Stark II more benign, but it still has a bite
In-office ancillary services are an example
While experts are calling the final Stark II rules released in January a more benign reading of the law than Stark I, they also warn that parts of the new rules will be more stringent than before.
One area in which the rules get more strict is in-office ancillary services, notes John T. Brennan Jr., a lawyer with Crowell & Moring in Washington, DC. Specifically, part-time leases of space housing designated health services at a site away from the place of the physician group’s main practice are not permitted under the final rule. This rule is intended to prevent practices from entering into bogus deals in which they "rent" useless off-site space to potential service providers to mask kickbacks.
On the plus side, Stark II gives health care providers more flexibility than many had expected, especially when it comes to things like indirect compensation arrangements.
When it came to indirect compensation, the original proposed rule focused on the so-called "first tier transaction" — the payment a designated health service (DHS) provider initially makes — and defined indirect compensation arrangements in a way that automatically placed most integrated health care systems in violation of the Stark statute, says Mark R. Fitzgerald, an attorney with Gardner, Carton & Douglas in Washington, DC.
The final rule, however, avoided this situation by focusing on final-tier transactions, or how a physician gets paid, notes Fitzgerald. In turn, such arrangements do not violate the new Stark provisions, provided the physician’s compensation does not vary based on volume or value of referrals to the hospital or other DHS provider and is consistent with fair market pricing. "This was a very significant change," he stresses.
Here are some other changes:
• Per use compensation. Unlike the proposed rule, the final rule also allows "per-use" compensation to physicians — such as time-based and per-test payments — if the payment is set in advance, is not adjusted during the term of the arrangement as a reflection of the number of referrals generated for DHS, and is set at fair market value.
• Academic medical centers (AMCs). Teaching hospitals and medical schools ordinarily give financial support to affiliated physician practices through funding for research/teaching activities as well as office space, administrative assistance, and other gifts.
In the proposed rule, HCFA wanted the separate legal entities of an academic medical center to demonstrate that their various financial transfers were based on fair market value — something most medical centers felt was not practical. HCFA backed off in the final rule by acknowledging a "fundamental need" for a separate exception for services provided by academic medical centers. Under Stark II, an academic medical center is in compliance with this exception if:
- the referring physician is a bona fide medical center employee and a bona fide faculty appointment at the affiliated medical school;
- the compensation paid to the referring physician is set in advance and does not exceed fair market value for the services provided and is not calculated based on the volume or value of referrals the physician makes;
- all cash transfers are in support of the AMC’s missions (teaching, research, services for poor and/or uninsured patients);
- the different parts of the academic medical center have written agreements describing their relationship;
- all research funding directed to physicians is actually used for that purpose;
- the referring physician’s compensation arrangement does not violate the federal anti-kickback statute.
Tip: Any arrangement that satisfies this medical center exception should also satisfy the indirect compensation exception, advises Fitzgerald.
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