The Stark Law Regulations: A Review

The Stark Regs (1) forbid doctors and their immediate family members from referring their patients to businesses they own which provide “designated health services,” and (2) contains a long list of permitted financial relationships between health care providers.  The list of what constitutes a “designated health service” (DHS) includes PT, rehab, diagnostic imaging, clinical lab, DME, and home health.  A “physician” means an M.D., D.O., chiropractor, podiatrist, optometrist or dentist.  An “immediate family member” is a husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild.  In short, if you or your family member owns a DHS, don’t refer to it.  Unless of course your situation falls within one or more of the gazillion exceptions.

A few key changes from the third set of revisions (so called Stark III) which affect physicians are helpful to keep in mind.  For instance, the way fair market value of physician compensation is determined  in the Stark II regs has been simplified and now depends on an amorphous consideration of the transaction, its location and other factors.  The clear formulas contained in Stark II was dropped and this makes the need for an expert FMV study even more compelling.

Perhaps the most impactful change for physicians deals with marked up service fees.  Under the Stark III regs, the technical and professional components of diagnostic testing may not be marked up unless the party providing the technical or professional service is a full time W-2 employee of the billing entity.  Any physician with a component billing arrangement or time share arrangement will need to have them reexamined in light of the new regs.

Another significant change deals with group practice physician bonus compensation, which now prohibits diagnostic x-rays, diagnostic lab tests and other diagnostic test revenues from being billed incident to the physician service and from being figured into a physician bonus calculation unless the group practice physician personally performed the test.

Some of the other provisions that impact physicians include:

!Independent contractor physicians have to provide their services directly (not through employee leasing organizations), via a contract and in the group practice’s facilities

!Productivity bonus compensation may be based on services personally performed by a group doctor and incident thereto (e.g., PT and prescription drugs, but not a diagnostic test or hospital admissions)

!Parties to rental arrangements who want to change the rental rate of a rental agreement after the initial 12 month period must terminate the rental agreement and enter into a new agreement with the different rental rate

!Clarification that space and equipment leases must provide for the exclusive use of such space and equipment during the leased periods

!There may be certain restrictions placed on physicians recruited by hospitals to group practices, which can include prohibition on soliciting patients and employees, requiring the recruit to pay for losses above any hospital recruitment payments, reasonable liquidated damages if the physician ceases to work for the practice but remains in the community

!Each physician in a group practice is deemed to have the same compensation arrangements with the same parties that the group practice has

!The rules regarding hospital recruitment have been loosened up with respect to rural hospitals

The so called “75% Rule” continues to be confusing to doctors.  As most physicians know by now, there is a mechanism in the Stark regs that allows them to refer their own patients for DHS provided by their own practices.  That so called “group practice” exception is key for the provision by practices to a multitude of ancillary services and is quite complex.  It is only pertinent if the practice wants to provide DHS to its patients.

Being a group practice requires, among other things, a single legal entity, a tax identification number, a Medicare group number, billing and collecting everything through the tax identification number and Medicare group number.  It also requires that the doctors who are part of the group practice to devote substantially all of their professional time to the group practice.  They could not, for instance, be in five different groups.

So what does A “substantially all” mean?  Under Stark, it means that the doctors in the practice devote, on average, 75% of their total professional time working through that particular group practice (that provides the designated health service to its patients).   As such, if there are two physicians in the practice, and if one of them spend 100% of his total professional time working through the group, but the other spends only 25% of her total professional time working through the group, they fail the group practice test because they do not spend, on average, 75% of their total professional time working through that practice.  They spend only 62.5% (125% divided by 2-the number of doctors).

Florida confuses the issue.  While it has a law like Stark, it has not clearly said what “substantially all” means, though at least one declaratory statement from the Board of Medicine opines that the federal definitions will be applied (at least by that licensure board).  Florida law further confuses the issues by doing two tricky things:  (1) not allowing a practice that provides DHS to its patients to provide DHS to anyone who is not a patient of the practice, and (2) making one small exception for diagnostic imaging services.  Moreover, if the practice obtains the exception that allows it to take in outside patients for diagnostic imaging, then EACH DOCTOR in the practice has to comply with the 75% Rule!

Generally speaking, a Florida medical practice that provides, for instance MRI, clinical lab or physical therapy services to its patients, may not provide those services to people who are not patients of the medical practice.  Those “outside patients” cannot receive designated health services from the group practice.  As mentioned, however, the state exception that applies to diagnostic imaging services (which does not apply to any designated health service other than diagnostic imaging) allows up to 15% of a practice=s diagnostic imaging services to be performed on “outside patients” if the practice registers to do so through Florida’s Agency for Healthcare Administration (“AHCA”).

So, to rehash:

1.         A “group practice” or solo practitioner can provide designated health services to their own patients;

2.         One of the requirements of the “group practice” exception is the 75% Rule, which applies on average to the physicians in the practice; and

3.         If the practice also provides diagnostic imaging services to “outside patients” via registration with AHCA, EACH doctor in the practice must devote at least 75% of his or her total professional time working through the practice.

Easy….

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