Stricter Stark Enforcements

October 8, 2009

CMS has implemented changes to the rules that cover Medicare's hospital inpatient prospective payment system (IPPS) which will affect physician-hospital referrals and ancillary arrangements.

CMS has implemented changes to the rules that cover Medicare’s hospital inpatient prospective payment system (IPPS), which will affect physician-hospital referrals and ancillary arrangements that previously found safe harbor under Stark rules. (While the terminology used can be hard to digest, it is important that you become familiar with these terms as we will be hearing much more about them in the months ahead.) Over-utilization has been the driver behind making these changes, and as costs become the central issue in healthcare reform, we can expect further edits.

As a refresher, the Stark Law prohibits you from referring CMS (Medicare and Medicaid) patients to entities (hospitals, groups, individuals) with which you have a financial relationship for certain designated health services (clinical services) unless the relationship qualifies for an exception. The crux of the October 1 change hinges on the new definition of the term “entity” with regard to providing designated health services (or DHS). In plain English, an entity is usually the organization that bills for the service, and DHS is the clinical service provided to a patient. With the definition of an entity expanded to include the person or group that performed a service, rather than just who billed for the service, arrangements between hospitals (the biller) and physicians (the provider of service) lose exemption from safe harbor.

Prior to October 1, safe harbor meant that physician groups were free to have a financial relationship with hospitals for Stark purposes if they referred to the hospital for the same or other services “under arrangement” to a hospital, where the hospital billed Medicare for those services. Those arrangements were viewed as referrals to the hospital, but not to the physicians providing the services. Therefore, provided the physicians had no ownership in the hospital, the arrangement came under Stark law compensation exceptions. However, the final 2009 IPPS rule now considers that these arrangements create both a referral to the hospital and a referral to the group itself, thanks to the amendment of the definition of entity to include not just the billing entity (hospital), but also the entity that actually furnished the DHS (physicians) for which the hospital was billing.

This creates Stark compliance issues for hospital and physicians going forward. Stark is a strict-liability statute, meaning that violators will be penalized regardless of whether or not they meant to violate the statute. In other words, “I didn’t know” is not a defense.

So what does this mean to the average primary-care physician? Well, if you have an arrangement with a hospital whereby they are sending you patients for services, and those services are being billed by the hospital with a portion being paid back to you under arrangement, then you become both the entity and the one furnishing the DHS, which is a clear violation of the Stark law. So if you have not yet assessed whether or not any financial arrangements you have in place with other entities violate the law, you should do the following:

1. First, stop providing services that you think may be subject to these changes;

2. Next, talk to your attorney if you have one. If you don’t have an attorney, engage one to perform a review quickly; and

3. If you have an arrangement with a hospital, discuss it with the administrator without delay.

Right now, the only services that aren’t likely to violate the law are those that come under the in-office ancillary services exception, whereby CMS allows a group practice to refer to its own laboratory if certain criteria are met. But advanced diagnostic technology within physician offices is also being scrutinized and CMS is looking for comment on the current exception in order to revise it.

So what’s the outcome for your practice? If you have financial arrangements of this type, or even if you are receiving professional courtesy for some services, you’ll need to act fast to make sure you don’t violate the law. If you don’t have financial arrangements, the revised rules will limit doctors and hospitals in creating joint ventures around hospital initiatives, and may result in hospitals looking to either employ physicians directly or build out their own in-house facilities to meet the demand for services without penalty.

Susanne Madden is founder and CEO of The Verden Group, a consulting firm that helps physicians handle the complexity and volume of change in managed care today. She writes and speaks frequently on all aspects of managed care. She can be reached at madden@theverdengroup.com or by visiting www.theverdengroup.com.