The Centers for Medicare and Medicaid Services ("CMS") has made available its proposed changes to the Medicare inpatient prospective payment system for 2009. Download PDF here. Within this proposal are some important proposed changes to the federal physician self-referral ("Stark") regulations. This article will briefly examine these proposals.
A. "Stand in the Shoes" Proposals
The final Stark rulemaking of September 5, 2007 (72 Fed. Reg. 51012) required that a physician "stand in the shoes" of his or her physician organization, such that a physician has, for Stark purposes, the same compensation arrangements with the same parties and same terms, as the physician organization in whose shoes the physician stands. As a result of this change many business arrangements between a hospital or other entity that bills for Stark designated health services (the "DHS Entity") and a physician group create direct financial relationships between each of the group's physicians and the DHS Entity; whereas the relationship between the individual physicians and the DHS Entity was, prior to the effective date of the September 5, 2007 regulations, an indirect financial relationship at most. Arrangements with physician groups often did not create a financial relationship between the DHS Entity and the individual physicians at all.
Many DHS Entities that relied on the previous regulatory structure in which relationships with physician groups did not create direct Stark relationships with the group's individual physicians have struggled in some circumstances to find an applicable direct exception to Stark as required under the "stand in the shoes" provisions. One prominent example of such newly-problematic arrangements is support payments that an academic medical center may make to an affiliated faculty practice plan. In order to study this issue further, CMS delayed the effective date of the "stand in the shoes" provisions for certain physician groups and DHS Entities. CMS is now proposing to refine the "stand in the shoes" concept to resolve this issue.
Under an approach for which CMS proposes actual regulatory language, physicians would not "stand in the shoes" of their physician organization if the individual physician's compensation relationship with the physician organization satisfies the Stark exception for either: (1) bona fide employment relationships; (2) personal services arrangements; or (3) fair market value compensation. If the physician's compensation relationship with the physician organization satisfies one of these three Stark exceptions, then any relationship between the physician organization and a DHS Entity would be analyzed using the indirect compensation definition and exception.
This proposal would limit the operation of the "stand in the shoes" provisions to physicians who are owners or investors in their physician organization.
Indirect physician relationships are less likely to create inadvertent Stark compliance problems for DHS Entities. Consequently, any proposal to limit the operation of the "stand in the shoes" provisions would be a favorable development for DHS Entities, particularly when DHS Entities have relied for years on the indirect nature of many physician organization relationships.
CMS is soliciting comment on an alternative approach to the same issue under which CMS would promulgate a new exception for certain arrangements, such as support payments to a faculty practice plan. CMS did not offer any proposed language for this approach.
Relatedly, CMS is proposing that a DHS Entity "stand in the shoes" of any organization in which the DHS Entity has a 100 percent ownership interest. This proposal would extend the "stand in the shoes" concept to the DHS Entity side of the Stark equation. Compensation arrangements that physicians may have with a wholly-owned subsidiary of a DHS Entity would become direct relationships between the DHS Entity and the physicians and would need to meet a direct compensation Stark exception.
B. Stark Disclosure Surveys
In the preamble to the proposed rule, CMS states its intention to deliver a Stark Disclosure of Financial Relationships Report ("DFRR") to 500 hospitals nationwide, in order to assess Stark compliance throughout the hospital industry and assist in future rulemakings regarding Stark reporting and other provisions.
The agency plans to allow a hospital 60 days to complete the DFRR before civil monetary penalties of $10,000 per day could result (although the agency states that their enforcement policy would be to first seek to work with the hospital to comply with the reporting requirements and provide time extensions for good cause). CMS is soliciting comments on this 60-day timeframe as well as the content of the DFRR form, the amount of time CMS estimates it will take to complete the form, whether the DFRR process should be ongoing, and how CMS should administer the reporting process.
Clearly, CMS is again seeking to make a reporting of all hospitals' financial relationships with physicians a routine part of the Stark regulatory requirements. This proposed rule should re-emphasize to hospitals the importance of performing comprehensive physician relationship reviews to identify and correct any problems and prepare for the possibility of a government-required review under an imposed timeframe.
C. Time Period of Prohibited Billing
The Stark rules prohibit a DHS Entity from billing and receiving reimbursement from Medicare for any DHS furnished pursuant to a prohibited physician referral. The rules have never defined precisely the time period during which the DHS Entity may not submit claims to Medicare when a financial relationship exists that violates Stark. CMS now proposes to define that time period of prohibited Medicare billing in a handful of specific circumstances.
If the Stark violation is unrelated to compensation (e.g., if the violation occurred because a contract meeting an applicable exception was not signed) then the period of prohibited billing, or "disallowance," runs from the date that the relationship failed to meet an applicable Stark exception and ends the date that the relationship satisfies the requirements of an applicable Stark exception (in our example it would be the date that the parties sign the contract meeting an applicable exception). If an arrangement violates Stark due to excess compensation, the period of disallowance would run from the date of the excess compensation to the date the excess compensation is returned to the party that paid it and the relationship satisfies all requirements of an applicable exception. Finally, if an arrangement violates Stark due to insufficient compensation, the period of disallowance would run from the date of the insufficient compensation to the date the lacking compensation is paid to the party to which it is owed and the relationship satisfies all requirements of an applicable exception.
There are two curious aspects to these proposals. First, CMS states that the period of disallowance applicable to any circumstance other than precisely as set forth above would be considered on a case-by-case basis. So if a physician and a DHS Entity simply terminated a violative arrangement rather than bringing the arrangement into compliance with all requirements of an applicable exception, then CMS would determine the period of prohibited billing based on the particular facts and circumstances rather than according to a defined rule. It is unclear why CMS would choose not to promulgate a rule stating that the period of prohibited billing in such circumstances ends the date that any excess or insufficient payment is given to the appropriate party and the arrangement is terminated. Finalizing the proposals without promulgating such a rule would leave open the prospect that CMS could find that referrals are tainted beyond the date that a violative arrangement is terminated and payments are adjusted appropriately between the parties.
Second, the proposed rules solely address the period during which a DHS Entity may not bill Medicare. CMS notes that the proposals do not address whether civil monetary penalties are potentially applicable due to a financial arrangement that violates Stark. This suggests that DHS Entities and physicians may be subject to civil monetary penalties for arrangements that violate Stark even if the DHS Entity does not bill during the period of disallowance. Although the agency use of enforcement discretion may make such an outcome unlikely, the prospect is nonetheless concerning.
D. Gainsharing
Despite the OIG's distrust of gainsharing arrangements generally, CMS is now stating that it recognizes the value of aligning hospital and physician incentives to improve the quality of care. CMS cites MedPac's recommendation that gainsharing arrangements be permitted as well as the OIG advisory opinions favorable to specific gainsharing arrangements. Although no specific language is proposed, CMS has asked for comments on whether it should create a new Stark exception for certain gainsharing arrangements and what requirements and safeguards should be made a part of any such exception.
E. Physician-Owned Implant Medical Device Companies
Lastly, CMS notes the proliferation of physician investment in medical device manufacturing, distribution, and group purchasing companies. Although CMS recognizes the value of physician investment in device manufacturers where physician involvement has led to development or improvement of medical devices, the agency is more skeptical of physician investment in companies that are "essentially middlemen" in the medical device chain of commerce.
Again CMS is not proposing specific regulatory language, but is merely soliciting comments on whether it should amend the Stark regulations to address physician ownership of medical device distributors, GPOs, and manufacturers.
Including new Stark proposals in annual inpatient hospital reimbursement regulation clearly indicates that CMS intends to continue the trend of amending Stark piecemeal in annual Medicare payment rules. The provider community would undoubtedly prefer to have a stable set of Stark rules to guide financial relationships among physicians and DHS Entities. However, a significantly favorable prospect in the latest particular proposal is the proposal to eliminate the "stand in the shoes" concept for employed and independent contractor physicians whose relationship with their physician organization meets the employment, personal services, or fair market value Stark exception. If finalized, this proposal will substantially reduce the risk of technical Stark violations involving relationships with many physician groups.