Feds get first settlement in self-referral suit

ACP-ASIM pushing for law amendments

In a precedent-setting move, a Massachusetts group practice recently entered into one of the first known settlements involving alleged violations of the Stark self-referral law. Many experts say the settlement could foreshadow more aggressive enforcement of the Stark II law, once its final Phase I regulations become effective on Jan. 4, 2002.

The civil suit settlement involves an allegation that B.J. Carlen, Inc., formerly known as Pastor Medical Associates ("Pastor"), improperly submitted claims to Medicare seeking reimbursement for clinical laboratory services performed at Pastor’s on-site lab.

The government claimed that Pastor’s physicians received compensation that was directly linked to the monetary value of the patient referrals made to the lab. According to the government, this direct financial link between compensation and referrals violated the Stark law. The practice agreed to a $230,000 settlement.

New regulations much improved

Many medical experts say the new Stark self-referral regulations are a major improvement over the earlier government proposals.

In a letter to the Centers for Medicare and Medicaid Services (CMS, formerly the Health Care Financing Administration), C. Anderson Hedberg, MD, chair of the Medical Services Committee of the American College of Physicians- American Society of Internal Medicine (ACP-ASIM), noted the following improvements in the new regulations:

  • excluding services personally performed by the referring physician from the definition of "referral"
  • no longer requiring a referring physician’s presence to meet the supervision requirement needed to qualify for the in-office ancillary exception;
  • making it easier to qualify as a group practice;
  • allowing physicians to refer to entities with which they have a compensation relationship (as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to refer to the entity);
  • allowing physicians to receive fair market value payment (on a time or unit-of-service basis) for referrals for designated health services, and permitting physicians to supply patients with certain durable medical equipment required for ambulation.

Even so, many physician organizations are still lobbying CMS to make additional changes in the Stark II self-referral rules before they are scheduled to go into final form next year.

One change being sought by ACP-ASIM involves the in-office ancillary services exception governing supervision. The current exception requires a physician to personally perform or "directly supervise" laboratory tests ordered under Medicare Part B. The direct supervision requirement was interpreted in the Stark I final rule to mean that the physician must be ". . . present in the office suite and immediately available to provide assistance and direction throughout the time services are being performed."

ACP-ASIM likes the final rule because it more liberally redefines the supervision requirement "as the same level of supervision that would already apply under all other Medicare payment and coverage rules for the specific service." Also, it notes the final rule provides practices with further flexibility in furnishing designated health services by allowing independent contractor physicians in a group practice to supervise in-office ancillary tests — something that was prohibited in the proposed rule. (For tips on running your own lab tests, see "The basics of operating an in-office laboratory," in this issue.)

However, it does not like a requirement in the final rule stating that, in order to qualify for the in-office ancillary services exception, physicians must furnish in the same building "substantial physician services that are unrelated to the furnishing of DHS [designated health services] payable by Medicare."

"This standard is undefined and thus would leave physicians guessing as to what substantial physician services’ meant," Hedberg wrote to CMS. "It could also force physicians into providing services that are not vital to high quality patient care, or for which the physician has lesser expertise, just to meet a vague and somewhat arbitrary standard."

The ACP-ASIM also would like changes in the prohibition on paying a physician group member a share of profits or productivity bonus in a manner related directly to the volume or value of DHS referrals generated by that member. The final rule does not eliminate this requirement (which the ACP-ASIM would prefer). However, it does say the regulations contains several useful clarifications.

For instance, it makes clear that productivity bonuses can be based directly on a physician’s personal productivity. For instance, a physician may be paid a share of overall profits of the group or for services the physician has personally performed (including services "incident to" those personally performed), provided that the share or bonus is not determined in a manner directly related to volume or value of the physician’s referrals.

However, physicians may not be paid any bonus based directly on their referrals that are performed by someone else within the group, unless those services are provided "incident to" the physician’s personally performed services. In addition, the "incident to" services must be directly supervised by the physician.

ACP-ASIM also says the final rule is helpful in providing a definition of "overall profits" as "either the group’s entire profits from Medicare payable DHS or the profits derived from the Medicare payable DHS of any component of the group practice that consists of at least five physicians."

It says the final rule "offers useful guidance" to group practices in setting out a number of distribution methods for overall profit shares and productivity bonuses that "will be deemed not to relate directly to the volume or value of referrals."

It also says the final rule also offers groups the flexibility to utilize any other distribution method as long as the methodology is reasonable and verifiable and not directly related to the volume or value of the physician’s referrals.

How is group practice’ defined?

ACP-ASIM also would like a revision in the definition of group practice. It is generally pleased with the final rule’s less restrictive definition of group practice, which it says should provide opportunities for sheltering group practice/in-office ancillary arrangements from the Stark law’s purview.

Features it especially likes are that independent contractors can supervise the provision of health services under the in-office ancillary services exception and that independent contractors are not counted as true members of the group. The latter provision helps groups meet the requirement that "substantially all" group practice members’ services be provided through the group.

The final rule gives a new physician practice 12 months’ lead time to qualify as a group practice before the regulations take effect, when practices must meet the requirement that "at least 75% of the total patient care services of the group practice members . . . must be furnished through the group and billed under a billing number . . ."

However, this exception would not apply to an "existing group practice [that] admits a new member."

The ACP-ASIM says it fears that applying this 75% rule to new physicians joining an existing practice could result in many group practices losing their group practice designation for the period of time when a new physician joins the practice. In turn, this could create a "substantial disincentive for physicians wishing to bring younger physicians into their practice," ACP-ASIM says.

It also argues that many physicians are not able to obtain Medicare billing numbers for up to their first nine months of practice, because the carriers have not been able to process their Medicare enrollment applications to permit submission of claims.

For these reasons, ACP-ASIM is recommending new physicians’ services not be included in the group practice pool for purposes of the 75% rule calculation. It is also asking that the requirement that a solo practitioner employ at least one other full-time physician to qualify as a group practice be dropped, so that a physician employing a part-time physician would also be able to qualify as a group practice.

Another change the organization seeks concerns not including prescription drugs administered in the physician’s office as "outpatient prescription drugs." The final rule provides an in-office ancillary exception for chemotherapeutic agents and drugs administered or dispensed by a physician; creates a "new limited exception" for Erythropoietin and other specific dialysis drugs furnished in end stage renal disease facilities; and establishes a new exception for certain vaccines and immunizations.

However, many physicians would still like all prescription drugs administered in the physician’s office not to be classified as "outpatient prescription drugs" to avoid self-referral prohibitions.