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Stark changes may signal start of enforcement

Radiology Administrator's Compliance and Reimbursement Insider, November 1, 2007

On August 28, CMS released the Stark II Phase III final rule. Although it appears to loosen the restrictions imposed on facilities in the past, experts say these changes must be examined along with other changes in the healthcare industry that clamp down on radiology practices. It also means the Stark law is now a complete regulation. That may kick off government enforcement, which until now has been largely limited to whistleblower actions, says Adrienne Dresevic, Esq., a partner with Wachler & Associates in Royal Oak, MI.

“When you look at Phase III by itself, it seems favorable to the healthcare industry,” she says. The changes have made the regulation more flexible, making it easier, for example, for facilities to recruit physicians.

Phase III came in response to public comments about the Phase II interim final rule, published March 26, 2004, in the Federal Register. CMS said in a statement that although the rule does not establish any new exceptions to the self-referral prohibition, it “makes certain refinements that could permit or, in some cases, require restructuring of some existing arrangements.”

In Phase III, CMS made an effort to ease regulations that might unnecessarily hinder legitimate business relationships. “As guardians of the Medicare program, we must be mindful of the potential [effect] that physician conflicts of interest can have on the Medicare program and its beneficiaries,” says Herb Kuhn, CMS acting deputy administrator, in the release. “The rule . . . strikes the proper balance between protecting patients and the program, and provid[es] needed flexibility to healthcare entities to ensure the provision of quality care to our beneficiaries without unnecessarily impeding nonabusive arrangements.”

Below is an overview of the changes included in Phase III, according to CMS:

Increased flexibility for structuring “nonabusive compensation arrangements.” The rules governing physician recruitment and retention payments were loosened so facilities can bring more physicians into extended areas when needed.

Reduced penalties for inadvertent violations of the self-referral prohibition. The rules permit parties that inadvertently exceed the limit on nonmonetary compensation to continue to satisfy the requirements of the exception if the excess nonmonetary compensation did not exceed 50% of the permitted amount and if it is repaid within 180 days of its receipt or by the end of the calendar year, whichever is earlier.

Easier compliance in some instances. Entities providing professional courtesy no longer have to provide a written notice to an insurer indicating a reduction of coinsurance obligation.

Clearer existing regulations. “For example, the rule clarifies which provisions in office space and equipment lease agreements may be amended during the initial and subsequent terms of the agreements,” states CMS.

But although Phase III may have some benefit for providers, other regulations in the works may bring less pleasant changes for radiology, says Dresevic.

MPFS contains Stark implications too

In July, CMS released the proposed Medicare physician fee schedule (MPFS), which is due to be finalized in November.

The fee schedule includes a 9.9% decrease in payment and a number of provisions that are linked to the Stark law, and could significantly affect radiology practices, she says. The proposal would affect everything from existing joint venture arrangements to a number of common radiology relationships related to reading and interpretation. Some highlights include the following, according to a client advisory issued by Katten Muchin Roseman, LLP, a law firm with offices in the United States and abroad:

Elimination of under arrangement and other turn-key deals by changing the definition of a designated health service entity

Modifications to the space and equipment lease exceptions under the Stark law to prohibit the use of per-unit-of-service rental payments when the lessor is the referring physician

An alteration to the Stark law exception that allows percentage-based compensation, other than compensation based on revenues directly resulting from procedures personally performed by the physician to be considered “set in advance”

Proposal of a new performance standard that prohibits IDTFs from sharing space, equipment, or staff members, or subleasing its operations to another individual or -organization

The proposal also includes an anti-markup provision that would bar facilities from marking up interpretation reports furnished by radiologists working as independent contractors. These relationships are very common and would need to be completely restructured to allow the facilities to bill for those services, says Dresevic.

“The agency’s stated rationale behind proposing many of these changes (consistent with some of its recent pronouncements) is to eliminate certain types of relationships that have developed over the years which are viewed by CMS as creating incentives to overutilize or as skirting the intent of the Stark law (albeit in ways that are legal undercurrent rules),” the client advisory states.

The American College of Radiology, according to a statement on its Web site, is urging CMS to revisit several aspects of the proposed physician fee schedule, including the following:

• Malpractice values
• Budget neutrality
• Resource-based practice expense relative value units
• Practice expense per hour
• Relative Value Update Committee recommendations
• Additional codes from the five-year review
• IDTF requirements
• Physician quality reporting initiative
• Changes to reassignment and self-referral rules [anti-markup provisions]

(To read a copy of the letter ACR sent to CMS, go to www.acr.org and click on the related item in the News Center at the bottom of the page.)

So although Phase III may appear favorable on the surface, it is only one piece in a larger puzzle. Other proposals waiting in the wings may deliver big changes.

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