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The Health Care Financing Administration’s Jan. 3 release of the first part of the long-awaited Stark II final rule "should allow physicians and health care businesses to stay competitive in a rapidly changing industry while protecting beneficiaries and taxpayers," says Robert A. Berenson, HCFA’s acting deputy administrator.
Under the Stark II statute, if a physician or a member of a physician’s family has a financial relationship with a health care entity, the physician may not make referrals to that entity for services such as radiology and all inpatient and outpatient hospital services, under the Medicare and Medicaid programs, unless an exception applies. The statute also prohibits an entity from presenting or causing to be presented a Medicare claim or bill to a third-party payer for the services provided under a prohibited referral, according to the document.
The Stark II statute was passed in 1993 and became effective in 1995. But due to the complexity of the law and physician referral issues in general, HCFA did not release a proposed rule until January 1998, and that was met by a storm of criticism. The Jan. 3 final rule was revised in many aspects to reflect this criticism. The Stark II law built on the "Stark I" statute, which made it illegal for physicians to refer Medicare patients to clinical laboratories in which the physicians have a financial or compensation interest.
The final rule for the Stark II law will be divided into two parts. Phase I was published in the Federal Register Jan. 4 (66 Fed Reg 855). HCFA says that Phase II of the rule will be published soon after the comment period for the Phase I rule is closed on April 4. The Phase I rules are scheduled to go into effect Jan. 2, 2002.
The Phase I rule includes substantial improvements in the provisions relating to group practices and academic medical centers, says Sanford V. Teplitzky, an attorney with Baltimore’s Ober, Kaler, Grimes & Shriver law firm. "The rule seems to acknowledge that teaching and research physicians affiliated with medical schools require funding from teaching hospitals. Before this, there was no such acknowledgment," he says.
Bill Sarraille, an attorney with Arent Fox Kintner Plotkin & Kahn, in Washington, DC, says he is "cautiously optimistic" about the new regulation. He says he particularly likes the more flexible approach to the rigid "direct supervision" requirement under the in-office ancillary services exception. The final rule eases the criteria for qualifying as a group practice and conforms the supervision requirements to coverage and payment policies for the specific services published by HCFA.
Under the original proposed rule, a physician in a group practice would have had to meet stringent supervision requirements to be able to refer a patient for a designated health service. However, the final rule makes the supervision standard consistent with Medicare coverage and payment rules.
Sarraille also applauds changes that allow a group practice to have site-specific cost or revenue centers, and one that allows productivity bonuses to physicians based on designated health services that they personally perform.
Other significant measures in the rule include:
• Outsourcing hospital services. According to Sarraille, the final rules appear to eliminate a major obstacle to the outsourcing of hospital services under arrangement entities owned by physicians. In reaction to the new outpatient prospective payment system, in which reimbursements for some services have been cut dramatically, many hospitals may be looking to outsource parts of their outpatient services to entities that will come into their facilities and provide those services under arrangements with the hospital. In these situations, the outsourced entity provides the services subject to the utilization review of the hospital, while the hospital does the billing, notes Sarraille.
The initial proposed rule had threatened to eliminate arrangement relationships that involved physician owners, Sarraille says, because they considered the physicians to have both an investment interest and a compensation arrangement. In contrast, the final rule should encourage relationships involving physician owners (especially in areas such as lithotripsy, vascular ultrasound, echocardiography, and related specialties). However, if there is any abuse of these new arrangements, HCFA may want to impose stricter rules, Sarraille cautions.
• Group practices. Sarraille says another extremely important reversal concerned the definition of a "group practice" under the Stark statute. The final rule reverses an earlier suggestion that a group practice could not have site- specific cost or revenue centers and had to treat costs and revenues on a practicewide, integrated basis, he says.
• Incidental benefits. The final rule creates a new exception for incidental non-cash compensation provided by hospitals to physicians on their medical staff. The final rule sets a maximum value for each "incidental" gift that a hospital can give a physician, such as for parking and meals, of $25 per gift. The final rule does not provide a maximum aggregate amount that can be offered.
• Compliance training. The final rule also provides guidance to hospital administrators struggling over whether and how to provide compliance training to physicians. The issue concerns whether a hospital that offers the training free, or for a nominal fee, would be considered "compensating" the physician through free or under-priced training. In response, the new rule specifically permits hospitals to provide compliance training to physicians.
• Other Changes. The final rule makes it clear that the in-hospital use of lithotripsy, a noninvasive medical procedure to break up kidney stones or gallstones, is a designated health service exempted from Stark coverage. The rule also acknowledges that relationships between hospitals and physician-owned lithotriptors may be eligible for other enforcement exceptions under Stark.
Other noteworthy changes in Phase I from the proposed rule include:
— expansion of the in-office ancillary services exception to cover certain durable medical equipment provided in physicians’ offices to patients to assist them in ambulating, and to cover blood glucose monitors;
— clarification of the definitions of designated health services;
— clarification of indirect financial relationships and the creation of a new exception for indirect compensation arrangements.
The changes take effect Jan. 4, 2002.