Stark II Analysis and Summary

Compensation Exceptions Included in the Phase I Final Rule

The Phase I rule finalizes two exceptions for compensation arrangements that were in the January 1998 proposal and adds several new exceptions that HCFA created in response to public comments. It does not, however, have final rules for several of the statute's basic compensation exceptions, including those for space and equipment rentals, employment, personal services, purchased services and isolated transactions on which parties frequently rely to protect various arrangements. These remain to be completed in a Phase II rule. However, the Phase I treatment of key terms like "he volume or value of referrals" provides considerable relief with respect to these other compensation exceptions in the interim.

• Non-Monetary Compensation up to $300

• Fair Market Value Compensation

• Medical Staff Incidental Benefits

• Risk Sharing Arrangements

• Compliance Training

• Indirect Compensation

A. Non-Monetary Compensation up to $300

HCFA has created an exception that protects non-cash gifts that do not exceed an aggregate of $300 per year so long as the gifts:

• are not determined in any manner that takes into account volume or value of referrals or other business generated by referring physicians;

• are not solicited by the physician or the physician's practice (including employees and staff members); and

• do not violate the Federal anti-kickback statute.

HCFA eliminated the $50 per gift from the January 1998 proposal. Thus, an entity can give a physician either one gift per year of up to $300 in value or two or more gifts per year, as long as the annual aggregate value of the gifts does not exceed $300.

|back to top|

B. Fair Market Value Compensation

Phase I includes the FMV exception from the January 1998 proposal, and because of the special rules governing compensation discussed in II. A. above, particularly the new rule on "volume or value of referrals," it is now much more accommodating. To qualify, arrangements must meet the following criteria:

1. be in writing, signed by the parties, and cover only identifiable items or services, all of which are specified in the agreement;

2. specify the timeframe for the arrangement, which can be for any period of time and contain a termination clause, provided the parties enter into only one arrangement for the same items or services during the course of a year. Arrangements for less than one year may be renewed any number of times if the terms of the arrangement and the compensation for the same items or services do not change;

3. specify the compensation that will be provided, which must be set in advance. The compensation must be consistent with FMV and not be determined in a manner that takes into account the volume or value of any referrals or any other business generated by the referring physician, as those terms are now more loosely defined;

4. involve a transaction that is commercially reasonable and furthers the legitimate business purposes of the parties;

5. meet a safe harbor under the anti-kickback law, be approved by the OIG under an advisory opinion, or otherwise be in compliance with the kickback law; and

6. not involve the counseling or promotion of a business arrangement or other activity that violates State or Federal law.

Unlike the proposed rule, the final rule does not require that the written document cross-reference other agreements between the parties for other services.

|back to top|

C. Medical Staff Incidental Benefits

In response to public comment, HCFA added to the final rule an exception for non-cash items or services, provided by a hospital to members of its medical staff. This exception is available when the item or service is:

1. offered to all members of the medical staff without regard to the volume or value of referrals or other business generated between the parties;

2. offered only during periods when the medical staff members are making rounds or performing other duties that benefit the hospital or its patients;

3. provided by the hospital and used by the medical staff members only on the hospital's campus;

4. reasonably related to the provisions of, or designed to facilitate directly or indirectly the delivery of, medical services at the hospital;

5. consistent with the types of benefits offered to medical staff members by other hospitals in the same region, or if there is no hospital within the same region, by comparable hospitals in comparable regions;

6. less than $25 with respect to each occurrence of the benefit;

7. not determined in any manner that takes into account the volume or value of referrals or other business generated between the parties; and

8. not in violation of the kickback law.

This new exception protects items that would not meet the employment exception, because most members of a hospital's medical staff are not hospital employees, and would not qualify for the new FMV or other compensation exceptions, because there is no written agreement covering things like parking, coffee and donuts.

|back to top|

D. Risk Sharing Arrangements

The rule also provides a broad exception for risk-sharing relationships (withholds, bonus pools, etc.) between a managed care organization or IPA and a physician (either directly or indirectly through a subcontractor) for services provided to enrollees of a health plan. In order to qualify for the exception, the compensation arrangement cannot violate the Federal anti-kickback statute or any law or regulation governing billing or claims submissions.

|back to top|

E. Compliance Training

In an attempt to promote compliance training programs, HCFA added a new compliance training exception available for compliance training provided by a hospital to a physician who practices in the hospital's local community or service area, but only if the training is held in the local community or service area.

|back to top|

F. Indirect Compensation

Because many indirect compensation arrangements do not squarely fit in other compensation exceptions, HCFA added an indirect compensation exception in the final rule. This exception is available for any indirect compensation arrangement, as defined in section 411.354(c)(2) of the final rule (see II. A. above), if:

1. the compensation received by the referring physician is fair market value for services and items actually provided, not taking into account the value or volume of referrals or other business generated by the referring physician for the entity furnishing DHS;

2. the physician's compensation arrangement (or the compensation relationship in the chain of indirect relationships that is closest to the physician) is set out in writing, signed by the parties, and specifies the services covered by the arrangement. If the compensation relationship is one of bona fide employment, there need not be a written contract, but there must be identifiable services, and the arrangement must be commercially reasonable even if no referrals were made to the employer; and

3. the compensation arrangement does not violate the kickback law or any laws or regulations governing billing or claims submissions.

|back to top|

To next page