Stark II Analysis and Summary

General Exceptions Protecting Ownership, Compensation or Both

Section 411.355 of the rule provides for nine exceptions under this category, of which four were included in the January 1998 proposal, and five are newly added by the final rule.

• Physician Service

• In-Office Ancillary Services

• Prepaid Health Plans

• Services Paid Under a Composite Rate

• Academic Medical Centers

• Implants in an ASC

• EPO and Other Drugs Furnished in or by an ESRD Facility

• Preventive Screening Tests, Immunizations, and Vaccines

• Eyeglasses and Contact Lenses

A. Physician Services

The exception set forth in the statute for physician services is generally repeated in the final rule with the clarification that it applies not only to referrals to a member of the same group practice as the referring physician, but also to an independent contractor who qualifies as a physician "in" the group. In the preamble, HCFA explains that physician services personally performed by the ordering physician do not implicate the Stark law and, therefore, an exception for those services is not necessary.

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B. In-Office Ancillary Services

The statutory exception for in-office ancillary services is the principal exception upon which most physicians rely to protect referrals for DHS within their own practices. As interpreted in the final Phase I rule, this exception has become more generous in some respects, and more restrictive in others. As HCFA has tried to provide direct guidance for a wide variety of different practice arrangements, it has certainly become more detailed and complex. Section 411.355(b) sets forth the basic requirements of the exception, and provides special rules for certain types of durable medical equipment ("DME") and for certain home care physicians.

The basic exception has three elements: a performance test, a site-of-service test, and a billing test.

1. The Performance Test. To be eligible for the in-office exception, the DHS must be performed by :

• the referring physician;

• another "member" of the same group practice;

• an individual who is supervised by the referring physician or another physician "in the group practice'" (whether or not a "member" of the group).

For these and other purposes, a "member" is an owner or employee of the practice, whereas a physician "in the group" can be an independent contractor. Thus, the supervision requirement can be met by contract physicians, not just owners and employees. HCFA has also relaxed the standard, dropping the "direct supervision" requirement from both Stark I and the January 1998 Proposal in favor of whatever degree of supervision Medicare otherwise requires for coverage and payment purposes. In the short run, this will permit non-physician personnel to perform Medicare DHS without the need for physician presence "in the suite" for most services.

2. The Site-of-Service Test. The DHS must be furnished either:

• in the same building (but not necessarily the same part of the building) in which the referring physician or other member of the group provides substantial physician services that are unrelated to DHS services, including non-Medicare DHS. These unrelated services must represent substantially the full range of services that the physician routinely provides, and the receipt of DHS services must not be the primary reason for the patient's contact with the referring physician or group; or

• in the case of group practices, in a centralized building used by the group for the provision of some or all of the group's DHS.

These provisions are different from the January 1998 Proposal in several respects.

First, the "same building" test is more stringent because the "substantial" and "substantially full range" tests prevent a practice from qualifying an ancillary facility by simply providing token unrelated services there.

Second, the "same building" test is now tied to the relationship of the patient and the practice. If the patient comes only for DHS services, and not for professional services, HCFA does not consider those services ancillary to the practice.

Third, and favorably, HCFA has clarified that the "same building" for this purpose, can be a collection of interconnected buildings if they all share one street address; but, unfavorably, HCFA does not recognize driveways, parking lots or garages as being part of the same building, so that a van or trailer parked outside does not qualify as being in the same building as the professional offices inside.

Fourth, the new rule defines "centralized building" in §411.351 to require full-time use by the group claiming it, thus not permitting the same ancillary facility to qualify as "centralized" for more than one practice if shared through some leasing arrangement. On the other hand, the final rule eliminates the January 1998 proposal that a "centralized" facility serve more than one office of the same group practice. A group can have as many centralized facilities as it chooses, in any configuration, as long as they are owned by or leased full time by the group for its exclusive use.

3. The Billing Test. DHS services provided to Medicare patients must be billed by one of the following:

• the performing or supervising physician;

• the group practice of which he or she is "a member" under a billing number assigned to the group;

• the group practice of a supervising physician who is a "physician in the group";

• an entity wholly owned by the performing or supervising physician, or group practice under a billing number assigned to the physician or group; or

• a billing company functioning solely as an agent for one of the above, and billing under a number assigned to the physician or group.

The rule clarifies that a group practice may have more than one billing number assigned to it for this purpose.

4. Enteral and Parenteral Nutrition and Durable Medical Equipment. The statute makes the in-office ancillary exception available for all DHS services, except for parenteral and enteral nutrition, and DME, with a limited exception for infusion pumps. The final Phase I rule does not change the treatment of "P and E," so when those services are provided to Medicare patients pursuant to a self-referral, they must qualify for some other exception and may not utilize the in-office ancillary exception. The final rule's treatment of DME is considerably more complicated.

First, HCFA has created a new regulatory exception for certain DME products dispensed in a physician's office. This exception applies to canes, crutches, walkers and folding manual wheelchairs, plus blood glucose monitors that meet the following:

• The patient must require the item for ambulation and use it in departing the physician's office, or in the case of a glucose monitoring device, it is furnished by a physician or employee or group practice that also furnishes outpatient diabetes training. The monitoring device may include one starter set of strips and lancets up to 100 of each.

• The DME item must be furnished in a building that meets the "same building" test as part of the same treatment for which the physician- patient encounter occurred. Group practices may not rely on the "centralized building" prong of the site-of-service test to qualify the DME items.

• The DME item is furnished personally by the ordering physician, another physician in the group, or by an employee of the physician or group. Supervision of other non-physician personnel (e.g., employees of another supply company) would not meet the "performance test" for this purpose.

• The physician or practice must meet all DME supplier standards.

• The arrangement does not violate the kickback law or any billing or claims requirement.

• The furnishing of the DME item meets all other requirements of the in-office exception (e.g., the billing test).

Second, the final rule clarifies the status of certain pumps. The statute permits use of the in-office ancillary service for infusion pumps that are classified as DME, and HCFA clarifies that this includes both the pumps implanted in the in-office setting, as well as external ambulatory infusion pumps that are fitted and filled at the office, even though used in the home. This protects most pumps used in cancer and pain therapy. However, pumps used for nutritional purposes are generally paid for as parenteral and enteral nutrition devices rather than DME, and they will not be eligible for the in-office exception.

5. Special Rules for Home Care Physicians. The Phase I rule provides a limited exception to the site-of-service test for referring physicians whose principal practice consists of treating patients in their private homes. For such a physician, the patient's home would be considered the "same building" as long as the physician or other person accompanying the physician provides the DHS service contemporaneously with a physician service that is not a DHS service. A nursing home or other facility is not considered the patient's home for this purpose.

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