New Physician Self-Referral Regulations Are Just around the Corner

The implementation of the latest regulations relating to the physician self-referral law, commonly known as the Stark Law, is rapidly approaching. First published in the Federal Register on August 19, 2008, the regulations have an effective date of October 1, 2009. These Stark Law revisions will affect numerous physician relationships, including certain joint ventures, compensation arrangements and lease arrangements. Physicians and physician joint ventures should determine whether their current relationships need to be restructured prior to the October 1, 2009, implementation date.

Stark Law Basics

The Stark Law currently prohibits a physician from making patient referrals to a health care provider for certain health services that are reimbursable by Medicare if that physician has a "financial relationship" with the health care provider. The designated health services covered by the Stark Law include clinical laboratory services; physical therapy; occupational therapy; radiology and imaging services; radiation therapy and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices; home health care and supplies; outpatient prescription drugs; and inpatient and outpatient hospital care.

The Stark Law includes numerous exceptions for financial relationships that meet specific criteria. If, however, a physician's financial relationship with a health care provider does not meet the criteria of an exception and the physician makes a referral for one of the designated health services, the health care provider may not bill Medicare or the patient for the services. In addition, a fine can be imposed for each violation.

Changes on the Horizon

When the revised Stark Law becomes effective on October 1, 2009, it will prohibit percentage-based compensation formulae for the rental of office space or equipment. Additionally, it will prohibit per-click (also known as per-use or unit of service) payment arrangements for office space and equipment leases, and will change the definition of an "entity" as it applies to designated health services.

The Centers for Medicare & Medicaid Services (CMS) made the revisions to percentage-based payments for the rental of office space and equipment to address concerns that such arrangements provide an incentive for the lessor to increase referrals for designated health services to the lessee to potentially enhance the rental payment under the lease. Although CMS has not yet prohibited percentage-based agreements for non-professional services, such as management or billing services, the agency has stated that it will continue to monitor such arrangements.

The revised Stark Law will also prohibit per-click payments to physician lessors for designated health services rendered to patients who were referred by the physician lessor. This prohibition applies regardless of whether the lessor is the physician or an entity in which the physician has an ownership or investment interest. As a result, per-click arrangements involving physician lessors will need to be restructured prior to October 1 to comply with an acceptable Stark Law exception.

The revised Stark Law regulations also apply to instances where health care entities provide services to their patients "under arrangements" with a third party. Currently, the Stark Law defines an "entity" providing services as the person or entity to which CMS makes payment for the designated health services. A physician-owned third-party entity that is providing the service, but not billing for the services, is not considered an "entity" under the Stark Law. Therefore, the physician's ownership in the third-party entity does not need to meet a Stark Law ownership exception for the physician to refer designated health services to the health care provider. However, beginning October 1, 2009, the Stark Law revises the definition of "entity" to include a "person or entity that has performed services that are billed as" designated health services. This change may prohibit many current "under arrangements" relationships and prevent physicians from referring designated health services to a particular health care provider. To the extent that physicians have "under arrangements" relationships, they need to restructure those relationships to fit within an exception under the Stark Law regulations.

Don't Be Caught Off Guard

The latest Stark Law regulations become effective October 1, 2009. Most physicians involved in percentage-based or per-click payments for rental of office space or equipment will need to restructure those agreements. Likewise, physicians participating in "under arrangements" relationships will also need to comply with the new regulations. If you have questions about the Stark Law or need assistance with any necessary restructuring of your relationships or agreements, please contact your Much Shelist attorney.