2008 Medicare Physician Fee Schedule

Stark Physician Self-Referral Provisions & Related Policy Changes

This article appeared in G-2 Compliance Report, September 2007.

Pathologists and other physician specialists—as well as hospitals, laboratories, and imaging providers—could face significant new regulatory compliance hurdles beginning January 1, 2008, if certain rules under the proposed 2008 Medicare Physician Fee Schedule (MPFS) relating to the Stark physician self-referral law and reassignment and antimarkup provision are finalized (See 72 Fed. Reg. 38,122, July 12, 2007). According to the Centers for Medicare & Medicaid Services (CMS), these policy changes are necessary to close loopholes that make Medicare vulnerable to abuse. If implemented, these policy changes would require the renegotiation of thousands of existing arrangements—many of which were carefully structured to comply with CMS’s previous guidance.

Comments on the proposed 2008 MPFS were due by August 31. The final 2008 MPFS is due to be published sometime this fall. Any policy changes included in the final 2008 MPFS are expected to be effective January 1, 2008.

Purchased Diagnostic Test Rule
CMS has proposed changes to the text of previously proposed rules relating to the purchased diagnostics testing rule. In the proposed 2007 MPFS (71 Fed. Reg. 48982, Aug. 22,2006), CMS solicited comments on (1) amending the reassignment rules to eliminate the distinction between the purchased diagnostic test rules and the reassignment rules, (2) redefining the term “centralized building,” and (3) imposing an anti-markup provision on the professional component of purchased diagnostic tests. CMS did not finalize those provisions in the final 2007 MPFS, but has now revisited the issue in the proposed 2008 MPFS.

The proposed 2008 MPFS would impose an antimarkup provision on the interpretation portion of purchased diagnostic tests to match the anti-markup provision already imposed on the technical component of such tests. The antimarkup provision would apply whether the billing entity purchases the technical or professional component outright or receives a reassignment of the right to bill. The only exception to the anti-markup provision is where the individual performing the test is a full-time employee of the billing entity. To try to avoid efforts to “game” these rules by inflating the physician’s net charge, CMS would define the performing physician’s “net charge” to exclude costs of equipment and space leased to the performing physician.

CMS has also raised concerns that the current antimarkup provision applicable to the technical component does not address overutilization of diagnostic tests performed in centralized locations where the technician performing the test is a part-time or leased employee of the group. CMS is seeking comments on whether it should include a specific anti-markup provision to address this situation. Additionally, CMS has indicated that it would add an exception to the antimarkup provision for professional components ordered by independent laboratories because it does not view such arrangements as posing a significant risk. Finally, CMS has indicated that the proposed antimarkup provisions make several aspects of the proposed 2007 MPFS unnecessary, such as a change in the definition of “centralized building.”

Per-click Payments
The Stark statutory and regulatory space and equipment exceptions permit physicians to refer to entities with which they have a lease arrangement provided the arrangements meet certain criteria. Among the criteria, rental payments must be set in advance, consistent with fair market value, and not determined in a manner that is related to the volume or value of the physician’s referrals.

CMS initially prohibited “per-click” arrangements in the 1998 proposed Stark II, Phase I regulation as reflecting the volume or value of a physician lessor’s own referrals. In the final Stark II, Phase I regulation, CMS reversed itself and permitted time-based or unit-of-service based payments, even when the physician receiving the payment generated the payment through a designated health service (DHS) referral.

In the proposed 2008 MPFS, CMS has again reconsidered its position and seems to be resurrecting the position taken in the 1998 proposed rule. CMS has proposed that the exception for space and equipment leases not include “per-click” lease payments for services rendered by the DHS entity lessee to a patient referred by the physician lessor. CMS is concerned that such lease arrangements provide incentives for physician lessors to refer a higher volume of patients to the DHS entity lessee. If this proposed rule is finalized, physician space and equipment leases involving per-click fees that relied on the equipment or space lease exception, as opposed to the indirect compensation exception, will be prohibited.

Definition of "Set In Advance"
Currently, the Stark regulation states that “compensation will be considered ‘set in advance’ if the aggregate compensation, a time-based or per-unit-of-service based amount, or a specific formula for calculating the compensation, is set forth in an agreement between the parties before the furnishing of the items or services for which the compensation is paid.”

In the Stark II, Phase I regulation, CMS took the position that percentage compensation arrangements were not set in advance. CMS subsequently became aware of numerous arrangements under which payment to a physician was based on a percentage of the revenue generated by a physician’s own services. CMS delayed the effective date of this sentence in an effort to avoid unnecessary disruption of such arrangements.In the Stark II, Phase II interim final rule, CMS found its position on percentage compensation overly restrictive and revised it. In the proposed 2008 MPFS, CMS indicates that its intent in allowing percentage compensation was only to allow it where the compensation is to physicians for their own professional services, not in the context of equipment and space leases. Without explaining why, CMS stated that use of percentage-based compensation within equipment and space leases is potentially abusive.

Finally CMS expressed concerns about percentage compensation based on factors that are not directly or indirectly related to physician services. As an example, CMS cited savings by a hospital department, which could limit many common gainsharing arrangements. To address these potential abuses, CMS has proposed limiting the use of percentage compensation to arrangements for personally performed physician services based on the revenues directly resulting from the physician services.

Definition of “Entity” for Services Furnished Under Arrangement
In the proposed 2008 MPFS, CMS notes its continuing concern with overutilization of services provided “under arrangement.” CMS specifically cites its unease with arrangements for hospital outpatient services paid on a per-service basis and physician and hospital joint ventures that provide hospital imaging services. CMS claims that there is no legitimate reason for these arranged-for services, especially when the hospital could furnish such services itself. CMS also expressed concern with services provided under arrangement that are furnished in less medically intensive settings but billed at the higher outpatient rate. CMS cautioned that such arrangements may be little more than a method to share hospital revenues with referring physicians.

In a 2005 report to Congress, MedPAC warned that physician ownership of entities that provide services and equipment to imaging centers and other providers creates financial incentives for physicians to refer patients to these providers, which could lead to overutilization. To address this issue, MedPac recommended expanding the definition of entity to include entities that “derive substantial proportion of their revenue” from a provider of DHS.

In the proposed 2008 MPFS, CMS suggests revising its definition of entity to include persons or entities that perform the DHS, as well as the person or entity that submits claims, or causes claims to be submitted, to Medicare for DHS. CMS suggests that this approach is more “straightforward” than MedPAC’s approach.

In-office Ancillary Services
While not yet proposing specific regulatory changes, CMS is soliciting comments on whether any restrictions to the in-office ancillary services exception are appropriate. Specifically, CMS expresses concern that the types of services now being protected under this exception have expanded beyond what Congress originally intended. CMS states that the exception was intended to allow for the provision of certain services “necessary to the diagnosis or treatment of the medical condition” for which the patient is seeing the physician.

CMS suggests that a good example is a clinical laboratory owned by physicians and located in the physicians’ office that permits the physicians to obtain diagnostic results while a patient waits.CMS seeks comments on the following:           

• Whether certain services should even qualify for the exception (e.g., therapy services not provided on an incident-to basis, services not needed at the time of the office visit, complex laboratory services)
• Whether the definition of the terms centralized building and same building should be changed, and if so, how           

• Whether nonspecialists should be allowed to use the exception to refer

Burden of Proof as to Whether Prohibited Referral Occurred
The Stark law is currently silent as to who bears the burden of proof that a prohibited referral has occurred in the context of appealing a Medicare payment denial. CMS proposes adding a new section to clarify that the entity submitting the claim has the burden of proof to establish that the service was not furnished pursuant to a prohibited referral.

OB Malpractice Insurance Subsidies
Due to concern that the current exception for obstetrical malpractice insurance subsidies may be “unnecessarily restrictive,” CMS is seeking comments on various potential changes to the exception to address problems of patient access to care without creating increased risk of program abuse.

Period of Disallowance for Noncompliant Relationships
CMS is soliciting comments on how to establish a “period of disallowance” during which an entity could not bill Medicare for referrals from a physician with whom the entity has a financial relationship that failed to meet an exception. This question has been difficult for arrangements where it is unclear when the arrangement ended or came into compliance with an exception (e.g., an isolated transaction that did not satisfy an exception).

Innocent and Technical Violations: Alternative Method for Satisfying Exception
In response to comments that even “innocent and trivial” violations of the Stark law could result in huge penalties, CMS is soliciting comments on establishing a new “alternative method for compliance” provision. The alternative method for compliance provision would be designed to address arrangements that fail to meet certain exceptions because of technical violations resulting from innocent mistakes (e.g., failure to obtain a necessary signature on a written agreement). This new provision is intended to “complement, and not replace,” the temporary noncompliance exception at 42 CFR. § 411.353(f). The ultimate usefulness of this proposed exception is unclear given some of the proposed terms of the exception.

Ownership in Retirement Plans
Currently the Stark regulations carve out “an interest in a retirement plan” from the definition of ownership or investment interests. CMS expressed concern that some physicians may be exploiting this language to use their retirement plans to purchase interests in DHS entities to which they refer patients for DHS. CMS is proposing to revise the language to provide that an ownership or investment interest does not include “an interest in a retirement plan offered by the entity to the physician or immediate family member as a result of the physician’s or immediate family member’s employment with the entity.”‘

"Stand In The Shoes"
CMS has again expressed concerns about the scope of protection afforded indirect financial relationships. While not proposing specific regulatory language, CMS is suggesting treating a DHS entity, such as a hospital that owns or controls another DHS entity, as “standing in the shoes” of that owned or controlled entity. Essentially, CMS is proposing to collapse relationships between DHS entities and their owned or controlled entities, thereby turning what are currently indirect financial relationships between DHS entities and physicians into direct financial relationships between the DHS entities and the physicians.

CMS suggests that this “stand in the shoes” approach may be necessary to protect against abuse by parties who may insert an entity or contract amid other financial relationships linking a DHS entity and a referring physician to avoid scrutiny under the Stark statute. In soliciting comments, CMS hints that it may apply the “stand in the shoes” approach to physicians and their group practices in the Stark II, Phase III regulation.

Conclusion
The policy changes in the proposed 2008 MPFS could have significant impacts on pathologists and other physician specialists as well as hospitals, laboratories, and imaging providers beginning as early as January 1. Unfortunately, we will not know the full extent of these changes until the final 2008 MPFS is published sometime this fall. In addition, CMS is required to publish Phase III of the Stark II implementing regulations by March 28, 2008. Some reports suggest Phase III may be published as early as this fall. [In fact, on September 5, 2007, CMS published the Stark II, Phase III regulation. 72 Fed. Reg. 51,012 (Sept. 5, 2007). Phase III will be the subject of a future article.]

This article originally appeared in the September 2007 issue of G-2 Compliance Report. It is reproduced here with permission from Washington G-2 Reports.