The Big Three on Nashville Medical News

The Big Three

By: SHARON H. FITZGERALD

Another year... and another round of changes to the Stark Law are in the offing. The federal physician self-referral regulations — commonly known as Stark — impose complex restrictions on the financial relationships between referring physicians and entities that provide "designated health services" (DHS) to Medicare recipients. Because of changes laid out in the final rule, issued on July 31, 2008, some relationships will need to be restructured or unwound to comply, said Mark Lewis, an attorney in the healthcare practice of Nashville-based Boult, Cummings, Conners & Berry. Lewis cited what he calls "the big three" changes sure to keep providers and their counsel hopping. All three are effective on Oct. 1, 2009.

Per-Click Lease Payments

Keeping in mind that Stark's objective is to drive down healthcare costs by reducing or eliminating a physician's incentive to overuse services in which he or she has a financial interest, CMS has actually stated before that per-click lease arrangements are "inherently suspect." Now CMS is cracking down, prohibiting the practice.

In short, a per-click arrangement means the physician has an ownership interest in a piece of equipment, which is leased to a hospital. The hospital is charged for each use – or "per click."

Lewis used as an example a physician-owned company that leases lithotripters to hospitals. "CMS would take the position that once this prohibition against per-click rental charges comes into effect, the lithotripter company would have to just charge a flat fee – something that's not based on every time you use the machine you get a payment," he said, adding, "I think the flat fee shifts the risk around a little bit. With the flat fee, the physician doesn't have the upside opportunity but doesn't maybe have as much of the downside risk."

The restriction on per-click charges applies across the board, whether the lessor is a physician or a company in which the physician has an ownership or investment interest. In fact, the prohibition also applies even if the physician is the lessee, as in when a DHS entity referring patients to a physician leases equipment or space to the physician and then refers patients to that doctor.

Percentage-Based Compensation Arrangements

CMS has also targeted the use of percentage-based compensation other than for physician services that are personally performed. While space and equipment leases often use a percentage-based formula to determine rental charges, the final rule prohibits a percentage formula based on revenue raised, earned, billed or collected.

Using Lewis' lithotripter example, "You can't say that the lithotripsy company gets 10 percent of revenues the hospital earns from the lithotripter," he explained.

Under-Arrangements Services

Currently, the entity providing a designated health service has always been deemed to be the entity that's billing for the service. In an under-arrangements agreement, a physician or physician organization will provide services to the hospital, and the hospital bills for those services as a portion of its Medicare Part A payment. The hospital is the DHS entity.

As of Oct. 1, 2009, that will change. "The new under-arrangements rule potentially includes among the DHS entities not only the hospital but the organization that is providing services to the hospital under this arrangement," Lewis explained. "That creates a problem under Stark because there are very few ownership-interest exceptions that are going to protect the physicians who have an ownership interest in the entity providing services to the hospital." He added that, while there will be exceptions for entities in rural areas, it will be tough for most other doctors to meet an ownership exception.

Further muddying the waters is the fact that CMS doesn't offer a clear definition of "perform," which leaves the scope of the prohibition somewhat up in the air.

"How do you tell when an entity is performing the service?" Lewis asked. "In other words, when an organization leases equipment to the hospital, that shouldn't make it the performing entity. But now let's say it leases equipment and some personnel. Does that make it the performing entity? Well, not sure. What if it leases equipment, personnel and space? At that point, well, if it's providing everything, I guess it's the performing entity. It's just not clear where you draw the line. Instead, CMS just said 'perform' has its common meeting. Well, that's not particularly helpful."

Finally, Lewis added, CMS has scaled back its proposed stand-in the-shoes rule, which was introduced last spring. "In the final rule, CMS provided that only owner physicians are required to stand in the shoes of their physician organizations. On the other hand, if you're just an employee, then the group can choose to either treat you as a stand-in-the-shoes physician or not, whatever works out best for the group," he said.