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03/2006 |
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Robert E. Mazer Appeared in Maryland Bar Journal Recent developments have focused attention on physicians offering diagnostic services as part of their medical practices. These services range from simple blood tests to magnetic resonance imaging (MRI), computerized tomography scans (CTs) and other sophisticated diagnostic tests. In health care parlance, the arrangements involve physicians "self-referrals" — physicians ordering services for their patients and then providing them through arrangements in which they have a financial stake. In January 2004, the Maryland Attorney General startled the health care community by concluding that Maryland law prohibited an orthopedic practice from furnishing MRI or CT services to its patients. While the Maryland self-referral statute had laid virtually dormant for years, the Attorney General’s opinion was potentially the death knell of many diagnostic service arrangements involving expensive equipment. Some physicians applauded the Attorney General’s position, saying that it would help limit diagnostic services to those that were medically appropriate. They claimed a conflict of interest arose when a physician determined which diagnostic services his patient required and then profited from those services. Other physicians argued that the Attorney General was wrong in his application of Maryland law. Those physicians claimed the decision served only to protect radiologists’ turf and to eliminate benefits patients receive from diagnostic services provided by from physicians who manage their care. This article will not attempt to untangle the morass of medical and ethical issues raised by self-referral arrangements, but rather, will address application of existing legal standards to medical practices that provide diagnostic services to the practice’s patients in Maryland. Statutory Framework Financial arrangements between health care providers, including medical practices, and physicians who refer patients or otherwise generate business for the provider raise issues under two types of federal and state laws. First, anti-kickback laws prohibit payments for referrals or similar activities that affect the flow of patients to a physician or other health care provider. Second, self-referral laws prohibit physicians or other practitioners from referring patients to an entity with which they have a financial relationship. As reflected in a 1998 Attorney General’s Opinion, 83 Op. Atty. Gen. 142 (May 26, 1998), the federal government and Maryland have each enacted both types of laws. Federal Statutes The Federal Anti-kickback Statute ("FAS"), 42 U.S.C. § 1320a-7b(b), prohibits, among other things, knowing and willful payment or receipt of remuneration for referring a patient for an item or service paid under any federal health care program, including Medicare and Medicaid. The FAS has statutory exceptions and regulatory "safe harbors" at 42 C.F.R. § 1001.952, which describe arrangements which will not be held to violate the FAS. Penalties for violating the FAS include imprisonment, exclusion from federal health programs, and civil monetary penalties and damages of up to $50,000 and three times the unlawful remuneration. The federal self-referral prohibition ("Stark Law"), 42 U.S.C. §1395nn, prohibits a physician from making a referral for any designated health service ("DHS") covered under Medicare to an entity with which the physician or an immediate family member has a "financial relationship," subject to various exceptions. DHS include, among other things, clinical laboratory services and radiology services, including MRI, CT, ultrasound, and, effective January 1, 2007, diagnostic nuclear medicine services. Although the Centers for Medicare and Medicaid Services ("CMS") has not addressed many important Stark Law issues, including its application to Medicaid services, extensive interpretive guidance is available at 42 C.F.R. § 411.350, et seq. In the event of a prohibited referral, the entity that furnished the DHS may not bill any person for its services; it must also refund any payments it received for related services. A civil monetary penalty of $15,000 for each service may be imposed for submitting or causing to be submitted a claim that the person knows or should know resulted from a prohibited referral or for which a required refund was not made. The Stark Law provides for a penalty of up to $100,000 for certain circumvention schemes. Stark Law violations can also result in exclusion from federal health programs. Finally, government attorneys and certain qui tam realtors (whistleblowers) have asserted that a claim for payment under a federal health care program related to an arrangement that violates the Stark Law or FAS is a false or fraudulent claim under the False Claims Act, 31 U.S.C. 3729, et seq., providing for fines in excess of $10,000 for each such claim. Maryland Statutes Maryland law provides for disciplinary action against any physician who pays or agrees to pay another person for bringing or referring a patient, or for accepting or agreeing to accept such a payment. Maryland law also prohibits kickbacks and bribes related to Medicaid-covered services. The Maryland self-referral statute, Health Occupations (HO) Article, §1301, et seq., prohibits a health care practitioner, including a physician, from making a referral to a health care entity with which the practitioner or an immediate family member has a "compensation arrangement" or holds a "beneficial interest," i.e., ownership interest. Statutory definitions of "beneficial interest" and "compensation arrangement" effectively exclude other arrangements from the self-referral ban. The statute includes various exceptions to this prohibition. Regulations at COMAR 10.01.15 et seq. provide limited interpretive guidance. If services are provided as a result of a prohibited referral, those services may not be billed to any person. If payment is collected, the referring practitioner or entity that furnished the service can be required to repay the payor. Violation of the law can also result in professional disciplinary action. Legal Analysis
General In reviewing any arrangement, the Stark Law’s applicability should be evaluated. If the items or services to be provided are not DHS — or the services are not covered by Medicare — then the self-referral analysis may be limited to the Maryland statute. Three separate analyses are required under each applicable self-referral statute. First, will there be a "referral?" Second, will the referring physician have a financial relationship with the entity receiving the referral? Third, will an exception to the self-referral prohibition apply? In most situations, the second issue does not require significant analysis. Therefore, we focus below on the first and third issues. Application of Maryland Self Referral Statute To In-Office Arrangements Generally 1. A health care practitioner may refer a patient to a health care entity in which he has a beneficial interest "if the services or tests are personally performed by or under the direct supervision of the referring health care practitioner . . . ." ("Direct Supervision Exception"). To satisfy the "direct supervision" requirement, the physician must be present on the premises where the services or tests are provided and be available for consultation within the treatment area. The Attorney General’s Office of Counsel to the General Assembly ("Office of Counsel") has also indicated in recent correspondence with a state delegate related to pathology arrangements that the referring physician must be qualified to perform the services which he supervises. While the Direct Supervision Exception may permit a physician who is a medical practice owner to refer a patient for in-office diagnostic services, it will not protect all such self-referrals. The exception does not cover referrals from a physician who works for the medical group, but doesn’t have an ownership interest in the entity because the exception applies only to a "beneficial interest" in the entity. (A physician working for the practice under contract may not have a "compensation arrangement" with the entity that would potentially preclude his referrals because the statutory definition excludes certain bona fide employment agreements and independent contractor arrangements.) A physician may not be able to satisfy the exception’s direct supervision requirement or example, for clinical laboratory tests performed after office hours. 2. A practitioner may refer a patient to another practitioner in the same group practice ("Group Practice Exception"). This exception is unlikely to cover diagnostic services furnished by laboratory or medical technicians who are not considered "practitioners." It may, however, protect any professional component of such services, such as interpretation of an x-ray by another group practice physician. 3. Certain referrals of "in-office ancillary services or tests" ("In-Office Ancillary Services Exception") are permitted. Unlike the Group Practice Exception, this exception may apply to services furnished by medical practice employees who are not practitioners. With one significant exception described below, in-office ancillary services are "basic health care services and tests routinely performed in the office of one or more health care practitioners." The services must be personally performed by the referring practitioner or another practitioner in the same group practice or by lain individual who is employed and personally supervised by the qualified referring health care practitioner or the health care practitioner in the same group practice as the referring health care practitioner." To provide personal supervision, regulations require that the practitioner "exercise on-site supervision or immediately available direction for employees performing referred in office ancillary services or tests." According to an attorney in the Office of Counsel, the supervising practitioner must be qualified to perform the work that he supervises. The services must be provided in the building where the referring practitioner or another practitioner in the same group practice furnishes services. Finally, services must be billed by the health care practitioner performing or supervising the services or the group practice. The statute specifically excludes MRI, CT and radiation therapy services from the definition of in office ancillary services except in the case of a radiologist group practice or an office consisting solely of one or more radiologists. Application of Maryland Self-Referral Statute To In-Office MRI and CT Arrangements The Attorney General also rejected application of the In-Office Ancillary Services Exception, stating that the in office ancillary services definition reflected a legislative intent to prohibit referrals for in-office MRI tests or CT scans unless the equipment was owned by a practice comprised of radiologists exclusively. The Attorney General stated that his conclusion was supported by the statute’s legislative history. Finally, the Attorney General noted that the MRI referrals would not fall within the Group Practice Exception because its application would render meaningless limitations included in the In-Office Ancillary Services Exception. In its Summer 2004 newsletter, the Maryland Board of Physicians ("Board") reported the Attorney General’s opinion. While the Attorney General’s opinions are not legally binding, the Board stated that it gives such opinions "significant weight when deciding issues of law." The statement was a precursor of what was to come. In October 2004, the Board brought charges against several neurosurgeons practicing as a medical group in Montgomery County, Maryland. The Board alleged that they referred their patients for MR1 scans which were provided through their office practice. The Board’s charges resulted in Consent Orders. Each Consent Order stated that the physician violated the Maryland self-referral law by referring a patient to a health care entity in which he had a financial interest, and in presenting or causing to be presented a claim for payment for a service resulting from a prohibited self-referral. Each physician was ordered to "cease and desist" from referring patients for MRI/CT scans to any entity in which he had a financial interest, and to divest himself from any such entity that offered MRI/CT scans. In its Spring 2005 newsletter, the Board reported the Consent Orders, indicated that it would continue to enforce the self-referral ban, and stated that physicians profiting from self-referrals "may wish to consult competent counsel about whether the practice is lawful." A similar issue was raised in litigation initiated by a patient of an orthopedic practice in the Circuit Court for Montgomery County. In Duys v. Loeffler, Civil Action No. 253549-V, the patient alleged that the practice charged a $10 co-pay fee for a MRI scan in violation of the self-referral statute. The practice defended the charges based on the Direct Supervision Exception – a statutory exception that was not addressed in the Attorney General’s opinion – and moved for summary judgment. The practice argued that the statute exempted services or tests performed under the referring health care practitioner’s direct supervision, and that the MRI scan had been supervised by the physician who had examined the patient and recommended the scan. The court found the argument convincing. By order dated February 9, 2005, it granted summary judgment in favor of the orthopedic practice. The state of Maryland law remains unclear. While the Attorney General has published an opinion — and the Physicians Board will give it "significant weight" — his opinion is not the law of Maryland. Some attorneys may continue to interpret the statute not to apply to services furnished as part of the physician’s medical practice. Further, based on the Duys decision and the Direct Supervision Exception, it can be argued that a physician may refer a patient requiring an MRI or CT scan to an in-office diagnostic facility if the particular physician ordering the service is on the premises and available for consultation within the treatment area when the scan is performed. When this exception is applicable, the referring physician’s presence during the scan should be documented. However, in many situations, physicians are not on-site at the time of the MRI or CT scan. The Duys court’s reasoning would not assist those physicians. The interpretation or "professional component" of the scan — frequently performed by a radiologist — raises additional issues. Under a recent interpretation of the statute by the Office of Counsel - set forth in a letter to a state delegate - if the referring physician is not qualified to interpret the scan, the direct supervision requirement would not be satisfied even if the referring physician was on the premises when the radiologist performed the interpretation. The fact that the radiologist might bill the patient or third-party insurer for the professional component service that he performed on the medical practice’s premises would not, apparently, avoid the need for the arrangement to comply with a statutory exception to the self-referral prohibition. The Office of Counsel’s interpretation may or may not withstand any legal challenge. Physicians found to violate the Maryland self-referral law are at risk of disciplinary action. A third-party insurer might also attempt to recoup previously made payments for MRIs or CTs. The Attorney General’s opinion may make it difficult frequently for physicians to assert that, after its publication, they did not know — and there was no reason that they should have known — that the referral arrangement involving MRIs or CTs was unlawful. Absent binding authority from Maryland courts or regulatory or legislative action, issues related to provision of MRI and CT scans on an in-office basis will likely remain unresolved. Physicians furnishing these services — and their legal advisors — should remain vigilant in monitoring developments. Application of the Stark Law, to In-Office Arrangements 1. The physician services exception, reflected in regulations at 42 C.F.R. § 411.355(a), applies if the DHS are "physician services" and if the services are furnished personally by another group practice member or physician in the group practice, or is supervised by such a physician under applicable Medicare requirements. Under Stark regulations, group practice "members" are physician owners and employees; "physicians in the group practice" include both members and independent contractors. The physician services exception will not apply to most diagnostic tests which are not considered physician services. Professional component interpretations may, however, receive protection. 2. The in-office ancillary services exception, reflected in regulations at 42 C.F.R. §411.355(b), applies when three conditions are satisfied. The first condition requires that the service be furnished by the referring physician, a physician who is a member of the same group practice, or an individual who is supervised by the referring physician or another physician in the group practice. Unlike the Maryland statute, a non-physician furnishing services need not be an employee. Additionally, in contrast to Maryland law, onsite supervision may not be required. The level of supervision required is based on Medicare payment and coverage rules for the particular service. The second condition requires that the service be furnished in the same building (but not necessarily in the same space or part of the building) in which the referring physician or a member of the same group practice furnishes physicians’ services unrelated to DHS (as defined in specific, detailed regulations). A group practice may also furnish the service in a centralized building used to provide some or all of its DHS. The centralized space must be used exclusively by the group practice; it cannot be shared space. The third condition requires that the service be billed by the physician performing or supervising the service, the group practice of the supervising physician, or the group practice of which the physician performing the service is a member. The group practice must use a billing number assigned to the group. The regulations also permit the services to be billed by an entity that is wholly-owned by the performing or supervising physician or by that physician’s group practice. Group Practice Requirements The Stark Law and the Maryland statute each require that a group practice be two or more physicians (Stark) or practitioners (Maryland) legally organized together. Stark regulations require a single legal entity operated principally as a physician practice, and that there be at least two physician "members." Under these regulations, the group practice can be any type of entity acceptable under state law, and can be comprised of individually incorporated professional corporations. The Stark and Maryland laws require that "substantially all" of the services of group practice members be provided and billed through the group, and that amounts received be treated as receipts of the group. This generally precludes group members from billing for services in their own names. Stark and Maryland regulations provide that "substantially all" refers to 75 percent of total patient care services. While Stark regulations permit use of other methods to measure patient care services, they specifically permit reliance on total time in determining whether the "substantially all" requirement is satisfied. For example, if a group practice has two full-time internal medicine physician-employees plus a gastroenterologist who works as a part-time employee two days per week, the "substantially all" requirement should generally be met. On average, the three physicians will have spent 80 percent of their aggregate time providing patient care services through the group (100 percent + 100 percent + 40 percent divided by 3 = 80 percent). The Stark and Maryland laws require that each group member furnish substantially the full range of patient care services that he routinely furnishes through the joint use of shared office space, facilities, equipment, and personnel. Services furnished through the group practice must be comparable to those provided under another arrangement, but they need not be identical. The Stark and Maryland laws also require that practice overhead expenses and income be distributed based on previously determined methods. Maryland requires that the method be determined annually by group members. Stark regulations specify that the method must be in place before receipt of payment for related services. The Stark Law requires that group members personally conduct at least 75 percent of the group practice’s physician-patient encounters. This limits use of independent contractors. Physicians hired as part-time employees, however, become subject to requirements with which independent contractors, who are not considered "members," need not comply. Stark regulations require that a group practice be a unified business with centralized decision-making by a body that effectively controls the group’s assets and liabilities. Substantial "group level" management and operation is required, specifically including consolidated billing, accounting, and financial reporting. According to CMS, a group practice requires full medical and economic integration of participating physicians; it is not a "loose confederation" of individual physicians organized principally to profit from DHS referrals. With respect to compensation, the Stark Law provides that a group member may not directly or indirectly receive compensation based on the volume or value of the referrals made. Therefore, a group practice may not divide total profits from clinical laboratory services, x-rays, or other DHS, including profits from Medicare patients, based on the individual physicians use of those services. For example, a physician who generates 27 percent of a group practice’s DHS revenues cannot receive 27 percent of related profits. However, "referrals" generally include only requests for services which are DHS and which are paid by Medicare. Therefore, so long as the group practice acts as a unified business, revenues from DHS paid for by other payors (for example, x-rays reimbursed by a commercial insurer), or from services that are not considered DHS (for example, office visits) can be allocated by a group practice without regard to these limitations. Under the Stark Law, physicians in a group practice are permitted to share "overall" group profits — defined in regulations as profits from DHS payable by Medicare or Medicaid — so long as the physician’s share is not directly related to the volume or value of his DHS referrals. Stark regulations also permit a group practice to divide itself into components of five or more physicians and pay physicians within each component a share of that component’s profits (which is considered "overall profits" under the statute). Stark regulations specifically provide for two methods for distributing overall group practice profits (total profits or profits of a practice component): (1) division of profits on a per capita basis and (2) distribution of DHS revenues based on each physicians relative share of group practice revenues from services that are not DHS payable by any payer. If, for example, Dr. A was credited with $600,000 in group practice revenues from office and hospital visits and consultations, while Dr. B was credited with $400,000 from such services, a group practice’s compensation plan might require distribution of 60 percent of DHS revenues to Dr. A and 40 percent to Dr. B, DHS revenues could also be allocated equally between the two physicians. A group practice physician can also be paid a productivity bonus based on personally-performed services (including services "incident to" those services) if the bonus is not directly related to the volume or value of the physician’s DHS referrals. Arrangements specifically permitted include (1) a bonus based on the physician’s total patient encounters or relative value units ("RVUs") or (2) based on an allocation of the physician’s compensation related to services that are not DHS payable by any payor. The methods for dividing overall profits or calculating bonuses specified in regulations are not exclusive. While they may result in absolute assurance, other methods may be acceptable if they are "reasonable and verifiable" and the resulting payment "is not directly related to the volume or value of the physicians referrals of DHS." Finally, where DHS revenues are less than 5 percent of total group practice revenues and the revenues allocated to each physician are less than 5 percent of his total group practice compensation, any arrangement for dividing profits or calculating bonuses is permitted. Alternative Arrangements Other arrangements are potentially available to medical practices to provide diagnostic services. One involves use of a management company to operate its in-office facility. A recent opinion of the Office of Inspector General ("OIG"), demonstrates that these arrangements must be carefully structured. In the arrangement at issue, a pathology management company would effectively operate an off-site anatomic pathology laboratory on behalf of a physicians group for specimens from its patients. The OIG found that the arrangement potentially violated the FAS. The’ OIG stated that the physicians controlled referrals, but assumed little or no business risk because they contracted out all of the laboratory’s operations. They, nevertheless, shared related profits with the management company. According to the OIG, even if each contract satisfied a safe harbor, the physicians "retained profit from the pathology services" would not be protected Advisory Opinion No. 04-17 (Dec. 17, 2004). Recent correspondence from the Office of Counsel also indicates that medical practice arrangements for the provision of anatomic pathology procedures to patients of the practice may violate the Maryland self-referral law, particularly when the procedures are performed or supervised by pathologists who are not part of the medical practice. Under another arrangement, solo practitioners or independent group practices might enter into a "shared facilities" agreement in which each participant would pay its share of facility costs and bill for diagnostic services furnished to its own patients. CMS has recognized that these arrangements can be protected under the Stark Law’s in-office ancillary services exception if the supervision, location and billing requirements are satisfied. However, the arrangements have not been addressed under Maryland law. The employment requirement in Maryland’s In-Office Ancillary Services Exception could raise questions because it is unclear whether non-physician personnel performing services might be considered an employee of each participant in this. Finally, a physician or group practice might have an ownership interest in a company that owns diagnostic equipment, but does not operate that equipment ("Management Company"). The Management Company might lease the equipment to a separate entity that would be the provider of health services ("Provider") in which the physicians would not have an ownership interest. Physician investors in the Management Company might refer patients to Provider for diagnostic services. Stark regulations address such arrangements and include particular exceptions for indirect compensation arrangements that might permit these referrals. These arrangements have been the subject of recent Congressional hearings but application of the Maryland self-referral law to these arrangements has never been addressed. The practitioner advising medical practice clients regarding appropriate and compliant arrangements for the provision of diagnostic services must carefully analyze the medical practice as well as the complex federal and state laws and regulation that continue to evolve. |
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Ober, Kaler, Grimes & Shriver Maryland
Washington, D.C. Virginia |
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