STARK PHASE III UPDATE

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33 W. FIRST STREET, SUITE 600 DAYTON, OHIO
45402 [phone] WWW.COOLLAW.COM

• STARK PHASE III UPDATE
• Miami Valley Medical Group Management Association
• Wednesday, November 14, 2007
• Presenters
• John L. Green, Esq.
• Timothy M. Grimes, Esq.
• Michael G. Leesman, Esq.

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TODAYS PRESENTATION

• STARK Phase III (Phase III) Overview
  Background
• Areas of Discussion
• Issues of General Interest
• Issues specific to the Physician Recruitment
  Exception
• Other Notable Phase III Changes and Updates

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STARK HISTORY TIMELINE

• Initial Stark Law (January 1992)
• Stark I Regulations (August 1995)
• Stark Law Expansion Designated Health
  Services (January 1995) Most defined by CPT
  Code
• Stark II Regulations in multiple phases
• Phase I (January 4, 2001)
• Phase II (March 26, 2004)
• Phase III (September 5, 2007)

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STARK LAW GENERALLY

• Prohibits a physician from making referrals for
  certain designated health services (DHS)
  payable by Medicare to an entity with which he or
  she (or an immediate family member) has a
  financial relationship (ownership or
  compensation) and
• Prohibits the entity from filing claims with
  Medicare (or billing another individual, entity,
  or third party payer) for those referred services.

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STARK - Phase III

• Display copy released August 27, 2007
• Published in the Fed. Reg. September 5, 2007
• Effective 90 days after publication, (December
  4,
• 2007)

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2008 MEDICARE PHYSICIANFEE SCHEDULE

• Published July 12, 2007 and since that time there
  has been a great deal of discussion regarding its
  content.
• Recently, CMS indicated that only the anti-markup
  portions are going to be instituted at this time,
  (final rule expected to be published November 27,
  2007) but that the other proposed changes are
  likely coming in the near future.

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ISSUES OF GENERAL INTEREST

• Alteration of the definition of Physician in the
  Group Practice
• In-office Ancillary Services Exception update
• Profit sharing/Productivity bonuses and the
  Incident to definition update

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PHYSICIAN IN THE GROUP PRACTICE

• Phase III revises this definition to require a
  direct contractual relationship between the group
  practice and the physician
• This definitional change could remove certain
  physicians from being considered physicians in
  the group
• Therefore, you may need to reevaluate your
  contractual relationships in situations where you
  utilize the physician services exception and the
  in-office ancillary services exception

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IN-OFFICE ANCILLARY SERVICES EXCEPTION UDPATE

• No significant changes, but CMS makes some
  important points.
• A Shared Facility Arrangements, i.e. the
  provision of designated health service in shared
  space, say on an imaging suite, must meet all
  requirements not merely on paper, but in
  operation.
• A block lease arrangement for the space and
  equipment used to provide the designated health
  service is probably required.

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IN-OFFICE ANCILLARY SERVICES EXCEPTION UDPATE
(contd)

• CMS also reaffirmed the importance of the
  definition of centralized building and warned
  about independent contractor physicians termed
  physicians in the group practice only when
  performing services on the group practices
  premisesespecially in condominium arrangements

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PRODUCTIVITY BONUSES AND THE INCIDENT TO
DEFINITION UPDATE

• Revenue shares in a group practice may no longer
  be based on the volume or value of incident to
  services referred by the physicians.
• Now, a profit distribution, which contains
  revenue from incident to services, may be paid
  out only on an indirect basis such as a formula
  set in advance such a conversing interest.

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ISSUES SPECIFIC TO THE PHYSICIAN RECRUITMENT
EXCEPTION

• Generally, recruited physician must relocate from
  outside the area
• 75 new patients test or
• 25 miles test and
• Relocation into the area
• Relocation into the area means into the
  geographic area served by the hospital
• lowest number of contiguous zip codes from which
  the hospital draws at least 75 of its inpatients
  
• contiguous with each other, not necessarily with
  hospital
• hole zip code allowed
• determined at the hospital level, not the system
  level
• special rule for hospitals who cannot satisfy 75
  test

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Exceptions
• Resident/Fellow or in practice one (1) year or
  less
• Employed full time at least prior two (2) years
  by
• Federal or state bureau of prisons
• Department of Defense or Veterans Affairs
• Indian health service facility
• Get an advisory opinion from CMS
• does not have an established practice
• that serves or could serve
• a significant number of patients
• who are or could become
• patients of the recruitment hospital

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Practice Restrictions
• may not impose on the recruited physician
  practice restrictions that unreasonably restrict
  the recruited physicians ability to practice
  medicine in the geographic area served by the
  hospital
• non-compete provisions
• if they result in the recruited physician being
  forced to leave the geographic area served by the
  hospital unreasonable
• hospital area 15 miles
• non-compete area 2 miles
• may be acceptable

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Watch for Practice will not impose on the
  recruited physician restrictions
  that unreasonably restrict the recruited
  physicians ability to practice
  medicine in the hospitals geographic area
• Hospitals can still require that there be no
  non-compete in the recruitment agreement
• protecting the hospitals investment
• CMS indicated approval of certain types of
  restrictions
• restrictions on moonlighting
• non-solicitation (employees and patients)
• requiring to treat Medicaid (indigent patients)
• repayment of losses beyond hospital recruitment
  payments
• liquidated damages (reasonable)

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Income guarantees/lines of credit
• declined to relax restrictions
• additional, incremental expenses
• all variations are subject to restrictions
• revenue guarantee
• salary guarantee
• gross income guarantee
• line of credit
• Narrow change physician recruited to replace a
  deceased, retiring or relocating physician in a
  HPSA or rural area can allocate lt per capita or
  20 of all practice expenses

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Types of recruiting expenses a hospital can
  reimburse to a practice
• tail malpractice insurance
• recruitment firm fees
• travel expenses for physician and family
• relocation expenses
• must be accomplished through a written agreement
  (recruitment agreement with practice)
• Parties to recruitment agreement
• hospital
• recruited physician

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Practice liability for repayment if physician
  recruit leaves the hospitals geographic area
• generally, practice not liable
• hospital can require the practice to guarantee
  payment
• all practice assets
• recruited physicians A/R
• cannot require practice to guarantee if used to
  shield recruited physician from any exposure
• if required, hospitals must enforce it
• recruited physician
• practice
• practice (optional)

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PHYSICIAN RECRUITMENT EXCEPTION (contd)

• Cannot already be on medical staff
• includes courtesy staff
• Physician extender (NP, PA) recruitment still not
  protected

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OTHER PHASE III CHANGES AND UPDATES

• In-direct Compensation Arrangements and Stand in
  the Shoes
• Fair Market Value Safe Harbor
• Non-monetary Compensation Update
• Unit-of-Service (Per-Click) Lease Arrangements

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STAND IN THE SHOES STANDARD FOR INDIRECT
COMPENSATION ARRANGEMENTS

• Phase III makes no substantive changes to this
  exception, but CMS interpretation of the rule is
  given greater clarity with the Stand in the
  Shoes standard.
• A referring physician stands in the shoes of
  his group practice, which acts on behalf of its
  physician members and contractors, and has a
  direct compensation arrangement with the DHS
  Entity contracting with his/her group.

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STAND IN THE SHOES STANDARD FOR INDIRECT
COMPENSATION ARRANGEMENTS (contd)

• Certain arrangements are not impacted
• If an arrangement existed as of publication date
  of Phase III, it does not need to be amended
  during the original term of the arrangement or
  the current renewal term, and
• May continue as if stand in the shoes does not
  apply

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FAIR MARKET VALUE SAFE HARBOR

• CMS deleted the safe harbor for hourly payments
  to physicians for personal services.
• This safe harbor allowed physicians and hospitals
  to guarantee that hourly payments did not exceed
  fair market value by relying on certain rates for
  particular physician specialties and data
  obtained from the six physician compensation
  surveys.
• The real benefit is the removal of the negative
  connotation an hourly rate carried with it if it
  was above the average from the surveys.
• Now hospitals and physicians must use other
  reasonable methodologies to determine such hourly
  rates.
• For example MGMA Salary Survey

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NON-MONETARY COMPENSATION

• Phase III makes a few clarifications/changes
  to the exception
• Applies on a calendar basis,
• Physicians may repay certain excess non-monetary
  compensation when the limit is exceeded by no
  more than 50 during the calendar year
• Must be repaid within the same calendar year or
  180 days from receipt to preserve compliance with
  the exception.
• Repayment provision may not be used more than
  once every three years.
• Medical Staff event not included (ex. Holiday
  Party)

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UNIT-OF-SERVICE (PER-CLICK) LEASE ARRANGEMENTS

• Phase III does not address Per-Click directly,
  but does provide direction in its commentary that
  suggests that this type of arrangement does not
  satisfy the exclusive use requirements of the
  office equipment lease exception.
• These comments may signal the intent of CMS to
  eliminate all Per Click lease arrangements, so
  be prepared for an adjustment if necessary.

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THANK YOU!

• Questions?