Stark II Analysis and
Summary
The Basic Prohibition
The law prohibits a physician from referring a Medicare
patient for certain designated health care services ("DHS") to an
entity with which the physician (or immediate family member) has a financial
relationship through ownership or compensation, unless the self-referral is
protected by one or more exceptions provided in the law. A companion provision
of the Medicaid statute disallows Federal matching funds for state
expenditures in connection with prohibited referrals. This provision requires
implementing actions by the states before it is directly enforceable against
provider entities for Medicaid referrals. The balance of this memorandum is
focused on the Stark law's applicability to Medicare.
will
not be imputed to his or her group practice, or other members or staff of the
group practice. However, it also provides that the referrals of the group,
other members or staff may be imputed to the physician with the financial
interest if that physician controls the referrals of others.
Subsection (b) of 411.353 prohibits the DHS provider
entity from billing Medicare, the patient, or anyone else if the DHS was
provided pursuant to a prohibited referral. Subsections (c) and (d) provide
that Medicare will not make payment for such a claim, and if payment is
mistakenly made, the entity paid has a refund obligation. Subsection (e)
provides an "innocent payee" exception if the DHS provider
did not know or have reason to suspect the identity of the referring physician
whose financial relationship would otherwise trigger the prohibition.
Section 411.354 sets forth detailed rules on covered
financial relationships, including both direct and indirect ownership
interests and compensation relationships. Subsection (b) of that section
clarifies a number of uncertainties with respect to ownership and investment
interests:
-
Secured debt instruments are considered
investment interests. Unsecured loans are not, but are compensation
relationships.
-
Ownership of a subsidiary is not considered
ownership of the parent, or another subsidiary, unless the first
subsidiary has an ownership interest in the parent or the other sub. These
arrangements may be part of indirect financial relationships.
-
Ownership of an interest in a retirement plan
is not ownership of the provider entity.
-
Stock options are compensation relationships
until exercised, then they become ownership interests.
-
Under-arrangement contracts between groups
and hospitals do not create indirect ownership interests of the group's
owners in the hospital. They are instead indirect compensation
relationships.
-
Dividends, profit distributions and interest
payments on secured debts do not create separate compensation
relationships if the investment interest on which they are paid qualifies
for an ownership exception.
-
Indirect ownership interests are covered if
there is an unbroken chain of ownership interests between the referring
physician and the DHS provider, regardless of the number of intermediate
entities, and the DHS provider knows or has reason to suspect the
physician's (or family member's) indirect ownership. Thus, even if the
DHS provider knows the identity of the referring physician, if that entity
has no reason to know of the physician's indirect financial relationship,
the relationship is not covered, and no other exception is required to
protect it.
Subsection (c) of 411.354 provides detailed rules on
covered compensation relationships. Compensation can be any form of
"remuneration," direct or indirect, between the physician or family
member and the DHS provider. Remuneration is very broadly defined in §
411.351 to cover virtually any payment or other benefit, except for three
categories specifically excluded:
-
forgiveness of amounts otherwise owed in connection
with inaccurate or mistakenly performed tests or procedures, or to
correct minor billing errors;
-
nonsurgical items and supplies provided solely
for the collection and handling of test specimens, or solely for test
ordering or reporting purposes;
-
certain fee-for-service claims payments made to
non-contracted physicians by health insurers or self-insured plans.
The Phase I Rule provides a new approach to "indirect
compensation arrangements." To be covered, the indirect arrangement
has to have three elements:
-
There must be an unbroken chain of financial
relationships between the referring physician (or family member) and the
DHS provider.
-
The physician (or family member) receives aggregate
compensation from the person or entity with which he has a direct
financial relationship that varies with or otherwise reflects the
volume or value of referrals by the physician to the DHS provider. If
the referring physician's only direct financial relationship in the chain
is ownership, then the volume or value test is applied to the compensation
relationship closest to the physician's interest.
-
The DHS provider knows or has reason to suspect
that the physician receives aggregate compensation that varies with the
volume or value of his referrals.
If any of the three elements is missing, the arrangement
is not a covered compensation relationship for purposes of Stark, and it need
not qualify for any exception.
Subsection 411.354(d) sets forth certain "special
rules on compensation." These rules apply only for Stark purposes,
and are key to understanding the difference between the Phase I rule and
the January 1998 proposal. They will also be key to understanding the various
compensation exceptions still to be promulgated in the Phase II rule. They
interpret more liberally than any previous HCFA rule or proposal the key
questions of when a compensation relationship is "set in advance,"
whether it reflects the "volume or value of referrals," and whether
it reflects "other business generated between the parties."
-
Compensation is set in advance if it
verifiably establishes either aggregate compensation, time-based
payment or unit-based payment in the initial agreement, and is fair
market value ("FMV") at the time of the agreement for the items
and services to be provided, irrespective of current or anticipated
referral volumes. Percentage arrangements are not set in advance if
based on indeterminate or fluctuating factors (e.g., billings or
collections), or result in different payments from the same purchaser for
the same service. Percentage payments pegged to a fixed fee are
permissible (e.g., X % of some fixed fee schedule).
-
Compensation, including even time-based or
unit-based payment, is deemed not to take into account the volume
or value of referrals if FMV for items or services actually provided,
and if it does not vary during the term of the agreement in a manner that
takes into account DHS referrals.
-
Once again, the rule deems such arrangements not
to take into account other business generated between the parties if
FMV, and if it does not vary during the term of the agreement in any
manner related to the physician's referrals or other business, including
non-Medicare business.
There is also a special rule permitting arrangements in
which a physician's compensation is actually conditioned on requirements to
refer to a particular provider, as long as the compensation is:
-
fixed in advance;
-
at FMV (not reflective of current or anticipated
volumes);
-
in compliance with either a general or a
compensation exception;
-
there is an explicit written agreement signed by
both parties requiring the referrals to a particular provider; and
-
the arrangement has escape valves for patient
preference or payor choice of providers, and for medical judgement as to
the best medical interests of the patient.
|back
to top|
Whether a physician's financial relationship as defined
in § 411.354 of the Phase I rule triggers the basic prohibition, and thus
requires some exception, depends on whether the physician actually makes
covered referrals of Medicare patients to the DHS provider for the provision
of DHS services. Definitions of "referral" for purposes of Stark,
and of the various categories of designated health services, are set forth in
§ 411.351 of the Phase 1 rule and are discussed under VI below.
|back
to top|
To next page
| |
