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CMS proposes toughter Stark Laws for physician referrals and ventures
New regulatory proposals published July 12, 2007, by the Centers for Medicare & Medicaid Services (CMS) will tighten existing Stark Law limitations applicable to many physician practice arrangements. This includes physician purchases of diagnostic services, physician referrals in the context of investment interests, compensation packages and joint venture arrangements. Many current physician practice arrangements may need significant change, or even dissolution, if the proposals become effective as planned on Jan. 1, 2008.
The proposals evidence a change in CMS thinking about the Stark Laws, which restrict physician referrals under the Medicare and Medicaid programs. CMS is clearly dissatisfied with the existing Stark regulations and repeatedly comments that new rules are needed to curb what it considers “gaming” or other abuse in the health care industry.
Congress enacted the Stark Laws to prohibit physician referrals of Medicare and Medicaid patients to 10 “designated health services” (DHS) offered by other suppliers in which the physician or a member of the physician’s immediate family has a financial interest, such as ownership or compensation. CMS is concerned about the following practices:
- Anti-markup on purchased or re-assigned diagnostic tests — CMS proposes to impose an anti-markup provision on both the technical and professional components of diagnostic tests. This would apply irrespective of whether the billing physician outright purchases the services or whether a reassignment is made to the physician, unless the performing supplier is a full-time employee of the billing physician.
- Services furnished “under arrangements” — CMS seeks to halt arrangements in which a physician has an investment in a DHS entity and then refers a patient to that entity. CMS notes that it has previously interpreted the Stark rules to allow this situation if the entity only “performs” the test but does not bill for it, but CMS now seeks to prohibit both situations.
- In-office ancillary services exception to the referral prohibition — CMS is not now proposing any specific language to change this exception, which allows physicians to invest in in-office DHS, but it appears that CMS will restrict its application in the future.
- Unit-of-service or “per-click” payments in space and equipment leases — CMS proposes that space and equipment leases should not include unit-of-service based payments when the physician is the lessor and is making referrals to the lessee entity.
- Percentage-based compensation — CMS proposes that only percentage-based compensation will be considered “set in advance” (and therefore meet an exception standard) if it is based on revenues directly resulting from “personally performed physician services.”
Comments to CMS on the referenced issues are due Aug. 31, 2007.
For information about the Stark Law, contact Thomas R. Neal at (317) 238-6221, Leanne R. Coons at (317) 238-6269 or Lawrence A. Manson at (219) 933-2316 of Krieg DeVault LLP.
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