Making Sense of the Stark Law. Compliance for the Medical Practice

Transcription

1 Making Sense of the Stark Law Compliance for the Medical Practice

2

3 Making Sense of the Stark Law Compliance for the Medical Practice The information contained in this manual is intended to serve as a general resource and guide. It is not to be construed as legal advice. Attorneys with knowledge of the Stark Law and other fraud and abuse laws should be consulted regarding the application of these laws to specific situations. This manual was prepared by William M. Mandell, Esq. and Dean P. Nicastro, Esq., of the law firm of Pierce & Mandell, P. C. (Boston, Massachusetts) in conjunction with and under the direction of the Massachusetts Medical Society s Department of Health Policy/Health Systems and the Office of the General Counsel Massachusetts Medical Society. All rights reserved.

4 TABLE OF CONTENTS Introduction.. 1 Statutory and Regulatory History The Stark Prohibition. 3 Defined Terms Example Figures: Financial Arrangements Standards of Proof to Demonstrate a Violation Compliance with the Anti-Kickback Laws Penalties and Sanctions for Violating Stark Reporting Obligations Whistleblowers and the Stark Law Stark Law Advisory Opinions Making Sense of the Exceptions Relevant to Independent Medical Practices Individual Physician Compensation Relationships Compensation to Non-group Practice Physicians Other Medical Practice/Physician Relationships with DHS Entities Other General Exceptions Physician-Hospital Relationships Indirect Compensation Arrangements Managed Care Relationships Purchase and Sale of Medical Practices Final Comments Exhibit A: 2005 DHS CPT/HCPCS Code List Exhibit B: Stark Law MD Compensation Grid

5 INTRODUCTION Physicians are under increasing scrutiny by federal and state enforcement agencies with regard to their financial relationships both within and outside their medical practices. This booklet summarizes the federal statute and regulations that govern the so-called Stark Law 1 that prohibits certain physician self-referrals. (For those who want to read the actual text of the law, the statute appears as Section 1877 of the Social Security Act and is codified at Title 42 of the United States Code Section 1395nn, and the regulations issued by the Centers for Medicare and Medicaid Services (CMS) appear at Title 42 of the Code of Federal Regulations, Sections et seq.) The Stark statute, regulations, advisory rulings, and some agency commentary can be found on the CMS website at www. cms.hhs.gov/medlearn/refphys.asp. This booklet has been specifically written to address Stark from the perspective of the independent medical practice. The Stark Law, however, is quite broad in its scope and does regulate many other providers that have financial relationships with physicians particularly hospitals. The reader should note that this booklet is not meant to be an exhaustive treatment of the Stark Law and the concerns of the medical practice have been emphasized. It is also important to keep in mind that a physician s financial relationships can call into question many other federal and state fraud and abuse laws in addition to the Stark Law. There are several other federal and state health care fraud and abuse laws that may have a bearing on a Massachusetts physician s financial relationships, including the Medicare/Medicaid anti-kickback or illegal remuneration for referral laws, similar Massachusetts state anti-kickback laws covering both government programs and private health insurance, Medicare/Medicaid mandatory and permissive exclusion laws, the Federal False Claims Act, and the Massachusetts False Claims Act. Therefore, the Stark Law must always be considered in tandem with other fraud and abuse compliance issues, especially the federal and Massachusetts anti-kickback laws. 1 In addition to the CMS, many other federal and state agencies have the authority to investigate and refer for prosecution or prosecute cases involving non-compliant physician financial relationships. The offices of the U.S. Attorneys, the U.S. Department of Justice, and the Federal Bureau of Investigation (FBI) have authority to investigate and prosecute alleged violations of federal health care laws. The Office of the Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) has as its mission the identification and elimination of fraud, waste, and abuse in HHS programs and the promotion of efficiency and economy in departmental operations. In Massachusetts, the Medicaid Fraud Control Unit of the Massachusetts Attorney General s office is charged with the enforcement of the state s fraud and abuse laws. The Massachusetts Medical Society (MMS) has put together this booklet in an effort to assist physicians and their medical practices with their ongoing Stark compliance efforts. The information contained within these pages is not intended to meet individual practice needs, but rather, to serve as a general reference and educational guide. Physicians and medical practices are encouraged to seek advice from their own counsel to address specific legal issues that arise in their individual practices. 1 The law, including the statute and regulations, has taken on the name of its sponsor, California Congressman Fortney Pete Stark, but it actually is styled as Limitation on Certain Physician Referrals.

6 Massachusetts Medical Society STATUTORY AND REGULATORY HISTORY The first version of the Stark Law (Stark I) was passed by Congress in 1989 and barred physicians from referring patients or specimens to clinical labs, including physician office labs, with which a physician or immediate family members had a financial relationship, and also barred such labs from billing for Medicare-covered tests, unless the relationship came within certain recognized exceptions. Stark I was based on the premise that physicians order both more laboratory tests and more complex tests when they stand to benefit financially. 2 Final agency regulations under Stark I were not issued until six years later, in 1995, covering just the self-referral prohibition for clinical laboratory services (these have now been nullified by the final Stark II regulations). By then, Congress had already expanded the Stark Law in 1993 to apply to nine other general categories of designated health services (Stark II) starting in Proposed Stark II regulations were first issued on January 9, 1998, and set forth a broad agency application of the law. For instance, in the proposed Stark II regulations, a referring physician could not be compensated based on personally performed services. After significant opposition to many aspects of the proposed Stark II regulations were articulated by the health care community through extensive comments, the CMS decided to issue final Stark II regulations in two major initial phases. Final Stark II Phase I regulations were issued in January 2001, and went into effect on January 4, Final Stark II Phase II regulations were issued in March 2004 and went into effect on July 24, With the exception of Medicaid managed care plans, the CMS has not yet addressed the application of the Stark Law to Medicaid and other state health programs in these two phases of the Stark II regulations, and is also considering public comments on Final Stark II Phase II regulations, so a Stark II Phase III set of regulations is expected to be issued some time in the future. A major source of confusion and complexity about the Stark Law is that Congress chose to define prohibited physician financial relationships broadly to include compensation arrangements as well as ownership interests. A critical element of the Stark Law is that Congress delegated to the regulatory agency the authority to expand and create new exceptions to the prohibition. During the process of issuing the Stark regulations over the past decade, the CMS has wrestled with the right balance between certainty, consistent with the legislative drafters intent to provide a bright line approach, and the effort to carve out a variety of exceptions to address concerns raised in the numerous comments from providers and others in the health care community. It is interesting to note that prior to the enactment of the Stark Law, the American Medical Association (AMA) had in effect since 1977 an ethical rule limiting physician ownership in health care facilities to which the physician refers to situations involving community need, and a general ethical standard that wherever a physician may have a conflict of interest, he or she should seek alternative arrangements for the care of his or her patient. 2 In 1992, the MMS endorsed the policy of the AMA Council on Ethical and Judicial Affairs, which was adopted unanimously by the AMA House of Delegates in December 1991 related to physicians ownership of facilities. Thus, the Stark Law legislatively proscribes in an extremely broad fashion what the medical profession had long before considered and crafted as a more balanced approach toward addressing physician conflicts between patient care and financial self-interest. 2 See AMA Policy E-8.032, Conflicts of Interest: Health Ownership by a Physician.

7 Making Sense of the Stark Law: Compliance for the Medical Practice THE STARK PROHIBITION The Stark Law prohibits the making of referrals or the billing for payment for certain designated health services (DHS) covered by Medicare or Medicaid if there is a financial relationship between the referring physician (or immediate family member of the physician) and an entity receiving payment for the DHS, unless the relationship comes within one of many enumerated exceptions to the prohibition. The operative language states that if a physician (or immediate family member) has a financial relationship with a DHS entity, the physician may not make a referral to the entity for the furnishing of any Medicare- or Medicaid-reimbursable DHS, and the entity may not present or cause to be presented a Medicare or Medicaid claim or bill to either program or any individual, third-party payor, or other party for such referred or ordered services. In order to fully understand the scope and breadth of the Stark Law, several terms defined in the statute and regulations must be consulted. These are as follows: Physician Immediate family member Financial relationship Entity Referral 3 Designated health services (DHS) The exceptions DEFINED TERMS The starting point in making sense of the Stark Law is to understand those services and items that it covers. Designated Health Services The Stark Law was enacted to only cover a defined set of services and items believed by Congress to be prone to over-utilization in cases in which the referring physician had a financial relationship with the entity receiving payment for such services and items. Initially, between 1992 and 1994, the Stark Law only applied to clinical laboratory services reimbursable by Medicare. Since 1995, the Stark Law covers the following expanded list of so-called designated health services (DHS) reimbursable under either Medicare or federally funded state health programs: Clinical laboratory services Occupational and physical therapy services (including speech-language pathology services) Radiology services including magnetic resonance imaging, computerized axial tomography scans, and ultrasound services, even if they are cardiac (e.g. echocardiograms), vascular, obstetric, gynecological, or ophthalmic and not generally performed by radiologists (but this

8 Massachusetts Medical Society category specifically excludes nuclear medicine procedures, 3 radiology procedures integral to and performed during a nonradiological medical procedure, certain radiology procedures performed immediately after a nonradiological medical procedure, and x-ray, fluoroscopy, and ultrasound services that require the insertion of a needle, catheter, tube or probe) Radiation therapy services and supplies (not including nuclear medicine procedures) Durable medical equipment and supplies Parenteral and enteral nutrients, equipment, and supplies Prosthetics, orthotics, and prosthetic devices and supplies (not including certain surgically implanted devices at ambulatory surgical centers (ASCs) and eyeglasses and contact lenses prescribed after cataract surgery) Home health services Outpatient prescription drugs Inpatient and outpatient hospital services, including services provided under arrangement 4 As is apparent from this list of DHS, Congress and the CMS included both services and items. Therefore, as used throughout this publication, the reference to DHS includes all of the items and services listed above. To eliminate confusion about which items and services are prohibited for four of the ten designated health services categories (clinical laboratory services, physical and occupational therapy, radiology and certain other imaging services, and radiation therapy services), the CMS has issued a list of CPT/HCPCS codes to specifically identify the services and items within these categories of DHS that are subject to the Stark Law. The list is updated periodically and is available on the CMS website, gov/medlearn/refphys.asp, and in the physician fee schedule rules, published annually in the Federal Register. The 2005 DHS CPT/HCPCS code list is included in the back of this publication as Exhibit A. This list also sets forth exclusions from the Stark Law by code for certain preventive screening exams, immunizations and vaccines, and erythropoietin (EPO) and other dialysis-related drugs. The CMS did not define the remaining DHS by specific CPT or HCPCS codes, believing the regulations define these six other DHS areas sufficiently. There is, however, continuing uncertainty in many of these DHS categories. In particular, the application of Stark to office procedures that may involve administration of prescription medications has been challenging for internal medicine, pulmonology, and oncology practices. In the commentary regarding the Stark II Phase II regulations issued in March 2004, the CMS did acknowledge that the category of outpatient prescription drugs under Stark will include prescription drugs covered by Medicare under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). As the MMA establishes a new Medicare Part D prescription drug benefit effective January 1, 2006, the CMS has announced its intention to further revise the Stark regulations to address the application of Stark to the Part D benefit. Physicians should assume that the Stark rules will be applicable to their (and immediate family members ) financial relationships with any entities that render and bill Part D-covered prescription medications starting in CMS has announced that it plans to expand the definition of radiology and certain other imaging services and radiation therapy services and supplies sometime in 2005 to include diagnostic and therapeutic nuclear medicine services and supplies.

9 Making Sense of the Stark Law: Compliance for the Medical Practice The question of whether some medical services and procedures are DHS and thus covered by Stark has already been the subject of litigation in federal court. In 2002, a federal district court ruled on a lawsuit filed by the American Lithotripsy Society and Urology Society of America that lithotripsy is not a DHS and did not fall under the definition of inpatient or outpatient services under Stark. Subsequently, in the final Stark II regulations, the CMS confirmed that it does not consider lithotripsy an inpatient or outpatient service anymore. The CMS did note, however, that contractual relationships between hospitals and physicians regarding lithotripsy constitute a financial relationship under Stark, and thus must comply with an exception if the physician will refer Medicare patients to the hospital for any other DHS. DHS covered by Stark may include the professional as well as the technical or facility component of the fee, depending on the type of service and how it is paid by Medicare. For instance, radiology and other imaging services are defined by the CMS to include both the professional and technical components of covered tests or procedures. Comparatively, the CMS defines inpatient and outpatient hospital services under Stark to exclude professional services performed by physicians or other professionals if Medicare reimburses the physician s services independently and not as part of the hospital service. Yet physical and occupational therapy, which are paid as a professional fee, are defined as a Stark-covered DHS. And, in many instances, Stark-covered DHS constitutes a physician s professional fee, such as certain outpatient prescription drugs administered in a medical office, or those DHS performed by someone under the supervision of a physician and billed as incident to 4 that physician s services. Also, many common diagnostic procedures, such as pulmonary function tests, EKGs and ECGs, are not DHS subject to Stark when rendered within the medical practice setting, but would be subject to Stark when rendered in the outpatient or inpatient hospital setting as outpatient or inpatient hospital services are included in the definition of Stark DHS. 5 Any DHS paid by Medicare as part of a composite payment under a separate benefit that is not included on the DHS list for example, end-stage renal disease, hospice care, or physical therapy services billed and paid as skilled-nursing facility (SNF) services are not subject to the Stark prohibitions. However, any DHS that is payable itself as a composite rate (e.g., any service provided as a home health service or inpatient and outpatient hospital service) is subject to the Stark Law. Overall, each physician and group practice should undertake a complete review of all services, procedures, and items they order and/or render to determine if Stark applies to them. Such an analysis is very important especially when establishing new relationships with other physicians and parties that may be ordering or rendering Stark-covered services or items. Many of the national specialty societies have been quite helpful in identifying which services and procedures within their specialties may be covered under Stark. Physician Physician means 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. Thus, the Stark Law can apply to services orderedby other licensed practitioners, not just medical doctors. 4 The term incident to is itself a Medicare term of art defined by the Medicare regulations and Medicare manuals. The applicable definition depends on whether the services incident to are hospital outpatient services or services furnished by a physician. For hospital outpatient services, incident to services are those furnished by a hospital (or those under arrangement with a hospital) pursuant to a physician s order and under physician supervision. For physician s services, incident to services are those rendered without charge or included in the physician s bill.

10 Massachusetts Medical Society Immediate Family Member Immediate family member or member of a physician s immediate family means 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; or spouse of a grandparent or grandchild. The inclusion of immediate family member under the Stark Law was intended to close any loopholes through which a DHS entity could have a prohibited financial relationship with a referring physician s family member. A major practical problem, however, is created for those physicians who have other physicians in the family practicing in the same community, or for those physicians who have family members who own or work for DHS entities, including group practices. Needless to say, such multi-physician family and family office staff situations must be carefully reviewed to avoid any Stark problems. Financial Relationships 6 Any financial relationship between a referring physician and a DHS entity implicates the Stark Law, even if the relationship is wholly unrelated to the DHS payable by Medicare or Medicaid. For instance, if a primary care physician is paid by a group practice to be the medical director of a skilled nursing facility, but also orders tests from the group in-office clinical lab for his or her patients, the medical director relationship, as well as the physician s other ownership interests and compensation arrangements would be subject to Stark. A financial relationship is defined as a direct or indirect ownership or investment interest in an entity through equity, debt, or other means, or a direct or indirect compensation arrangement involving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, between a physician (or immediate family member) and an entity. Any financial relationship between the referring physician and the DHS entity is covered by Stark, even if it is wholly unrelated to a Medicare/Medicaid DHS, if the referring physician will make referrals of Medicare/Medicaid DHS to the DHS entity. A financial relationship may be direct or indirect. A direct financial relationship exists if remuneration passes between the referring physician (or immediate family member) and the DHS entity without any intervening persons or entities. An indirect financial relationship exists if one or more persons or entities are interposed between the referring physician and the DHS entity. The Stark regulations set out the following tests, including a knowledge element, to determine if an indirect relationship is subject to Stark. An indirect ownership/investment interest exists if both of the following are true: There is an unbroken chain of one or more parties having ownership/investment interests between the referring physician (or an immediate family member) and a DHS entity. The DHS entity has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician (or an immediate family member) has some ownership/ investment interest through the intermediaries in the DHS entity (even if it is not the specific terms or composition of the relationships).

11 Making Sense of the Stark Law: Compliance for the Medical Practice An indirect compensation arrangement exists if all of the following are true: There is an unbroken chain of one or more parties having financial relationships between the referring physician (or an immediate family member) and a DHS entity. The referring physician (or immediate family member) receives aggregate compensation from the party in the chain with which the physician (or immediate family member) has a direct financial relationship that varies with or reflects the volume/value of referrals or other business generated for the DHS entity (including any time- or unit-based compensation that may be otherwise allowed under other Stark exceptions). The DHS entity has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the referring physician s (or immediate family member s) compensation so varies or reflects the volume or value of the physician s DHS referrals or other business generated. As the original language in the Stark statute enacted by Congress encompassed both direct and indirect relationships, the CMS has attempted to devise definitions that strike a balance between a clear bright line rule and one that is flexible and excuses certain unknown violations. This complicated approach taken by CMS with regard to indirect financial relationships reflects this tension. Indirect compensation arrangements are defined broadly to include arrangements that are otherwise permissible, but exclude those for which the DHS entity did not have sufficient knowledge of the referring physician s indirect ownership or compensation arrangements with the DHS entity (see the section entitled Standards of Proof to Demonstrate a Violation ). A relationship that comes within the indirect compensation arrangement definition may still be permissible if it meets the indirect compensation arrangement exception (see the section entitled Indirect Compensation Arrangements ). Indirect ownership or investment interests would have to come within one of the general or ownership/investment interest exceptions in order for the referring physician to refer DHS to the indirectly owned DHS entity. 7 For the purposes of determining if there is an indirect financial relationship subject to Stark, a wholly owned professional corporation (PC) and its sole physician owner are considered the same party in the chain. Thus, the relationship of a DHS entity with a PC does not create an indirect relationship with the PC s sole physician owner. But group practices and their physician owners are not considered to be the same party in a chain of financial relationships, and thus can be subject to potential indirect relationships. Therefore, a professional corporation that contracts with a hospital to provide echocardiogram interpretations would not constitute an indirect compensation relationship with a single shareholder physician who refers DHS to the hospital, but would potentially create indirect compensation relationships with the PC s referring physicians if the PC was a group practice, depending on whether the group practice s referring physicians received aggregate compensation that varies (or otherwise takes into account) the volume or value of DHS referrals or other business generated for the hospital. Common ownership by a referring physician and a DHS entity of another party [e.g., physician and hospital co-ownership of a physician-hospital organization (PHO)] by itself, however, does not establish an indirect ownership relationship (but it could create an indirect compensation arrangement). The CMS has also clarified that stock options or convertible securities that originally are received or purchased for money or in return for a capital contribution will be considered ownership or investment interests. Comparatively, if they are received as compensation for services, they will be considered compensation until the time they are exercised, at which time they become an ownership or investment interest.

12 Massachusetts Medical Society Examples of direct and indirect ownership/investment interests and direct and indirect compensation arrangements are illustrated in Figures 1 through 6 on this and the following pages. Figure 1: Example of Direct Ownership or Investment Interest A Referring Physician Referrals Equity Ownership B Physical Therapy Business (DHS Entity) 8 FINANCIAL ARRANGEMENT A has an equity interest in B through direct ownership or shares of stock (if stock, B s stock is not publicly traded). A refers to B.

13 Making Sense of the Stark Law: Compliance for the Medical Practice Figure 2: Example of Indirect Ownership or Investment Interest A Referring Physician Referrals Co-owner B Imaging Equipment Leasing Company 9 FINANCIAL ARRANGEMENT A is a direct co-owner of B. B has extended a capital loan to C. A refers to C. Capital Loan C Ambulatory Service Center (DHS Entity)

14 Massachusetts Medical Society Figure 3: Example of Indirect Ownership or Investment Interest A B Referring Physician Employment Relationship Group Practice 10 Referrals C Investment FINANCIAL ARRANGEMENT A is employed by B. B owns non-publicly traded shares of stock in C. A refers to C. MRI Center (DHS Entity)

15 Making Sense of the Stark Law: Compliance for the Medical Practice Figure 4: Example of Direct Compensation Agreement A Referrals B Referring Physician Independent Contractor Relationship Clinical Lab (DHS Entity) 11 FINANCIAL ARRANGEMENT A serves as part-time director of B under an independent contractor relationship. A refers to B.

16 Massachusetts Medical Society Figure 5: Example of Indirect Compensation Arrangement A Referring Physician Net Revenues Referrals 12 B Group Practice FINANCIAL ARRANGEMENT A, as a co-owner of B, receives a share of B s net revenues. B leases office space to C for a rental amount based on the volume of business generated by B for C. A refers to C. C has knowledge of A s sharing in B s net revenues. Office Lease C Hospital (DHS Entity)

17 Making Sense of the Stark Law: Compliance for the Medical Practice Figure 6: Example of Indirect Compensation Arrangement A Referrals C Referring Physician Hospital (DHS Entity) Co-owner B Imaging Equipment Leasing Company Capital Loan 13 FINANCIAL ARRANGEMENT A is a co-owner of B. C contracts with B to lease imaging equipment to C. C has made a capital loan to B. A shares in B s net revenues in an amount that varies with the volume of imaging business generated by A for C. A refers to C. C has knowledge of A s sharing in B s net revenues.

18 Massachusetts Medical Society Entity An entity (i.e., the party that is billing Medicare or Medicaid for the DHS) can be either a person or organization and is defined by the Stark Law to include any of the following entities to which payment is made directly or upon assignment on the patient s behalf; or to which the right to payment has been reassigned as permitted under Medicare Program rules: A physician s solo practice A practice of multiple physicians Any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes one or more services categorically included under the scope of the Stark Law An entity, however, does not include the referring physician himself or herself, but does include his or her medical practice. This means that a physician in solo practice, whether practicing as a sole proprietor or through a professional corporation or professional limited liability company, could be subject to the Stark Law to the extent the physician refers DHS to his or her own practice and does not personally perform or render the DHS. 14 The fact that a physician in solo practice could be subject to the Stark Law is perhaps one of the most misunderstood aspects of the law. Many physicians over the years have been led to believe that the Stark self-referral prohibition only applies to physicians relationships to group practices or hospitals and other providers. This is not accurate. Qualifying as a group practice under Stark allows physicians practicing together and providing DHS the most leeway in how they can compensate themselves. But the scope of the law s prohibition does reach the solo practitioner, whether incorporated or not, who orders and bills for any service or item defined as a Stark DHS that he or she does not personally perform. If the solo physician personally performs the Stark-covered item or service, he or she may bill Medicare or a state health program without violating the Stark Law. If the solo physician has such ordered item or service performed by a member of his or her staff under supervision, the Stark Law could be violated unless an exception applies. Another important exclusion under Stark is that the self-referral prohibition does not apply to a physician s practice when purchased diagnostic tests are billed to Medicare in accordance with Medicare Program rules. Referral The Stark Law permits physicians from referring patients to themselves. A referral to one s self is not a referral if the referring physician personally performs the service. A referral to one s own medical practice, however, is a referral. Referral is defined very broadly to include services performed by the referring physician s employees, coworkers, or independent contractors. All such requests to others for items or services are prohibited referrals unless they are excluded by definition or fall under an exception. A referral includes any of the following: A request, order, or certification of medical necessity by a physician for an item or service that is reimbursable under Medicare or a state health program

19 Making Sense of the Stark Law: Compliance for the Medical Practice A request by a physician for a consultation with another physician, including tests or procedures ordered by or to be performed by (or under the supervision of ) the consultant physician A request for or establishment of a plan of care by a physician A referral to a physician s wholly owned professional corporation is not a referral if the referring physician personally performs the service. A referral by a physician to his or her own medical practice, regardless of its type of organization, however, is a referral that could violate Stark if some other physician or individual personally performs the referred service. Referral is also defined to include services performed or items rendered by the referring physician s employees, independent contractors, or fellow group practice physicians and other professionals. Thus, the Stark Law applies to the ordering of covered services or items to be performed or rendered by the referring physician s employees (including incident to services billed as part of the physician s fee), independent contractors, or group practice members. If a physician personally performs the services, there is no referral, regardless of whether the physician bills the programs directly or another entity bills pursuant to an assignment. Thus, there is no potential Stark violation and no need to try to come within one of the Stark exceptions where there is only a DHS that has been personally performed by the referring physician. However, technical components associated with a physician s personally performed services are referrals to which the Stark Law applies. Thus, if a physician referred and then performed the professional component of an inpatient hospital service payable by Medicare, the physician would still have made a referral to the hospital since it would be separately billing Medicare for the Part A or facility or technical component. 15 A physician s prohibited financial relationship with an outside DHS entity (e.g., a home health agency) is not imputed to the physician s entire group practice. The Stark Law, however, applies to situations in which another person or entity who is controlled or whose referrals are directed by a physician, such as a nurse practitioner, makes the referral. That physician would be viewed as the referring physician. A referral made by someone else in a physician s group, including a non-physician, may be imputed to that physician if he or she directs the referral or otherwise controls the person making the referral. Consultation is defined to mean a professional service furnished to a patient in which the physician s opinion or advice regarding evaluation and/or management of a specific medical problem is requested by another physician; the request and need for consultation are documented in the patient s medical record; and the consulting physician prepares a written report of his or her findings, which is provided to the requesting physician. Accounting for the unique aspects of ordering tests in pathology, radiology, and radiation oncology, the Stark Law does not prohibit requests by (i) a pathologist for clinical diagnostic laboratory tests and pathological examination, (ii) a radiologist for diagnostic radiology services, or (iii) a radiation oncologist for radiation therapy (including necessary and integral ancillary services requested, and appropriately supervised, such as CT, MRI, and ultrasound), provided that the request results from a consultation initiated by another physician and the tests or services are furnished by (or under the supervision of ) the requesting specialist or another pathologist, radiologist, or radiation oncologist in the same group practice. The CMS declined to extend this protection to cardiologists who request and interpret echocardiograms, seeing cardiologists as distinct from these other specialists, and classifying echocardiograms no differently than any other DHS test.

20 Massachusetts Medical Society The Exceptions In the event there is a financial relationship between an entity that bills for DHS and a physician who makes referrals (or any immediate family member of such physician), the Stark Law prohibits referrals from the physician to the entity, and prohibits the entity from billing Medicare or Medicaid for those referred services, unless the financial relationship falls squarely within one of the so-called Stark Law exceptions. The exceptions determine the permissibility of health care financial relationships under Stark. The exceptions are divided into three categories: 1. General exceptions that apply to both ownership/investment interests and compensation arrangements 2. Exceptions that apply only to ownership/investment interests 3. Exceptions that apply only to compensation arrangements 16 Within these categories there are exceptions that originally were crafted by Congress and appeared in the Stark statute, with others added by the CMS in the Stark regulations under its statutory authority to add additional exceptions as it deems advisable. The additional regulatory exceptions all require adherence to the federal anti-kickback law as a condition for satisfying the Stark exception. The exceptions are listed on page 17 by category (those with an asterisk were added by the CMS and require anti-kickback compliance as a condition). Any ownership or investment interest of a physician including the ownership in a solo or group practice that provides DHS that meets a general exception (e.g., in-office ancillary services) or an ownership exception (e.g., a rural clinical lab) also does not have to meet any of the compensation exceptions with respect to profit distributions, dividends, or interest payments on secured obligations.

21 Making Sense of the Stark Law: Compliance for the Medical Practice Table 1: Permissible Health Care Financial Relationships under Stark General Ownership Compensation Physician Services Publicly Traded Securities Office Space Rental In-Office Ancillary Services Mutual Funds Equipment Rental Services Furnished Prepaid Plan Enrollees Rural Providers Bona Fide Employment Academic Medical Centers* Entire (Non-specialty) Hospital Personal Services Arrangement (Including Managed Care Incentive Plans) Implants Furnished by an ASC* EPO and Other Dialysis-Related Drugs* Preventive Screening Tests, Immunizations, and Vaccines* Eyeglasses and Contact Lenses Following Cataract Surgery* Intra-family Rural Referrals* Temporary Noncompliance* MD Recruitment MD Recruitment Through Practice* Isolated Transactions Non-DHS Hospital Remuneration Pre-1990 Group-Hospital Arrangements Payments by an MD MD Charitable Donations* Non-monetary Compensation* Fair Market Value Compensation* Medical Staff Incidental Benefits* Risk Sharing Arrangements* Compliance Training Indirect Compensation Arrangements* Referral Services (Anti-kickback Safe Harbor) OB MedMal Insurance (Anti-kickback Safe Harbor) Professional Courtesy* Retention Payments in Underserved Areas* Community-Wide Information Systems* 17 * Added by the CMS and require anti-kickback compliance as a condition.

22 Massachusetts Medical Society STANDARDS OF PROOF TO DEMONSTRATE A VIOLATION Originally, the Stark Law was intended to establish a bright line test for compliance; the very existence of a prohibited financial relationship, even if indirect, violated the law unless the relationship met all of the requirements under an applicable exception, or the financially interested physician did not make any Medicare or Medicaid referrals. The exceptions were originally intended by the drafters of the Stark Law to be clear and discernable, as to be unlike the health care community s difficult experience with the anti-kickback laws (see the section entitled Compliance With the Antikickback Laws ). The bright line originally intended by Congress, however, has become somewhat fuzzy as a result of many features in the final Stark regulations added by the CMS. The CMS added a knowledge element in order to prove that a physician s indirect financial relationship with a DHS entity has violated Stark. A DHS entity that has an indirect financial relationship with a referring physician that does not come within a Stark exception would not be prohibited from being paid for DHS if it did not have actual knowledge of, and did not act in reckless disregard or deliberate ignorance of, either the ownership/investment interest through the intermediaries in the DHS entity or the existence of any aggregate compensation to the referring physician that varies with the level of DHS referrals made to the DHS entity. 18 If any direct physician financial relationship does not fully comply with all of the requirements of at least one Stark exception, the law is violated regardless of the knowledge or intent of the DHS entity unless the DHS entity could show that it did not have actual knowledge of, and did not act in reckless disregard or deliberate ignorance of, the identity of the referring physician, and the claim otherwise complies with all applicable federal and state laws, rules, and regulations. This knowledge standard was intended to protect DHS entities against arbitrary payment denials for minor financial relationships with referring physicians who are not known to the DHS entity. Under this knowledge (actual knowledge or reckless disregard or deliberate ignorance) standard, the CMS has explained that the DHS entity does not have a duty to inquire about relationships with referring physicians unless facts and circumstances exist such that a failure to follow up with an inquiry would constitute deliberate ignorance or reckless disregard. In other words, did the DHS entity have some reason to suspect the existence of a prohibited arrangement, and should it have taken reasonable steps to find out? The level of inquiry according to the government and the applicable cases interpreting this language, of course, depends on the circumstances. At the very least it can be said that if medical practices and other DHS entities are deficient about keeping or deliberately fail to keep track of their physician financial relationships, they will be deemed to have sufficient knowledge to have violated the Stark Law. Medical practices generally have direct financial relationships with their physicians and know the identity of all referring physicians. Thus, in most cases, it would be difficult for smaller medical practices to avoid Stark liability under this knowledge standard that goes beyond just actual knowledge and requires some level of inquiry about any longer-term financial relationship with a physician who may be in a position to refer to a practice. The knowledge standard required to assess civil money penalties against referring physicians and DHS entities is comparable to the knowledge found in the federal False Claims Act (i.e., did the accused actually know or act with reckless disregard or deliberate ignorance about the prohibited relationship?). In no event, however, does ignorance of the law itself provide a defense against an alleged violation.

23 Making Sense of the Stark Law: Compliance for the Medical Practice There is now also a grace period of up to 90 days that can be used once every three years for certain temporary lapses in compliance due to reasons beyond the control of the DHS entity if the parties were in compliance with an exception for at least 180 consecutive days prior to the lapse and they expeditiously take steps to rectify the noncompliance. COMPLIANCE WITH THE ANTI-KICKBACK LAWS While a comprehensive treatment of the anti-kickback laws is beyond the scope of this publication, it is essential for all physicians and their staffs to fully understand the regulatory interplay and differences between the Stark and anti-kickback laws. The CMS and state-level anti-kickback authorities including the Massachusetts Attorney General s Office have made it clear that satisfaction of the Stark Law does not automatically result in immunity under other fraud and abuse laws, including the federal and state anti-kickback statutes. These statutes prohibit any individual or entity from knowingly and willfully soliciting, receiving, offering, or paying any form of remuneration ( in cash or in kind ) in order to induce the referral of an individual for the furnishing, or arranging for the furnishing of, any item or service payable under the Medicare or Medicaid programs, or, as is the case in Massachusetts, under any private health plan or insurer. Any party accused of violating the anti-kickback laws can be subject to civil money penalties, criminal prosecution, and/or exclusion from the Medicare and Medicaid programs. Thus the anti-kickback laws are broader in scope than the Stark physician self-referral prohibition. 19 The federal anti-kickback statute does set forth numerous safe harbors (including those for employment, independent contractors, and group practices) that are similar but not identical to their counterpart Stark exceptions. For example, the anti-kickback safe harbor for independent contractor physicians would only protect contracted services for which the aggregate annual remuneration is set in advance (e.g., $5,000 per month), while the Stark exception counterpart (the personal services arrangement exception) comparatively requires that there be an objectively verifiable compensation formula set in advance, but not the aggregate compensation (e.g., 45% of collections from the physician s personally performed services). The CMS, however, in two instances did add anti-kickback safe harbors as Stark exceptions (referral services and obstetrical medical malpractice insurance). Any physician financial relationship that is subject to the Stark Law will also be subject to the anti-kickback laws, thus the effort to confirm the regulatory compliance of a physician s financial relationship should not end with Stark. The relationship must also be considered under the anti-kickback laws. Unlike the Stark Law, which in most situations requires strict adherence to an exception to avoid the prohibition and possible sanctions, the failure to come within an anti-kickback safe harbor does not render a physician s financial relationship per se illegal. At the same time, the federal anti-kickback statute has been interpreted by the federal courts in an extremely broad fashion, so that the government need only prove that a single, and not just the primary, purpose of the remuneration to a physician, even if only offered or solicited but never tendered, is to induce referrals. Also, the anti-kickback laws require the government to prove that an accused party intended to violate the law. Thus, there is a greater amount of grey area under the anti-kickback laws with regard to compliance. Because of this uncertainty, Congress has required the OIG to issue anti-kickback advisory rulings in response to requests from private parties.

24 Massachusetts Medical Society Also, all of the Stark exceptions that have an asterisk (see the Exception List, page 17) that do not appear in the original Stark statute require that the financial relationship not violate the federal antikickback laws in order to meet the applicable Stark exception. For example, one of the conditions to meet the Stark fair market value compensation exception, which can protect physician compensation arrangements that do not come within any of the other Stark exceptions, is that the compensation arrangement not violate the federal anti-kickback laws. In the Stark II regulations, the CMS explained that to fulfill this condition, the parties would have to show that the particular arrangement meets one of the following criteria: Qualifies as an anti-kickback safe harbor Has been specifically approved by the OIG in a favorable anti-kickback advisory opinion Does not violate the federal anti-kickback law This leaves huge uncertainty in terms of Stark compliance for any such physician financial relationship that does not meet an anti-kickback safe harbor, unless the parties go to the time and expense of seeking an OIG anti-kickback advisory ruling. It is hard to describe these CMS-added Stark exceptions as providing a bright line test for physicians and related entities. 20 While compliance with Stark does not automatically cause a physician s relationship to be compliant with the anti-kickback laws, it is likely to bring the relationship closer to being within a safer zone under the anti-kickback statute if it does not fall within any of the anti-kickback safe harbors. PENALTIES AND SANCTIONS FOR VIOLATING STARK The Stark Law is violated when a referring physician who has a prohibited direct or indirect financial relationship with a DHS entity refers a Medicare- or Medicaid-covered DHS to the DHS entity or when the DHS entity submits claims for payment for such a DHS. Stark provides for two basic types of sanctions: nonpayment/refund of claims imposed on the DHS entity, and civil money penalties for knowing violations imposed on both the DHS entity and referring physician. Specifically, a violation of the Stark Law can result in the following: Denial of Medicare or Medicaid payment to the DHS entity for the referred DHS services or items Required refund from the DHS entity within 60 days of any amounts billed and collected for the referred DHS services or items Imposition of a civil money penalty (CMP) on any referring physician or DHS entity for each bill or claim that the physician or DHS entity knows or should know is for referred services for which payment may not be made (The OIG may impose up to $15,000 in CMPs per wrongful claim and per missed refund, or an assessment of up to triple the amount claimed for each service that was the basis for the CMP.) Imposition of a CMP of up to $100,000 on any referring physician or DHS entity for each arrangement or scheme the physician/entity knows or should know has a principal purpose of assuring referrals that, if directly made, would violate the Stark Law prohibitions