Stark Phase II Regulations Issued
Compliance Deadline: July 24, 2004
The Centers for Medicare & Medicaid Services (CMS) published its final Stark Phase II regulations and set an effective date of July 24, 2004. Since these new regulations do not “grandfather” existing arrangements, physicians and healthcare providers must bring their existing arrangements into compliance by the effective date. To assist you, Holland & Knight LLP has prepared a Stark Handbook, which is available on the attached document below. A brief sampling of issues to consider when implementing these new regulations are set forth below:
Compliance. Stark has always been a law requiring strict compliance. Intentional and unintentional violations are both considered in the same light and any violation prohibits the health care practitioner from billing Medicare or Medicaid. Since improperly billing Medicare or Medicaid subjects the billing party to fines and penalties, compliance is very important.
In-Office Ancillary Services. Currently, physicians participating within a medical practice may refer “designated health services” to that practice when the referral complies with the “in-office ancillary services” requirements. To qualify, the designated health services must be provided within the same building as the physician’s regular practice or in a separate designated building that is used exclusively for such purpose. The new regulations redefine the “same building” requirements and permit referral to offices used only part-time by a physician where some services other than the designated health services are provided from the subleased offices. These part-time offices, however, must be used by the physician on an exclusive basis for 8 hours per week, and at least 6 of the 8 hours must be devoted to the performance of physician services. Practices sharing offices for just one afternoon per week would not meet this new requirement.
Sales and Purchases of Practices. The proposed Stark regulations issued in 1998 indicated that any sale of a medical practice had to be at fair market value and paid for in cash. Installment sales were prohibited. The new Stark rules will permit an installment sale, provided that the sale is priced at fair market value, the price is fixed prior to the sale, and the sale is “secured” (as defined by the rule) and enforceable.
Husband and Wife Referrals. Present Stark regulations prohibit a spouse physician in one medical practice from making a referral to the other spouse physician in another medical practice. The new rules, however, allow limited referrals between spouses in rural areas.
Charitable Contributions. Special new rules define how health care practitioners can make charitable contributions. For example, contributions to non-profit hospitals by physician members of that hospital’s medical staff must now be compliant with the Stark regulations.
Malpractice Premium Assistance. Due to the current medical malpractice crisis, some hospitals have provided malpractice insurance premium assistance to medical staff members. This assistance is now regulated by Stark, and is limited to assistance to OB physicians only.
Business Expenses. Prior Stark rules limited physician entertainment expenses to $300 per year. These rules have been further clarified.
Recruiting Arrangements. The new Stark regulations are very specific about the terms of recruiting agreements between hospitals and physicians and the practices that physicians join.
Medical Director Arrangements. The new regulations specify safe harbor methods for calculating the hourly rates paid to physicians under personal service arrangements, such as a medical director agreement. All present arrangements should be carefully reviewed.
Indirect Compensation. The new Stark rules expand the explanation of “indirect” compensation and clarify when it is, or is not, permitted. One example of an “indirect” compensation arrangement is a physician’s royalty agreement with a medical device company, where such company sells a doctor’s patented device to the same hospital where the doctor has privileges and operates using the device.
Percentage Compensation. Although paying percentage compensation to physicians has been customary, except in the group practice context, Stark has historically prohibited such form of compensation. This prohibition has been particularly troubling for independent contractors. The new regulations now permit percentage compensation under certain controlled and defined circumstances.
This brief memo is not intended to be a complete summary of the new Stark regulations and should not be relied upon for making any decisions. Our Stark Handbook can provide additional useful guidance.