Stark II Rules Issued

The federal law named for Congressman Fortney H. “Pete” Stark (D-CA) prohibits physicians from referring Medicare patients for certain “designated health services” to entities with which the physician (or the physician’s immediate family) has a financial relationship. Questions regarding the Stark self-referral rules come up in anesthesiology practice when groups seek financial support from hospitals or when they invest in or contract with ambulatory surgical centers (ASCs).

There are numerous exceptions, listed in the statute and defined in regulations issued by the Centers for Medicare & Medicaid Services (CMS). In late March 2004, CMS published Phase II of the Stark Regulations. Phase II addresses the exceptions not covered in Phase I, which was finalized in 2001, and defines several new exceptions. It will go into effect on July 26, 2004. (It is an “interim final rule,” however, and thus CMS will consider public comments filed up to June 24.) The new or expanded exceptions of greatest potential interest to anesthesiologists are discussed below.

Designated Health Services
First we must ask whether the Stark prohibitions apply at all in anesthesiology practice. They only preclude referrals for “designated health services” (DHS). There are 10 DHS:

Note that “physician services” are not on the list. An anesthetic or a pain medicine procedure is not a DHS. In other words, referrals do not include services personally performed by the referring physician or by members of the group practice if certain conditions are met — but there is a potential question as to whether the anesthesiologist who uses hospital services in the form of the operating room (O.R.) or the anesthesia medications might be “referring” to the hospital. If so, that anesthesiologist could be in violation of the Stark rules, (and the hospital or ASC could not legally bill for the O.R. or medication usage).

Putting aside that question, though, since it has yet to be resolved by the courts or by CMS, anesthesiologists and their administrators should still be aware of the latest changes to the increasingly complex universe of Stark interpretations and exceptions. The summary below is intended to draw readers’ attention to some of the more relevant Phase II changes. To analyze specific arrangements, of course, anesthesiology practices and their lawyers must consult the rule itself.

The New Regulations
1. Professional courtesy discounts. A hospital or other entity that provides DHS could arguably be compensating physicians for referrals by granting them professional courtesy. Thus waiving hospital charges for an admission of an anesthesiologist could be a Stark violation. Phase II has created an exception so long as the professional courtesy policy is approved in advance by the hospital’s governing body, set out in writing and offered to all bona fide medical staff (and their immediate family members if desired) without regard to the volume or value of referrals. Several other conditions must be met, including notice to a third-party payer if a copayment is being discounted.

This Stark exception is of no direct benefit to physicians who provide their professional services at no charge to their colleagues. As noted above, professional services are not targeted by the Stark rules. Professional courtesy discounts between physicians are a potential violation of the federal antikickback rules, however. Following the conditions spelled out for the new Stark exception could be very helpful in proving that there was no intent to pay for referrals. Without such intent, there can be no antikickback violation.

2. Recruitment incentives. By offering incentives such as income guarantees or relocation stipends, hospitals might be compensating new members of their medical staffs for their DHS referrals. The Stark law itself contained an exception that would protect this common means of increasing the number of physicians on staff. Phase II has broadened that exception. Physicians need not move their residence as long their new practice location is 25 miles from the former site (hospital) or 75 percent of their patient revenues come from new patients. Residents and physicians in practice for less than a year do not need to move their practice locations, a policy change sought by the teaching hospitals. Recruited doctors must be allowed to establish staff privileges at other hospitals, but “reasonable credentialing restrictions on physicians becoming competitors of a hospital would not violate this condition.”

For the first time, recruitment payments may be made to the group that hires the relocating physicians (if they are passed through with deductions only for the group’s actual costs). This concession is of limited value to anesthesiology practices, though, because it precludes noncompete covenants in the contracts between the group and the new anesthesiologist. Still it may be possible to structure an arrangement that lets the hospital lawfully compensate the new physician directly.

3. Productivity bonuses and percentage compensation arrangements. These forms of compensation have the potential to increase the volume of referrals. Under the Phase I regulations, there were different (and confusing) exceptions for such volume-based compensation paid to group members, employees and independent contractors. Phase II clarifies that all of these physicians — as well as teaching physicians — may be paid using certain types of percentage compensation and can receive productivity bonuses based on personally performed services.

4. Hospital ownership — specialty hospitals. An ownership or investment interest in a hospital (not a subdivision, but the entire hospital) where the physician is expected to perform services is not a financial relationship for purposes of the Stark law. As required under the 2003 Medicare Reform legislation, specialty hospitals will not qualify for this exception until June 2005.

The Phase II regulations also clarify other Stark law exceptions such as space and equipment rentals or employment and personal service arrangements. Those responsible for Stark compliance should familiarize themselves further with the notice published in the Federal Register.