In our last health care alert on the Stark law, we addressed the revisions to the federal self-referral regulations under the 2009 Hospital Inpatient Prospective Payment Systems Final Rule (2009 IPPS) that went into effect on October 1, 2008. In this alert, the second of two parts, we discuss changes under the 2009 IPPS that will go into effect on October 1, 2009.
In the 2009 IPPS, the Centers for Medicare and Medicaid Services (CMS) revised the office space, equipment lease, fair market value and indirect compensation arrangement exceptions. These revisions will prohibit the use of a percentage-based compensation formula, or a compensation formula based on a per unit of service (per click) charge to the extent it reflects services provided to patients referred between the parties, to determine rental charges for office space and equipment leasing arrangements. The prohibition applies regardless of whether the referring physician is the lessor and the designated health services ("DHS") provider is the lessee or vice versa. Thus, by October 1, 2009, any relationships for equipment or space covered by Stark and based on these compensation methodologies must be restructured or terminated. Further, although the prohibition does not apply outside of office space and equipment leasing arrangements, CMS makes clear in its commentary that its limited application should not be viewed as an endorsement of these compensation methodologies in the context of other exceptions. Although CMS begrudgingly acknowledged time-based rental arrangements, such as block leases, could be structured to meet the requirements of the office space and equipment lease exceptions, CMS further expressed the view that "on demand" rental arrangements are basically the same as per use arrangements, which will be prohibited. In CMS's view, percentage based and per unit of service-based compensation arrangements create incentives for overutilization, as a physician's payment increases with the volume of referrals. With respect to block leases, CMS expresses concern that leases for small blocks of time may be disguised per unit of service arrangements, and leases for extended blocks of time beyond that needed by the lessee may mask compensation for referrals.
These regulations will also have the effect of eliminating many "under arrangements" joint ventures between hospitals and physicians, and preventing such arrangements in the future. An example would be an arrangement involving a contract between a hospital and an under arrangements entity such as a physician or physician group wherein the under arrangements entity provides services and charges a hospital a set fee, and the hospital in turn makes a claim for payment to a third party payor such as Medicare or Medicaid. Under the new regulations, CMS redefined the term "entity" under Stark to include not only the entity that submits claims to Medicare, but also to include the entity that performs DHS. Thus, when the new regulations take effect, both the joint venture and the hospital will be considered DHS entities and physician owners of, or investors in, such joint ventures will be required to meet an applicable Stark exception. The rural provider exception may apply to some joint ventures, but all other such joint ventures will likely be unable to meet an applicable exception for ownership or investment interests. Accordingly, these types of joint ventures will need to be restructured or terminated by October 1, 2009.
In addition to the above, CMS is apparently continuing with its Disclosure of Financial Relationships Report (DFRR) efforts. Hospitals selected under the DFRR (maybe as many as 500) will be required to complete a survey reporting form setting forth comprehensive information regarding financial arrangements with referring physicians. Responses must be submitted within 60 days of the request, and CMS can impose a penalty of $10,000 per day for responses that are not submitted on time. CMS estimates that it will cost each facility $4,080 and 100 hours (by one employee) to complete the DFRR. Many in the industry have raised concerns that CMS has significantly underestimated the time and resources that will be necessary to complete the DFRR. In January 2009, the American Hospital Association urged the Office of Management and Budget to deny CMS authorization to implement the DFRR for failing to meet the "least burdensome necessary" requirement of the Paperwork Reduction Act. Regardless of OMB's decision, hospitals must be diligent in properly documenting and adhering to an applicable Stark exception, if required, for their financial relationships, and supporting documentation should be maintained in a manner that ensures that it is complete and can be readily compiled in order to respond to a CMS audit or inquiry.
Of course, the Stark law is in addition to the anti-kickback statute, so compliance with both is essential. Keep in mind that the Office of Inspector General has taken the position in the anti-kickback context that one illegal purpose could taint even a fair market payment. Accordingly, an arrangement that meets a Stark exception could still be challenged by the enforcement authorities under the anti-kickback statute if an improper purpose is shown. Thus, providers should be careful to document the bona fides of any arrangement, apart from referrals.
Walter Williams
P.O. Box 2190
Clarksburg, WV 26302-2190
Phone (304) 624-8000
Fax (304) 624-8183
walter.williams@steptoe-johnson.com
Charles Sinsel
P.O. Box 2190
Clarksburg, WV 26302-2190
Phone (304) 624-8000
Fax (304) 624-8183
charles.sinsel@steptoe-johnson.com
This alert is a periodic publication of Steptoe & Johnson PLLC and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances. The content is intended for general information purposes only, and you are urged to consult your own lawyer concerning your own situation and any specific legal questions that you may have. For further information about these contents, please contact Steptoe & Johnson PLLC. Charles Sinsel & Walter Williams of Steptoe & Johnson are the lawyers responsible for the content of this alert.