Understanding the maze of Stark II regulations

New rules still have some scratching their heads

Some of the more complex elements of a series of regulations proposed by HCFA are the so-called Stark II anti-kickback rules, intended to prevent improper referrals and business dealings between physicians, their relatives, and medical-related ventures they own. Since the standards were issued last January, many group practices have been scratching their collective heads as to how the new regulations apply to them. Here are some key areas covered by the regulations that your practice needs to be concerned about:

1. Referrals by hospital physicians to hospital-owned home health agencies are forbidden if the physician has any partial ownership.

"Maybe the most startling departure from prior Stark understandings comes in the area of hospital-based home health services," says Edward Kornreich, JD, a health care specialist in the New York City law offices of Proskauer Rose.

As a result of the fallout from the Columbia/ HCA investigations, "HCFA has made a frontal attack on referrals to hospitals and home health agencies by physicians who also own an interest in the hospital," says Ellen Moskowitz, JD, another Proskauer health care attorney.

Generally, under the Stark II rules, physicians with an ownership interest in a hospital cannot refer patients to a hospital-based home health agency if they have any financial relationship (through ownership in the hospital or otherwise) with the home health agency.

"This extends even to hospitals that operate home health agencies as divisions of the hospital corporation, and not as a separately incorporated entity," says Kornreich.

As a result, Proskauer's position is that many physicians and hospitals may need to consider spinning off their home care services operations to avoid a possible Stark violation.

2. A group's legal structure is important. One thing the regulations do is clarify that a medical group must be organized as a single legal entity. But it may not be an aggregation of individual docs holding themselves out to the public as a group practice, says W. Reece Hirsch, JD, a partner with the San Francisco law firm of Davis Wright Treemain.

"This definition of a group practice is one of the most important elements in the Stark law, since it serves as the basis for the broad use of the in-office ancillary service exception for large group practices," notes Moskowitz.

Know the 75% rule

There still are questions regarding whether this new interpretation means a medical school faculty practice can exist as a division of a hospital without being separately incorporated and still be considered a group practice, says Moskowitz.

However, if faculty practice physicians are employees of the hospital - and there is no separately incorporated faculty practice plan - they probably fall under the Stark employee exception, Moskowitz says.

In another change in the Stark regulations, physicians who are individually incorporated as professional corporations and provide services to a group's patients may have their wholly owned professional corporation own an interest in the group.

3. Substantially all of the group's patient services must be furnished by physicians who are members of the group. Under Stark regulations, at least 75% of the patient care services provided by the group's members must be furnished through the group practice. These services must be billed under a billing number assigned to the group. For purposes of this rule, HCFA assumes group physicians work a standard 40-hour week.

However, "in a notable change from the Stark I regulations, HCFA has also defined physician/ patient encounters that count towards the 75% requirement to exclude independent contractors, who, according to HCFA, are no longer to be considered members of a group practice," says Kornreich.

As a result, an independent contractor physician can no longer supervise the provision of designated health services under the in-office ancillary services exception. Group practices that wish to use the services of specialists to supervise in-office ancillary services will have to employ such physicians in order to meet the supervision requirement.

4. Physicians considered members of your group must meet the "full range of services" requirement. Under the Stark law, to be a group member, a physician also must furnish the group with "substantially the full range of services which the physician routinely provides, including medical care, consultation, diagnosis, or treatment, through the joint use of shared office space, facilities, equipment and personnel."

Yet, the rule also says a physician with an "ordinary schedule" or "practice habits" that segment his or her practice (for example, providing dermatology services to one group one day a week and another kind of service to another kind of group on a different day) also meets the "full range" requirement.

5. Watch how your group's billing number is used. A group can have more than one billing number as long as the billing number has been assigned to the group. A billing agent or management services organization can bill using a billing number assigned to a group practice, but only if certain requirements are met. Most notably, a billing agent's compensation agreement "cannot in any way be tied to the amounts billed or collected," says Kornreich.

6. Watch how you distribute group costs and revenue. Stark requires groups to have a method for distributing group costs and revenue that has been "previously determined." HCFA now defines "previously determined" as "determined prior to the time period the group has earned the income or incurred the cost." Group practice physician payments may be made based on services personally rendered, but not on referrals. The same applies to any physician incentive payment plans.

"Stark II clarifies that a physician cannot receive compensation for their patient referrals for designated health services," says Hirsch, "even if the physician personally performs or supervises the services."

7. A practice must distribute its overhead, expenses, and income according to methods that would be used by a unified business. "This means the group must have a centralized decision-making process, pool of expense, and revenues," says Kornreich. "It also means its revenue distribution system cannot be based on each satellite office operating as if it were a separate enterprise."

8. Certain productivity bonuses to physicians are OK, and others are not. Stark's group practice definition provides that members of the group cannot directly or indirectly receive compensation based on the volume or value of their own referrals. However, physicians are allowed to receive a share of overall profits of the group or a productivity bonus.

"Obviously, when a physician makes a referral for an ancillary service that he or she provides, there is a potential conflict between these two provisions," says Moskowitz.

However, while a group member's compensation cannot be directly related to revenues generated by the member's referrals - even if he or she personally provided or supervised the referred service - the referring physician still can share in overall group practice profits related to these services.