physician organizations.
Physicians who have only a compensation arrangement with a physician organization (e.g., employees and independent contractors) are not required to stand in the shoes of their physician organization, but may elect to do so.
Definition of Designated Health Services (DHS) Entity and Impact on “Under Arrangements”
The 2009 IPPS Rule implements a major change to the definition of a DHS entity. Previously, only persons or entities that billed for DHS (such as hospitals and physician groups) were considered DHS entities. The revised definition now includes a person or entity that performs services that are billed as DHS. The revised definition potentially impacts providers who perform services for DHS entities on an “under arrangements” basis, but who do not bill Medicare/Medicaid for these services.
CMS fails to define what it means to “perform” a DHS service, instead instructing that the word is intended to have its common meaning. The new rule does, however, explain that an entity is not considered to “perform” DHS if that entity: (i) leases or sells space or equipment used for the performance of the service, (ii) furnishes supplies that are not separately billable but used in the performance of the service, or (iii) provides management, billing services, or personnel to the billing entity.
Although CMS refused to include a grandfather provision, it has delayed the effective date of this change until October 1, 2009 in order for many “under arrangement” transactions -- involving hospitals and management companies owned in part by physicians -- to be unwound and/or restructured to comply with the new definition.
Percentage-Based and Unit-Of-Service (“Per-Click”) Compensation
The 2009 IPPS Rule restricts both percentage based compensation and per-click compensation arrangements under Stark’s direct compensation exceptions (such as, the space and equipment lease exceptions), and the indirect compensation arrangements exception. Specifically, compensation under these exceptions can no longer be determined using a formula based on: (i) a “per-click” fee, to the extent the fee reflects services provided to patients referred between the parties; or (ii) a percentage of revenue, earned, billed, collected or otherwise attributable to the services performed or business generated between the parties.
The effective date for these provisions is also delayed until October 1, 2009.
Amendments To Leases and Personal Service Arrangements
In the Phase III Stark regulations, CMS stated that in order to meet the “set in advance” standard under Stark’s space and equipment lease exceptions and the personal services exception, amendments to the rent or compensation may only be accomplished by terminating the original agreement and entering into a new agreement, provided that the new agreement may not be entered into during the first year of the original term.
CMS has now modified its position so that amendments to the financial terms can be made during the term of the lease or agreement if: (i) all of the requirements of the exception are met, (ii) the amended financial terms are determined before the amendment is implemented, (iii) the amended financial terms do not take into account the volume or value of referrals or other business generated between the parties, and (iv) the amended financial terms remain in place for at least one year.
Alternative Method of Compliance – Signature Requirement
The new rule creates an alternate method for compliance if an arrangement meets all of the requirements of an exception except for the signature requirement. Specifically: (i) if the failure is inadvertent, the parties have a 90-day cure period from the date the arrangement becomes non-compliant, or (ii) if the failure is not inadvertent, the parties have a 30-day cure period from the date the arrangement becomes non-compliant.
Mandatory Disclosure of Financial Relationships
In September 2007, CMS announced that it was going to send a “Disclosure of Financial Relationships Report” (“DFRR”) form to 500 hospitals. In the 2009 IPPS Rule, CMS reaffirmed that it will be proceeding with this initiative. The DFRR form requires hospitals to set forth various information about their investment, ownership and compensation relationships with physicians. CMS will use the information to assess compliance with and to enforce the Stark law.
Hospitals that receive the DFRR form must complete the form within 60 days. Further, although hospitals who file late could face civil monetary penalties of up to $10,000 per day, CMS has indicated that it would not impose a penalty without first notifying the delinquent hospital. In addition, hospitals may, with good cause, obtain an extension of time to submit their information.
Other Changes/Clarifications
The 2009 IPPS Rule also amends the exception for obstetrical malpractice insurance subsidies by creating an alternative set of requirements which hospitals, FQHCs and rural health clinics may use.
CMS has also clarified when the period of disallowance (i.e., the period during which referrals are prohibited because of noncompliance with Stark) begins and ends.
Lastly, CMS has amended the definition of “ownership or investment interest” to exclude certain interests in retirement plans in order to close a perceived loophole that physicians could use retirement plans to invest in DHS entities to which they refer.
Practical Recommendations
Set forth below are some recommendations that may be helpful to ensure compliance with the newly amended Stark law:
1. Review All “Under Arrangements.” All existing “under arrangements” with entities owned in part by physicians should be reviewed to determine if they need to be re-structured or terminated under the revised definition of “DHS Entity.”
2. Review All Per-Click and Percentage- Based Leases and Agreements. All space and equipment rental arrangements and all indirect compensation arrangements that have a percentage-based or “per-click” compensation structure should be re-examined – these may need to be re-structured as, for example, fair market value fixed fee arrangements or the like. Alternatively, they may have to be terminated.
3. Be prepared to receive the DFRR. Even if your hospital is not included in the first wave of 500 hospitals to receive the form, you should be prepared for the next possible wave. CMS may, in the near future, broaden its initiative to include other hospitals.
Further, although CMS has announced that the DFRR would be used only as a one-time information collection effort, and that it is not, at this time, instituting a regular, ongoing reporting or disclosure process for hospitals, there has been increased Stark law enforcement by the government in recent years. As some of the changes in the 2009 IPPS Rule demonstrate, CMS may reverse itself on this issue as well in the near future.
In this respect, at a minimum, have an organized database or other centralized filing system in place which provides easy access to all relevant information pertaining to all of your hospital’s arrangements involving physicians. Any such organized database or compilation should provide easy access to the following:
• A listing of each physician arrangement by name of physician or physician group, or by hospital department;
• A current copy of each signed contract reflecting the arrangement;
• A copy of documentation supporting the fair market value of the arrangement (which could be a written report from an outside valuation consultant, or internally compiled written data, calculations, or otherwise); and
• The relevant Stark law exception for which the arrangement qualifies.
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© Copyright 2012 Sills Cummis & Gross P.C.About the Author
