HCFA outlines exceptions to final Stark II regulation

The prohibitions against health care provider self-referral, commonly referred to as Stark I and Stark II, are routinely attacked by critics for their complexity. In fact, there are so many exceptions to the law as written that many health care attorneys refer to it as "an exception statute."

Health Care Financing Administration (HCFA) insurance specialist Joanne Sinsheimer recently outlined the exceptions that are likely to be included in the final Stark II regulation — which may be published after Labor Day — at the American Health Lawyers Association’s conference in Washington, DC.

One area of much concern has been the "direct supervision" requirement included in the proposed Stark II regulations that HCFA published January 1988. Sinsheimer reports that HCFA received a flood of comments on its proposal to use the standard Medicare definition of "direct supervision," which means that a physician must be in the office when services are performed. "A lot of comments pointed out that for health and safety, this definition is certainly not needed, and Medicare already has coverage and payment regulations that set forth standards for physician supervision," Sinsheimer reports. She says the agency may be making changes in that area.

The exceptions for profits and productivity bonuses is another "big kicker," according to health care attorney Gregg Wallander of Indianapolis-based Hall Render. He notes that physicians cannot be paid directly or indirectly for the volume or value of referrals except for a share of overall profits or a productivity bonus based on services that are personally performed. Wallander says that issue frequently surfaces with multioffice and multispecialty physician groups.

Sinsheimer promises that the final rule will be "less intrusive" in that area. "We did not intend to recognize one single specialty over a multispecialty," she asserts. "I am willing to admit that we went too far as to how the physicians split the money."

According to Wallander, another controversial section of the proposed rule is the unified business requirement, which states that the methods used to allocate overhead expenses must reflect centralized decision-making rather than each satellite office operating as if it were a separate practice site.

Sinsheimer predicts that the final rule will be more lenient in that area. She says HCFA was mainly concerned about so-called "groups without walls," where physicians would only refer to specialists who were part of their group. "We were hoping to stop this," she asserts. But she says the proposed rules in that area were "too restrictive," and would have had too much influence on how groups would be structured. "We needed to take into account that there are lots of legitimate ways of setting up a group," she admits. "We are not going to be as intrusive."

Wallander also notes that in its commentary on the proposed rule, HCFA states that it believes an employer can provide a bonus or compensation to a physician for referrals for nondesignated health services. But, he says, some people believe that flies in the face of HCFA’s proposed language regarding other business generated between the parties.

Sinsheimer says the agency was blindsided in this area, and adds that HCFA believed Congress was seeking a limited number of compensation-related relationships, and HCFA proposed several others, most importantly the fair-market value. "We think there are other relationships that are appropriate that are not abusive," she explains. "The first one that comes to mind is the ability of a hospital to lend physicians money or physicians to lend money to the hospitals."

"I can see where we have trouble with this one," she concedes. "We have a conflict there, and I don't think we intended to interfere with the other services — if that is really what you are getting paid for."