New Stark regulations face another setback

Final rules dealing with physician practices, ancillary services, and other issues not likely before Labor Day

Health care providers anticipating the Health Care Financing Administration’s (HCFA) final regulations on self-referral likely have another long hot summer ahead of them. The unofficial word from government sources is that it will be the end of the summer at the earliest before the so-called "Stark II" regulations — seven years in the making — finally emerge from the agency’s bureaucracy.

In 1989, Congress passed the so-called "Stark I" regulation, named for the law’s main sponsor, Rep. Pete Stark (D-CA), which sought to block physicians from inappropriately referring patients to facilities in which they had a financial interest. Four years later, "Stark II" extended those prohibitions to hospitals, home health agencies, and other providers, but HCFA never turned that law into regulations to guide providers.

Health care attorney Sandy Teplitzky of the Baltimore-based firm Ober Kaler, says there are four overriding areas where health care providers are still in the dark. "The first area where there is a lot of concern relates to the definition of a group practice and what was viewed as a very restrictive definition in the proposed regulations," he asserts.

Bob Homchick, a health care attorney with Davis Wright Tremain in Seattle says critical questions in this area include what it takes for a physician practice to qualify as a group practice and how multisite offices must be structured in terms of compensation. Other unanswered questions include how the group should handle overhead allocations and internal costs, he adds.

According to Teplitzky, a second key area deals with in-office ancillary services. Specifically, he says there is still confusion about what "directly supervised" means as it relates to the in-office services physicians are allowed to perform.

One issue that may be resolved by the final regulations is whether lithotripsy, a treatment of the urinary tract, will be considered a designated health service when provided as an outpatient hospital service. Currently, whenever anything is provided as an outpatient hospital service, regardless of the arrangement, the outpatient hospital service is considered a designated health service.

Homchick says that is particularly relevant for lithotripsy, because currently the only way you can bill for lithotripsy is as an outpatient hospital service. "You can’t bill it for a freestanding ambulatory surgical center," he explains.

A third major concern is the fair-market value exception that was not in the statute, but was created by the proposed regulations, says Teplitzky.

Mary Grealy, president of the Washington, DC-based Healthcare Leadership Council, says the Department of Health & Human Services’ Office of Inspector General’s new interest in hospitals that sell physician practices for far less than they paid for them raises potential kickback concerns.

Homchick agrees that the recent pattern of hospital divestiture has potential Stark implications. "All these deals are unique," he says. But a number of them were structured in such a way that the physicians were employees of the hospital and the group practice exception was not required.

However, when those physician practice groups spin off and form new groups, they are no longer employees who fit within the exception and instead require the broader group practice exception. "Some of those deals will involve doctors moving into an equity position with respect to the practice," explains Homchick. "If the spin-off or dissolution is a return to physicians owning and operating their own groups, then those groups will likely need to qualify and start new practices."

Teplitzky says the fourth issue is simply what the current delay means for implementation of the statute. "There is still a question about whether the statute was self-enforcing or whether it can’t be enforced until the regulations are out," he argues. That includes whether or not HCFA is going to take aggressive action to enforce the law even before implementing regulations.

Last year, HCFA deputy director Kathleen Buto promised House Ways & Means Health Subcommittee Chairman Rep. Bill Thomas (R-CA) the regulations would be completed this year. Last year, Thomas introduced legislation that would strip the compensation portion of Stark, which is widely considered the most problematic portion of the law.

That bill is busy collecting dust as Congress grapples with how to handle a Medicare prescription drug benefit. However, if the Republicans hold their majority in the House this November, Thomas could find himself chairman of the full Ways & Means Committee next year. Regardless of whether he takes over the full committee, a Ways & Means staffer predicted this week that it is only a matter of time before Thomas finds a vehicle to push his bill. "It is still on his agenda, and we may hear more about it before the end of the year," he asserts.