1. Lori K. Nomura 206.447.7895 | nomul@foster.com Association of Washington Public Hospital Districts “Leading Wisely, Living Well” The Seventh in a Series of Retreats April 29 - May 1, 2008 Stark II Phase III Regulations

2. Stark II Phase III Regulations 2 Objectives 1.Review basic framework of the statute 2.Discuss the most significant changes in the Phase III regulations 3.Identify action items

3. Stark II Phase III Regulations 3 The Stark Prohibition  If a physician (or a physician’s family member) has a financial relationship with an entity, the physician may not refer Medicare patients to the entity for designated health services unless an exception applies  Stark also prohibits an entity from billing for services provided as a result of a prohibited referral

4. Stark II Phase III Regulations 4 Penalties  Payment denial/recovery by Medicare  Refund to the individual  Civil monetary penalties of up to $15,000 per prohibited service/billing  Civil monetary penalties of up to $100,000 for a circumvention scheme  Program exclusion

5. Stark II Phase III Regulations 5 Analytical Approach  Is there a financial relationship between the referring physician and hospital? If yes,  Does the physician refer Medicare patients to the hospital for DHS? If yes,  Does the arrangement comply with an exception? If no, any bill submitted for a DHS resulting from a prohibited referral violates the statute.

6. Stark II Phase III Regulations 6 Physicians “S tand in the Shoes ” of PC Physician Org/ Group Practice Hospital MD OLD Rule

7. Stark II Phase III Regulations 7 Arrangements With Non-Professional Entities Are Still OK MDs Hospital Leasing Company

8. Stark II Phase III Regulations 8 Arrangements With Professional Entities Must Be Reevaluated Hospital Subsidiary Nonprofit Hospital MD

9. Stark II Phase III Regulations 9 Delay and Changes to SITS CMS delayed the effective date of SITS for certain arrangements of AMCs and exempt, integrated health systems 2009 IPPS Proposed Rule: 1.SITS wouldn’t apply if certain compensation arrangement exceptions are met 2.SITS would apply only to physicians who own the physician organization 3.New exception for “mission payments”

10. Stark II Phase III Regulations 10 Physician Recruitment  Exclusive exception  Only available for “qualified recruits”  Distinction between direct and indirect recruitment  Greater flexibility for rural providers

11. Stark II Phase III Regulations 11 Who Qualifies for Recruitment? Recruit must 1.not be on the medical staff; 2.relocate his/her medical practice; 3.into the hospital’s “geographic service area”

12. Stark II Phase III Regulations 12 Zip CodesIP %Total 9921022% 9921120% 42% 9921218% 60% 9921816% 76% 99225 8% 84% 99301 7% 91% 99302 2% 93% 99310 2% 95% 99314 2% 97% urban rural Rural Hospitals Have a Larger Service Area

13. Stark II Phase III Regulations 13 Physician Recruitment, continued Direct recruitment requirements:  Written and signed agreement  Not conditioned on referrals  Remuneration not tied to referrals or other business  Recruit can establish privileges and refer elsewhere

14. Stark II Phase III Regulations 14 Indirect Recruiting  Except for actual recruiting costs incurred by the physician/group, the remuneration passes directly to the recruit  In an income guarantee, costs allocated to the recruit cannot exceed the actual additional incremental costs attributable to the recruit

15. Stark II Phase III Regulations 15 Actual Additional Incremental Costs What qualifies?  Recruit’s salary and benefits  Recruit’s malpractice premium and license dues  Cost of space rental? Maybe.  Cost of staff salary and benefits? Maybe.  General overhead? Probably not.

16. Stark II Phase III Regulations 16 Indirect Recruiting, continued  The physician/practice cannot impose unreasonable practice restrictions on a recruit  Records of actual costs and amounts paid to a recruit must be maintained for five years and be made available to CMS

17. Stark II Phase III Regulations 17 Retention Exception is Expanded  Available to hospitals, FQHCs and RHCs  Practice located in rural area, HPSA or underserved area  Bona fide offer requiring relocation outside of the hospital’s service area  Written offer from other hospital or physician organization for recruitment or employment  Certification from physician recruit

18. Stark II Phase III Regulations 18 Retention Payment Limits Vary Written Certification (the lower of…)  Amount equal to 25% of current annual income (calculated uniformly)  Reasonable cost to recruit a new physician to replace the physician Bona Fide Written Offer (the lower of…)  Amount = income physician would receive minus current income  Reasonable cost to recruit a new physician to replace the physician

19. Stark II Phase III Regulations 19 Disclosure of Financial Relationships  CMS proposes data collection about financial relationships  Description of all compensation arrangements with physicians such as:  employment  personal services  leases  recruitment  Report must be completed and returned within 60 days  CMP of $10,000 per day

20. Stark II Phase III Regulations 20 Copies Of Contracts Are Required Include a copy of the written agreement with the physician

21. Stark II Phase III Regulations 21 CEO or CFO Must Certify Signed by the CEO or CFO

22. Stark II Phase III Regulations 22 Non-Monetary Compensation Requires Record-Keeping  Hospitals must track the value of all benefits provided to physicians  New “cure” period  New holiday party exception

23. Stark II Phase III Regulations 23 Set In Advance Changes Again  Lease, personal services & FMV exceptions  Cannot amend the financial terms during the term  After first year, a new agreement is permissible  Limited holdover permitted

24. Stark II Phase III Regulations 24 Period of Disallowance  Begins when the relationship failed to comply with the statute  Ends when either  Arrangement brought into compliance  When excess/shortfall is paid

25. Stark II Phase III Regulations 25 Rural Referrals  Phase II created the exception for referrals from a physician to his/her family member or DHS entity with a financial relationship with that family member if:  patient lives in a rural area  no other person or entity to furnish the DHS within 25 miles of patient’s residence  Phase III alternative test of 45 minute transportation time  Warning to retain documentation such as weather report

26. Stark II Phase III Regulations 26 Limitation on Incident-To Billing  CMS defined “incident-to” services to exclude services and supplies that have their own benefit category under the Social Security Act  diagnostic x-ray  diagnostic lab test  Any credit to physician group practice members is prohibited

27. Stark II Phase III Regulations 27 Phase III Action Items  Monitor arrangements with physicians to ensure all aspects of exception are met  Gather certain minimum data set based on DFRR requirements  Track nonmonetary compensation

28. Stark II Phase III Regulations 28 Contact Information Lori Nomura Telephone: 206-447-7895 Email: Nomul@Foster.com Foster Pepper PLLC 1111 Third Avenue, Suite 3400 Seattle, WA 98101 www.foster.com

29. Lori K. Nomura 206.447.7895 | nomul@foster.com Association of Washington Public Hospital Districts “Leading Wisely, Living Well” The Seventh in a Series of Retreats April 29 - May 1, 2008 Stark II Phase III Regulations