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Radiology to bear brunt of Stark II, Phase III implications

Radiology Administrator's Compliance and Reimbursement Insider, March 1, 2008

Make sure your radiology group is up to speed about Stark changes. The Stark II, Phase III final rule took effect December 4, 2007. Imaging personnel need to examine the effect on relationships with referring physicians, says Thomas W. Greeson, Esq., a healthcare attorney with Reed Smith, LLP, in Falls Church, VA.

The Stark Law generally prohibits a physician from referring Medicare patients to receive certain designated health services (DHS) from an entity with which the physician has a financial relationship, such as a radiology group, unless an exception under the law applies, says Ellen Kessler, Esq., a healthcare attorney with Ruskin Moscou Faltischek, PC, in Uniondale, NY.

In other words, Stark limits a physician’s ability to profit from his or her referrals of certain health services covered by federal health plans, including certain diagnostic testing services, unless the referral is made consistent with a Stark exception, says Greeson. The law also affects radiology groups as DHS providers.

Final rule highlights

The following are some highlights of changes in the final rule that could have an effect on your radiology group and steps you can take to prepare:

1. Review arrangements with physician groups under “stand in the shoes” rule. CMS added a new provision that requires physicians to “stand in the shoes” of their physician organizations. This means a significant number of compensation arrangements involving physician practices, which previously qualified under the less-stringent “indirect compensation” exception, will now be reclassified as direct compensation relationships, says Greeson. You should review such arrangements and possibly restructure them to meet the requirements of an applicable exception for direct compensation relationships, such as the exceptions listed under equipment rental and personal services, he says.

For example, suppose an orthopedist hires a radiologist as an independent contractor to read images for the group practice, says Kessler. Under the final rule, this now puts every physician in the orthopedic group, “standing in the shoes” of his or her group and, therefore, in a financial relationship with the radiologist who interprets the exam. Thus, the contract between the group is deemed to be a contract for each physician in the entity.

The referring orthopedic physician has a direct relationship with the radiologist and will need to meet a compensation arrangement under the Stark Law. Each orthopedic physician in the group will have to sign a contract with the radiologist or, at least, an adherence agreement to the master agreement between the orthopedic group and the radiologist. Alternatively, Kessler says, the radiologist could try to structure the agreement under the personal services exception.

In order to implement the “stand in the shoes” requirement, CMS created a new definition to describe the types of entities subjected to collapse of physician ownership for purposes of establishing a direct compensation relationship, says Greeson.

The types of entities that will be subject to the new provision are physician organizations, defined as:

A physician (including a professional corporation of which the physician is the sole owner)

A physician practice

A group practice that complies with Stark requirements

Although this expands the definition of a physician organization, Greeson notes that it does not include:

A limited liability company

A limited partnership

A corporation that may be owned by physicians, but which does not function as a physician practice

Thus, for many radiology arrangements, the rule will have a limited effect, he says.

Tip: CMS grandfathered certain existing agreements. If an arrangement was in place prior to September 5, 2007, and satisfied the “indirect compensation exception,” the new “stand in the shoes” rule need not apply during the original term or current renewal term of the arrangement. However, upon expiration of the current term of such a preexisting arrangement, the “stand in the shoes” rule would apply, and the arrangement would have to satisfy an exception.

2. Review independent contract arrangements. If a radiologist in your group acts as an independent contractor for another physician’s group, interpreting images or performing other tasks, review those arrangements.

CMS clarified the definition of ‘‘physician in the group practice’’ to provide that “an independent contractor physician must furnish patient care services for the group under a contractual arrangement directly with the group practice,” says Greeson.

CMS requires this direct contractual relationship in order for a referring group practice to bill for designated health services. In order to fit within the definition of ‘‘physician in the group practice,’’ an independent contractor must have ‘‘a contractual arrangement with the group practice,’’ states CMS.

The agency interprets this to require that the contractual arrangement be directly between the group practice and the independent contractor physician, and not between the group practice and another entity, such as a staffing company.

For example, suppose your radiology group enters into an arrangement with a physician group and agrees to provide professional interpretation services. Each interpreting radiologist must now have a direct contract with the physician group, says Greeson. It is not enough for your group to sign a professional service agreement with the physician group.

In responding to comments, CMS says it considers an independent contractor physician a ‘‘physician in the group practice’’ only when he or she is performing services in the group practice’s facilities and, thus, has a “clear and meaningful nexus” with the group’s medical practice.

CMS says the term ‘‘physician in the group practice’’ is central to the definition of a group practice and significant for purposes of two important exceptions of the Stark Law: the physician services exception and the in-office ancillary services exception.

These exceptions enable physicians to make referrals for DHS within their group practices, provided certain requirements are satisfied. Thus, the strong nexus with a group practice created by the requirement that an independent contractor physician practice in a group practice’s facilities ensures that the physician is truly practicing in the group.

Suppose an orthopedic group uses a radiologist for reads and takes reassignment, meaning that he or she will bill for those services. The radiologist must complete his or her analysis or interpretation of the images in the orthopedic group’s office, says Kessler.

Some orthopedic groups send films to radiologists, bill for services, and pay the radiologists as independent contractors. This violates the final rule if the orthopedic physicians made the referral and then bill for the services, says Kessler, because the orthopedic group would be unable to satisfy either the physician services exception or the in-office ancillary services exception.

But separate billing of the professional component by the off-site radiology group is permitted, say Greeson and Kessler.

3. Review arrangements for shared use of diagnostic imaging centers. Review any leasing arrangements your group may have. CMS addressed common lease arrangements in which groups of physicians share a diagnostic testing facility on an as-needed basis, says Greeson.

For example, several individual physicians may share an imaging suite for x-rays or ultrasounds and may share the costs and administration of the facility rather than enter into separate leases with the facility for set periods of time.

CMS didn’t make regulatory changes to the in office ancillary services exception to the self-referral rule. However, it clarified the matter somewhat, offering a shared expense model that allows simultaneous use of the shared facility. The model will not comply with the “same building” requirements of the in-office ancillary services exception to Stark unless the referring physician leases the facility on a block-time basis, says Greeson.

CMS states that “irrespective of whether the office-sharing arrangements . . . are common, both the statute and our regulations require that the lessee have exclusive use of the leased space or equipment when the lessee uses the space or equipment.”

Thus, the law requires space and equipment leases be for established blocks of time, CMS says.

For example, says Greeson, physicians can sign up for specific time blocks, such as 9 a.m. to noon, on a specific date, and schedule appointments then.

Historically, Stark Law enforcement activities were limited, says Greeson, but this could change with the increased regulation. The basic sanction under Stark Law is nonpayment for DHS referred by a physician with an improper financial relationship with the DHS group, he says. In addition, such an entity cannot bill for the DHS if it is referred pursuant to an improper financial relationship, and if the entity collects payment based on a prohibited DHS referral must refund all collected amounts on a timely basis.

CMS expands safe harbor for good-faith compliance

In Phase II, CMS added a safe harbor to permit a DHS entity to receive payment for its services furnished during no more than a 90-day period of noncompliance if:

The financial relationship in question had been in full compliance with an exception for at least 180 consecutive days immediately preceding the date on which the relationship became noncompliant

The financial relationship fell out of compliance for reasons beyond the entity’s control, but the entity promptly moved to address the noncompliance

The financial relationship does not violate the federal Anti-Kickback Statute and complies with all other applicable federal and state laws

Insider sources

Thomas W. Greeson, Esq., Reed Smith, LLP, 3110 Fairview Park Drive, Suite 1400, Falls Church, VA 22042-4536, 703/641-424; tgreeson@reedsmith.com.

Ellen Kessler, Esq., Ruskin Moscou Faltischek, PC, East Tower, 15th Floor, 1425 Rex Corp. Plaza, Uniondale, NY 11556, 516/663-6522; ekessler@rmfpc.com.

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