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CMS issues Stark II, Phase II rule

Compliance Monitor, March 25, 2004

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CMS issued today the second phase of its final regulations addressing physician referrals to entities with which they have a financial relationship, known as Stark II, Phase II.

The interim final rule is expected to be published in tomorrow's Federal Register.

Phase II responds to comments CMS received on the first phase of the regulations. It also includes the remaining statutory exceptions not covered in Phase I and creates new regulatory exceptions for nonabusive financial relationships.

CMS published the Phase I final rule in January 2001, which defined many of the terms in the statute, interpreted some major exceptions, and created several new regulatory exceptions.

But it also provided a lot of confusion. "For a long time, there was little Stark law enforcement," says Eileen Kahaner, an associate with Sidley, Austin, Brown & Wood, LLP. "The plaintiffs' bar, like providers, may have been a little uncertain where the bright lines were due to the complexity of the regulations. Healthcare providers were trying to comply and trying to restructure, but some wondered if they should bother because they didn't know what the repercussions would really be if they didn't."

"We have started to see cases and settlements, however, primarily where parties have alleged False Claim Act violations based on Stark law violations. After everyone has digested the new rule, these enforcement efforts may increase," she says. "I also expect we may see increases in the number of provider self-disclosures."

The physician self-referral law prohibits a physician from referring Medicare and Medicaid patients for certain designated health services to entities with which the physician (or a member of they physician's immediate family) has a financial relationship, unless an exception applies.

The law also prohibits an entity from billing for services provided as a result of a prohibited referral.

CMS will accept comments for 90 days, and the rule will go into effect in 120 days.

To access the Federal Register, click here and look under CMS.

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