1. www.hro.com Son of Stark III -Is it soup yet? Presentation to CBA Healthcare Section “Brown Bag” Series By Jody Kepler Son of Stark III -Is it soup yet? Presentation to CBA Healthcare Section “Brown Bag” Series By Jody Kepler Denver │ Boulder │ Colorado Springs │ London │ Los Angeles │ Munich │ Phoenix │ Salt Lake City │ San Francisco

2. Son of Stark III – Is it soup yet? The Basic Prohibition A physician cannot refer patients to an entity for the furnishing of DHS if there is a financial relationship between the referring physician (or an immediate family member) and the entity unless an exception applies

3. Son of Stark III – Is it soup yet? Referral Exceptions Pathologist for diagnostic lab tests and pathological exam services Radiologist for diagnostic radiology services Radiation oncologist for radiation therapy Services performed by the referring physician –bonuses based on services personally performed

4. Son of Stark III – Is it soup yet? DHS annual list of codes: designated health service categories included in the list of codes are: clinical laboratory services; physical therapy services (including speech-language pathology services); occupational therapy services; radiology and certain other imaging services; and radiation therapy services and supplies http://www.cms.hhs.gov/PhysicianSelfReferral /11_List_of_Codes.asp

5. Son of Stark III – Is it soup yet? Phase I 66 Fed. Reg. 856 Definitions General Exceptions In-Office Ancillary Services Physician Services Academic Medical Centers Others

6. Son of Stark III – Is it soup yet? Phase II 69 Fed. Reg. 16054 Exceptions specific to ownership and investment relationships –publicly traded securities, mutual funds, specific providers (rural) Exceptions specific to compensation relationships –rental of office space, rental of equipment, employment relationships, personal service arrangements, physician recruitment, others

7. Son of Stark III – Is it soup yet? Phase III 72 Fed. Reg. 51012 Stand in the Shoes Clarification to group practice –relationships –bonuses Physician recruitment exception relaxed

8. Son of Stark III – Is it soup yet? 72 Fed. Reg. 48434 Stand in the shoes (10.1.08) Percentage based compensation (10.1.09) Per-click arrangements (10.1.09) Definition of entity (10.1.09) Investments through retirement plans (10.1.08) Information reporting

9. Son of Stark III – Is it soup yet? “Stand in the Shoes” 42 CFR 411.354(c) A physician who has an ownership or investment interest in a physician organization stands in the shoes of that physician organization –exception – physicians with no right to receive the financial benefits of ownership (profits, dividends, proceeds of sale )

10. Son of Stark III – Is it soup yet? “Stand in the Shoes” CMS permits a physician who is not an owner or investor in his physician organization to stand in the shows of the physician organization for purposes of applying the compensation exceptions –Allows arrangements that were restructured under Phase III to continue in compliance –CMS believes that complying with direct compensation exceptions will curtail abuse CMS did not finalize the entity “stand in the shoes”

11. Son of Stark III – Is it soup yet? Percentage-Based Compensation 42 CFR 411.357(a), (b), (l) and (p) CMS is taking a targeted approach to its primary concerns regarding percentage based compensation (stay tuned, CMS may further restrict in future rule making) Prohibits the use of percentage-based compensation formula in the determination of rental charges for lease of office space and equipment

12. Son of Stark III – Is it soup yet? Percentage-Based Compensation Not affected: –management and billing services –Example - A business that wants to provide space and equipment to a physician organization and manage that physician organization. How to structure? What incentives can the business provide to the doctors?

13. Son of Stark III – Is it soup yet? Per-Click Arrangements 42 CFR 411.357(a)(5), (b)(4), (l) and (p ) prohibits per-click payments to physician lessors for services rendered to patients who are referred by the physician lessor (example - physicians purchase equipment and lease it to a clinic to which the physician refers patients) Lithotripsy, not DHS, but can create a compensation relationship

14. Son of Stark III – Is it soup yet? DHS Entity 42 CFR 411.351 Includes the entity that performs the DHS, as well as the entity that bills for the DHS Affects: under arrangements Example: Effectively moving a department outside of a hospital

15. Son of Stark III – Is it soup yet? Retirement Plans “Clarification” Exclusion from the definition of ownership or investment interest applies only to an interest in the physician’s employer

16. Son of Stark III – Is it soup yet Information Reporting A physician-owned hospital –shall furnish to patients, upon request, a list of physicians or immediate family members who own or invest in the hospital –shall require all physician owners and investors who are also members of the medical staff to make a written disclosure of such interest to patients that they refer to the hospital

17. Son of Stark III – Is it soup yet? Conclusion Recommend to clients that they: Inventory existing arrangements Modify where necessary for compliance Be prepared to discuss “the new reality” with clients who want to push the envelope

18. Son of Stark III – Is it soup yet? Thank you for your attention. Questions? Jody Kepler 303.866.0331 jody.kepler@hro.com Holme Roberts & Owen LLP 1700 Lincoln Street, Suite 4100 Denver, Colorado 80203-4541