Stark Scenarios: How the 2009 MPFS and IPPS Final Rules Affect Your Hospital and Practice Welcome to the meeting. Today’s presentation will begin at 12:00 PM EST. To ask a question during the presentation, click the Q&A menu at the top of this window, type your question in the Q&A text box, and then click “Ask.” After you click Ask, the button name will change to “Edit.” Questions will be queued and most will be answered at the end of the meeting as time allows. SMITH MOORE LEATHERWOOD, LLP 1180 W. Peachtree Street NW Suite 2300 Atlanta, Georgia 30309 (404) 962-1000 Christee G. Laster, Esq. christee.laster@smithmoorelaw.com Jennifer Pritzker Sender, Esq. jennifer.sender@smithmoorelaw.com

Fiscal Year 2009 Hospital Inpatient Perspective Payment System (IPPS)

2009 CMS IPPS Final Rule On August 19, 2008 CMS published the 2009 Hospital Inpatient Prospective Payment Systems final rule. (73 Fed. Reg. 48343). Continuing its use of the fee schedules rules to propose/implement revisions to the Stark law, 2009 IPPS Final Rule includes significant amendments to Stark. The 2009 IPPS Final Rule went into effect October 1, 2008, but some selected provisions become effective on October 1, 2009.

2009 CMS IPPS Final Rule A few key provisions for discussion include: SITS Under Arrangements Per Click Payments Percentage-Based Compensation Definitions of “Physician” and “Physician Organization” Hospital Disclosure of Physician-Ownership to Patients

IPPS - STAND IN THE SHOES (SITS) BACKGROUND Pursuant to Stark, Phase II (Phase II) “indirect compensation arrangements” were analyzed using a 2-step approach: Step 1: determine if indirect compensation arrangement exists Step 2: determine if the exception for indirect compensation arrangements is satisfied

IPPS - STAND IN THE SHOES (SITS) 2009 IPPS Proposed Rule – Complex analysis proposed to address the SITS rule: Multi-faceted approach – physician would SITS of his physician organization if exception met (i.e. bona fide employment arrangements, personal services arrangements, or fair market value compensation exceptions)

IPPS - STAND IN THE SHOES (SITS) 2009 IPPS Proposed Rule – Exceptions approach – specific exceptions would apply to non-abusive arrangements such as “mission support” payments between academic medical centers or integrated health systems. CMS also proposed that a DHS entity SITS of an entity that it owns or control – effectively applying SITS to both ends of a financial relationship.

IPPS - STAND IN THE SHOES (SITS) 2009 IPPS Final Rule – CMS did not adopt the proposed alternatives, but rather amended the Phase III SITS rule: A physician is deemed to stand in the shoes of his or her physician organization and have a direct compensation arrangement with an entity Furnishing DHS when: the only intervening entity between the physician and the DHS entity is his or her physician organization, and the physician has an ownership or investment interest in the physician organization. (42 C.F.R. § 411.354(c )(1)).

IPPS - STAND IN THE SHOES (SITS) Between December 4, 2007 and September 30, 2008, all physicians stood in the shoes of their physician organizations. On and after October 1, 2008, only certain physicians (i.e. owners) stand in the shoes of their physician organizations. A physician owner of a physician organization refers to a DHS entity with which the physician organization has a compensation arrangement, that compensation arrangement must meet an exception for direct-compensation arrangements (e.g., minimum 1-year term, set in advance requirements).

IPPS - STAND IN THE SHOES (SITS) Exceptions – The Final Rule allows (but does not require) non-owner physicians to SITS of their physician organizations. Structure the arrangement to satisfy direct compensation arrangements exception and no need to consider terms of non-owner physician contracts with the physician organization.

IPPS - STAND IN THE SHOES (SITS) Exceptions – The physicians SITS rule does not apply to an arrangement that satisfies the AMC exception requirements under 42 C.F.R. § 411.355 (e). Physicians who do not have the right to receive the financial benefits of ownership (“titular” ownership) are not required to SITS of their physician organization.

IPPS - Services Provided “Under Arrangements” BACKGROUND Stark general rule: prohibits physicians from making referrals for DHS to an entity with which the physician (or immediate family member) has a financial relationship, and prohibits the entity from billing Medicare for the DHS unless an exception applies. Under the Phase I rules, an “entity” was defined as the person or entity that bills Medicare for the DHS, and not the person or entity that performed the DHS if that person or entity does not bill for it.

IPPS - Services Provided “Under Arrangements” BACKGROUND Stark general rule: prohibits physicians from making referrals for DHS to an entity with which the physician (or immediate family member) has a financial relationship, and prohibits the entity from billing Medicare for the DHS unless an exception applies. Under the 2008 PFS, CMS proposed to revise the definition to “entity” to include both the person or entity the submits the claim, as well as the person or entity that performed the DHS. Final IPPS Rule adopts the proposed definition.

IPPS - Under Arrangements Gives “DHS entity” status to any physician group practice or other organization that provides inpatient and/or outpatient services “under arrangement” with a hospital. Applies even if the service would not be DHS if provided by the under arrangements entity. E.g. Cardiac catheterization services are not DHS unless billed by a hospital as inpatient or outpatient hospital services, but under the new rule, a physician-owned entity providing cardiac catheterization services to a hospital “under arrangement” would be a DHS entity.

IPPS - Under Arrangements What does it mean to “perform DHS?” CMS did not further define, but stated the phrase has its “common meaning.”

IPPS - Under Arrangements In the Preamble, CMS stated that it does not consider the following as “performing” DHS: An entity that leases or sells space or equipment used for the performance of the DHS; An entity that furnishes supplies that are not separately billable but are used in the performance of DHS; or An entity that provides management, billing services or personnel to an entity that is performing DHS.

IPPS - Under Arrangements Physician-Hospital Joint Ventures – Why Bother? Example: Physician A has a 3% ownership interest in a joint venture with the hospital that owns and operates an imaging center. The joint venture has an “under arrangements” relationship with the hospital under which it performs imaging services that are billed by the hospital. Physician A refers a Medicare patient to the joint venture for an MRI exam and the hospital bills for this service.

IPPS - Under Arrangements Physician-Hospital Joint Ventures – Why Bother? Under current regulations – Physician A is making one referral to the hospital “entity” since it is the only entity billing Medicare. As of Oct. 1, 2009, under the final rule – Physician A is making two referrals. First referral is to the hospital for DHS, and the second referral is to the joint venture since the joint venture performed the DHS.

IPPS - Under Arrangements Physician-Hospital Joint Ventures – Why Bother? Both referrals must meet some other Stark Law exception. In-office ancillary services exception no longer applies because the joint venture is not Dr. A’s group practice. Joint venture must be restructured or dissolved.

IPPS – Percentage-Based Compensation Effective Oct, 1, 2009, CMS added the following prohibition to the office space, equipment lease, indirect compensation and FMV exceptions: Using a compensation formula based on: A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or by use of the equipment.

IPPS – Per Click Lease Arrangements Typical per click arrangement structure: physician receives a payment for each referral to the DHS entity for use of the equipment leased. Effective Oct, 1, 2009, CMS added the following prohibition to the office space, equipment lease, indirect compensation and FMV exceptions: Per-unit-of-service rental charges are not allowed to the extent that such charges reflect the services provided to the patients referred between the parties.

IPPS – Per Click Lease Arrangements Prohibition applies regardless of whether physician is lessor, or entity is lessor in which referring physician has ownership or investment interest; also applies where lessor is a DHS entity that refers patients to a physician or physician organization lessee. E.g. Hospital (DHS entity) leases space to MD, Hospital refers patients to MD, MD pays hospital for this space based on patient referrals.

IPPS – Per Click Lease Arrangements No prohibition if patients referred by others. No prohibition if non-physician-owned lessor and if not referring patients for DHS. Physicians can design two compensation models: one for services rendered to patients referred by others, and a second for patients referred by the physician.

IPPS – Per Click Lease Arrangements CMS commentary: What is FMV? An arrangement is not FMV if the lessee is paying a physician substantially more for use of equipment or personnel than if paying a non-physician-owned company for the same or similar equipment or service.

IPPS – Per Click Lease Arrangements CMS commentary: Is it commercially reasonable? Depends on whether volume is high enough to be economically feasible to purchase the equipment rather than continuing the lease. Block time leasing under review, possible target for future rulemaking.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2008 IPPS final rule: CMS adopted requirements that each physician-owned hospital: provide written notice to patients that the hospital is physician-owned; ii) make available on request a list of the hospital’s physician owners or investors; and

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2008 IPPS final rule: CMS adopted requirements that each physician-owned hospital: iii) that does not have a physician present in the hospital 24 hours per day, 7 days per week, provide written notice to patients of this fact and indicate how the hospital will meet the medical needs of any patient who develops an emergency medical condition when no physician is present.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2009 IPPS proposed rule: CMS proposed several clarifications and additional provisions to the physician-owned hospital disclosure requirements, including: Expanding the reporting requirements to also apply when an immediate family member of a physician holds an ownership or investment interest in the hospital. Creating an exception to the disclosure requirement if none of the physician-owners refers patients to the hospital and the hospital attests to this fact in writing.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2009 IPPS proposed rule: CMS proposed several clarifications and additional provisions to the physician-owned hospital disclosure requirements, including: Clarifying that the list of physician owners and investors must be furnished at the time that the patient or someone on the patient’s behalf requests it.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2009 IPPS proposed rule: CMS proposed several clarifications and additional provisions to the physician-owned hospital disclosure requirements, including: Adding a requirement that all physicians who are members of the hospital’s medical staff must agree, as a condition of continued medical staff membership or admitting privileges, to disclose in writing to all patients who they refer to the hospital, any ownership or investment interest in the hospital held by themselves or by an immediate family member.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2009 IPPS proposed rule: CMS proposed several clarifications and additional provisions to the physician-owned hospital disclosure requirements, including: Permitting CMS to terminate the Medicare provider agreement of any hospital that fails to comply with the physician ownership disclosure requirements or the 24/7 physician presence disclosure requirements.

IPPS – Financial Relationships Between Hospitals and Physicians Disclosure of physician ownership to patients 2009 IPPS final rule: CMS adopted the proposals set forth in the proposed rule.

IPPS – Effective Dates Changes with a delayed effective date of Oct. 1, 2009 due to impact on joint venture arrangements between physicians and hospitals: Prohibition on the use of percentage-based compensation formulae for equipment and office lease arrangements. Prohibition on the use unit-of-service (“per click”) payments in office space and equipment lease arrangements to the extent the payments reflect referrals between the parties. The expanded definition of “entity” to include not only the entity that submits claims to Medicare for DHS, but also the “person or entity that performs the DHS” in an effort to restrict the provision of DHS to hospitals by physician or physician organizations “under arrangements.”

2009 Medicare Physician Fee Schedule (MPFS)

2009 CMS MPFS Final Rule Overview: Proposed MPFS published July 7, 2008, Final Rule published October 30, 2008 MPFS contains proposals that would restrict physician practices, but ultimately IDTFs and mobile imaging providers left to cope with Medicare performance standards. Most significant provisions are changes to anti-markup rules governing diagnostic testing.

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Proposed Rule, CMS concerns: Physician entities that enroll as group practice or clinic and provide diagnostic testing services without the benefit of qualified non-physician personnel (IDTF requirement). Physician entities that furnish diagnostic testing services for their own patients and the general public are enrolling as physician clinics thereby circumventing the performance standards found in the IDTF requirements.

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Proposed Rule, CMS concerns: Physician organizations are furnishing diagnostic tests using mobile equipment provided by an entity that furnishes mobile diagnostic services.

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Proposed Rule: A physician or NPP organization furnishing diagnostic testing services, except diagnostic mammography services, (1) must enroll as an independent testing facility for each practice location furnishing these services; and (2) be subject to the provisions found in 42 C.F.R. § 410.33, except for the following performance standards: Maintaining additional comprehensive liability insurance for each practice location, as required by § 410.33(g)(6). Maintaining a formal clinical complaint process as required under § 410.33(g)(8).

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Proposed Rule: A physician or NPP organization furnishing diagnostic testing services, except diagnostic mammography services, (1) must enroll as an independent testing facility for each practice location furnishing these services; and (2) be subject to the provisions found in 42 C.F.R. § 410.33, except for the following performance standards: Posting IDTF standards as required under § 410.33(g)(9). Maintaining a visible sign posting business hours as required under § 410.33(g)(14)(ii). Separately enrolling each practice location as required under § 410.33(g)(15)(i).

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Proposed Rule: A “physician or non-physician practitioner organization” defined as any entity that enrolls in the Medicare program as a sole proprietorship or organizational entity, such as a clinic or group practice.

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Final Rule: Relief for Physicians CMS deferred implementation of proposed rule due to enactment of section 135 of the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). Section 135 of MIPPA requires that the Secretary establish an accreditation process for those entities furnishing advanced diagnostic testing procedures, which include MRI, CT, and PET, by January 1, 2012.

MPFS - Independent Diagnostic Testing Facilities (IDTFs) MPFS Final Rule: Relief for Physicians Result: physicians, physician practices and NPPs will not have to enroll as IDTFs or meet enhanced quality and performance standards when providing diagnostic services within their office setting at this time. Outstanding issue – will a physician practice be required to have a radiologist supervise DT (often required for IDTFs) as opposed to a physician within the practice?

MPFS - Mobile Entity Billing Requirements MPFS Proposed Rule: CMS proposed a new performance standard for mobile entities that would require entities furnishing mobile diagnostic services to enroll in Medicare and bill directly for the mobile diagnostic services that they furnish, regardless of where the services are performed. 73 Fed. Reg. 38534.

MPFS - Mobile Entity Billing Requirements (continued) MPFS Final Rule: CMS adopted proposals - entities furnishing mobile diagnostic services must enroll as IDTFs, regardless of where the services are furnished. 42 C.F.R. § 410.33(g)(16). Mobile diagnostic service providers must bill for the mobile diagnostic services furnished, unless the mobile diagnostic service is part of a hospital service and is furnished under arrangement with that hospital.

MPFS - Mobile Entity Billing Requirements (continued) MPFS Final Rule: Effective January 1, 2009, physician groups will not be able to bill for imaging services provided to Medicare beneficiaries if the imaging services are provided by a mobile service.

MPFS - Gainsharing MPFS Proposed Rule: Would permit hospitals to provide monetary incentives to physicians for improving patient care quality (incentive payment programs) and share patient care cost savings (shared savings programs). MPFS Final Rule: CMS declined to include the gainsharing rule, and instead asked for additional comments for a series of gainsharing-oriented issues.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule General rule: The anti-markup rule (42 C.F.R. § 414.50) implements the statutory prohibition on a billing physician receiving payment in excess of the net charge for a diagnostic test not performed or supervised by the billing physician or another physician with whom the billing physician shares a practice.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Background: 2008 PFS Final Rule Revised the anti-markup rule to apply to TC & PC of diagnostic tests that are ordered by the billing physician or other supplier when TC is outright purchased or not performed in “office of the billing physician or other supplier.” What is the “office of billing physician or other supplier?” For physicians - medical office space where the physician or other supplier regularly furnished patient care For POs - space in which the physician organization provides substantially the full range of patient care services that the physician organization provides generally

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Background: 2008 PFS Final Rule Payment to billing entity could not exceed the lesser of the following: Performing supplier's net charge to the billing physician or other supplier; Billing physician or other supplier’s actual charge; or Fee schedule amount if performing supplier billed directly. Delayed Implementation until Jan. 1, 2009.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule 2009 Proposed Rule: Proposal 1: The anti-markup provision would apply in all cases where the PC or the TC is either: (1) Purchased outright from an outside supplier; or (2) Performed or supervised by a physician who does not share a practice with the billing physician or physician organization.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule 2009 Proposed Rule: To share or not to share: 2 alternatives proposed regarding the meaning of “share a practice:” A performing or supervising physician “shares a practice” if the physician was employed or contracted exclusively to the billing physician or supplier (i.e. does not perform interpretations or supervise TC for any other entity); or A performing or supervising physician “shares a practice” if the diagnostic test was performed within the office of the billing physician or supplier (i.e. the same building where billing physician/supplier regularly furnishes patient care)

MPFS - Anti-Markup/Purchased Diagnostic Test Rule 2009 Proposed Rule: Proposal 2: The anti-markup provision would apply to TCs and PCs of non-purchased tests that are performed outside the “office of the billing physician or supplier.” Office of the billing physician or supplier must meet the same building test (i.e. share a street address).

MPFS - Anti-Markup/Purchased Diagnostic Test Rule 2009 Final Rule: CMS finalizes two alternatives for applying the anti-markup rule. Alternative 1: The “Substantially All” Test The anti-markup payment limitation will not apply to services furnished where the performing physician (physician who supervises the TC, performs the PC, or both) performs substantially all of his or her professional services for the billing physician or other supplier. “Substantially all” is defined as at least 75 percent of the physician’s professional services.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Alternative 2: The “Site-of-Service” Approach If the performing physician does not meet Alternative 1, apply Alternative 2, the “site-of-service” approach: The anti-markup limitation will not apply to TCs conducted and supervised in, or PCs performed in, the office of the billing physician or other supplier by an owner, employee or independent contractor of the billing physician. The “office of the billing physician or other supplier” is defined as the same building in which the ordering physician or other ordering supplier regularly furnishes care. For POs, the “office of the billing physician or other supplier” is the space in which the ordering physician performs substantially the full range of patient care services that the ordering physician generally provides. “Same building” is given the Stark definition (42. C.F.R. 411.351).

MPFS - Anti-Markup/Purchased Diagnostic Test Rule If neither alternative can be met, then the billing physician or other supplier must bill Medicare the lowest of: The performing supplier's net charge; The billing physician or other supplier's actual charge; or The Medicare fee schedule amount.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Practical Implications of Alternatives 1 and 2: A diagnostic testing location that complies with the Stark “centralized building” option under the in-office ancillary services exception will not meet Alternative 2. By Stark definition, a “centralized building” is not in the “same building” in which the ordering physician furnishes diagnostic testing services (may still meet Alternative 1).

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Practical Implications of Alternatives 1 and 2: For purposes of the rule, a physician “performs” the PC by interpreting the test. Where ordering and interpreting physicians are in different locations, will not meet Alternative 2, but may meet Alternative 1 if meets the 75% requirement.

MPFS - Anti-Markup/Purchased Diagnostic Test Rule Practical Implications of Alternatives 1 and 2: Split billing may begin replacing global billing of diagnostic tests. More exclusive employment or independent contractor arrangements likely. Effect on IDTFs if CMS finalizes proposals.

Questions?

SMITH MOORE LEATHERWOOD, LLP 1180 W. Peachtree Street NW Suite 2300 Atlanta, Georgia 30309 (404) 962-1000 Christee G. Laster, Esq. christee.laster@smithmoorelaw.com Jennifer Pritzker Sender, Esq. jennifer.sender@smithmoorelaw.com