The Centers for Medicare and Medicaid Services (“CMS”) recently sent a tremor throughout the health care provider world. The calendar year 2008 proposed Medicare physician payment rule includes far-reaching changes to the Stark regulations, diagnostic test payment rules, and independent diagnostic testing facility (“IDTF”) standards, among others.
The proposed rule undoubtedly signals CMS’ willingness to make significant changes to Stark annually through the physician fee schedule rule, rather than address Stark changes comprehensively in a Stark Phase III regulation. This creates an environment of legal instability for hospitals, physicians, and other health care providers. In addition, providers must now consider whether the proposals would make existing arrangements illegal or require changes to existing business structures, and then wait until late 2007 to see if the proposals are adopted or modified.
I. Physician Payment Rates
Under the proposal, physician payment rates from Medicare for calendar year 2008 would drop by 9.9%. On top of this significant cut, the proposed rule would make various changes aimed at physician relationships with hospitals and other providers.
II. Stark Regulations
A. Per Click Payments and Percentage Compensation
The space and equipment lease compensation exceptions to Stark would no longer permit compensation methodologies based on per-service, or “per-click,” payments if the “click” is referred by the lessor to the lessee. Although the applicable safe harbor to the anti-kickback statute did not permit “per click” arrangements, the Stark law has permitted them.
This proposal is a fundamental shift in the Stark regulations, but only captures space and equipment leasing arrangements with an individual physician or single physician group. CMS does not propose to change the indirect compensation exception, which is used in the more common situation when the lessor is a multiple-physician group. Accordingly, a hospital could enter into a “per click” equipment or space lease with a multiple-physician group under this proposed rule.
Another broad proposal would state that percentage-based compensation is not “set in advance” unless it is based on revenues directly resulting from personally performed physician services. Set in advance compensation is a requirement of many Stark compensation exceptions.
This proposal would apparently not allow percentage-based compensation if the arrangement includes non-physician practitioner services performed “incident-to” physician services.
Like the per-click proposal, the set in advance proposal does not impact the indirect compensation exception under which most arrangements with larger physician groups should be analyzed under current law.
B. “Under Arrangements” Transactions
Having perhaps the widest-ranging impact is a proposal to change the definition of the term “entity.” Currently, the entity that receives reimbursement for Stark designated health services (“DHS”) is the only entity whose physician relationships must comply with Stark. The proposal would change this structure, so that the entity to which Stark applies is the person or entity that performs DHS, as well as the entity that presents a claim or causes a claim to be presented to Medicare.
This proposal is intended to restrict certain “under arrangements” providers, which CMS believes are providing services to a hospital solely to allow referring physicians an opportunity to make money, and not for clinical reasons.
For example, if a physician-owned ambulatory surgery center (“ASC”) provides outpatient surgeries to registered hospital patients, Medicare rules mandate that the hospital bill for those services. In other words, the hospital is considered to be performing the outpatient surgeries “under arrangements” with the physician-owned ASC. Under current law, physician ownership of the ASC is not relevant for Stark purposes because the ASC is not billing for the surgeries.
Under the proposal, however, physician ownership of the ASC becomes a Stark issue because the ASC has “performed” the DHS. Accordingly, unless an ownership exception can be found to cover the physician ownership of the ASC, the hospital could not bill Medicare for the surgeries performed “under arrangements” with the ASC.
This example is a relatively straightforward application of the proposed rule only it if is clear that the ASC has “performed” the outpatient surgeries. However, some hospital-employed nurses or other hospital-employed personnel may be performing the surgeries at the physician-owned ASC. In those circumstances, are the surgeries performed by the ASC or by the hospital?
The proposal does not address what it means to “perform” DHS. In today’s health care environment it is common for equipment to be leased from one party, space leased from another, and personnel employed, leased, or contracted from or by multiple organizations. Who is “performing” the DHS is not answered easily.
Moreover, the agency proposes to change the “entity” definition from the entity to which CMS makes payment for DHS to the entity that presents the claim or which causes a claim to be presented. CMS does not address what entities are brought into Stark through the “causes to be presented” language.
The agency is proposing a change from a clear and objective Stark regulation regarding the definition of “entity,” to a rule that is wide open for interpretation by CMS, providers, and potential qui tam relators.
C. Collapsing Indirect Relationships
Another potentially sweeping proposal provides that if an entity that bills for DHS owns or controls an entity to which physicians refer for DHS, the DHS entity would “stand in the shoes” of the entity that it owns or controls, and would have the same compensation arrangements with the physicians as the entity that it owns or controls.
Although the agency says they are making a proposal on this point, there is no amendment language in the proposed rule; so it is unclear whether there is a proposal offered or not.
Essentially, this proposal would result in the transformation of some currently indirect compensation relationships between physicians and entities providing DHS into direct relationships. For instance, if a hospital leases equipment from a joint venture in which the hospital owns 80% and physicians that refer to the hospital for DHS own 20%, current law would find a potential indirect compensation relationship between the physicians and the hospital. However, the “stand in the shoes” proposal may result in disregarding the equipment leasing joint venture, so that the hospital is deemed to be leasing equipment directly from the physicians for Stark purposes.
The arrangement must then meet the criteria in the equipment leasing exception rather than the indirect compensation exception. As outlined above, the proposal would prohibit a “per-click” payment methodology. Presumably, if the hospital owned only 49% of the leasing joint venture, the proposals would require no change in analysis and a per-click methodology would be acceptable.
Without the specific regulatory language, it is difficult to determine how else this proposal might operate. Presumably, the proposal would not eliminate the controlled entity in such a way that, in the example above, physician ownership in the joint venture results in physician ownership of the hospital itself under Stark. But it might. Proposing Stark changes without furnishing proposed language hinders the ability to analyze the potential impact of the change.
D. Retirement Plans
The proposed rule would change the broad language in the current regulations that a Stark ownership or investment interest does not include an interest in a retirement plan. The proposed regulation would limit this exclusion to state that an interest in a retirement plan does not constitute Stark ownership only if the interest in the retirement plan is offered to a physician through employment. This limitation on the blanket exclusion of retirement plan interests is meant to stop physicians from using retirement plans to purchase entities that bill for DHS.
E. Burden of Proof
Under the proposal, when CMS denies payment due to a Stark violation, the burden is on the entity submitting the claim for DHS to establish that the service was not furnished pursuant to a prohibited referral. CMS, or more likely the applicable Fiscal Intermediary or Part B Carrier, is not required to establish that the service was performed pursuant to a prohibited referral.
CMS states that this change is consistent with the policy applicable to claims denials generally. Although there are not widespread claims denials for Stark violations, this change could provide greater incentive for Fiscal Intermediaries and Part B Carriers to increase denials based on alleged Stark violations.
F. Other Stark Issues
CMS expressed its concern in the proposed rule about aspects of the Stark regulations for which it is not yet proposing specific changes. For example, the agency states that the Stark regulations have allowed physician groups to provide in-office ancillary services that are not closely connected to the rest of the physician practice. The agency is most comfortable with in-office ancillaries like clinical diagnostic laboratory tests where the sample is taken, analyzed, and results reported to the physician while the patient waits. The agency is soliciting comments on whether changes should be made to the in-office ancillary services exception, presumably to restrict its application more closely to the agency’s stated ideal circumstances.
Also on the agency’s radar are regulations to clarify the time period during which claims are disallowed due to a Stark violation. CMS is contemplating that some Stark violations may have an affect that runs beyond the time period of the actual violation, and so the period of payment disallowance should extend for some period of time after the violation is corrected.
Another idea the agency is considering, without proposing to change, is to allow “inadvertent” Stark violations, such as procedural or “form” violations, to comply with the exception. The limitations on this would likely be restrictive, such as requiring self-disclosure to CMS, and the agency determining that the arrangement does not pose a risk of program or patient abuse, among others.
The agency says it is proposing to amend the exception for obstetrical malpractice insurance subsidies to allow for its broader use. Again, however, there is no proposed amendment language within the rule.
III. Diagnostic Testing
After considering a variety of revisions to the reassignment and mark-up prohibitions regarding diagnostic tests for calendar year 2007, the agency has proposed to extend the mark-up prohibition to the professional component of diagnostic tests. In addition, the proposed rules would extend the mark-up prohibition to nearly all tests billed under reassignment.
The proposal would amend both the reassignment and existing mark-up prohibitions regulations to state that if a physician or medical group bills for either the technical or professional component of a diagnostic test that is performed by an outside supplier, then the payment for that test will be the lowest of: (1) the outside supplier’s net charge to the physician or medical group; (2) the billing physician’s or medical group’s actual charge for the test; or (3) the Medicare physician fee schedule amount for the test. The billing physician or group must declare the outside supplier’s net charge for the test on the claim.
The outside supplier’s net charge to the billing physician or medical group must subtract any amounts for equipment or space leases that the outside supplier pays to the billing physician or medical group.
There are two fundamental elements of this proposed regulation that create huge challenges.
First, the proposal would apply not only to purchased tests, but to all tests billed pursuant to a reassignment.
Reassignment of the right to bill and receive payment for the professional component of radiology occurs throughout the health care system. Many radiologists reassign for their professional interpretations to other medical groups as independent contractors. Often, the radiologists are paid on an aggregate monthly or annual amount (e.g., $100,000 for the entire year of service). The proposed rules do not address how the billing physician or medical group can determine the amount to declare on the claim as the charge for any single specific interpretation.
Second, an outside supplier under the proposed rules is someone other than a full-time employee of the billing physician or medical group. This means, for example, that if a billing physician or medical group enters into an arrangement with a radiologist as a full-time leased employee or full-time independent contractor (or, e.g., a 75% leased employee or 75% independent contractor), the billing physician or medical group would nonetheless be considered an “outside supplier,” and could not bill more than the charge it pays the radiologist for the test.
The same would apply to a radiologist who wishes to work as a part-time employee or independent contractor for a radiology practice. Indeed, the part-time employed radiologist may even be an owner of the billing physician or medical group. The radiologist would be an “outside supplier” to the radiology practice because he or she is not employed full-time. Consequently, the practice could only charge Medicare the amount that it pays the part-time radiologist for any particular test.
IV. IDTFs
CMS has proposed various amendments to the standards for IDTF participation in Medicare. Reviving a previous proposal, CMS proposes that a fixed IDTF may not share space, equipment, or staff or sublease its operations to another individual or organization. One of the effects of this proposal is to prohibit hospitals or other providers from creating IDTFs that share with various physician groups in a shared imaging center within a building where the physician groups co-locate.
Under the insurance requirements, IDTFs must now include the CMS Part B Carrier as a Certificate Holder on the insurance policy. IDTFs must provide CMS with the contact information for the issuing agent and underwriter. CMS must be notified of any policy changes or cancellations. Failure to maintain the required insurance results in revocation of billing privileges retroactive to the date of lapse.
Current law states that IDTFs must answer beneficiary questions and respond to complaints. The proposal would add requirements that IDTFs document beneficiary questions and responses, and maintain that documentation at the IDTF site. This includes the contact information for the beneficiary, a summary of the complaint and the actions taken to resolve it. If an investigation was not conducted the IDTF must document the reason for the decision and the name of the person making it.
The proposed IDTF standards would not allow IDTFs to bill for services prior to submission of an enrollment application, so that the earliest date of billing would be the latter of submission of an enrollment application that the CMS contractor can process, or the first date of service at the IDTF site.
V. Conclusion
The scope of changes to Stark and the mark-up prohibition in the calendar year 2008 proposed physician fee schedule rule is broader and more fundamental than CMS has proposed previously in an annual reimbursement regulation. Stark is a singularly technical and complex regulation, where a change in definition can have large and unintended consequences. There should be thorough consideration given to whether an annual and piecemeal regulatory approach is an appropriate and effective way to make changes to the Stark rules.
In important areas the proposals lack the level of detail and specificity needed to give health care providers good guidelines to structure lawful business arrangements. For example, the provider community needs to know what the proposed rules mean by “perform” DHS services and what constitutes “caused a claim to be presented.” And there is no guidance regarding how a purchased test rule can be applied to aggregate compensation methodologies. Other areas are missing proposed regulatory language entirely.
In sum, the proposed rule creates two levels of uncertainty: (1) significant lack of clarity within the specific proposals themselves; and (2) general instability due to the prospect of annual changes to Stark.