Martie Ross

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MISSOURI HOSPITAL ASSOCIATIONSTARK WARS III
Revenge of the RegulatorsJanuary 10, 2008
Martie Ross 913.451-5152 mross_at_lathropgage.com
Donn Herring 314.613.2808 dherring_at_lathropgage.com

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Todays Schedule

• 1000 1020 Stark Overview
• 1020 1040 Direct/Indirect Compensation
• 1040 1100 Physician Recruitment and
  Retention
• 1100 1115 Morning Break
• 1115 1140 Stark and Medical Staff Relations
• 1140 1200 Other Phase III Changes
• 1200 100 Lunch Break
• 100 120 Whats Next for the Stark Law
• 120 140 Anti-Markup Rule
• 140 200 Game Plan / QA

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Session OneStark Overview
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Legislative and Regulatory History

• Legislation
• Stark I (November 1989)
• Stark II (January 1995)
• Regulation
• Stark I Regulation (August 1995)
• Stark II Regulations
• Phase I (January 2001)
• Phase II (March 2004
• Phase III (September 2007)

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Six Elements of a Stark Law Violation

• A physician
• The referral of a patient by the physician to a
  provider to receive a designated health service
  (DHS)
• The receipt by such patient of DHS from the
  provider
• The payment for the DHS by Medicare or Medicaid
• A financial relationship between the physician
  (or an immediate family member of the physician)
  and the DHS provider
• The absence of an applicable exception for such
  financial relationship

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Financial Relationship with the DHS Entity

• Compensation Arrangement
• Direct vs. indirect
• Ownership or Investment Interest

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Stark Penalties

• Denial of payment / repayment of amounts
  collected
• Civil monetary penalty (CMP) of up to 15,000 per
  item or service plus 2x the amount claims
• Extra CMP of up to 100,000 for circumvention
  schemes
• Possible exclusion from Medicare and Medicaid
  participation
• False claims liability through boot-strapping

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Session Two Direct/Indirect Compensation
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Definition of DirectCompensation Arrangement
Expanded

• Impacts All Compensation Arrangements
• Prior to Phase III Regulations
• Definitions
• Direct Compensation Arrangement a
  compensation arrangement directly between a DHS
  provider
• Indirect Compensation Arrangement all
  compensations arrangements indirectly between a
  DHS provider and a physician
• Exceptions
• Direct exception rarely used
• Indirect exception regularly used

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Definition of DirectCompensation Arrangement
Expanded

• After Phase III Regulations
• Definitions
• Direct Compensation Arrangement all
  compensation arrangements between a physician and
  a DHS provider in which there is no intervening
  entity or in which the only intervening entity is
  the physicians medical practice (known as the
  Stand in the Shoes Doctrine).
• Indirect Compensatory Arrangement all
  compensation arrangements indirectly between a
  DHS provider and a Physician (except those
  subject to the Stand in the Shows Doctrine)
• Exceptions
• Direct Exception substantial increase in use
• Indirect Exception substantial decrease in use

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ExampleOffice Lease Arrangement
Pay Salary
Lease Office
Hospital
MD
Multi-PhysicianMedicalPractice
Provide Services
Pay Rent
Refer Payments for Hospital Services
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Prior to Phase III RegulationsOffice Lease
Arrangement

• Analysis focuses on compensation arrangement
  between MD and Medical Practice
• Compensation Arrangement is not a Direct
  Compensation Arrangement due to intervening
  entity (Medical Practice)

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Prior to Phase II RegulationsOffice Lease
Arrangement

• Either Compensation Arrangement is not an
  Indirect Compensation Arrangement (provided the
  aggregate compensation received by the MD from
  the Medical Practice does not fluctuate based on
  the volume or value of the MDs referrals of
  hospital services to the hospital) or
• Compensation Arrangement is an Indirect
  Compensation Arrangement and must meet the
  requirements of the Indirect Compensation
  Exception

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After Phase III RegulationsOffice Lease
Arrangement

• Analysis focuses on compensation arrangement
  between medical practice and hospital
• Compensation Arrangement is a Direct
  Compensation Arrangement
• Compensation Arrangement must meet the
  requirements of one of the General Exceptions
  or one of the Direct Compensation Arrangement
  Exceptions

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Definition of DirectCompensation Arrangement
Expanded

• Game Plan Each existing Compensation
  Arrangement (direct or indirect) between a
  physician and a DHS provider must be re-examined
  to
• determine whether it is a Direct Compensation
  Arrangement, Indirect Compensation Arrangement
  or neither, and
• depending on its classification, whether it meets
  one of the applicable exceptions.
• Note Limited grandfathering may be available.
• Note Provision does not apply to certain
  compensation arrangements with an Academic
  Medical Center or a tax-exempt Integrated Health
  Care System until December 4, 2009.

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Session Three Physician Recruitment and Retention
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Physician Recruitment ExceptionFive Modifications

• Entities which may make payments
• Definition of geographic area served by the
  hospital
• Exemptions from relocation requirement
• Calculation of income guarantees
• Practice Restrictions

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Physician Recruitment ExceptionEntities which
may make payments

• Prior to Phase III Regulations Hospitals and
  Federally Qualified Health Centers
• After Phase III Regulations Also Rural Health
  Centers

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Physician Recruitment ExceptionDefinition of
geographic area served by the hospital

• Physician must relocate practice to geographic
  area served by hospital
• Relocation must involve either
• relocation of physicians office a minimum of 25
  miles
• establishing that at least 75 percent of
  physicians patient care revenues derived from
  services provided to new patients
• Physician must be new to medical staff

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Physician Recruitment ExceptionDefinition of
geographic area served by the hospital

• Prior to Phase III Regulations
• Lowest number of contiguous zip codes from which
  hospital draws at least 75 percent of its
  inpatients).

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Physician Recruitment Exception Definition of
geographic area served by the hospital

• After Phase III Regulations
• If hospital draws fewer than 75 percent of
  inpatients from contiguous zip codes, service
  area is the area comprised of all of the
  contiguous zip codes from which inpatients are
  drawn.
• Hospital may include zip codes from which it
  draws no patients if those codes are surrounded
  by codes from which hospital draws at least 75
  percent of inpatients.
• Rural hospitals may determine service area using
  lowest number of contiguous (or in some cases,
  noncontiguous ) zip codes from which hospital
  draws at least 90 percent of inpatients.

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Physician Recruitment ExceptionExempt from
Relocation Requirement

• Prior to Phase III Regulations Residents and
  physicians who have been in practice for less
  than one year.
• After Phase III Regulations
• Physician who, for 2 years immediately prior to
  recruitment, was employed full-time by bureau of
  prisons, DOD, VA, or Indian Health Service,
  provided physician did not maintain separate
  private practice.
• Advisory opinion

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Physician Recruitment ExceptionCalculation of
Income Guarantees

• Prior to Phase III Regulations
• Costs allocated by group practice that employs
  recruited physician cannot exceed the groups
  actual incremental costs attributable to the
  recruited physician No allocation of
  pre-existing overhead.

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Physician Recruitment ExceptionCalculation of
Income Guarantees

• After Phase III Regulations
• IF recruited to replace a deceased, retiring, or
  relocating physician in a rural area or HPSA, may
  use lower of (a) a per capita allocation or (b)
  20 percent of the practices aggregate costs.

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Physician Recruitment ExceptionPractice
Restrictions

• Prior to Phase III Regulations Physician
  practice may not impose additional practice
  restrictions on recruited physician other than
  conditions related to quality of care.
• After Phase III Regulations
• Prohibits restrictions that would have a
  substantial effect on recruited physicians
  ability to remain and practice medicine in
  service area after leaving the physician practice.

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Physician Recruitment ExceptionPractice
Restrictions

• Restrictions on moonlighting
• Prohibitions on soliciting patients and/or
  employees of the physician practice
• Requiring the recruited physician treated
  Medicaid and indigent patients
• Requiring the recruited physician not to use
  confidential or proprietary information of the
  physician practice
• Requiring the recruited physician to repay losses
  that are absorbed by practice in excess of any
  recruitment payments.

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Physician Recruitment ExceptionPractice
Restrictions

• liquidated damages permissible if payment is not
  significant or unreasonable.

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Physician Recruitment ExceptionPractice
Restrictions

• At a minimum, restriction must comply with state
  and local laws regarding non-compete agreements.
• Compliance with such requirements, however, does
  not necessarily mean the restriction is
  permissible under the Stark Exception.

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Physician Recruitment ExceptionPractice
Restrictions

• Springing non-competes?

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Physician Recruitment ExceptionPractice
Restrictions

• Action Plan
• Consider modification of existing agreements to
  take advantage of relaxed requirements
• Recalculation of income guarantees in appropriate
  situations,
• Revise provision concerning practice restrictions

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Physician Retention ExceptionThree Modifications

• Entities which may make payments
• Location of entity making payments
• Prerequisites for payments

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Physician Retention ExceptionEntities Which May
Make Payment

• Prior to Phase III Regulations Hospitals and
  Federally Qualified Health Centers
• After Phase III Regulations Also Rural Health
  Centers

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Physician Retention ExceptionLocation of Entity
Making Payment

• Prior to Phase III Regulations Facility making
  payment must be located in HPSA.
• After Phase III Regulations
• Physicians current medical practice is located
  in a rural area, a HPSA, or an area of
  demonstrated need as determined by advisory
  opinion
• At least 75 percent of the physicians patients
  either reside in a MUA or are members of MUP.

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Physician Retention ExceptionPrerequisites for
Payment

• Prior to Phase III Regulations Bona fide written
  recruitment offer that would require relocation
  of at least 25 miles to a location outside the
  geographic area served by hospital.
• Payments cannot exceed the lesser of (a)
  difference between current income and anticipated
  income under recruitment offer, and (b)
  reasonable costs of recruiting replacement

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Physician Retention ExceptionPrerequisites for
Payment

• After Phase III Regulations
• In place of a bona fide written offer, a
  physician may provide written certification of
  bona fide opportunity for future employment
• Hospital must take reasonable steps to verify the
  information in the certification.
• If relying on written certification, payment
  cannot exceed the lower of (a) 25 percent of the
  physicians current annual income, or (b)
  reasonable costs of recruiting replacement

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Session Four Stark and Medical Staff Relations
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Applicable Exceptions

• Non-monetary Compensation
• Medical Staff Incidental Benefits
• Professional Courtesy
• Compliance Training

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Requirements of Non-MonetaryCompensation
Exception Relaxed

• Prior to Phase III Regulations
• Non-Monetary Compensation is capped at 300 per
  year per physician (adjusted annually for
  inflation, currently 328) for all non-monetary
  compensation
• IF DHS provider inadvertently provides a
  physician with non-monetary compensation in
  excess of annual limit in any year, such action
  violates the Stark Law and may not be cured by
  the physician repaying such excess.

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Requirements of Non-MonetaryCompensation
Exception Relaxed

• After Phase III Regulations
• Separate from the 300 per year per physician
  limit, a DHS provider that has a formal medical
  staff may provide one local event per year for
  the entire medical staff (excluding gifts and
  gratuities)

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Requirements of Non-MonetaryCompensation
Exception Relaxed

• If DHS provider inadvertently provides a
  physician with non-monetary compensation in
  excess of annual limit in any year, the breach
  may be cured if
• the value of the excess non-monetary compensation
  does not exceed fifty percent of the then
  applicable cap on non-monetary compensation,
• the physician returns the excess compensation by
  the earlier of the end of the calendar year or
  the 180th day after such excess non-monetary
  compensation was received, and
• there has not been a similar breach and cure with
  respect to the physician during the immediately
  preceding three years.

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Medical Staff Incidental Benefits

• Offered only during periods when physician is
  making rounds or otherwise performing duties on
  hospital campus that benefit the hospital or its
  patients
• The value of the benefit is less than 25 per
  occurrence (amout adjusted annually for inflation
  currently 28)
• All medical staff members practicing in same
  specialty are offered same benefit
• Benefit is reasonably related to the provision
  of, or facilitates the delivery of, medical
  services at the hospital
• Benefit is consistent with types of benefits
  offered to medical staff members by other similar
  facilities in same area
• Benefit is not determined in any manner that
  takes into account volume or value of referrals
  or other business generated between parties

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Examples of Permissible Benefits

• Internet access, pagers, or two-way radios, used
  away from the campus only to access hospital
  medicalrecords or information or to access
  patients or personnel who are on the hospital
  campus
• Identification of the medical staff on a hospital
  web site or in hospital advertising.
• Laundering of scrubs
• Meals in the cafeteria while the physician is
  attending patients at the hospital

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Professional Courtesy

• Offered to all physicians on medical staff or in
  local community without regard to volume or value
  of referrals
• Items and services provided are the type
  routinely provided by the hospital
• Policy is set out in writing and approved in
  advance by governing body
• Not offered to any person who is a federal health
  care program beneficiary, unless good faith
  showing of financial need
• If courtesy involves waiver of any coinsurance
  obligation, insurer is informed in writing of
  such waiver
• Arrangement does not violate the anti-kickback
  statute or any billing or claims-submission laws
  or regulations.

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Compliance Training Exception Expanded(slightly)

• Prior to Phase III Regulations could not
  qualify for CME
• After Phase III Regulations may qualify for CME
  (provided that CME is not primary purpose)

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Game Plan

• Sample policy and procedure

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Session Five Other Phase III Changes
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Changes Impacting PersonalServices Arrangement
Exception

• Impacts
• Personal Services Arrangement Exception
• Holdovers allowed
• Prior to Phase III Regulations no holdovers
  allowed
• After Phase III Regulations up to 6-month
  holdovers allowed
• Hourly rate safe harbor eliminated
• Prior to Phase III Regulatory hour rate
  compensatory safe harbored if certain criteria
  met
• After Phase III Regulation hour rate
  compensation no longer safe harbored

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Fair Market Value Expanded to Cover bothPatients
to Physicians and Payments by Physicians

• Impacts Fair Market Value Exception
• Prior to Phase III Regulations only covered
  compensation arrangements in which the physician
  received a payment
• After Phase III Regulations covers both
  compensation arrangements in which the physician
  receives a payment and compensation arrangement
  in which the provision makes a payment
• NOTE This exception will become increasingly
  significant due to the development of the Stand
  in the Shoes Doctrine

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Changes Impacting Group Practices

• Impacts Physician Services Exception, In-Office
  Ancillary Services Exception, Employment
  Exception and Personal Services Agreement
  Exception
• Prior to Phase III Regulations
• Incident To Services can be used to calculate a
  physicians productivity bonus and a physicians
  profitability bonus (if the physician is part of
  a Group Practice).
• Incident to Services include any service that
  meets the definition of Incident to, even if it
  has its own billing category
• Physician in the Group Practice includes
  independent contractors who contract with the
  Group Practice, directly or indirectly, to
  provide services in the Group Practices
  facility.

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Changes Impacting Group Practices

• After Phase III Regulations
• Incident To Services can only be used to
  calculate a physicians productivity bonus (if
  the physician is part of a Group Practice).
• Incident To Services include services that meet
  the definition of Incident To and do not have
  their own billing category, with certain
  exceptions.
• Physician in the Group Practice includes
  independent contractors who contract with the
  Group Practice directly to provide services in
  the Group Practice facility.

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Certain Lease Amendments Prohibited Under the
Rental of Office Space or Equipment Exceptions

• Impacts Rental of Office Space Exception and
  Rental of Equipment Exception
• Prior to Phase III Regulations amendments
  allowable
• After Phase III Regulations amendments
  impacting rent prohibited

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Provision of In-Office Ancillary Services in a
Shared Facility in Same Building Questioned

• Impacts In-Office Ancillary Services Exception
• Prior to Phase III Regulations seemingly
  encouraged
• After Phase III Regulations questioned

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Criteria for Intra-FamilyRural Referral
Exception Relaxed

• Impacts Intra-Family Rural Referral Exception
• Prior to Phase III Regulations no alternative
  provider within a 25-mile radius
• After Phase III Regulations no alternative
  provider within a 25-mile radius or within 45
  minutes driving time

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Session Six Whats Next for the Stark Law
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Changes proposed in Proposed 2008Medicare
Physician Fee Schedule

• Per click lease arrangements severely curtailed
• Percentage compensation arrangements may only
  be used to compensate physicians for personally
  performed physician services
• DHS provided under arrangement to a hospital
  will be considered to be performed by both the
  hospital billing for the DHS and the entity
  actually performing the DHS
• If payment is denied due to alleged Stark
  violation, provider bears burden of proof on
  appeal

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Changes Discussed in Proposed2008 Medicare
Physician Fee Schedule

• Stand in the Shoes II If a DHS entity owns or
  controls another entity to whom a physician
  refers Medicare patients for DHS, the DHS entity
  would stand in the shoes of that entity
• In-Office Ancillary Services Exception Narrowed
• Expand carved-out services
• Narrow definition of centralized building and
  same building
• Require stronger link between ancillary service
  and physicians primary practice

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Other Changes

• Elimination of whole Hospital exemption for
  both specialty hospitals and general hospitals
  2007
• Expand Stark to cover Medicaid 2004
• Expand Stark to cover private payors 2001

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Session Seven Changes to the Purchased
Diagnostic/Anti-Markup Rule
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Background

• Physicians provision of and payment for services
  (especially ancillary services) impacted by 3
  laws
• Stark Law substantive rule that prohibits
  billing for DHS if furnished as a result of
  prohibited referral
• Purchased Diagnostics Rule - substantive rule
  that limits how much a physician can bill
  Medicare for the technical component of a
  diagnostic test purchased from another provider
• Reassignment Rules technical rule that
  specifics to whom a physician or other provider
  may reassign the right to be paid by Medicare

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Original Purchased Diagnostic Rule

• Applied to
• The technical component of diagnostic tests
  billed by physician or other supplier including,
  without limitation, x-ray, EKGs, EEGs, cardiac
  monitoring, ultrasound, and the technical
  component of physician pathology services
• If such technical component was
• Purchased outright from an outside supplier
• Provided through staff and equipment leased from
  an outside supplier

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Original Purchased Diagnostic Rule

• Payment limited to lesser of
• Fee schedule amount if the outside supplier
  billed directly
• Physicians actual charge
• Outside suppliers net
• Interpreted as actual charge

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Purchased Diagnostics Cheat Sheet
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Anti-Mark-Up RuleEffective January 1, 2009

• Applies to
• The technical component or professional component
  of a diagnostic test billed by a physician or
  other supplier
• If that diagnostic test was
• ordered by the physician or other supplier (or a
  related party) and
• Purchased from an outside supplier or
• Performed at a site other than an office where
  the physician or other supplier provides
  substantially the full range of patient care
  services that the physician or other supplier
  regularly provides

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Anti-Mark-Up RuleEffective January 1, 2009

• Payment limited to lesser of
• Fee schedule amount if outside supplier billed
  directly
• Billing physician or other suppliers actual
  charge
• The net charge
• Defined as actual charge for a purchased test
  and cost for tests performed at an appropriate
  location (excluding overhead costs like rent)

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Anti-Mark-Up2009 Cheat Sheet
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Anti-Mark-Up RuleJanuary 1, 2008 to December 31,
2008

• Applies to
• The technical component of all diagnostic tests
  billed by a physician or other supplier, if such
  test was ordered by such physician or other
  supplier
• The technical component and professional
  component of all anatomic pathology diagnostic
  tests billed by a physician or other supplier,
  if ordered by such physician or other supplier
  and performed at an inappropriate location

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Anti-Mark-Up RuleJanuary 1, 2008 to December 31,
2008

• Payment limited to lesser of
• Fee schedule amount if outside supplier billed
  directly
• Physicians or other suppliers actual charge
• The net charge
• Defined as actual charge for purchased tests
  and cost for test performed at an inappropriate
  location (excluding overhead costs like rent).

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Session Eight Game Plan
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Step OneSTARK /Anti-Markup Risk Assessment

• DO conduct a risk assessment of every financial
  relationship you have with physicians
• DO conduct a drill down review at the department
  manager level for any off book arrangements
  that may exist in your organization
• DONT assume these agreements are in writing
  despite the Stark requirement for written
  agreements

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Step TwoRenegotiate

• Work with the physician (or group) to bring
  financial relationships into compliance as soon
  as possible
• Remember this assumes the arrangement was in
  compliance prior to December 4, 2007. If not, you
  may need to self-report to OIG in order to
  mitigate the risks of False Claims Act exposure!

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Step ThreeRewrite

• If necessary, rewrite your
• Compliance plans
• Governance bylaws
• Medical staff bylaws
• Administrative policies
• Remember that the new regulations may make your
  current policies obsolete.

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Step FourEducate

• Educate yourself, your Board, and your Medical
  Staff about the impact of these new regulations
  on your relationships with physicians

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