1. © 2008 Rath, Young and Pignatelli, P.C. 1 STARK III AND PHYSICIAN PRACTICE CONCERNS NHMGMA/NH-VT HFMA April 9, 2008 By Lucy C. Hodder, Esquire lch@rathlaw.com Adam C. Varley, Esquire acv@rathlaw.com One Capital Plaza P.O. Box 1500 Concord, NH 03302-1500 603-226-2600

2. © 2008 Rath, Young and Pignatelli, P.C. 2 The Stark Law  Stark Law prohibits a physician from making referrals for “designated health services” to entities with which the physician or immediate family member has direct or indirect financial relationship.  Only applies to Medicare DHS services.

3. © 2008 Rath, Young and Pignatelli, P.C. 3 Stark Exceptions  Rental of office space or equipment.  Bona fide employment relationships.  Personal service arrangements.  Physician recruitment.  Isolated transactions.  Whole hospital ownership.  Group practice in-office ancillary services.  Payments or charitable donations by a physician.  Non-monetary comp up to $300.  Fair market value compensation.  Medical staff incidental benefits.

4. © 2008 Rath, Young and Pignatelli, P.C. 4 Stark Exceptions cont’d  Risk sharing arrangements.  Compliance training.  Indirect comp arrangements.  Referral services.  Obstetrical malpractice ins. subsidies.  Professional courtesy.  Retention payments in underserved areas.  Community-wide health info systems.  Electronic prescribing items and services.  Electronic health records items & services.

5. © 2008 Rath, Young and Pignatelli, P.C. 5 Stark II, Phase III Regulations  Issued by CMS on September 5, 2007.  Made significant changes:  “Stand in the Shoes” provision.  Changes regarding physician recruitment arrangements – clarified service area, practice restrictions and allocation of practice costs.  Group practice compensation – when distributing income, can base productivity bonuses on “incident to” services (except radiology).  Fair Market Value Exception – both to and from.

6. © 2008 Rath, Young and Pignatelli, P.C. 6 “Stand in the Shoes”  Is it a direct or indirect compensation arrangement?  Expands scope of “stand in the shoes” beyond wholly-owned professional associations to physician organizations as well.  Physician has same compensation arrangement with DHS entity as the physician organization.  Turns some indirect compensation arrangements into direct compensation arrangements.

7. © 2008 Rath, Young and Pignatelli, P.C. 7 Physician Recruitment – Phase III  Clarifies service area determination for rural hospitals and hospitals drawing fewer than 75% of inpatients from contiguous zip codes.  Allows practice restrictions on physicians that are not “unreasonable.”  Allows more flexibility for allocating costs of income guarantees.

8. © 2008 Rath, Young and Pignatelli, P.C. 8 Fair Market Value – Phase III  Under Phase II, FMV was hourly rate for ER physician or 50% compensation from national surveys.  Stark III definition: “commercially reasonable methodology” “taking into consideration facts and circumstances.”  Expands exception to cover compensation paid by physicians to DHS entities.  Clarifies that exception is not available for office space leases or physician recruitment arrangements.

9. © 2008 Rath, Young and Pignatelli, P.C. 9 Group Practice Compensation – Phase III  Group practice can include independent contractors and locum tenens.  Special rule for productivity bonuses and profit shares allows physicians to be paid a share of overall profits of the group provided that the share is not determined in any manner that is directly related to the volume or value of referrals of DHS by the physician.

10. © 2008 Rath, Young and Pignatelli, P.C. 10 Group Practice Comp. cont’d  Productivity bonuses can be based on: (1) personally performed services; or (2) services “incident to” such personally performed services.  Services with a separate Medicare benefit category, such as x-ray or diagnostic tests, can not be “incident to.” Certain PT and outpatient drugs, can be.  Can’t personally perform DME unless have a supplier number.  Credit goes to ordering physician not supervising physician.

11. © 2008 Rath, Young and Pignatelli, P.C. 11 Retention Payments in Rural Areas – Phase III  Stark III clarified an exception for payments to physicians to retain them in rural areas.  Physician has to have a bona fide written recruitment offer or certify that he or she has a future employment offer.  Physician’s practice must be in HPSA or medically underserved area.  Payment varies depending upon what type of offer (25% comp/difference between current or bona fide offer).

12. © 2008 Rath, Young and Pignatelli, P.C. 12 Physician Fee Schedule – January 1, 2008  Anti-Mark Up Rule: Physician (or other supplier) can not mark-up the bill for the technical component or professional component of a test when it’s purchased from outside supplier or performed at a site other than the “office of the billing physician.”  “same office” for Anti-Mark up rule not the same as “same building” for In-Office Ancillary Service. Delayed until 2009.  IDTF’s can’t share space, equipment or staff with another individual or entity.

13. © 2008 Rath, Young and Pignatelli, P.C. 13 Physician Fee Schedule Changes  Several significant revisions to the Stark rule were also proposed in the new Physician Fee Schedule (e.g., “per click” lease payments, percentage- based compensation).  In addition, CMS has sought comments on two Stark exceptions.

14. © 2008 Rath, Young and Pignatelli, P.C. 14 MORE STARK CHANGES: CMS Seeking Comments….  Whether changes are necessary to the in- office ancillary services exception (including whether certain services should not be protected).  Whether physicians can lease equipment to a provider on a per-click basis.  Use of percentage based compensation in equipment leases or management services agreements.

15. © 2008 Rath, Young and Pignatelli, P.C. 15 Physician Practice Concerns  Common Safe Harbors/Exceptions  In-office ancillary services/group practice.  Personal service arrangements.  Leases.  Recruitment.

16. © 2008 Rath, Young and Pignatelli, P.C. 16 In-Office Ancillary Services/Group Practice Exception  Physician Supervision: They are personally furnished by the referring physician, a member of the referring physician’s group practice, or an individual supervised by the referring physician or member of the group practice.  Same Building: The services are provided in the building where the physician or group practice conducts their practice.  Billing: The services are billed by: (i) the physician performing or supervising the service; (ii) the group practice of which the performing or supervising physician is a member; (iii) an entity wholly-owned by the physician or group practice; or (iv) a third-party as billing agent.

17. © 2008 Rath, Young and Pignatelli, P.C. 17 Personal Service Arrangements  The agreement is in writing, signed and specifies the services covered.  The arrangement includes all services provided by the physician (can be multiple agreements if they all reference one another).  Services must be reasonable and necessary.  The term of the agreement is at least 1 year.  The comp is set in advance, doesn’t exceed FMV, and, except for physician incentive agreements, doesn’t take into account volume or value of referrals.  Services don’t involve recommending or promoting of a business arrangement.

18. © 2008 Rath, Young and Pignatelli, P.C. 18 EXAMPLES  Medical Director.  Assigned Staff.  Billing Services.

19. © 2008 Rath, Young and Pignatelli, P.C. 19 LEASES  The agreement is in writing, signed and specifies the space or equipment to be leased.  The term of the agreement is at least 1 year.  The space or equipment leased is reasonable and necessary.  The rent is set in advance and consistent with FMV.  Rent payment doesn’t take into account volume or value of referrals.  The lease would be commercially reasonable in absence of referrals.

20. © 2008 Rath, Young and Pignatelli, P.C. 20 Recruitment Exception - Stark  Protects payments by a hospital to a physician when paid directly to a physician relocating to the geographic area served by the hospital, IF:  The agreement is set forth in writing.  Not conditioned on referrals.  Physician allowed to establish privileges at any other hospitals.  The geographic area served is area composed of the lowest number of contiguous zip codes which the hospital draws 75% of its patients.  Flexibility for rural hospitals.

21. © 2008 Rath, Young and Pignatelli, P.C. 21 Recruitment Exception- Stark cont’d  Hospital can flow recruitment payments through group practice hiring physician.  Group practice can only keep costs incurred in recruiting the new physician.  If income guarantee, the costs allocated by the practice to the recruited physician do not exceed incremental costs attributable to the physician.  Practice can not “unreasonably” restrict physician’s ability to practice in the area (no- moonlighting, no patient solicitation – OK).

22. © 2008 Rath, Young and Pignatelli, P.C. 22 Recruitment Exception-AKS  Must have only practiced for a year or less.  75% of revenues from new practice can’t overlap with old.  Benefits can’t exceed three years.  Physician must be moving into a HPSA for specialty.

23. © 2008 Rath, Young and Pignatelli, P.C. 23 OIG Compliance Program Guidance For Group Practice  http://oig.hhs.gov/authorities/docs/physi cian.pdf. http://oig.hhs.gov/authorities/docs/physi cian.pdf  WHAT TO DO NOW:  Proper/Timely payment of claims.  Minimize billing mistakes.  Review financial arrangements with referring entities.  Audits; policies; training; response.