Final physician self-referral rules better than expected

Government issues long-awaited Stark II final regulations, with more to come "shortly."

By Tanya Albert, amednews staff. Jan. 22, 2001.

Doctors have about a year to make sure their business practices are in line with physician self-referral law final rules that aim to prevent doctors from sending Medicare patients for medical services to profit.

The law says physicians can't refer patients to places where a doctor or a member of his or her family has a financial interest. But the final rules, issued Jan. 4, create exceptions.

Stark II and you
History of the Stark law

Legal experts say the good news is that the rules appear to be much easier for doctors to comply with than the 1998 proposed regulations.

"The proposed rules three years ago were prepared in a vacuum," said Jeremy Miller, president of Miller Health Law Group in Los Angeles.

The new rules define a group practice in a way that will not force most physicians to reorganize to comply. They also do a better job of defining the exact services to which the law applies, and they are more accepting of referral arrangements if physicians can prove they are charging "fair market value" for a service.

"We didn't get everything we asked for," said health care lawyer Bill Maruca, a director with Kabala & Geeseman in Pittsburgh and an American Health Lawyers Assn. vice chair on fraud and abuse. "But it looks like it's going to be easier to achieve compliance."

Congress passed the first physician self-referral law, named Stark I after its sponsor, Rep. Fortney "Pete" Stark (D, Calif.), in 1989. It dealt with labs.

The latest rules pertain to the Stark II law, passed in 1993. Stark II expanded self-referral laws to 10 other services: physical therapy; occupational therapy; radiology; home health services; outpatient prescription drugs; radiation therapy services and supplies; durable medical equipment and supplies; inpatient and outpatient services; parenteral and enteral nutrients; and prosthetics, orthotics, and prosthetic devices and supplies.

The final Stark II rules could still be fine-tuned. The public has 90 days to comment on this first phase of the final rules because they are so different from the 1998 proposal. Health and Human Services made extensive changes based on nearly 13,000 comments from medical societies, health care attorneys, doctors and others.

The new rules deal with only parts of the Stark II law. They are: interpretation of the basic self-referral prohibition, the global exceptions, statutory definitions and exceptions for selected compensation arrangements.

HHS said the second phase of the final rule would be out "shortly." That will settle the remaining issues: ownership and investment interest exceptions, the remaining compensation arrangement exceptions, and reporting requirements and exceptions.

Meeting federal standards

In general, physicians who want to know if they are complying with the new Stark rules should look at compensation arrangements and make sure they can make a reasonable case that the arrangements reflect fair market value.

But even if the answer is yes, physicians should scrutinize arrangements closely because boiling down the 600-plus-pages of regulations into a list of "rules to follow" isn't an easy task. Individual physicians and group physicians may have different quirks in their practices that may or may not comply with the rules. Health care lawyers are still interpreting what the regulations will mean for physicians.

"We have a little time," Maruca said. "Contact your attorney or an attorney who knows the law and do a good review of transactions to see how the law applies."

Some of the rules' highlights are:

The definition of who needs to be in the building when services are provided, commonly called "direct supervision," is easier to meet. A physician does not need to be present when the referred service is performed.
Physicians can refer patients to services in the same building. For example, a physician would be able to send a patient for an x-ray at a machine owned by doctors elsewhere in the building. The doctors can be part of a group or independent doctors sharing the same building as long as they meet other requirements dealing with location, supervision and billing. Also, group physicians are allowed to have a service off-site at a centralized location as long as they are the only group using that facility and it is part of the practice. But independent physicians are not allowed to share space in a centralized location where they don't have an office. Essentially, HCFA is looking to see if a service is integral to the practice, Maruca said.
A separate service personally performed by a physician is not a referral. But if a group practice physician requests a service from another group practice member, it is considered a referral in some cases. "It's important to realize that it means performing the service yourself," said Bob Homchick, a partner at Davis Wright Tremaine's Seattle office and an AHLA vice chair on fraud and abuse.
The Health Care Financing Administration uses Current Procedural Terminology codes to establish a "bright line" that defines what services fall under the regulations. Lithotripsy services, when billed by a hospital, are included, despite comments that they shouldn't be.
The definition of a group practice is getting easier to meet. It is a practice in which group members spend 75% of their time seeing patients. Groups won't have to count contractors who may be in an office only once a week to perform a specific service.
Group practices can pay member physicians and independent contractors who qualify as "physicians in the group" productivity bonuses based directly on individual productivity. But they cannot pay bonuses based directly on referrals of designated health services that someone else performs.
Time-based and unit-of-service-based payment for leased equipment is allowed, even if the physician receiving the payment generated it from referrals for designated health services. But the payment has to be at fair market value, and it cannot change during the lease term in any way that takes into account referrals for designated health services.

HCFA will look at the price a hospital would pay to rent the equipment from a company without any physician ownership or investment when it's determining fair market value.

Phase I of the rules "should not require substantial changes in delivery arrangements, although they may affect the referring physician's or group practice's ability to bill for the care," HCFA wrote in its final rule.

Violating the Stark laws can cost up to $15,000 per offense and could lead to an ouster from Medicare and Medicaid. Also, the government won't pay for any medical services done by someone violating the Stark laws.

Stark called the final rules an improvement over earlier ones. "They protect patients and taxpayers while greatly reducing the hassle to providers," he said in a statement. "...[E]thical providers will have no trouble complying with these new regulations."

The rule is available on the HCFA Physicians' Referrals page (http://www.hcfa.gov/regs/physicianreferral/default.htm).

ADDITIONAL INFORMATION:

Stark II and you

What is Stark II?

The self-referral law says doctors can't refer Medicare patients for services, such as physical therapy and radiology, at places where the physician or an immediate family member has a financial interest. Final regulations issued this month create some exceptions.

Are you meeting federal standards?

It will be easier to comply with these regulations than the proposed ones issued in 1998. The government allows fair-market-value exceptions and redefines "group practice." But the final rules are still complicated. Physicians concerned about compliance should consult an attorney familiar with the law.

What to watch for

Physicians who aren't part of a group can't share an off-site service. For example, five independent doctors can't buy an x-ray machine together and each have a designated day to use it.
A physician who has a financial interest in a particular service cannot have a subordinate make the referral.
Although doctors can now sell wheelchairs, crutches and canes in their offices, there are limitations on the equipment they can provide.

History of the Stark law

1988 Government study discovers Medicare patients of physicians who own or invest in independent clinical laboratories got about 45% more lab services than average.
1989 Physician self-referral law, named Stark after its sponsor, is passed. It's illegal for physicians to refer a Medicare or Medicaid patient to a clinical laboratory in which the doctor or an immediate family member has a financial stake.
1993 Congress passes Stark II, making self-referral illegal in 10 other areas, including physical therapy services, outpatient prescription drugs, and radiology services and supplies.
1995 The Health Care Financing Administration in August publishes the final rule implementing the original law, now called Stark I.
1998 HCFA publishes proposed rule on Stark II in January.
2001 HCFA in January publishes part one of the interim final Stark II rule, with a 90-day comment period. Part two is yet to come.
2002 Final Stark II rules to become effective.