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CMS FY 2009 IPPS Final Rule — “Stark” Changes to Self-Referral

In the dog days of August, the Centers for Medicare and Medicaid Services has issued some fresh air for self-referral reform advocates.  This overview highlights key changes to the Stark regulations that affect ACR members. However, the ACR emphasizes that members should consult with qualified health care attorneys to interpret the voluminous new rules and apply them to existing or potential financial arrangements. 

Click here to view the ACR Legal Department’s attorney referral list. 

On July 31, 2008, CMS issued its final rule regarding the Hospital Inpatient Prospective Payment System (IPPS). CMS includes a lengthy section that contains many of the anticipated Stark self-referral final rules. In some, but not all cases, CMS has decided to give physicians, hospitals and entities such as imaging centers until Oct. 1, 2009, to restructure or unwind current arrangements. Other changes will take effect very soon — on Oct. 1, 2008.

Here, the agency combines finalizing such changes articulated in prior proposed physician fee schedule rules with changes it proposed last April in the IPPS rule. These represent a wide array of Stark self-referral concepts, including:

o         “Stand-in-the shoes” compensation arrangements

o         Services furnished “under arrangements” (e.g., that an entity other than the claimant provides)

o         Period of disallowance for noncompliant financial relationships

o         Set-in-advance compensation/percentage-based compensation

o         “Per-service” or “per-click” leasing arrangements

o         Time-block rental arrangements

o         Alternative method for meeting certain exceptions,

o         Ownership or investment interest in retirement plans

o         Burden of proof

CMS has left untouched the notorious in-office ancillary services exception because it did not propose revisions to the exception either in the CY 2008 physician fee schedule final rule or the IPPS FY 2009 proposed rule. Thus, the most controversial self-referral exception remains intact — for now. However, CMS has publicly indicated and told ACR representatives directly that it is willing to consider scaling back the provision in the future. The ACR will continue to encourage CMS to put out proposed changes to the in-office ancillary service exception which will not take place until at least 2009.

“Stand in the Shoes” 

In the CY 2008 proposed fee schedule rule and the Stark III final rule, CMS included physicians’ “stand in the shoes” deals as “compensation arrangements” with designated health services (DHS) entities (e.g., radiology group practices or imaging centers) that would be subject to Stark restrictions. Thus, referring physicians will be treated as if they had the same compensation arrangements as the physician organizations in whose shoes they stand (e.g., a wholly-owned PC or other physician practice). CMS then introduced several proposals in the April 2008 IPPS rule on “stand in the shoes” for physician organizations and DHS entities they own or control. The ACR told CMS it regarded “stand in the shoes” arrangements as circumventing the law’s intent and thus encouraged CMS to restrict them.  

Medicare now has finalized its IPPS proposal to require a physician who has an ownership or investment interest in a physician organization to represent, or “stand in the shoes” of that physician organization. However, CMS will carve out from “stand in the shoes” treatment physicians who hold only a titular ownership interest (do not receive financial benefits such as profit shares, sale proceeds or dividends). Additionally, CMS will allow but not require non-owner physicians and titular owners to stand in their physician organization’s shoes.  For instance, employees and independent contractors may stand in their physician organization’s shoes for applying Stark rules on direct and indirect compensation arrangements. These Stark changes to “stand in the shoes” will take effect Oct. 1, 2008. 

CMS also clarifies that the physician “stand in the shoes” provisions do not apply to an arrangement that meets the Stark exception for academic medical centers (AMCs).  Thus, radiologists and other faculty practice plan physicians will not have to “stand in the shoes” of their plan if they meet the AMC exception. When CMS issued Phase III of its Stark rules, academic medical centers and hospital systems protested that their “mission support” payments to physician organizations such as faculty practice plans might run afoul of the Stark regulations. Consequently, CMS delayed the effective date of its Phase III AMC and integrated health system-related provisions to Dec. 4, 2008. But it did not finalize its proposals to establish a new exception to protect mission support or similar payments to physician organizations, stating that existing exceptions provide adequate protection to such arrangements.

“Set in Advance” or Percentage-Based Compensation Arrangements

Stark requires that compensation between physicians and DHS entities in which they have a financial relationship be “set in advance.” CMS mandated in Phase I Stark that compensation arrangements that occur on a percentage basis (e.g., percentage of revenues raised, earned or collected), did not meet that threshold. Contractors and hospital-based physicians who had limited percentage-based compensation requested that CMS change its position. CMS did so.  In Phase II, CMS allowed physicians to earn percentage-based compensation for physician services they personally perform — and get a productivity bonus on any such services. The ACR had commented in support of legitimate, non-abusive percentage-based arrangements for hospital-based radiologists.

However, CMS later became aware of arrangements that pay for services and items, e.g., medical equipment and office space, on a percentage of revenues the equipment or space realizes. In 2007, CMS proposed to ban percentage-based compensation in such arrangements.  It now finalizes that proposal, effective Oct. 1, 2009 so physicians may restructure or unwind non-compliant arrangements. 

Thus, physicians and DHS entities will not be able to use percentage-based compensation formulae to decide rental charges for office space and equipment. Importantly, CMS will extend this ban to the indirect compensation and fair market value exceptions. Personally performed physician services — clinical and administrative — may continue to use percentage-based arrangements.  CMS vows, though, to watch closely percentage-based arrangements for physician services and for non-professional services (billing or management services).  Given the tough language CMS uses in its final rule, the ACR believes it may well decide to crack down further on percentage-based arrangements.

Perhaps the most dramatic Stark change focuses on “per-service” or “per-click’ space and equipment leases. In 2007 and 2008, CMS proposed that the Stark regulatory exception for space and equipment leases would not include “per service” or “per click” payments to a physician lessor for services rendered by an entity lessee — imaging center — to patients who the clinician refers to the center.  The agency believed that such arrangements “are inherently susceptible to abuse” because the physician lessor would have a clear incentive to profit by referring more patients to the lessee. The ACR had urged CMS to ban all such leases. Yet CMS did not finalize any per-click proposal — until now. 

Effective Oct. 1, 2009, CMS will prohibit many but not all per-click lease arrangements. It will ban per-click lease payments from physician lessors to DHS entities for services the entities render to those physicians’ patients. CMS also will invalidate per-click deals in which the DHS entities are lessors to a physician or a physician organization lessee. It has become equally concerned about abusive arrangements in which DHS entities lease back space and equipment to physician-lessees who pay them on a per-click basis. The agency will not grandfather existing per-click deals that otherwise would violate this final rule. 

CMS notes that Congress did not intend to give carte blanche to per-click leases and is thereby exercising its regulatory authority to set new requirements under space and equipment leases. Notably, CMS brushed aside comments that it should not restrict per-click deals unless it had tangible evidence of abuse in therapeutic procedures such as lithotripsy. Rather, CMS says that potentially abusive arrangements need reform, citing the research that links self-referral and utilization. Clearly, CMS is accepting the “business case” for self-referral reform.

CMS will not prohibit time-based lease deals, including the common “block lease” arrangements in which a clinician rents time on an MR scanner at an imaging center for X hours per week or month. It believes that time-based leases can meet applicable Stark exceptions but will monitor them and may issue future rules. 

“Under Arrangements”

CMS will curtail many “under arrangements” ventures in which physicians supply items and services to DHS entities. Specifically, CMS will amend the Stark definition of “entity” to clarify that it will regard a person or entity to be “furnishing” DHS if it is the person or entity that has performed DHS (although another person or entity actually billed services as DHS) or presented Medicare with a claim for the DHS. If an imaging center performs an imaging study for which a clinician’s group practice bills, CMS will treat the center and group as an “entity” for purposes of this change. Fundamentally, where referring clinician A owns or invests in center B that does imaging, CMS has decided that the parties should not escape Stark liability only because company C bills for the imaging services. Physicians and centers must comply as of Oct. 1, 2009.

Since 2007, the agency has considered how best to prohibit certain “under arrangements” ventures. These ventures have escaped Stark regulation because only referring physicians technically do not refer to the joint venture “entity,” but rather to the hospital. The ACR commented that CMS should adopt the MedPAC recommendation to expand the definition of physician ownership. The ACR also encouraged CMS to clarify that a “substantial portion” of an imaging center’s revenue from a radiologist or clinician be set at 50 percent or greater. However, CMS rejects MedPAC’s approach as difficult to administer and questions whether it has authority to implement it.

CMS reiterates that Congress made a policy decision to prohibit all but a few instances of self-referral. It justifies tightening “under arrangements” by noting that a physician cannot fit within the “whole exception” to Stark by purchasing a stake in a hospital’s radiology department and self-referring for imaging services. Thus, in the agency’s view, the physician should not be allowed to end run the law by setting up a joint venture with a hospital that basically moves all or part of its radiology department outside of the hospital to a facility in which the physician has an ownership stake and to which she or he then refers for imaging services that are billed “under arrangements.”

Ownership or Investment in Retirement Plans

Recently, CMS has learned that some physicians have used their ownership of or investment in retirement plans to purchase or invest in unrelated entities to which they send patients for DHS. Thus, CMS finalizes its proposal to exempt from the Stark rules only physicians’ or their immediate family members’ ownership or investment interests in their employer-sponsored retirement plans — not in a retirement plan that another entity may establish. CMS uses an imaging-specific hypothetical to illustrate its concern with potentially abusive retirement plan stakeholds.  This change will take effect Oct. 1, 2008. ACR members should review their retirement plan structures accordingly.

Period of Disallowance

Throughout the Stark rules, CMS has considered the “period of disallowance” (when a physician could not refer to an imaging center and the center could not bill Medicare because of a noncompliant financial relationship) to run from the date the relationship failed to meet the statute and regulations and end when the relationship started complying or terminated. CMS is finalizing its proposal to end this period no later than the date on which all excess compensation goes back to the party that paid it, or the date on which all additional required compensation goes to the party to which it is owed. Prospective “fixing” of a financial arrangement that flunks Stark is not enough — CMS clarifies that, before being able to bill Medicare for imaging services, a physician who received a below-market lease deal must pay monies sufficient to bring all rental payments up to fair market value. CMS has taken a hard line on this “twilight zone” of financial relationships. So ACR members who believe they may be faced with potentially improper deals should confer with attorneys as needed.