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02/2001 |
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Robert E. Mazer For more than six years, clinical laboratories and other providers of healthcare services have struggled to comply with the federal self-referral prohibition frequently called “Stark II,” after principal congressional sponsor Rep. Fortney “Pete” Stark (D-CA). Stark II compliance has been particularly troublesome. The statute is extremely broad, covering any financial relationship a provider may have with a referring physician. Use of various statutory exceptions has frequently been uncertain, often leading providers to virtually guess whether the government would view an arrangement favorably. The consequences of non-compliance can be financially devastating. A provider could forfeit Medicare reimbursement for any service referred by a physician with whom the provider had a prohibited financial relationship. It might also be assessed civil money penalties. The Stark II final rule that was published by the Health Care Financing Administration on Jan. 4, 2001 (referred to by HCFA as Phase I of its Stark II rulemaking) did not eliminate compliance uncertainties as had been hoped. It addressed only the general self-referral prohibition: exceptions for physicians services, in-office ancillary services, and pre-paid plans; and certain related definitions. The rule does address physicians who operate in-office labs; however, the exceptions frequently relied on by labs—such as payments to physicians for services or for rental of office space—are not fully discussed. HCFA says they will be in a “Phase II” rulemaking. For now, application of the self-referral effective until Jan. 4, 2002, to give individuals and entities sufficient time to modify any non-compliant arrangements. (Provisions on home health referrals were set to become effective Feb. 5, 2001, but have been delayed until Apr. 6, in line with the Bush Administrations’ regulatory review plan.) Though the Phase I final rule disappointed many, it is nevertheless an important document for labs seeking to comply with the federal self-referral law. HCFA Ups The Ante For Statutory Violations HCFA asserts that wrongful conduct such as knowingly submitting a claim in violation of the statute could lead to charges under the False Claims Act or other federal statutory remedies. Violation of the civil False Claims Act can lead to penalties of $10,000 per claim. Lawsuits under the Act can be initiated by either federal prosecutors or whistleblowers. Also, HCFA states repeatedly that arrangements that comply with the rule may, however, run afoul of the Medicare/Medicaid anti-kickback statute. Compliance with Stark II does not create even a presumption of compliance with that statute. Lab Referrals Clarified According to the rule, a physician does not make a referral if he or she personally provides the clinical laboratory test or other DHS. If the service is furnished in a hospital, the technical component would be deemed to have resulted from the referral, but the personally performed professional component would not. The Stark statute says that a pathologist who requests clinical lab services or a pathology examination does not make a referral if the services are furnished or supervised by the pathologist, based on a consultation request from another physician. Specific criteria for such a consultation are spelled out in the rule. HCFA also states that the exception protects only the pathologist’s financial relationship with the entity furnishing the service. If the physician requesting the consultation has a financial relationship with that entity and the relationship is not covered by a statutory exception, the entity furnishing the service requested by the pathologist would violate the statute if it knew or had reason to suspect that there had been an impermissible referral. Indirect Financial Relationships Accordingly, a physician may be able to make referrals to a hospital or clinical laboratory that compensates his or her employer for services—even if the arrangement between the two entities does not fall within the personal service exemption—so long as the compensation the physician receives from his or her employer does not reflect referrals or other business generated. Moreover, as discussed below, HCFA has more narrowly defined those compensation arrangements that will be deemed to unlawfully reflect referrals. Compensation Based On Referral Volume/Value Though the rule does not fully address these exceptions, it includes important information regarding compensation that can be paid under these exceptions and documentation of fair market value. According to HCFA, fair market value for assets or services can be established using any method that is commercially reasonable and provides evidence that the amount paid is comparable to what is ordinarily paid in the same location by parties who engage in arm’s-length negotiations and who are not in a position to refer to one another. For office space leases, a list of “comparables” or an appraisal report from an independent expert may be sufficient documentation of fair market value. HCFA says an independent appraisal is not required, but cautions that internal surveys may come under more intense scrutiny. Additionally, since lease payments cannot reflect the volume or value of referrals, HCFA warns against reliance on “comparables” involving transactions where physicians participating in the arrangement are in a position to refer or generate business for the other participant. The rule confirms that a clinical laboratory does not violate the Stark law by paying physicians higher rent for office space in a “medical community” than the lab would have to pay for space in another area. But it is impermissible for a lab to pay physician landlords for space in the same building (or a building in the same or a similar location). Thus, it may be appropriate for a lab to base its rent on what internal medicine physicians are required to pay other such physicians for office space, as it is unlikely that that arrangement involved substantial referrals between the arrangement’s participants. Conversely, it may not be appropriate to rely on what independent labs or other diagnostic testing facilities have paid medical groups for similar space when they are likely to receive referrals from their physician landlord. In the proposed Stark II rule, HCFA said that compensation paid to a physician impermissibly reflected referrals when the aggregate payment fluctuated, based on the physicians’ referrals. Accordingly, compensating a physician referrals source using time-based (hourly) compensation or compensation based on units of service (for example, payment “per click” for each use of leased equipment) was prohibited if the physician’s referrals affected the entity’s need for the services or equipment. The final rule permits time-based or unit of service-based payments even when the number of such payments reflects referrals from physicians receiving compensation under the arrangement. However, HCFA says, the payment amount per service or time period must be specified in advance (such as a fixed amount per hour or per use), must reflect fair market value (unrelated to referrals or other business generated by the physician), and may not vary over the contract term based on referrals or other business generated by the physician receiving the payments. Thus, a clinical lab would be permitted to compensate a physician for its rental of the physician’s office space or for physician services on an hourly basis. This does not mean that these types of arrangements are always advisable. Notwithstanding the favorable treatment they receive in the rule, they will not receive “safe harbor” protection under the anti-kickback statute. Thus, they may be ill-advised in certain instances, particularly when most referrals come from physicians receiving time-based or unit of service-based compensation and there is a significant relationship between referrals and aggregate payments received by the physicians. Percentage arrangements are not generally permitted under the rule. An independent lab cannot lease space from a medical practice to test patients of the practice and then pay the medical practice a percentage of revenue received for the testing. Moreover, according to HCFA, the reference to “other business” included in most compensation-related exceptions precludes compensation from being based on any business the physician may generate for the entity, regardless of whether the business relates to DHS covered under the statute or whether it is payable by a federal payer. Therefore, it would not be permissible for a lab to pay a physician rent that reflects a percentage of revenue, even from tests not covered by Medicare or Medicaid. Referrals by Compensation Physicians HCFA now says these arrangements will not be disqualified from protection under the exception for bona fide employment arrangements or personal service contracts. However, the physician’s compensation must be fixed in advance and reflect fair market value (not taking into account anticipated or required referrals). Other requirements applicable to the particular exception (such as written documentation reflecting a personal service arrangement) must also be satisfied. This interpretation may prove troublesome for independent labs seeking referrals from hospital-employed physicians who may be required to use the hospital lab. It should not interfere with managed care or other health insurance arrangements, however. A physician may not be required to refer a patient to a particular facility when the patient or third-party insurer requires use of another facility, or when referral to the designated facility is not in the patient’s best medical interest. The Stark law may also be violated when an entity leasing space or equipment from a physician requires the physician’s referrals as part of the arrangement. Although the rule generally permits physicians who participate in a compensation arrangement protected under the statute to be required to refer patients to a particular facility, the related commentary specifically authorizes this practice only in connection with physician service arrangements. Limited Freebies to Physicians The exception dos not protect gifts to a medical group; a 10-person medical group cannot be given a $3,000 instrument, for example. Similarly, it does not protect “gifts” that have been solicited by the physician or medical group (or employees or staff members), or where the provider is to receive something in return, such as physician referrals. The Stark statute excludes from the definition of “remuneration” a laboraotry’s provisions of items, devices, or supplies used solely to collect, transport, process, or store specimens for the lab. HCFA states that this exception was intended to permit labs to furnish physicians with items, supplies, and services that have little or no independent economic value and that are provided principally to ensure proper specimen collection. According to HCFA, the exception does not permit a laboratory to furnish physicians, without charge, with sterile gloves or biopsy needles and like devices, such as snares and reusable aspiration and injection needles. A lab may, however, provide physicians with single use needles, vials, and specimen cups. HCFA warns that a lab may lose the benefit of this exception by providing more supplies than the number of specimens sent by the physician. The agency may then infer that the supplies are not being furnished solely to collect, transport, process, or store specimens for the lab. A laboratory that does not have a pattern of referrals for a particular client on which to base its provision of collection supplies should be prepared to demonstrate that the volume of supplies provided reflects what a medical practice of like type and size in the community would require. In addition, the rule permits a laboratory to provide medical waste disposable supplies and services to physicians, so long as these are solely related to the collection of specimens for the lab. The lab may not bear the cost of disposal of other hazardous waste generated by referring physicians, such as syringes used for inoculations. HCFA confirms that a lab may place a phlebotomist within a medical practice if he or she draws specimens and performs related functions for the lab only. If the phlebotomist furnishes other services that benefit the physician, a compensation arrangement between the physician and the lab may result. The physician should be required to pay the lab fair market value for any such service. Even then, Medicare “incident to” rules may preclude the physician from billing Medicare for specimen collection that is performed by a phlebotomist employed by an outside lab. Further Advice Promised So far, federal enforcement authorities have recognized the statute’s ambiguities and have not taken aggressive enforcement actions against violations. Whistle-blowers who may initiate legal action under the False Claims Act may not be similarly minded. Accordingly, clinical labs and other DHS providers should accept referrals from physicians with whom they have a financial relationship only if they have a documented, good-faith, reasonable belief that the arrangement is protected by a statutory exception. |
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Ober, Kaler, Grimes & Shriver
Maryland
Washington, D.C. Virginia |
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