Stark

STARK II PHASE III FINAL RULE
On September 5, 2007, the Center for Medicare and Medicaid Services ("CMS") completed the long-awaited third and final installment in its rulemaking process under the federal physician self-referral prohibition commonly known as the "Stark law." The new final rule, referred to as "Phase III," responds to public comments regarding the Phase II interim final rule with comment period published on March 26, 2004, and addresses the entire Stark law regulatory scheme. As in Phases I and II, CMS has continued its efforts in Phase III to reduce the regulatory burden on the healthcare industry through its interpretation and modification of previously promulgated exceptions to the Stark law's general prohibition on referrals. The new regulations will be effective December 4, 2007. Additional changes were made to the Stark Final Rule in November 2008 as a part of the 2009 Medicare Final Physician Fee Schedule. Our firm analyzed the regulations for the American Bar Association's publication "The Health Lawyer" which is distributed to over 11,000 healthcare and business attorneys. For a copy of The Health Lawyer article, click here.

For a summary of the highlights of the Stark II Phase III Final Rule please click here. On August 19, 2008, CMS again made changes to the Stark II regulations in the 2009 Final IPPS Rule.

If you have any questions regarding Stark please call us at (248) 544-0888 or e-mail us.

Stark Frequently Asked Questions
Business Arrangements Subject To Stark
Helpful Links
Publications
Speaking Engagements
Wachler & Associates, P.C. Home Page

Attorneys at WACHLER & ASSOCIATES, P.C. have extensive experience counseling clients on issues relating to the Stark ban on physician self-referral. Additionally, our firm writes and speaks about the Stark ban on a national level.

This Web page contains a compilation of our publications, helpful links, latest news, and general information related to compliance with the Stark self-referral ban. *This information is set forth for information purposes only. It is not intended to be legal advice nor should it be interpreted as such.

STARK FREQUENTLY ASKED QUESTIONS*

What is the Stark ban on physician self-referral?
The Stark II ban took effect on January 1, 1995. On January 4, 2001, the Centers for Medicare and Medicaid Services ("CMS"), which oversees enforcement of the Stark ban, issued the first part of final regulations implementing the ban. The Phase I final regulations took effect on January 4, 2002 and contained many changes to the Stark II ban that directly impacted healthcare providers' common business relationships. Phase I of the rule addressed Section 1877 of the Act, paragraphs (a) and (b), regarding the general prohibition and the exceptions related to ownership and investment interests; the statutory exceptions for certain compensation arrangements; and the reporting requirements. Additionally, Phase II creates new regulatory exceptions and addresses public comments on Phase I of the rulemaking. Phase I and Phase II of the final regulations are intended to be integrated and read together as a whole. Modifications and revisions to Phase I are indicated in the Phase II preamble and corresponding regulations. The Phase I and Phase II rules together supercede the 1995 final rule (60 Fed. Reg. 41914), which had been applicable to clinical laboratory services. On September 5, 2007, CMS issued Phase III of the final regulations. Phase III responds to comments on Phase II and, thus, addresses the entire Stark regulatory scheme. Phases I, II and III of the rulemaking are intended to read as a unified whole. CMS states that except as otherwise noted, to the extent that the preamble in Phase III uses different language to describe a concept that was addressed Phase I or Phase II, the intent is to expound on previous discussions, not to change the scope or meaning.

What are the penalties for violating the Stark ban?
Penalties for violating Stark can be severe. They include denial of payment, refund of payment, imposition of a $15,000 per service civil monetary penalty and imposition of a $100,000 civil monetary penalty for each arrangement considered to be a circumvention scheme.

Who qualifies as a "physician" subject to the Stark ban?
The Phase I final regulations define "physician" as a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor.

Who qualifies as an "immediate family member" subject to the Stark ban?
The term "immediate family member" is defined broadly to mean 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.

What are the "Designated Health Services" subject to the Stark ban?
The Designated Health Services (DHS) encompassed within Stark include the following categories:

clinical laboratory services;

physical therapy services;

occupational therapy and speech-language pathology services;

radiology services, including nuclear medicine, MRI, CAT scans, and ultrasound services;

radiation therapy services and supplies;

durable medical equipment and supplies;

parenteral and enteral nutrients, equipment and supplies;

prosthetics, orthotics, and prosthetic devices and supplies;

home health services;

outpatient prescription drugs; and

inpatient and outpatient hospitalization services

With regard to the first five categories of DHS, the Stark regulations identify the specific insurance billing codes in each category, which are considered to constitute DHS. The remaining six categories of DHS are defined in the Stark regulatory text.

What constitutes a "referral" for purposes of the Stark ban?
Stark broadly defines "referral" to include a request by a physician for an item or service payable under Medicare or Medicaid (including the request by a physician for consultation wit another physician and any test or procedure ordered or performed by such other physician), or a request by a physician for the establishment of a plan of care that includes the provision of a DHS. The definition of "referral," does not include services personally performed by a referring/ordering physician (but not services furnished by employees of, or other members of the same group practice as, the ordering physician). Accordingly, physicians who personally perform the DHS that they order for their patients can structure arrangements without worrying about potential Stark violations.

What constitutes a "financial relationship" for purposes of the Stark ban?
A "financial relationship" is defined to include either a direct or indirect ownership or investment interest in an entity through equity, debt or other means, or a direct or indirect compensation arrangement with an entity.

What types of statutory exceptions exist if an arrangement falls within the Stark ban?
The exceptions to the Stark ban fall into three categories based on the type of financial relationship the physician has with the entity to which he or she refers patients for DHS:

Exceptions applicable to both compensation and ownership/investment arrangements. Examples of exceptions in this category include the exception for in-office ancillary services, which is perhaps the most important exception to the Stark ban, and the exception for physician services.

Exceptions applicable only to ownership or investment arrangements. Examples of exceptions in this category include exceptions for publicly traded securities and mutual funds, services furnished by a rural provider, and ownership in a whole hospital.

Exceptions applicable only to compensation arrangements. Examples of exceptions in this category include exceptions for bona fide employment relationships, personal services arrangements and rental of office space and equipment.

Is there a process for obtaining clarification concerning whether an arrangement falls outside of the Stark ban or meets an exception to the ban?
CMS has established an advisory opinion process under which parties to an arrangement can obtain a written determination from CMS concerning whether the arrangement constitutes a "financial relationship" under Stark II and whether the arrangement meets and exception.

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TYPES OF BUSINESS ARRANGEMENTS SUBJECT TO THE STARK II BAN*
In the final version of its Compliance Guidance for Individual and Small Group Physician Practices issued on September 25, 2000, the Office of Inspector General of the Department of Health and Human Services advised physicians to have all business arrangements that involve referrals reviewed by legal counsel familiar with the anti-kickback and Stark laws. Additionally, on June 8, 2004, the OIG issued a supplemental guidance for hospitals, which also focuses on physician and hospital relationships under Stark. Business arrangements that should be reviewed for compliance with Stark include, but are not limited to, the following:

All physician employment and independent contractor arrangements

The organizational and operational structures of all group practices. Qualifying as a "group practice" under Stark enables physicians to take advantage of certain exceptions, including the physician services exception and the in-office ancillary services exception. Group practices that provide DHS should review Stark's group practice requirements to make sure they qualify under the definition, in order to protect their referrals under the in-office ancillary services exception.

All group practice compensation arrangements, including all arrangements for the provision of ancillary services and all employment and independent contractor arrangements entered into by group practices with physicians. The methodologies used by group practices for distributing profits from the provision of designated health services and for paying productivity bonuses to physicians should be particularly scrutinized for compliance with the regulations.

All administrative service contracts entered into by physicians, such as medical director agreements.

All space and equipment leases.

Office sharing agreements and time-share arrangements.

All economic relationships between physicians and the hospitals to which they make designated health service referrals, including loan agreements, hospital guaranties of physician obligations, physician recruitment arrangements, independent contractor arrangements and employment agreements.

Practice acquisitions.

*This information is set forth for informational purposes only. It is not intended to be legal advice nor should it be interpreted as such.

STARK UPDATE: FY 2009 Final IPPS Rule

The Final IPPS Rule, published in November 2008, contains several important modifications to the Stark regulations. Some of these modifications will require physicians, hospitals, or other healthcare providers to unwind or restructure their arrangements. Some of the new Stark regulations were effective October 1, 2008, while others are not effective until October 1, 2009.

Listed below are summaries of the major points contained in the Final Rule. For more information visit the CMS website for the FY 2009 Final IPPS Rule.

"Stand in the Shoes" Provisions

o Effective October 1, 2008, only physicians who have an ownership or investment interest in their physician organizations (e.g. group practice) will be required to stand in the shoes of those organizations. Employed Physicians may stand in the shoes of their physician organizations, but are not required to do so.

o The Final Rule establishes an exception for physicians participating in financial arrangements that satisfy the Stark exceptions for academic medical centers and grandfathers a small group of arrangements that previous met the Stark indirect compensation arrangement exception.

"Set in Advance" and Amendments to Agreements

o The Final Rule reverses Stark II Phase III position and permits multi-year agreements to be amended after the first year without violating Stark's "set in advance" requirement.

Period of Disallowance

o Effective October 1, 2008, a rule was established that sets the outer limit of the time period during which referrals are prohibited as a result of a financial relationship that fails to satisfy a Stark exception.

o Disallowance begins when the relationship fails to satisfy an exception and ends no later than the date that it satisfies an exception and the parties have returned all overpayments or paid all underpayments.

Alternative Method for Compliance with Signature Requirements

o If a financial relationship complied with an applicable Stark exception, except for the signature requirement, Medicare payments will still be permitted if the signature requirement is satisfied within thirty (30) days (for knowing failures) or ninety (90) days (for inadvertent failures) after the beginning of the relationship.

Percentage-Based Leasing Arrangements

o Effective October 1, 2009: compensation for the rental of office space or equipment is prohibited to be based on a percentage of revenue raised, earned, billed, collected or otherwise attributable to the services performed, or business generated in the office space, or the services performed or business generated through the use of equipment.

"Per-Click" Leasing Arrangements

o Effective October 1, 2009: CMS eliminates the use of "per-click" fee payments in space and/or equipment leases when the payments reflect services provided to patients referred between the parties. This "per-click" fee applies to both direct and indirect leasing arrangements.

Services Provided "Under Arrangements"

o Effective October 1, 2009: both the hospital that bills for services provided "under arrangements" and the entity that performs the services to the hospital will be considered to be furnishing "designated health services" ("DHS") under Stark.

Exceptions for Obstetrical Malpractice Insurance Subsidies

o Effective October 2008, CMS added an alternative exception for subsidies of malpractice insurance premiums provided by hospitals, federally qualified health centers, and rural health centers.

Ownership or Investment Interest in Retirement Plans

o Effective October 2008: CMS narrows the "retirement plan exception" to ensure that referring physicians cannot use it to evade the Stark self-referral prohibition by investing in a DHS entity via their employer's retirement plan. Under the Final Rule, only a physician's ownership or investment interest in their employer-sponsored retirement plan is protected.

Burden of Proof

o Under the Final Rule, the burden of proof in appeals of Stark-based payment denials is on the entity appealing the denial. The burden of production is initially on the DHS entity, but may shift to CMS (or contractors) depending on the evidence presented by the DHS entity.

Disclosure of Financial Relationships Report ("DFRR")

o The Final Rule announces that CMS will send DFRR to 500 hospitals. DFRR is designed to collect information regarding the ownership and investment interests and compensation arrangements between hospitals and physicians. Hospitals have sixty days to complete the DFRR and could be subject to civil monetary fines of $10,000 per day the submission is late.

HELPFUL LINKS

The following is a link to the CMS website "Physician Self-Referral Quick Reference Guide." This page contains links to the Stark statute and Federal Register documents. The website is located at http://www.cms.hhs.gov/physicianselfreferral/

PUBLICATIONS

"Changes to Stark - Are you still in compliance?" by Andrew B. Wachler and Alicia B. Chandler, Michigan Medical Law Report, Vol. 5, No. 4, Winter 2010.

"Risks and Costs You Can't Afford to Ignore," by Andrew B. Wachler, Healthcare Billing and Management Association, Vol. 15, Issue 5, September-October 2009.

"The 2009 Medicare Physician Fee Schedule: The Anti-Markup Rule and IDTF Developments Impacting Diagnostic Testing Services", by Andrew B. Wachler, Esq., The Health Lawyer, The ABA Health Law Section, Vol. 21, No. 3, February, 2009

"Recent Developments and Key Legal Issues Impacting Diagnostic Imaging Services, Part 1", by Wachler & Associates P.C., Radiology Management, January/February, 2009

"The 2009 Medicare Physician Fee Schedule: Medicare's Anti-Markup Rule and IDTF Enrollment Requirements for Mobile Imaging", by Wachler & Associates, P.C., Michigan Medical Law Report, Vol. 4, No. 4, Winter, 2009

"CMS Finalizes Major Stark Changes - New Physician Self-Referral Rules in the 2009 IPPS Final Rulemaking Will Require Restructuring of Many Common Healthcare Arrangements", by Andrew B. Wachler, Esq., The Health Lawyer, The ABA Health Law Section, October, 2008

"New Stark rules: Yet more arrangements to be restructured", by Andrew B. Wachler, Esq., Michigan Medical Law Report, Vol. 4, No. 3, Fall, 2008

"Medicare's anti-markup rule partially delayed until 2009", by Andrew B. Wachler, Esq., Michigan Medical Law Report, Vol. 4, No. 1, Spring, 2008

"Stark II Phase III: The Current Stark Reality," Oakland County Bar Association, Laches, January, 2008

"2008 Medicare physician fee schedule: Final rule has far reaching implications for physician practices providing diagnostic testing," Michigan medical law Report, Vol. 3, No. 4, Winter, 2008

"Stark II Phase III - The Full Picture," by Andrew B. Wachler, Esq., Special Edition: The Health Lawyer, The ABA Health Law Section, September, 2007.

"Over A Decade Later, The Third And Final Phase In The Rulemaking Of The Stark Regulations Is Finally Here!" by Andrew B. Wachler, Esq., ABA Health eSource, September, 2007.

”Stark and Anti-Kickback Protection for E-Prescribing and Electronic Health Records,” by Andrew B. Wachler, Esq., The Health Lawyer, The ABA Health Law Section, December 2005.

“Does Your Practice Qualify as a Group Practice under Stark?” by Andrew B. Wachler, Esq., Michigan Medical Law Report, Vol. 1, No. 3, Fall 2005.

"Stark II Phase II is Here - Have You Analyzed Your Healthcare Clients' Financial Relationships?" by Andrew B. Wachler, Laches, July 2004.

"Stark II Phase II - The Final Voyage," by Andrew B. Wachler, and Karen K. Harris, Special Edition, The Health Lawyer, The ABA Health Law Section, April 2004.

"Recent Stark II Changes Apply to Home Care Physicians", by Andrew B. Wachler and Tracy Silverman Weissman, Health Care Weekly, February 6, 2002.

"A Stark II Primer: The Impact of the Federal Physician Self-Referral Ban on Health Care Providers' Business Relationships", by Andrew B. Wachler, Phyllis A. Avery, and Tracy Silverman Weissman, Laches, January 2002.

"Stark II Final Rule - Phase I: A Kinder and Gentler Stark?", by Andrew B. Wachler and Phyllis A. Avery, Special Edition, The Health Lawyer, The ABA Health Law Section, January, 2001.

"Stark II Proposed Regulations: Rule Offers Additional Guidance While Regulators Seek More Input From Health Care Community," by Andrew B. Wachler and Phyllis A. Avery, Special Edition, The Health Lawyer, The ABA Health Law Section, January, 1998.

"Stark I Final Regulations: Implications for Health Care Providers and Suppliers, "by Andrew B. Wachler, Mark S. Kopson and Phyllis A. Avery, Special Edition, The Health Lawyer, The ABA Forum on Health Law, August, 1995.

"Phase I of the Stark II Final Rule", by Andrew B. Wachler and Phyllis A. Avery, Michigan Health & Hospitals, July/August 2001.

For publications on other healthcare law topics, please visit Wachler & Associates, P.C.'s Publications page.

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SPEAKING ENGAGEMENTS

Past Speaking Engagements:

"Latest Developments in Stark and Anti-Markup for Billing Companies," Healthcare Billing and Management Association, May 8, 2009
Andrew B. Wachler, Esq. presented a teleconference on the Stark II Phase III regulations, "Stark Referral Rules Revised: What You Can and Cannot Do NOW," for Decision Health on September, 27, 2007.
Andrew B. Wachler, Esq. presented a teleconference on the Stark II Phase III regulations, "The Stark III Regulations: Ready or Not, Here They Are," for the American Bar Association Health Law Section on September 17, 2007.
Presented on the basics of Stark law and the federal anti-kickback statute for the Michigan Association of Certified Public Accountants on April 29, 2005.
Presented a teleconference on the basics of Stark law and the federal anti-kickback statute for the American Bar Association, Center for Continuing Legal Education on March 31, 2005.
Presented on the Stark II ban through Lorman Education Services on March 19, 2002 and on April 30, 2002.
Presented on Stark and other regulatory concerns at the 16th Annual Management and Leadership Conference sponsored by the National Hospice and Palliative Care Organization in Washington D.C. on December 3-5, 2001.
Presented on Stark and HIPAA for the Radiology Business Management Association in Lansing, Michigan on November 9, 2001.
Presented on Stark, HIPAA and other regulatory concerns at the 16th Annual Management and Leadership Conference sponsored by the National Hospice and Palliative Care Organization in Washington D.C. on September 24, 2001.
Presented on the Stark II Final Regulations at the American Bar Association/American Medical Association Physician Legal Conference in Chicago, Illinois on June 16, 2001.
Presented update on Stark II final regulations through Lorman Education Services in December 2000.
Presented an Update on Stark II and the Office of Inspector General Compliance Guidance for Physician Practices in Michigan at a seminar sponsored by Lorman Educational Services in September 2000.
Presented update on Stark II and the Office of Inspector General Compliance Guidance for Physician Practices in Michigan at the Annual Meeting of the Michigan Society of Hematology and Oncology Association in September 2000.
Presented on Stark II update and compliance for physician practices for the Midland County Medical Society in November 2000 and Bay County Medical Society in September 2000.
Presented on Stark, fraud and abuse, and compliance issues with U.S. Assistant Attorney Generals from the Western District of Michigan and a State U.S. Assistant Attorney General through Lorman Education Services in March, 2000. Presented on Current Fraud and Abuse and Stark Developments: A Regulatory Update through the Law Education Institute, Inc.
Presented on Proposed Amendments to Stark and Federal Fraud and Abuse Laws contained in the Budget Bill through the State Bar of Michigan, Health Law Section, Health Facilities Subcommittee.
Evaluated and presented to the Subcommittee on Stark I Regulations and headed a task force to submit comments to HCFA through the State Bar of Michigan, Health law Section, Health Facilities Subcommittee.