stark ii phase iii – “the full picture”€¦ · will: (1) address the highlights of phase...
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T H E A B A H E A LT H L AW S E C T I O N
HEALTHLAWYERT
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SPECIAL EDITIONSEPTEMBER 2007 continued on page 3
Andrew B. Wachler,Esq.Wachler & Associates,PC Royal Oak, MI
Adrienne Dresevic,Esq. Wachler & Associates,PC Royal Oak, MI
Introduction On September 5, 2007, the Centers
for Medicare and Medicaid Services(“CMS”) completed the long-awaitedthird and final installment in its rulemak-ing process under the federal physicianself-referral prohibition commonly knownas the “Stark law.”1 The new final rule,2
referred to as “Phase III,” responds topublic comments regarding the Phase IIinterim final rule with comment periodpublished on March 26, 2004,3 andaddresses the entire Stark law regulatoryscheme. As in Phases I and II, CMS has
continued its efforts in Phase III to reducethe regulatory burden on the healthcareindustry through its interpretation andmodification of previously promulgatedexceptions to the Stark law’s generalprohibition on referrals. The new regula-tions will be effective December 4, 2007.
Although Phase III is intended as thefinal phase of the CMS rulemakingprocess, it is actually not the last piece ofthe “Stark puzzle.” There are several othersignificant rulemaking proposals, pendinglegislation, and a CMS mandate regardingdisclosures of hospital-physician financialrelationships, any and all of which maylead to more changes to the Stark regula-tions and may have a profound impact onthe healthcare industry. This article isintended nevertheless to set forth the “fullpicture” of the Stark law and regulationsas of the conclusion of the Phase III rule-making, and to provide health industrycounsel with a tool to assist in navigatingthrough the Stark regulations. This articlewill: (1) address the highlights of PhaseIII; (2) identify potential future changesto the Stark regulations; and (3) set forththe complete Stark regulatory scheme asfinalized by Phase III.
STARK II PHASE III –“THE FULL PICTURE” Highlights of the Phase III final rule, potentialfuture changes, and the overall regulatory scheme
SPEC
IAL
EDIT
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The Editorial Board of The HealthLawyer is pleased to offer this SpecialEdition to the membership of theABA Health Law Section. This is anadditional benefit provided toSection members at no additionalcharge. Contributing writers for thisedition are Andrew B. Wachler andAdrienne Dresevic, both partners in
the law firm of Wachler & Associates, P.C. Drew is a long-time and active member of the Editorial Board, and theauthor of prior articles in this publication and elsewhere onStark and related regulatory issues. The authors, theEditorial Board, our Editor, Marla Durben Hirsch, and thestaff of the ABA Health Law Section exerted considerableeffort to put this material in your hands at the earliest possible time. We hope you will find it useful.
Charles M. KeyThe Bogatin Law Firm, PLC
Chair’s Corner
The Health Lawyer (ISSN: 0736-3443) is published by the American Bar AssociationHealth Law Section, 321 N. Clark Street, Chicago, IL 60610. Address corrections shouldbe sent to the American Bar Association, c/o Member Records.
Manuscripts should be double-spaced on letter sized paper and submitted in a Worddocument to the editor. Requests for permission to reproduce any material from The HealthLawyer should be addressed in writing to the editor.
The opinions expressed are those of the authors and shall not be construed torepresent the policies or positions of the American Bar Association and the ABAHealth Law Section.
Copyright © 2007 American Bar Association.
2007-2008 Officers and Council of the ABA Health Law Section are as follows:
HEALTHLAWYERT
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ChairAndrew J. Demetriou
Fulbright & Jaworski, LLPLos Angeles, CA
Chair-ElectVickie Yates Brown
Greenebaum Doll & McDonaldLouisville, KY 502/[email protected]
Vice ChairDavid W. Hilgers
Brown McCarroll, LLPAustin, TX
SecretaryLinda A. Baumann
Arent Fox, LLC Washington, DC
202/857-6239 [email protected]
Finance OfficerDavid L. Douglass
Shook Hardy & BaconWashington, DC
202/662-4861 [email protected]
Immediate Past ChairPaul R. DeMuroLatham & WatkinsSan Francisco, CA
415/395-8180 [email protected]
Gregory L. PembertonIce Miller
Indianapolis, IN 317/236-2313
Howard T. Wall IIICapella Healthcare, Inc.
Franklin, TN 615/764-3015
Young Lawyer DivisionConrad Meyer
Jones WalkerNew Orleans, LAT: 504/582-8368
Board of Governors LiaisonE. Paul Herrington III
Humana Inc.Louisville, KY502/580-3716
Publication ChairMichael E. Clark
Hamel Bowers & Clark, LLPHouston, TX713/869-0557
[email protected]@hal-pc.org
The Health Lawyer EditorMarla Durben Hirsch
Potomac, Maryland 301/299-6155
Michael E. ClarkHamel Bowers & Clark, LLP
Houston, TX713/869-0557
[email protected]@hal-pc.org
Daniel A. CodyReed Smith LLP
San Francisco, CA T: 415/659-5909
Shelley K. HubnerSedgwick, Detert, Moran &
Arnold LLPSan Francisco, CAT: 415/627-1428
David H. Johnson Bannerman & Williams PA
Albuquerque, NM 505/837-1900
Alexandra Hien McCombsPinnacle Partners in Medicine
Dallas, TX 972/663-8552 amccombs@
pinnaclepartnersmed.com
Kathleen Scully-HayesOffice of Hearings/HHS
Baltimore, MD410/786-2055
Section Delegates to the House of Delegates
Council
THE ABA HEALTH LAW SECTION
Section DirectorJill C. Peña
American Bar Association321 N. Clark Street
Chicago, IL 60610-4714T: 312/988-5548 F: 312/988-9764
3
Stark II Phase I, II, and III– A Brief History
The original Stark self-referral prohi-bition was enacted in 1989 with thepurpose of prohibiting physicians fromreferring patients for laboratory servicesto entities in which they had a financialinterest. The self-referral ban, referred to as “Stark I” after Representative PeteStark (D-CA), who introduced the legis-lation, went into effect on January 1,1992. In 1993, the Stark ban wasexpanded to include additional health-care services considered to be particularlysusceptible to overutilization as a resultof physician financial interests, and toapply in part to Medicaid beneficiaries.The 1993 amendments, now referred toas “Stark II,” went into effect onJanuary 1, 1995.
Stark II prohibits physician referralsof Medicare beneficiaries to entities withwhich they, or members of their immedi-ate family, have a financial relationshipfor certain services itemized in thestatute, referred to as “designated healthservices” or “DHS.” DHS include: clini-cal laboratory services; physical therapyservices; occupational therapy services;radiology services (including MRI, CTscans, ultrasound services, and nuclearmedicine); radiation therapy servicesand supplies; durable medical equipment(“DME”) and supplies; parenteral andenteral nutrients, equipment andsupplies; prosthetics, orthotics, and prosthetic devices and supplies; homehealth services; outpatient prescriptiondrugs; and inpatient and outpatienthospitalization services. The Stark II banalso prohibits entities from making aclaim for payment for the provision ofDHS furnished pursuant to a prohibitedreferral.4
Stark I final regulations were notpublished until August 1995,5 severalmonths after Stark II had gone intoeffect. While the Stark I final rule tech-nically applied only to referrals forclinical laboratory services, as agencyinterpretation of a closely analogous priorlaw, it was assumed to apply in large partto other DHS as well. In January 1998,
the Stark II proposed regulations wereissued.6 Although many elements of theStark I final rule were included in theproposed rule, the Stark II proposed rulecontained significant proposed changes.
On January 4, 2001, HCFA issuedthe first phase of its Stark II final regula-tions, referred to as “Stark II, Phase I.”7
Phase I of the rulemaking did not addressall of the Stark law, and it was intendedthat a second phase of the rulemakingwould be published to address the rest.Phase I addressed the general prohibi-tion, general exceptions applicable toboth ownership or investment interestsand compensation arrangements, newexceptions that are applicable only tocompensation arrangements, and defini-tions. Phase I only applied to referrals ofMedicare beneficiaries. With two excep-tions (Section 424.22(d), relating tohome health services and Section411.354(d)(1) relating to the definitionof “set in advance”), the Phase I finalregulations went into effect on January 4,2002, one year after publication. Thedelayed effective date was selected inorder to give individuals and entities timeto restructure business arrangements inlight of the Phase I requirements. For acomprehensive analysis of Stark II, PhaseI, see “Stark II Final Rule-Phase I A Kinderand Gentler Stark?”, The Health Lawyer,Special Edition, January 2001.
On March 26, 2004, CMS issuedPhase II of the final regulations. Phase IIaddressed provisions of the Stark law notaddressed in Phase I and provided addi-tional regulatory definitions, newregulatory exceptions, and responses topublic comments on Phase I regulations.8
Phase I and Phase II of the final regula-tions were intended to be integrated andread together as a whole. Modificationsand revisions to Phase I were indicatedin the Phase II preamble and corre-sponding regulations. The Phase I andthe Phase II rules, together, supercededthe 1995 final rule,9 which had beenapplicable only to clinical laboratoryservices. For a comprehensive analysis ofStark II Phase II, see “Stark II – Phase II– The Final Voyage”, The Health Lawyer,Special Edition, April 2004.
On September 5, 2007, CMS issuedPhase III of the final regulations.10 PhaseIII responds to comments on Phase IIand, thus, addresses the entire Starkregulatory scheme. Phases I, II, and IIIof the rulemaking are intended to beread as a unified whole. CMS states thatexcept as otherwise noted, to the extentthat the preamble in Phase III usesdifferent language to describe a conceptthat was addressed in Phase I or PhaseII, the intent is to expound on previousdiscussions, not to change the scope ormeaning.11 For ease of reference, CMSrepublished the entire Stark regulatorytext as a part of the Phase III final rule,but omitting 42 C.F.R. §§ 411.370-411.389 relating to advisory opinions.The regulatory text also includes 42C.F.R.12 §§ 411.357(v) and (w) (2006),relating to exceptions for arrangementsinvolving donations of electronicprescribing and electronic healthrecords technology. These two excep-tions were published and finalized inseparate 2005 and 2006 rulemakings.13
Summary of Stark II,Phase III Final Rule
This section will summarize themajor points contained in the Phase IIIfinal rule. For the CMS summary setforth in the preamble of the Phase IIIfinal rule, see 72 Fed. Reg. 51070-51072(2007). Further detail on some of thesignificant aspects of Phase III will alsobe set forth later in this article under theheading “Stark II – the Complete FinalRegulatory Scheme.” Highlights ofPhase III are as follows:
• Safe harbor for fair market value iseliminated. As part of Phase II, CMScreated a voluntary “safe harbor”provision within the definition of “fairmarket value” applicable to hourlypayments to physicians for theirpersonal services. Due to numerouscommenters’ concerns that the “safeharbor” was impractical and infeasi-ble, Phase III eliminates it. CMSemphasized, however, that it willcontinue to scrutinize the fair marketvalue of arrangements. Parties to a
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transaction may calculate fair marketvalue using any commercially reason-able methodology that is appropriateunder the circumstances and other-wise fits within the definition of fairmarket value for purposes of Stark.14
• A physician in the group practicemust have a direct relationship withthe group and provide services in thegroup’s facilities. CMS has modifiedthe definition of “physician in thegroup practice” to make clear that anindependent contractor physicianmust furnish patient care services forthe group practice under a directcontractual arrangement with thegroup, and not between the grouppractice and other entity, such as astaffing entity. CMS also reiterated itsposition that an independent contrac-tor physician is only considered a“physician in the group practice”when he or she is performing servicesin the group’s facilities, and thus has atrue nexus with the group’s medicalpractice. Last, CMS made clear thatthe definition of “physician in thegroup practice” clearly encompassesonly members (owners or employees)and independent contractors, and notother types of employment arrange-ments, such as staffing arrangements.15
• Definition of referral – CMS clarifiesthe few, if any, situations in which aphysician would personally furnishDME. In Phase I, CMS stated thatthe definition of “referral” excludesservices personally performed by thereferring physician.16 In response toseveral commenters requesting clarifi-cation of whether certain types ofservices can be personally performedby the referring physician eliminatingthe need to meet a Stark exception,CMS noted that there are few, if any,situations in which a referring physi-cian could personally furnish DME,because doing so would require thephysician to be enrolled in Medicareas a DME supplier and personallyperform all of the duties of a supplier.CMS believes that it is highly unlikelythat a referring physician would meetthe criteria for personally performed
services when dispensing DME,including continuous positive airwaypressure equipment (“CPAP”). CMSalso notes that CPAP is DME thatdoes not qualify for the in-office ancil-lary services exception.17
• CMS makes changes to the grouppractice definition making clear thatproductivity bonuses can be baseddirectly on “incident to” services butupon further reflection, CMS nowstates that overall profit sharescannot relate directly to “incident to”services. Due to confusion expressedby many commenters, in Phase III,CMS revised the definition of “grouppractice” to make clear that produc-tivity bonuses can be based directly on“incident to” services that are inci-dental to the physician’s personallyperformed services, even if those“incident to” services are otherwiseDHS referrals. For example, a physi-cian can be paid a productivity bonusbased directly on physical therapyservices provided “incident to” his orher services. However, the productiv-ity bonus cannot be directly related toany other DHS referrals, such as diag-nostic tests. Further, although inPhase II CMS stated that overallprofit shares could relate directly to“incident to” services, upon furtherreflection, CMS now states that itsprevious interpretation is inconsistentwith the statutory language, whichincludes “incident to” services only inthe context of productivity bonuses.Accordingly, under Phase III, profitsmust be allocated in a manner thatdoes not directly relate to DHS refer-rals, including any DHS billed as an“incident to” service.18
• Physicians “stand in the shoes” oftheir group practices. Phase IIIincludes new provisions addressingcompensation arrangements in which agroup practice (or other “physicianorganization” as newly defined in PhaseIII) is directly linked to the physicianin a chain of financial relationshipsbetween the referring physician and aDHS entity. For purposes of determin-ing whether a physician has a direct or
indirect financial relationship with aDHS entity to which the physicianrefers, under Phase III, the physicianwill “stand in the shoes” of his or herphysician organization. CMS is mind-ful of many existing arrangementswhich have been properly structuredto comply with the indirect compen-sation arrangements exception and isexcepting existing indirect compensa-tion arrangements that were enteredinto prior to the publication date ofPhase III and that met the indirectcompensation arrangements exceptionat the time of the Phase III publica-tion date from this new so called“stand in the shoes” doctrine. Suchexempted arrangements may continueto use the indirect compensationarrangement exception during theoriginal or current renewal term of the agreement.19
• Physicians can have a security inter-est in equipment that was sold to ahospital. CMS has revised the regula-tory text defining what constitutes anownership interest for purposes ofStark’s application to exclude a secu-rity interest held by a physician inequipment sold by the physician to ahospital and financed through a loanfrom the physician to the hospital. Inthe past, this security interest wouldhave created an ownership interest inpart of a hospital, and thus would havebeen considered a prohibited financialrelationship. Under Phase III, thissecurity interest will be considered acompensation arrangement betweenthe physician and the hospital.20
• In-office ancillary shared servicesarrangements must be carefullystructured and operated to satisfy thein-office ancillary services exception.In response to commenters whowanted further guidance on physicianswho provide DHS to their patients ina shared space in the same building, inPhase III, CMS states that physicianssharing a DHS facility in the samebuilding must control the facility andthe staffing at the time the DHS isfurnished to the patient. As a practi-cal matter, CMS points out that this
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necessitates a block lease for the spaceand equipment used to provide theDHS. CMS also notes that commonper-use or per-click fee arrangementsare unlikely to satisfy the supervisionrequirements of the in-office ancillaryservices exception and may implicatethe anti-kickback statute. Further,CMS opines that part-time, shared,off-site facilities (such as “condo”pathology laboratories) are readilysubject to abuse. CMS will be address-ing this potential for abuse in aseparate rulemaking. In the meantime,however, CMS cautions partiesinvolved in shared arrangements inthe same building and in off-site build-ings that the arrangements must fullycomply with the in-office ancillaryservices exception in operation, notjust on paper.21
• Academic medical centers exceptionclarified. Phase III revises language inthe academic medical exception toclarify that the total compensationfrom each academic medical centercomponent to a faculty physicianmust be set in advance and not deter-mined in a manner that takes intoaccount the volume or value of thephysician’s referrals or other businessgenerated by the referring physicianwithin the academic medical center.Additionally, language was added tothe exception to provide that forpurposes of determining whether themajority of physicians on the medicalstaff of a hospital affiliated with anacademic medical center consists offaculty members, the affiliated hospi-tal must include or exclude allindividuals holding the same class ofprivileges at the affiliated hospital.22
• Intra-family rural referrals exceptionmodified to include an alternativedistance test. In Phase II of the rule-making, CMS created a new exceptionfor certain referrals from a referringphysician to his or her immediatefamily member or to a DHS entitywith which the physician’s immediatefamily member has a financial rela-tionship. In part, the exceptionrequires that the patient reside in a
rural area and that there is no otherperson or entity available to furnishthe referred DHS in a timely manner,at the patient’s residence, or within 25miles of the patient’s residence. PhaseIII modifies the exception to includean alternative distance test based ontransportation time (45 minutes) fromthe patient’s residence. This new alter-native test requires a case-by-caseanalysis of the conditions that exist atthe time of the referral (for example,in the winter there may be snowblocking access to roads). CMS recom-mends that physicians choosing to relyupon this 45-minute alternative trans-portation test should maintaindocumentation (e.g., Mapquest andpublished weather reports) of theinformation used for determiningtransportation time.23
• Holdovers now permitted in personalservice arrangements. Phase III modi-fies the personal service arrangementsexception to include a provision whichpermits a holdover personal servicearrangement (services provided afterthe term of the contract expires) for upto six months for personal servicearrangements that otherwise met therequirements of the personal servicesexception. This new holdover conceptis similar to the holdover provisionspermitted in the exceptions for officespace and equipment leases.24
• Physician recruitment exceptionrelaxed. The most drastic changes tothe Stark regulations contained inPhase III are changes to the physicianrecruitment exception. Phase III makesa number of changes that relax theexception. The physician recruitmentexception is designed to protect certainremuneration that is provided by ahospital to a physician as an induce-ment for the physician to relocate hisor her medical practice into the“geographic area served by the hospi-tal.” Several changes were made to theexception as follows:
– Modifying the exception to allowgroup practices to impose practicerestrictions if they do not “unreason-
ably restrict” the recruited physician’sability to practice in the “geographicarea served by the hospital.”
– Adding a special option rule for ruralhospitals in which the “geographicarea served by the hospital” may alsobe the area composed of the lowestnumber of contiguous zip codes fromwhich the hospital draws at least 90 percent of its inpatients. If thehospital draws fewer than 90 percentof its inpatients from all of thecontiguous zip codes from which itdraws inpatients, the “geographicarea served by the hospital” mayinclude noncontiguous zip codes.
– Adding a provision allowing groupsin a rural area or a health profes-sional shortage area (“HPSA”) thatrecruit a physician to replace aretired, deceased, or relocated physi-cian to either allocate the costsattributed by the recruited physicianbased upon (1) the actual additionalincremental costs or (2) the lower ofa per capita allocation or 20 percentof the practice’s aggregate costs.
– Adding a provision that allows ruralhospitals to recruit physicians intoan area outside of the “geographicarea served by the hospital” if theSecretary of the Department ofHea l th and Human Se rv i ce s(“DHHS”) determines in an advisoryopinion that the area has a demon-strated need for the physician.
– Amending the recruitment excep-tion to now apply to rural healthclinics in the same manner as itapplies to hospitals and federallyqualified health centers.
– Adding provisions exempting certainphysicians from the relocationrequirement. Recruited physicianswill be exempt from the relocationrequirement if they were employedfull time by a federal or state bureauof prisons (or similar agency), theDepartments of Defense or VeteransAffairs, or facilities of the IndianHealth Service. The new exemptiononly applies if the physician did not
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maintain a separate private practicein addition to the full-time employ-ment. Physicians may also beexempt from the relocation require-ment if the Secretary of DHHSdeems in an advisory opinion thatthe physician has not established amedical practice.
In addition to the above modifi -cations and amendments, CMS alsoclarified that the provisions of therecruitment exception that apply torecruitment arrangements involvingphysicians who join an existing practicedo not apply when the recruited physi-cian is just co-locating or sharing spacewith an existing practice and does notjoin the practice.25
• Inadvertent excess nonmonetarycompensation can now be cured. InPhase I of the rulemaking, CMS estab-lished an exception to protectnon-monetary compensation providedto physicians up to $300 (adjustedannually for inflation). Phase III makestwo substantive changes to the excep-tion by: (1) allowing physicians torepay certain excess nonmonetarycompensation within the same calen-dar year to preserve compliance withthe exception; and (2) allowing entitieswithout regard to the $300 dollar limitto provide one medical staff apprecia-tion function (such as a party) for theentire medical staff per year. In order totake advantage of the excess nonmone-tary repay provision, the value of theexcess compensation cannot be morethan 50 percent of the annual limit andthe physician must return the excessamount by the end of the calendar yearin which it was received or within 180days after received, whichever is earlier.Further, this new provision only appliesto situations in which the entity inad-vertently provides excess nonmonetarycompensation to the physician.26
• Fair market value exception expandedto cover compensation from a physi-cian. Phase III amends the exceptionfor fair market value to permit applica-tion of the exception to arrangementsinvolving fair market value compensa-
tion to physicians from DHS entities,as well as to arrangements involvingfair market value compensation toDHS entities from physicians. CMSnotes that the expansion of the fairmarket value exception will requireparties to use the fair market valueexception rather than the payments bya physician exception (which cannotbe used if another exception appliesand which CMS believes is less trans-parent) for payments by physicianswhen payments by a physician to ahospital are, for example, for equip-ment leases of less than one year. CMSalso notes that the fair market valueexception is not applicable to arrange-ments for the rental of office space.Such office space arrangements mustbe structured to meet the rental ofoffice space exception.27
• Compliance training exceptionexpanded. Phase III amends thecompliance training exception tocover compliance training programsthat involve continuing medicaleducation (“CME”) credit so long asthe compliance training is the primarypurpose. CMS states that the revisedexception does not protect traditionalCME content under the guise ofcompliance training.28
• Professional courtesy exceptionrevised to delete notification require-m e n t . P h a s e I I I m o d i f i e s t h eprofessional courtesy exception bydeleting the requirement that an entitynotify an insurer when the professionalcourtesy involves the whole or partialreduction of any coinsurance obliga-tion. Notwithstanding the deletion,CMS does state that it believes it is aprudent practice to provide such notifi-cation, and, in fact, insurers mayrequire such notification. Phase III alsomodifies the exception to clarify that itapplies only to hospitals and otherproviders with formal medical staffs(but would include group practices),and not to suppliers, such as laborato-ries or DME companies.29
• Retention payments in underservedareas exception modified in several
respects. Phase III modifies the exception for retention payments inunderserved areas in several respects,including expanding the exception bypermitting certain retention paymentsin the absence of a written recruitmentoffer, by adding flexibility for retentionpayments to physicians who serveunderserved areas and populations, andby allowing rural health care clinics to make retention payments. Amongother changes, Phase III makes thefollowing changes to the exception:
– Phase III revises the exception topermit a hospital, rural health clinic,or federally qualified health center tooffer assistance to a physician whodoes not have a bona fide writtenoffer of recruitment or employmentif the physician certifies in writingthat he or she has a bona fide oppor-tunity for future employment whichwould require relocation of his or hermedical practice at least 25 miles toa location outside of the geographicarea served by the hospital, ruralhealth clinic, or federally qualifiedhealth center. In circumstances inwhich the physician provides writtencertification instead of a bona fidewritten offer, the retention paymentmay not exceed the lower of: (1) anamount equal to 25 percent of the physician’s annual income; or (2) the reasonable costs the hospitalwould otherwise have to expend torecruit a new physician.
– Phase III further expands theexception to permit retentionpayments that otherwise satisfy therequirements of the exceptionwhen: (1) the physician’s currentmedical practice is located in a ruralarea, a HPSA, or an area or demon-strated need determined by theSecretary of DHHS in an advisoryopinion; or (2) at least 75 percentof the physician’s patients eitherreside in medically underserved areaor are members of a medicallyunderserved population. The loca-tion of the hospital in a HPSA is no longer a requirement under the exception.30
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Other Recent ProposedStark Developments on the Horizon
Medicare 2008 Proposed PhysicianFee Schedule – Common HealthcareArrangements Under Attack
The September 5, 2007 Phase IIIfinal rule comes out amid a flurry ofother current activity that could have asignificant impact on Stark. Throughoutthe preamble of the Phase III rulemak-ing, CMS identifies certain issues forfurther study and potential change in aseparate rulemaking process. CMSproposed several amendments to theStark regulations in the 2008 MedicareProposed Physician Fee Schedule(“MPPFS”), issued in July 2007.31 TheseMPPFS proposals are separate from, andin addition to, the revisions in the PhaseIII final rule. These proposals are note-worthy in that they contain discussionsby CMS of its concern regarding manycommon healthcare structures. Ifadopted, the MPPFS proposals could beeffective as early as January 1, 2008.
The “Physician Self-ReferralProvisions” section of the MPPFS coverschanges to the reassignment rules andanti-markup rule relating to diagnostictests, burden of proof, the in-office ancillary services exception, obstetricalmalpractice insurance subsidies, per-clickpayments in space and equipment leases,non-compliant relationships, percentagecompensation arrangements, stand-in-the-shoes doctrine, alternative criteria forsatisfying certain exceptions and servicesfurnished “under arrangements.” TheMPPFS also covers proposals related toindependent diagnostic testing facilities(“IDTF”), which may have a significantimpact on many common “in-office”ancillary service arrangements withphysician practices. A few of the impor-tant features of the MPPFS proposals arebriefly summarized below. For specificdetail regarding the MPPFS proposals, see72 Fed. Reg. 38179-38187 (2007).
• No Marking Up Purchased orReassigned Technical and ProfessionalServices. CMS has long expressed its
concerns regarding certain healthcarestructures such as pathology pod labsinvolving the shared use of equipment,technologists , and pathologistsbetween physician practices andpathology labs. CMS also believes thatcertain diagnostic testing arrange-ments between physician practices anddiagnostic testing suppliers raise poten-tial fraud and abuse concerns. In orderto address its concerns, CMS proposedprohibiting physicians and practicesfrom marking up the outside supplier’snet charge for the diagnostic test tothe Medicare program. Notably, thisanti-markup prohibition appliesregardless of whether the diagnostictest is purchased outright from thesupplier or whether the practice isbilling Medicare pursuant to a reas-signment from the supplier. Theproposed rule applies to both theprofessional component and the tech-nical component of the services. Theonly exception to this anti-markuprule is for full-time employees.32
• If finalized, this proposal will removevirtually all economic incentives forphysician practices to bill Medicare forthe professional component of diag-nostic tests not performed by full-timeemployees of the practice (which iscommonly done through the use of theStark physician services exception).Under the proposal, the practice willnot be able to recover from Medicarethe overhead practice expense of inter-pretations performed in the practicesfacilities by part-time or independentcontractor physicians. Consequently,for example, practices that currentlyutilize part-time or independentcontractor radiologists for the interpre-tation of diagnostic imaging servicesmay decide to discontinue billingMedicare for such interpretationservices or employ, if feasible, a radiol-ogist on a full-time basis.
• Narrowing of the Stark In-OfficeAncillary Services Exception. Thein-office ancillary services exception isarguably the single most importantexception to the Stark law, whichallows physicians to furnish ancillary
services (e.g., x-ray, lab, ultrasound,physical therapy) in their practices. Inthe proposed MPPFS, CMS expressedits concern that this exception isbeing inappropriately used for servicesthat are not closely connected to thephysician’s practice. Despite itsconcerns, CMS declined to issue aspecific proposal, but is solicitingcomments as to whether the excep-tion should be narrowed or limited tosome extent.33
• Limitations on Per-Click Leases forSpace and Equipment. Presently per-click lease payments are generallypermitted under the Stark law if theper-click payment is fair market value.In the proposal, CMS is now reconsid-ering its position stating that itconsiders certain per-click paymentarrangements to be susceptible toabuse. Thus, CMS has proposed toprohibit the use of per click-leasepayments involving space and/orequipment leases in those situationswhere an entity owned by a physicianleases space and/or equipment toanother entity and the physician subse-quently refers patients to that otherentity for services. For example, theproposal would prohibit a cardiologistfrom leasing a CT scanner to thehospital on a per-click basis if thatcardiologist will be referring patients tothe hospital for cardiovascular CTangiography services. CMS is alsoconsidering whether it should prohibitper-click payments by a physician to anentity from which the physician leasesspace or equipment if that entity referspatients to the leasing physician.34
• Prohibition on Percentage Leaseswith Referrals Sources. Many of thecurrent Stark regulatory exceptionsallow percentage compensationarrangements, such as the space andequipment lease exceptions, thepersonal service exception and the fairmarket value exception. CMS is nowproposing that percentage basedcompensation can only be used whenpaying for personally performed physi-cian services and that the percentagemust be based on the revenues directly
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resulting from the physician services.If finalized, this proposal wouldprohibit many common compensationarrangements involving the use ofpercentage based rental and manage-ment fees.35
• “Under Arrangements” UnderAttack. Pursuant to the current Starkregulations, an entity is not consid-ered to be an entity “furnishing” DHS(a “DHS entity”), for purposes of thegeneral prohibition, unless it is theentity that is paid by Medicare for theDHS.36 The current definition of DHSentity permits certain joint venturearrangements between hospitals andreferring physicians in which thephysicians are providing services tothe hospital “under arrangements.” Inthe MPPFS, CMS expressed itsconcerns with “under arrangements”ventures between hospitals and physi-cians that appear to be designed toenable the physician-investors toprofit from referrals to the hospital.
In addition, CMS agreed with the Medicare Payment Advi soryCommission’s (“MedPac”) March 2005report to Congress that physicianownership of entities that provideservices and equipment to imagingcenters and other healthcare providerscreates inappropriate financial incen-tives. MedPac recommend that CMSexpand the definition of physicianownership to include interest in anentity that derives a substantial portionof its revenue from a provider of DHS.Although CMS concurs with MedPac’sconcerns, it did not adopt the MedPacapproach; instead, the CMS proposalprovides that the DHS entity is eitherthe entity that submits a claim toMedicare for the DHS, or the entitythat performed the DHS. If CMS’proposal were finalized, it would essen-tially bar referring physicians fromparticipating in joint ventures thatprovide DHS services “under arrange-ments” to hospitals or other providers.Given that hospital-physician “underarrangements” joint ventures arecommonplace, this proposal wouldrequire the restructuring of a significant
number of arrangements that complywith current law.37
• Stand in the Shoes. In the MPPFS,CMS proposed to collapse the indirectfinancial relationship concept when aDHS entity owns or controls anotherentity with which a physician has afinancial arrangement. Under thedoctrine, the physician would bedeemed to have the same financialrelationship with the DHS entity ashe or she has with the controlled orowned DHS entity.38
• O w n e r s h i p o r I n v e s t m e n t i nRetirement Plans. Current Starkregulations provide that a physiciandoes not have an ownership or invest-ment interest in an entity thatfurnishes DHS solely by having aninterest in that entity’s retirementplan. CMS learned that physicians areattempting to abuse this exception byus ing their ret i rement plans topurchase entities that provide DHSand to which the physician referspatients. For example, a group ofphysicians participates in a retirementplan and that plan invests its funds bypurchasing an MRI center. The physi-cians will then refer their patients tothe MRI center without violatingStark because they claim they have aninvestment in the retirement plan, notthe MRI center. In an attempt to closethis loophole, in the MPPFS, CMSproposed to apply the ownership or investment exception only toinvestment interests in legitimateemployer-sponsored retirement plans.39
• Independent Diagnostic TestingFacility (“IDTF”) Issues. In a relatedmatter, the MPPFS also provided somesignificant proposed revisions, addi-tions, and clarifications to the existingIDTF performance standards. Ofsignificant importance is CMS’controversial standard that wouldsignificantly impact block leasing andother shared imaging arrangementsinvolving IDTFs. This new standardwould prohibit a fixed site IDTF fromsharing space, equipment, or staff, orfrom subleasing its operations to
another individual or organization. Ifthis proposal were adopted, it wouldeliminate the ability of an IDTF toenter into any type of subleasearrangement with a physician practice,hospital, or other individual or entity.IDTFs already involved in sharingarrangements would need to havethem reviewed and restructured.40
• Other Miscellaneous Issues. Othersections relating to Stark issuescontained in the MPPFS include:period of disallowance for noncompli-ant financial relationships; obstetricalmalpractice insurance subsidies;burden of proof; and alternative crite-ria for satisfying certain exceptions.41
• The recent MPPFS proposals reflectCMS’ intent to close what it perceivesas current regulatory loopholes byessentially prohibiting or restrictingmany common and currently legalhealth care arrangements. If finalized,these proposals will require therestructuring or unwinding of manyexisting arrangements.
The Stark Whole Hospital ExceptionUnder Attack
In addition to the MPPFS propos-als, on August 1, 2007 the U.S. Houseof Representatives passed a bill whichwould have a significant impact on thepermissible legal structures of physician-owned hospitals.42 The bill is containedin the Children’s Health and MedicareProtection Act of 2007 which wouldexpand the State Children’s HealthProgram (“SCHIP”). The House-passedbill would amend the Stark whole hospi-tal exception as follows:
• Eliminate the whole hospital excep-tion so that physicians cannotself-refer to hospitals (not justspecialty hospitals);
• Grandfather hospitals that were inoperation with Medicare provideragreements as of July 24, 2007;
• Require grandfathered hospitals tomeet certain standards within 18months, as follows:
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– Prevent growth (e.g., no new roomsor beds);
– Require disclosure of ownership;
– Limit physician ownership to anaggregate of 40% and no more than2% individually;
– Disclose to patients if the hospitalfails to have 24-hour physiciancoverage.
At the time of publication, theproposed amendments to the wholehospital exception face uncertaintybecause they are not included in theSenate version of the SCHIP bill andthe President is threatening to veto thelegislation.43
Mandated Disclosure of Investmentand Compensation Relationships
CMS has also recently announcedits intention to mandate Medicare-participating hospitals to report to CMSdetails of their financial relationshipswith their referring physicians. Thismandate emanates from Section 506 ofthe Deficit Reduction Act (“DRA”),enacted on February 8, 2006, whichdirected the Secretary of DHHS todevelop a plan to address certain issuesrelating to physician investment inspecialty hospitals. In August 2006,DHHS stated it would require all hospi-tals to provide information to CMS on aperiodic basis concerning their invest-ment and compensation relationshipswith physicians pursuant to the Starkregulations at 42 C.F.R. § 411.361.44
Commencing September 2007,CMS has initially selected 500 hospitalsthat will be required to report financialinformation. CMS can request, amongother information, the name and uniquephysician identification number (“UPIN”)or national provider identifier (“NPI”) ofeach physician (and any immediatefamily member) with a reportable finan-cial relationship, the covered servicesfurnished by the entity, and the nature ofthe financial relationship.45 Reportablefinancial relationships include anyownership or investment interest, asdefined at Section 411.354 (b) (2006), or
any compensation arrangements, asdefined at Section 411.354 (c) (2006),excluding ownership or investment inter-ests in publicly traded securities andmutual funds.46 Hospitals that fail totimely report are subject to civil mone-tary penalties of up to $10,000 for eachday beyond the deadline.47
Stark II – The CompleteFinal Regulatory Scheme
The remainder of this article will setforth the complete Stark II final regula-tory scheme as finalized by Phase III. TheStark regulatory text has been republishedin its entirety (except for provisionsrelated to advisory opinions) in the PhaseIII rulemaking.48 The Stark regulatoryscheme consists of : (1) the scope(411.350); (2) definitions (411.351); (3) the group practice definition andspecial rules for compensation (411.352);(4) the general prohibition and limitationon billing (411.353); (5) financial rela-tionships – direct and indirect ownershipand compensat ion a r rangements(411.354); (6) exceptions applicable to both ownership/investment andcompensation arrangements (411.355); (7) exceptions applicable only to owner-ship or investment interests (411.356);(8) exceptions applicable only tocompensation arrangements (411.357);and (9) reporting requirements (411.361).
As a starting point, the Stark lawprohibits a physician from making areferral for certain designated healthservices (DHS) payable by Medicare toan entity with which the physician (oran immediate family member) has a financial relationship (ownership orcompensation), unless an exceptionapplies. The Stark law also prohibits theentity from filing claims with Medicare(or billing another individual, entity orthird party payer) for those referredservices. The Stark law establishes anumber of specific exceptions and grantsthe Secretary the authority to createregulatory exceptions for financial rela-tionships that pose no risk of abuse.Penalties for violating Stark are severeand include denial of payment, refund
of payment, and imposition of civilmonetary penalties.49
Scope of Regulations –Section 411.350
The Stark regulations do notsupercede Medicare payment and billingrules and policies. They do, however,affect the application of these Medicarerules and policies. The Stark regulationsnow make clear that nothing in theStark rules alters a party’s obligation tocomply with: (1) the reassignment rules;(2) the rules regarding purchased diag-nostic tests; (3) the rules regardingpayment for “incident to” services andsupplies; or (4) any other applicableMedicare law, rule, or regulation.50
This recent amendment to the scopeof the Stark regulations comes at a timeof apparent confusion in the healthcarecommunity regarding the interplaybetween Stark and other Medicare rulesand regulations. For example, followingthe recent amendment to the Medicarereassignment rules, an independentcontractor physician may reassign hisright to bill Medicare to an entity, regard-less of whether he or she was on or off thepremises of that entity.51 But, if that inde-pendent contractor physician reassignshis or her right to payment, for example,to a group practice with which he or shehas a financial relationship, the Starkregulations must also be satisfied, whichrequire that the independent contractorphysician perform the services on site inthe group’s facilities.52
Definitions – 411.351
The definition section of the Starkregulations contains numerous defini-tions, and unless the context indicatesotherwise, the meanings set forth inSection 411.351 apply. This section willhighlight some of the significant defini-tions that trigger application of theStark self-referral ban but it does notaddress all of the definitions. For acomprehensive listing, please see 42C.F.R. § 411.351.
Physician. For purposes of Stark’sapplication, physician means a doctor ofmedicine or osteopathy, a doctor of
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dental surgery or dental medicine, adoctor of podiatric medicine, a doctor ofoptometry, or a chiropractor.53
Immediate Family Member. TheStark self-referral prohibition states thatif a physician or immediate family memberhas a financial relationship with anentity, the physician cannot refer aMedicare patient to that entity for DHSunless an exception applies. Section411.351 sets forth the wide-ranging listof individuals that qualify as a physi-cian’s immediate family member. Theseindividuals include: husband or wife;birth or adoptive parent, child, orsibling; stepparent; stepchild, step-brother, 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 ofa grandparent or grandchild.54
Referral. In order to trigger theStark physician self-referral ban, theremust be a physician referral of DHS. Areferral is defined as a request by a physi-cian for an item or service for whichpayment may be made under MedicarePart B, including a request for a consul-t a t i o n a n d a n y D H S o r d e r e d o rperformed by the consulting physicianor under the supervision of the consult-ing physician, and the request orestablishment of a plan of care by aphysician that includes the furnishing ofDHS. There are certain carved outexceptions from the definition of referralfor pathologists, radiologists, and radia-t i o n o n c o l o g i s t s p u r s u a n t t o aconsultation requested by another physi-cian.55 In Phase III, CMS rejected acommenter’s request to expand theconsultation exception to anesthesiolo-gists, noting that the statutory exceptionis limited to pathologists, radiologists,and radiation oncologists who meetcertain criteria.56
Phase I of the rulemaking excludedfrom the definition of referral servicespersonally performed by the referringphysician. However, the definitionincludes services provided by a physician’semployees, co-workers, or independentcontractors.57 After consideration of this
issue, in Phase II CMS adhered to itsoriginal determination that “incident to”services, as well as services performed bythe physician’s employees, are referralswithin the meaning of the Stark law.58 InPhase III, CMS stated that it is possiblefor a physician to order and personallyfurnish antigens to a patient and to ordera refill for, and personally refill animplantable pump. In these circum-stances, the services are personallyperformed so there is no referral, and noStark exception would be needed. CMSdid state, however, that there are few, if any, situations in which a referringphysician could personally furnish DME,because doing so would require thephysician to be enrolled in Medicare as aDME supplier and personally perform allof the duties of a supplier.59
DHS. The Stark II law lists elevencategories of DHS covered by the self-referral prohibition.60 Phase I of therulemaking defined certain categories ofDHS by reference to CPT and HCPCScodes.61 These categories include: (1) clinical laboratory services; (2) physi-cal therapy services; (3) occupationaltherapy and speech pathology services;(4) radiology and certain other imagingservices; and (5) radiation therapyservices and supplies.62 The list of codes isupdated on an annual basis in the physi-cian fee schedule final rule.63 CMS alsomaintains the list on its website atwww.cms.hhs.gov. Additionally, Phase Idefined the remaining DHS categories inregulatory descriptions, but not by codes.These categories include: (1) durablemedical equipment; (2) parenteral andenteral nutrients, equipment, andsupplies; (3) prosthetics, orthotics, andprosthetic devices; (4) home healthservices and supplies; (5) outpatientprescription drugs; and (6) inpatient andoutpatient hospital services.64
Although in the 2004 Phase II ruleCMS declined to include nuclear medi-cine as DHS (as part of the categories“radiology imaging services” and “radia-tion therapy supplies”), nuclear medicinebecame DHS effective January 1, 2007.65
Phase I defined outpatient prescrip-tion drugs as “all prescription drugscovered by Medicare Part B.”66 In PhaseII, however, in light of the expandedcoverage of outpatient prescription drugspursuant to section 101 of the MedicarePrescription Drug, Improvement, andModernization Act (“MMA”),67 CMSstated that it would revisit the definitionof outpatient prescription drugs in afuture rulemaking.68 The definition ofoutpatient prescription drugs nowincludes all drugs covered by MedicarePart B or Part D.69
Entity Furnishing DHS. In general,under the Phase II regulatory text, aperson or entity was considered to befurnishing DHS if CMS made payment tothat person or entity, either directly orupon assignment, or reassignment.70
Phase III made no substantive changes tothe definition of entity; however, the2008 MPPFS contains a proposal thatwould change the definition of entity, ascurrently set forth in Section 411.351, toalso cover the person or entity thateither provides the DHS or “causes aclaim to be presented” for DHS.71
If adopted, this proposal wouldforce the restructuring of many existingjoint venture arrangements betweenhospitals and referring physicians inwhich the physicians are providingservices to the hospital “under arrange-ments.” Additionally, in the Phase IIIpreamble, CMS sets forth excerpts fromMedPac’s March 2005 report toCongress that provides that physicianownership of entities that supplyservices and equipment to imagingcenters and other healthcare providerscreates inappropriate financial incen-tives. MedPac recommends that CMSexpand the definition of physicianownership to include interest in anentity that derives a substantial portionof its revenue from a provider of DHS.In Phase III, CMS notes that anychanges to the definition of entity orotherwise to address these concerns willbe made in a separate rulemaking. CMSnotes that these relationships are stillsubject to the Stark rules on indirectcompensation arrangements and appear
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highly suspect under the anti-kickbackstatute.72
Physician Organization. Phase IIIof the final rulemaking added a defini-tion in Section 411.351 for physicianorganization. Physician organization meansa physician (including a professionalcorporation of which the physician is thesole owner), a physician practice, or agroup practice that complies with thegroup practice definition in Section411.352. This new definition is used indefining direct compensation arrange-ments in Section 411.354 under the new“stand in the shoes” doctrine, which isset forth in further detail in the discus-sions regarding Section 411.354 below.
Miscellaneous Definitions. PhaseIII of the final rulemaking also addeddefinitions in Section 411.351 for downstream contractor and rural area.Additionally, Phase III eliminated thefair market value safe harbor for physi-cians’ personal services that wasformerly included in the definition offair market value.73
Group Practice Definition and Special Rules onCompensation – 411.352
Although the group practice defini-tion contained in 42 C.F.R. § 411.352 isnot an exception to the self-referralprohibition in and of itself, it has signifi-cant meaning to any group of physiciansthat want to take advantage of the in-office ancillary services and physicianservices exceptions. The Stark law alsoaffords group practices more flexibility incompensating physicians (i.e., onlygroup practice physicians may becompensated in a manner that takesinto account services furnished “inci-dent to” a physician’s personallyperformed services). Phase I of the finalrulemaking addressed the requirementsfor qualification as a group practice.74
Phase II made minor changes to thedefinition, such as establishing a newgrace period for start-up groups, clarify-ing the single entity test and the two ormore physicians test, and softening theunified business test.75
In order to qualify as a group prac-tice, the group must: (1) be a single legalentity; (2) have at least two members(employees or owners); (3) provide thefull range of patient care services; (4) withcertain exceptions, ensure that membersprovide at least 75% of their patient careservices through the group; (5) havepredetermined methods for distribution ofexpenses and income; (6) be a unifiedbusiness; (7) not allow members todirectly or indirectly receive compensa-tion based on volume or value of referrals(except as provided in the special rules forcompensation); and (8) have its membersconduct no less than 75% of the physi-cian-patient encounters.76
The group practice definition alsocontains special rules for productivitybonuses and profit shares which areapplicable to all physicians in a grouppractice (employees, owners, and inde-pendent contractors).77 These specialrules allow group practices to pay a physi-cian in the group a share of overall profitsof the group provided the share is notdetermined in any manner that directlyrelates to the volume or value of referralsof DHS by the physician. A group practicemay also pay a physician in the grouppractice a productivity bonus based onservices that the physician has personallyperformed or services “incident to” suchpersonally performed services.78 In PhaseIII, CMS revised the definition of grouppractice to make clear that productivitybonuses can be based directly on “inci-dent to” services that are incidental to thephysician’s personally performed services,even if those “incident to” services areotherwise DHS referrals. Further, CMSnow says that profits must be allocated ina manner that does not directly relate toDHS referrals, including any DHS billedas an “incident to” service.79
Prohibition of Certain Referrals and Limitations on Billing – 411.353
The basic prohibition on physicianself-referral under the Stark law is setforth in Section 411.353 of the regula-tions. Because of the severe sanctionsthat can result from inadvertent viola-
tions of the self-referral prohibition,Section 411.353 contains an exceptionfor certain arrangements that involvetemporary non-compliance. The tempo-rary non-compliance exception can onlybe used once every three years withrespect to the same referring physicianand is not applicable to certain excep-tions (nonmonetary compensation andmedical staff incidental benefits).80
Section 411.353 also contains anexception, which allows payment tocertain entities, despite a prohibitedreferral, if the entity did not have actualknowledge of, and did not act in recklessdisregard or deliberate ignorance of, theidentity of the physician who made thereferral of the DHS to the entity.81
In Phase III, commenters requestedclarification regarding how long a DHSentity would be precluded from submit-ting claims for DHS referred by aphysician pursuant to a prohibited refer-ral. CMS noted that the Stark law doesnot provide an explicit limitation on thebilling and claims submission prohibitionand that CMS would address the issue inanother rulemaking. This is consistentwith CMS commentary in the MPPFS inwhich CMS introduced a concept for anew “alternative method of complianceprovision” which might address certainarrangements that fail to meet certainexceptions because of innocent technicalviolations. This new concept would com-plement the temporary non-complianceexception at Section 411.353(f), notreplace it.82 In the MPPFS, CMS alsosolicited comments on how long a non-compliant financial relationshipshould ta int phys ic ian re fe r ra l s .Specifically, CMS solicited publiccomment on how to establish a “periodof disallowance” during which referralsto an entity are considered tainted andthe receiving entity cannot bill for theservices furnished pursuant to suchtainted referrals.83
Financial Relationship,Compensation, and Ownership orInvestment Interest – 411.354
Sec t ion 411 .354 de f ine s theuniverse of financial arrangements that
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are subject to the Stark self-referralprohibition. The existence of a financialrelationship between the referring physi-cian (or an immediate family member)and the entity furnishing DHS is one ofthe factual predicates triggering applica-tion of Stark. Financial relationships aredefined to include direct and indirectownership and investment interests, and direct and indirect compensationarrangements between referring physi-cians and DHS entities.84 In addition todefining financial arrangements, Section411.354 also sets forth specific rulesgoverning aspects of compensationarrangements such as the special rules forwhen compensation is “set in advance”,and whether time-based or unit-basedcompensation methodologies take intoaccount the “volume or value” of refer-rals or “other business generated betweenthe parties.”85
Direct Relationships –“Stand in the Shoes” Doctrine
In Phase II of the rulemaking, thedefinition of referring physician wasmodified to clarify that a referring physi-cian may be treated as “standing in theshoes” of his wholly owned professionalcorporation.86 This clarification wasmade in response to commenters whonoted that the fact that a physicianpractices through a wholly owned PCshould not convert a direct financialrelationship with a DHS entity into anindirect relationship.87
Although in Phase II CMS madeclear the modification did not apply inthe group practice context, Phase IIIamends Section 411.354 (c) to add a“stand in the shoes” provision underwhich referring physicians will betreated as “standing in the shoes” oftheir group practices (and other physi-cian organizations).88 Under theregulations as finalized by Phase III, forpurposes of determining whether aphysician has a direct or indirect finan-cial relationship with a DHS entity towhich the physician refers, the physi-cian will “stand in the shoes” of his orher physician organization. Parties mustnow analyze the arrangement between a
DHS entity and a group practice (e.g.,lease of office space) under the variousdirect compensation arrangementsexceptions, without using the indirectcompensation arrangements definitionor exception.89 Certain arrangementswhich were properly structured tocomply with the indirect compensationarrangements exception are exempt fromthe new “stand in the shoes doctrine”and may continue to use the indirectcompensation arrangement exceptionduring the original or current renewalterm of the agreement. After that, therelationship will need to meet a directexception.90
Indirect Compensation Relationships
Phase I of the rulemaking estab-lished a three-part test that defines the universe of indirect compensationarrangements that may potentially trig-ger disallowance of claims and penalties.Phase I also created an exception for thesubset of indirect compensation arrange-ments that will not trigger disallowancesor penalties.91 If an arrangement meetsthe indirect compensation definitionalthree-part test, it must comply with therequirements of the indirect compensa-tion arrangements exception at Section411.357(p) if the physician refers DHSto the entity.
Ownership
As with compensation relation-ships, the definition of ownership orinvestment interests also includes indi-rect ownership or investment interests.Unlike indirect compensation relation-ships, however, there is no correspondingindirect ownership or investment excep-tion. Instead, indirect ownership orinvestment interests must be structuredto comply with an exception applicableto ownership (exceptions contained in411.355 or 411.356). The definition ofindirect ownership or investment inter-ests does incorporate a knowledgeelement that should, in most circum-stances, sufficiently limit the universe ofprohibited interests so that many remoteinterests may not trigger the self-referralprohibition.92
Under Phase III, a security interestheld by a physician in equipment soldby the physician to a hospital andfinanced through a loan from the physi-cian to the hospital will be considered acompensation arrangement between thephysician and the hospital, not anownership interest.93
There is also a pending proposal inthe MPPFS which could amend Section411.354(b) with respect to the currentcarve-out from the definition of owner-ship or investment interest relating toretirement plans. If finalized, the proposalwould limit the carve-out in the owner-ship definition only to investmentinterests in legitimate employer-sponsoredretirement plans.94
Special Rules on Compensation –“Set in Advance”
Section 411.354 (d) sets forthspecial rules that are applicable only tocompensation such as the “set inadvance” standard, and the “volume orvalue of referrals” and “other businessgenerated between the parties” stan-dards in connection with unit-basedcompensation.95
There are many Stark exceptions(e.g., the personal services exception,and the fair market value exception)that require that compensation be “setin advance.” The “set in advance” stan-dard requires that the compensationformula, but not the aggregate amountof compensation, be established at theinception of the arrangement. In thePhase I rulemaking, CMS interpretedthe standard to prohibit most percent-age compensation arrangements.96 InPhase II, CMS reversed its earlier posi-tion deleting language that wouldexclude percentage based compensationformulas from meeting the “set inadvance” standard.97 Although PhaseIII does not modify the “set in advance”standard, CMS has proposed modifica-tions to the standard in the MPPFS.The proposal would amend the standardto specifically limit the use of percent-age based compensation arrangementsto only those that directly result frompersonally performed physician services.98
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General Exceptions to theReferral Prohibition Applicableto Both Ownership/Investmentand Compensation – 411.355
Section 411.355 sets forth variousexceptions which are applicable to bothownership/investment financial relation-ships and compensation relationships.The exceptions listed in Section 411.355include the: (a) physician services excep-tion; (b) in-office ancillary servicesexception; (c) services furnished by anorganization to enrollees exception; (d) reserved; (e) academic medicalcenters exception; (f) implants furnishedin an Ambulatory Surgical Center(“ASC”) exception; (g) Erythropoietin(“EPO”) and other dialysis-related drugsexception; (h) preventative screeningtests, immunizations, and vaccinesexception; (i) eyeglasses and contactlenses following cataract surgery excep-tion; and (j) intra-family rural referralsexception. This section of the article willfocus on some of the more commonlyused exceptions contained in Section411.355. For specific details regardingeach exception, see 42 C.F.R. § 411.355.
Physician Services Exception –411.355(a)
The physician services exceptionenables group practices to make referralswithin their group practices for physicianservices that are DHS (e.g., the profes-sional component of radiology services,or professional pathology services) andthat are performed or supervised byeither a member (employee or owner) ofthe group practice or by a physician in thegroup practice (independent contractor).A physician in the group practice is onlyconsidered to be in the group when he orshe is performing services in the grouppractice’s facilities. For purposes of thisexception, professional DHS servicesthat are performed by a member of thegroup practice may be provided on oroff-site but professional services of anindependent contractor physician mustbe performed in the group practice’sfacilities. Therefore, the exception is notapplicable to services provided by inde-pendent contractor physicians in off-site
locations that are not considered thegroup’s facilities. For example, a group oforthopedic physicians that contract withan independent radiologist to performthe interpretation and reporting of imag-ing services provided by the group wouldbe precluded from relying upon thephysician services exception if the inde-pendent contractor radiologist performedthe professional services off-site at aremote location.99
In Phase III, CMS notes that itcontinues to study the issue of indepen-dent contractor pathologists whoperform services for group practices inoff-site “pod labs” that are presumablyable to meet the requirement of provid-ing the services in the group practice’sfacilities.100 Of particular relevance tothis issue, however, is the commentaryand proposals set forth in the MPPFSwhich would prohibit a physician (orgroup) from marking up the professionalcomponent of services (including imag-ing and pathology services) unless thephysician were a full-time employee.101 Ifthis proposal were finalized, it wouldsignificantly diminish the importance ofthe “on-site” requirement of the physi-cian services exception in that groupswould not be permitted to mark-upcharges for professional services providedby contractors (physicians in the group)under any circumstances, even if theservices were provided on-site.
In-Office Ancillary ServicesException – 411.355(b)
The in-office ancillary servicesexception has arguably been the singlemost important exception in the Starklaw. This exception prompted numerouscomments in response to the 1998 StarkII proposed rule as well as severalcomments in response to Phases I and IIof the rulemaking. The exception isdesigned to protect the in-office provi-sion of certain DHS that are genuinelyancillary to the medical servicesprovided by the practice. The in-officeancillary exception exempts servicespersonally provided by the referringphysician, a physician who is a memberof the same group practice as the refer-
ring physician, an individual that issupervised by the referring physician, orif the referring physician is in a grouppractice, by another physician in thegroup practice, provided that the super-vision complies with all of the Medicarepayment and coverage rules for theservices. In addition, the exceptioncontains a location and a billing require-ment. The in-office ancillary servicesexception covers nearly all DHS exceptDME (other than a few carve outs forcertain types of infusion pumps, bloodglucose monitors, and certain otherdevices that provide assistance topatients leaving the physician’s office),and parenteral and enteral nutrients,equipment, and supplies.102
The significant changes made inPhase II of the regulations focused on the“same building” test contained in thelocation requirement.103 In Phase II of theregulations, CMS developed three newalternative “same building” tests thatreplaced the Phase I three-part test in itsentirety. Only one of the three tests mustbe satisfied to meet the “same building”requirement and all three tests are avail-able to both solo practitioners and grouppractice physicians.104 Under all threetests, referring physicians or group prac-tices must have offices in the buildingthat are normally open to their patients arequisite number of hours per week. Allthree tests also require that the physicianregularly practices medicine and furnishesphysician services for a minimum numberof hours per week in that office (unfilledappointments, cancellations, and occa-sional gaps are permitted).
Phase III of the final rulemaking didnot make any substantive changes to thein-office ancillary services exception,but, based upon statements made in thepreamble commentary and in theMPPFS, it is clear that CMS is studyingissues regarding this exception furtherand is considering narrowing the excep-tion in some manner.105 In Phase III,CMS notes that it is consideringwhether certain types of arrangements,such as those involving in-office pathol-ogy labs and sophisticated imagingequipment, should continue to be eligi-
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ble for protection under the in-officeancillary services exception.106
Academic Medical Centers Exception – 411.355(e)
Recognizing that academic medicalcenters (“AMCs”) often involve multipleaffiliated entities that may make qualify-ing for an exception difficult, Phase I ofthe rulemaking created an exception forAMCs. The exception was created toprotect payments to referring physicianfaculty of AMCs that meet certain condi-tions.107 In an effort to address concernswith the AMC exception expressed bycommenters in response to Phase I, PhaseII made many revisions and clarificationsto the AMC exception in order to makeit easier to qualify for the exception.108
For example, the definition of academicmedical center was expanded to allowhospitals or health systems that sponsorfour or more medical education programsto qualify as a component of an academicmedical center.109
Additionally, Phase II modified theexception to reflect that an AMC mayhave more than one affiliated facultypractice plan and that faculty practiceplans can be affiliated with the teachinghospital, the medical school or theaccredited academic hospital.110 Inresponse to Phase I, commenters alsoasked for clarification with respect towhat constitutes “substantial academicor substantial clinical teaching services”for purposes of the referring physician’sservices. To provide clarity, Phase IIadded a safe harbor provision deemingany referring physician who spends atleast 20 percent of his or her professionaltime or, in the alternative, eight hoursper week providing academic services orclinical teaching services (or a combina-tion), as fulfilling the requirement.111
Phase II also added flexibility to theAMC exception by modifying the regu-lations to cover research money used forteaching, a core AMC function.112
The Phase III final rule adopts thePhase II rule with some minor clarifica-tions.113 Phase III revises language in theacademic medical exception to clarifythat the total compensation from each
academic medical center component toa faculty physician must be set inadvance and not determined in amanner that takes into account thevolume or value of the physician’s refer-rals or other business generated by thereferring physician within the academicmedical center.114 Additionally, languagewas added to the exception to providethat for purposes of determiningwhether the majority of physicians onthe medical staff of a hospital affiliatedwith an academic medical centerconsists of faculty members, the affili-ated hospital must include or exclude allindividuals holding the same class ofprivileges at the affiliated hospital.115
In Phase III, CMS also clarifies thatnothing in the exception prohibitsAMCs from compensating facultymembers for the provision of indigentcare or community care, provided thatthe funds do not derive from researchfunding; the total compensation paid tothe referring physician is fair marketvalue and satisfies the other requirementsin Section 411.355(e)(1)(iii)(C); andthe physician also performs the requisiteclinical teaching or academic servicesunder Section 411.355(e)(1)(i)(D).116
In Phase III, CMS also remindscommenters that the AMC exception isdesigned to supplement, not replace,other exceptions, such as the bona fideemployment exception or the personalservice arrangements exception.117 CMSfurther states that the definition andexception for indirect compensationarrangements are potentially applicableto arrangements involving AMCs andphysicians.118
Implants Furnished by an AmbulatorySurgery Center (ASC) – 411.355(f)
In Phase I, CMS created an excep-tion for implants furnished in anASC.119 The exception is intended toallow physician owners of ASCs to orderand perform surgeries that implantDME, prosthetics, or prosthetic devices.The exception was created becausemany implantable items are DHS, butare not bundled into the ASC compos-ite rate. Without the exception there
would be no applicable ownershipexception for many physician owners ofASCs who order and perform such surg-eries (physician owners of rural ASCscould potentially qualify for the ruralprovider exception). Phases II and IIIdid not make any changes to this excep-tion, however, in Phase III, CMS makesclear that the exception does not applyif the physician submits the claim forthe device, as Medicare payment rulesrequire the ASC to bill for the item.120
Intra-family Rural Referrals –411.355(j)
In Phase II, CMS created a newlimited exception for certain referralsfrom a referring physician to a DHSentity with which his or her immediatefamily member has a financial relation-ship, if the patient being referred residesin a rural area and there is no DHSentity available in a timely manner inlight of the patient’s condition tofurnish the DHS to the patient in his orher home (for DHS furnished topatients in their homes such as homehealth services or certain DME) orwithin 25 miles of the patient’s home(for DHS furnished outside of thepatient’s home).121 Phase III modifiesthe exception to include an alternativedistance test which is based on trans-portation time (45 minutes), not miles,from the patient’s home.122
Exceptions to the ReferralProhibition Applicable toOwnership or InvestmentInterests – 411.356
Section 411.356 of the regulationssets forth various exceptions that areapplicable only to ownership or invest-ment interests. These exceptions cannotbe used to protect a compensationarrangement. The exceptions listed inSection 411.356 include the: (a) publicly-traded securities exception; (b) mutualfunds exception; and (c) specific providersexception (rural provider exception,hospitals located in Puerto Rico excep-tion, and the whole hospital exception).This section of the article will focus onsome of the exceptions contained inSection 411.356. For specific details
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regarding a particular ownership orinvestment exception, see 42 C.F.R. §411.356.
Publicly Traded Securities and Mutual Funds – 411.356(a) and (b)
The Stark law permits referringphysicians to have an ownership incertain publicly traded securities andmutual funds.123 The purpose of thepublicly traded securities exception is toallow physicians or family members toacquire stock in large companies if thetransaction does not particularly favorthe physicians over other purchasers ofstock.124 Investment securities includeshares or bonds, debentures, notes, orother debt instruments.125 The Stark lawalso permits ownership of investmentsin mutual funds with total assets exceed-ing $75 million at the end of the mostrecent fiscal year or the average of thelast three fiscal years.126
Phase II clarified that securitiesacquired by a referring physician (or animmediate family member) prior to apublic offering will fit into the exceptionif they are available to the public at thetime of any DHS referral.127 Phase II alsomodified the definition of ownership andinvestment interest to reflect that stockoptions and convertible securities will betreated as compensation, rather thanownership, if they are received ascompensation for services and willremain compensation until the time thatthey are exercised, at which time theyconvert to an ownership or investmentinterest.128 CMS did not make anychanges to Section 411.356(a) (2006) orSection 411.356(b) (2006) in the PhaseIII rulemaking.
Specific Provider – Rural Provider –411.356(c)(1)
With respect to DHS furnished inrural areas, the Stark law permits refer-ring physicians to have ownership orinvestment interests in providers thatfurnish DHS in a rural area, if substan-tially all of the DHS are furnished toindividuals residing in the rural area.129
For an 18-month period, which beganon December 8, 2003, pursuant to
Section 507 of the Medicare PrescriptionDrug, Improvement, and ModernizationAct (“MMA”),130 the rural providerexception was not applicable to specialtyhospitals. The moratorium expired inJune 2005.
Phase II of the regulations adoptedthe 1998 proposed rule that defined a “rural provider” as an entity thatfurnishes at least 75 percent of its totalDHS to residents of a rural area.131 Theproposed regulations defined a rural areaas an area that is not an urban area asdefined in Section 412.62(f)(1)(ii).Phase II adopted this definition and forease of reference, Phase III added theterm rural area to the definitions sectionof the regulations in Section 411.351. InPhase III, in response to a commenter,CMS notes that a physician who investsin a rural provider takes the risk that thearea could later be reclassified as an urbanarea.132 As a practical matter, if this wereto happen, the physician would have todivest his ownership or stop referring.
Specific Provider – Whole Hospital –411.356(c)(3)
With respect to DHS provided by ahospital, an ownership or investmentinterest in a hospital is not a financialrelationship within the meaning of theStark law if the referring physician isauthorized to perform services at thehospital. This exception, however, isstrictly limited to ownership in thewhole hospital, not merely a subdivisionor part of the hospital.133 As with therural provider exception, the MMA 18-month moratorium on specialtyhospitals was also incorporated into thewhole hospital regulatory exception inPhase II of the rulemaking.134
In Phase II of the rulemaking,CMS adopted the 1998 proposed rulewhich interpreted the requirement thatDHS be “provided by the hospital” tomean that the services had to beprovided at the hospital and not byanother hospital-owned entity, such as askilled nursing facility or home healthagency.135 Phase III did not change thewhole hospital exception contained in42 C.F.R. § 411.356(c)(3).
Although Phase III did not makeany changes to the whole hospitalexception, if the whole hospital excep-tion is amended as proposed by the U.SRepresentatives in Section 651 of theChi ldren ’s Heal th and MedicareProtection Act of 2007, opportunity forphysician investment in hospitals wouldbe limited and existing hospital invest-ments would need to be reviewed todetermine compliance with the newgrandfathering criteria as set forth previ-ously in this article.
Exceptions to the ReferralProhibition Applicable toCompensation Arrangements –411.357
Section 411.357 sets forth variousexceptions which are applicable only tocompensation arrangements. Ownershipor investment interests must be exceptedunder an applicable exception containedin Sections 411.355 or 411.356. Thecompensation exceptions listed inSection 411.357 include: (a) rental ofoffice space; (b) rental of equipment; (c) bona fide employment relationships;(d) personal service arrangements; (e) physician recruitment; (f) isolatedtransactions; (g) certain arrangementswith hospitals; (h) group practice arrange-ments with hospitals; (i) payments by aphysician; (j) charitable donations by aphysician; (k) nonmonetary compensa-tion; (l) fair market value; (m) medicalstaff incidental benefits; (n) risk sharingarrangements; (o) compliance training;(p) indirect compensation arrangements;(q) referral services; (r) obstetricalmalpract ice insurance subs id ie s ; (s) professional courtesy; (t) retentionp a y m e n t s i n u n d e r s e r v e d a r e a s ; (u) community-wide health informationsystems; (v) electronic prescribing itemsand services; and (w) electronic healthrecords items and services. This section ofthe article will focus on some of the morecommonly used exceptions and some ofthe exceptions which prompted commen-tary in Phase III of the rulemaking. Forspecific details regarding a particularcompensation exception, see 42 C.F.R. §411.357.
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Rental of Office Space and Equipment – 411.357(a) and (b)
In order for an office space or equip-ment lease to meet the rental of officespace or rental of equipment exceptions,the following requirements must be met:(1) the lease is in writing, signed by theparties, and specifies the space or equip-ment covered by the lease; (2) the termof the agreement is at least one year; (3) the space or equipment rented orleased does not exceed what is reason-able and necessary for the legitimatebusiness purposes of the lease, and is usedexclusively by the lessee when beingused by the lessee (except that proratedpayments for common areas areallowed); (4) the rental charges over theterm of the lease are set in advance andare consistent with fair market value; (5) the rental charges over the term ofthe agreement are not determined inmanner that takes into account thevolume or value of any referrals or otherbusiness generated between the parties;and (6) the agreement would becommercially reasonable even if no refer-rals were made between the parties.136
For purposes of these exceptions, “fairmarket value” means the value of therental property for general commercialpurposes (not taking into account theproperty’s intended use). In addition, forrentals or leases where the lessor is apotential source of patient referrals tothe lessee, fair market value meansgeneral commercial value not takinginto account the intended use or theadditional value the prospective lessee orlessor would attribute to the proximity orconvenience to the lessor.137
In the 1998 proposed regulations,CMS made several interpretations withrespect to these lease arrangementsincluding that the one-year termrequirement permitted leases to beterminated “for cause,” provided thatthe parties do not enter into anotherlease until after the expiration of theoriginal term.138 Phase II modified theregulations to allow “without cause”terminations, provided that the partiesdo not enter into a new lease during thefirst year of the original term and the
new agreement complies with theexception.139 In Phase II, CMS alsomodified the regulations to permit hold-over tenancies for a period of not morethan six months.140 Further, Phase IImodified the exclusive use language topermit subleases.141 To prevent referringphysicians or groups from circumventingthe rules by setting up separate holdingcompanies to act as the “lessor,” inPhase II, the regulations were modifiedto preclude sharing of rental space withthe lessor or any person or entity relatedto the lessor.142
Additionally, as part of Phase II,CMS modified the regulations to permit“per-click” payments for DHS referred bythe referring physician as long as thepayments are consistent with fair marketvalue and do not take into account thevolume or value of referrals or otherbusiness generated by the referring physi-cian, as defined in Sections 411.351 and411.354.143 Although Phase III does notmake any substantive changes to theexceptions for rental of office space andequipment, as part of the July 2007MPPFS, CMS is proposing to prohibitthe use of “per-click” lease paymentsinvolving space and/or equipment leasesin those situations where an entityowned by a physician leases space and/orequipment to another entity, and thephysician subsequently refers patients tothat other entity for services.144
In response to public comment, inPhase III CMS clarifies that parties maynot change the rental charges at anytime during the term of the agreementand that parties wishing to do so mustterminate the agreement and enter intoa new agreement with different rentalcharges and/or other terms. However,the new agreement may be entered intoonly after the first year of the originallease term.145 CMS also notes that partiesmay amend a lease agreement multipletimes during or after the first year of itsterm so long as the rental charges are notchanged and all other requirements ofthe exception are satisfied. CMScautions, however, that changes to termsthat are material to the rental charges(e.g., space leased) may cause the rental
charges to fall out of compliance withthe “fair market value” and “volume orvalue of referrals” requirements.146
Phase III also reminds readers thatspace leases are not eligible for the fairmarket value exception contained inSection 411.357(l).147 In response topublic comment regarding the applica-tion of the rental of office space andequipment lease exceptions to office-sharing arrangements betweenphysicians, CMS states that the exclu-sive use provisions in the exceptions, ineffect, require that space and equipmentleases be for established blocks of timein connection with office-sharingarrangements.148 CMS does not makeany substantive changes to either excep-tion in Phase III of the rulemaking.
Bona Fide Employment Relationships – 411.357(c)
Payments made by an employer to aphysician (or immediate family member)pursuant to a bona fide employment rela-tionship are excepted from Stark’sprohibition, if certain conditions are met.Specifically, the employment must be foridentifiable services, the amount ofcompensation must be fair market valueand not determined in manner that takesinto account (directly or indirectly) thevolume or value of referrals, and theemployment agreement must be commer-cially reasonable, absent the referrals.149
The 1998 proposed rule added additional limitations to the statutoryrequirements to restrict a physician’s abil-ity to receive a productivity bonus basedon his or her own productivity of DHSreferrals, and to restrict compensationrelated to other business generatedbetween the parties.150 In Phase II, CMSdid not adopt the 1998 limitation placedupon productivity bonuses as it was nolonger relevant given that personallyperformed DHS are not considered refer-rals for purposes of Stark. Additionally,CMS noted that the exception does notpreclude a productivity bonus based solelyon personally performed supervision ofservices that are not DHS, as this type ofbonus would not take into account thevolume or value of DHS referrals.151
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In Phase III, CMS does not makeany changes to the bona fide employ-ment relationships exception.
Personal Service Arrangements –411.357 (d)
There is an exception in the Starklaw, which is applicable to remunerationfrom an entity under an arrangement(or multiple arrangements) to a physi-cian, immediate family member, or to agroup practice, for personal servicearrangements.152
Phase II modified the one-year termprovision to reflect that “without cause”provisions are permitted, provided thatthe parties do not enter into the same orsubstantially the same agreement duringthe first year of the original term.153
The personal services exceptioncontains an express provision allowingindependent contractor physicians to becompensated under a physician incen-tive plan (“PIP”) with respect to servicesprovided to individuals enrolled withthe entity making the payments.154
Phase II modified this PIP exception toclarify that it applies to downstreamcontractor arrangements related tohealth plan enrollees.155 In a relatedmatter, Phase III modifies the regula-tions slightly to refer consistently to theterm downstream contractor, a termwhich is now defined in Section411.351 and includes a first tier contrac-tor and any individual or entity that hasa subcontract directly or indirectly witha first tier contractor.156
In Phase II, CMS also modified theregulations to allow parties the option tocross reference a master list of contracts,in addition to the existing option ofincorporation of multiple agreements byreference.157 A master list alternativewill be satisfied if more than one masterlist is maintained and cross-referenced,so long as the several master lists, takentogether, cover all of the contracts withthe referring physician (or immediatefamily member).158 Providers that takeadvantage of the master list option mustbe prepared to properly maintain thelist(s) in a manner that preserves the
historical record if requested by theSecretary.159
Phase III modifies the personalservice arrangements exception toinclude a provision which permits aholdover personal service arrangement(services provided after the term of thecontract expires) for up to six months.160
Physician Recruitment – 411.357(e)
Under Stark, a hospital is permittedto pay a physician to induce the physi-cian to relocate to the hospital’sgeographic area in order for the physi-cian to be a member of the hospital’smedical staff.161 Specifically, the recruit-ment arrangement must meet thefollowing requirements: (1) the arrange-ment is set out in writing and signed byboth parties; (2) the arrangementcannot be conditioned on the physi-cian’s referrals; (3) the amount ofremuneration under the agreement maynot be determined in a manner thattakes into account (directly or indi-rectly) the volume or value of anyreferrals by the physician; and (4) thephysician must be allowed to establishstaff privileges at any other hospital andto refer business to other entities.162
In Phase II, CMS significantlymodified the regulation in the followingways: (1) to be eligible for the excep-tion, the physician must relocate his orher practice to the geographic areaserved by the hospital; (2) in order tomeet the relocation requirement, thephysician must: (a) relocate his or herpractice a minimum of twenty-five (25)miles; or (b) at least seventy-fivepercent (75%) of the physician’srevenues must come from care providedto new patients; (3) residents and newphysicians are eligible for the physicianrecruitment exception regardless ofwhether they actually move their prac-tices; and (4) in addition to hospitals,the exception applies to federally quali-fied health care centers (“FQHC”).163
In addition, Phase II also signifi-cantly modified the regulation withrespect to recruitments made throughexisting group practices.164 However,
because CMS was concerned aboutpotential abuses, the accommodation forrecruitment payments to group practiceswas narrowly tailored.165 Under thePhase II rule, remuneration provided bya hospital (or FQHC) to a physicianindirectly through payments to anotherphysician, or physician practice, arepermitted if the following criteria aremet: (1) the written agreement is alsosigned by the party to whom thepayments are made directly; (2) exceptfor actual costs, the remuneration ispassed directly through to, or remainswith, the recruited physician; (3) in thecase of an income guarantee made bythe hospital to a physician who joins alocal physician practice, costs allocatedby the physician practice to therecruited physician may not exceed theactual additional incremental costs tothe practice attributable to the recruitedphysician; (4) records of the actual costsand the passed through amounts aremaintained for a period of at least 5years; (5) the remuneration from thehospital is not determined in anymanner that takes into account (directlyor indirectly) the volume or value of anyreferrals (actual or anticipated) by therecruited physician or by the physicianpractice receiving the direct paymentsfrom the hospital (or any physician affiliated with that physician practice); (6) the physician practice receiving thehospital payments may not impose additional practice restrictions on therecruited physician, but may imposeconditions related solely to qualityconsiderations; and (7) the arrangementmust not violate the anti-kickbackstatute and must comply with all rele-vant billing laws and regulations.166
Phase III significantly relaxes thephysician recruitment exception. PhaseIII modifies the exception to allow grouppractices to impose practice restrictions ifthey do not “unreasonably restrict” therecruited physician’s ability to practice inthe geographic area served by the hospi-tal. Notably, in Phase III, CMS observesthat restrictions on moonlighting; prohibitions on soliciting patients, oremployees; requiring the recruited physi-
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cian to repay losses of his or her practiceabsorbed by the physician practice; andrequiring liquidated damages if the physi-cian leaves the practice and remains inthe community, are all restrictions andprohibitions that CMS does not considerto have a substantial effect on the physi-cian’s ability to remain in the hospital’sgeographic service area. CMS noted,however, that a liquidated damagesclause that provides for a “significant” or“unreasonable” payment may have asubstantial effect on the physician’s abil-ity to remain in the service area, and maythus be disallowed.167
In further efforts to relax the recruit-ment exception, Phase III permits ruralclinics to use the exception.168 It alsodeems the geographic area served by thehospital to be the area comprised of all ofthe contiguous zip codes from which thehospital’s inpatients are drawn, when thehospital draws fewer than 75% of itsinpatients from contiguous zip codes.169
Phase III also adds a special option rulefor rural hospitals in which thegeographic area served by the hospitalmay also be the area composed of thelowest number of contiguous zip codesfrom which the hospital draws at least 90percent of its inpatients. If the hospitaldraws fewer than 90 percent of its inpa-tients from all of the contiguous zipcodes from which it draws inpatients, thegeographic area served by the hospitalmay include noncontiguous zip codes.170
Phase III adds a provision that allowsrural hospitals to recruit physicians intoan area outside of the geographic areaserved by the hospital if the Secretary ofDHHS determines in an advisory opin-ion that the area has a demonstratedneed for the physician.171 Also withrespect to rural areas, Phase III adds aprovision allowing groups in a rural areaor a HPSA that recruit a physician toreplace a retired, deceased, or relocatedphysician to either allocate the costsattributed by the recruited physicianbased upon (1) the actual additionalincremental costs or (2) the lower of aper capita allocation or 20 percent of thepractice’s aggregate costs.172
The Phase II rule had provided anexemption from the relocation require-ment for residents and new physicians.173
In the Phase III rule, CMS adds expandsthe exemption to apply to physicianswho were employed full time by a federalor state bureau of prisons (or similaragency), the Department of Defense orVeterans Affairs, or facilities of theIndian Health Service. The new exemp-tions apply only if the physician did notmaintain a separate private practice inaddition to the full-time employment.Physicians may also be exempt from therelocation requirement if the Secretarydeems in an advisory opinion that the physician has not established amedical practice.174
CMS makes several other changesin the Phase III recruitment rule, clarify-ing that a physician must relocate his orher practice from outside the geographicarea to a location inside the area andeither (1) move his or her medical prac-tice at least 25 miles; or (2) have a newmedical practice. This clarification wasmade in response to commenters whoperceived an inconsistency between thePhase II preamble commentary and theregulatory text. Some commenters wereconfused as to whether the recruitedphysician must relocate his or her prac-tice from outside the geographic areainto the area, or whether the physicianm a y s i m p l y r e l o c a t e w i t h i n t h egeographic area so long as the physicianmoved his or her practice a minimum of25 miles or had a new practice.175
With respect to physician recruit-ment agreements involving physicianswho join an existing practice, Phase IIImodifies the regulatory text to makec l e a r t h a t t h e r e q u i r e m e n t s i n411.357(e)(4)(iii) are triggered by anyincome guarantee, whether grossincome, net income, revenues, or somevariation.176
Nonmonetary Compensation –411.357 (k)
The nonmonetary compensationexception was established in Phase I ofthe rulemaking and permits entities toprovide physicians with nonmonetary
items or services (not cash or cash equiva-lents) that do not exceed an aggregate of$300 per year.177 In Phase II, CMSdeclined to adopt a higher threshold butmodified the exception to include annualinflationary adjustments.178 The nonmon-etary compensation amount is adjustedannually for inflation. The annualamount increases are available on theCMS physician self-referral website atwww.cms.hhs.gov/PhysicianSelfReferral.179
Phase III makes two substantivechanges to the exception by: (1) allowingphysicians to repay certain excessnonmonetary compensation within thesame calendar year to preserve compli-ance with the exception; and (2) allowingentities without regard to the $300 dollarlimit to provide one medical staff appreci-ation function (such as a party) for theentire medical staff per year. Any gift orgratuities provided in connection withthe medical staff appreciation function,however, are subject to the $300 limit.The new cure provision only applies tosituations in which the entity inadver-tently provides excess nonmonetarycompensation to the physician.180
Fair Market Value – 411.357(l)
The 1998 Stark II proposed rule setforth a new exception for compensationarrangements that reflect fair marketvalue.181 The Phase I rule finalized the1998 fair market value proposal.182 Theexception protects compensation from aDHS entity to a physician, an immediatefamily member of a physician, or a groupof physicians for the provision of items orservices by the physician or group to theDHS entity if: (1) the arrangement is setout in writing signed by the parties anddescribes the items or services; (2) thewriting sets forth a timeframe for thearrangement; (3) the writing specifiesthe compensation which must be set inadvance, consistent with fair marketvalue, and not determined in a mannerthat takes into account the volume orvalue of referrals or other business gener-ated by the referring physician; (4) thearrangement is commercially reasonable;and (5) it does not violate the anti-kickback statue or other laws governing
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billing or claims submission or involvethe promotion of any arrangement thatviolates federal or state law.183
Phase III modifies the fair marketexception to allow the exception to beused with respect to compensationprovided to a physician from an entityand to compensation provided to anentity from a physician. CMS also clarifiesin the regulatory text that the fair marketvalue exception cannot be used to protectoffice leases.184 CMS also reaffirms itsearlier position that the fair market valueexception is not applicable to physicianrequirement arrangements.185
Compliance Training – 411.357(o)
In Phase I, CMS recognized thebenefit of hospitals offering compliancetraining programs for their staff physi-cians or for physicians in the community.As a result, CMS created an exceptionfor hospitals that provided compliancetraining to physicians in the hospital’slocal community or service area, providedthe training is held in that area.186 PhaseII modified the exception to clarify thatall entities (not just hospitals) canprovide compliance training to physi-cians.187 Although in Phase II CMSstated that compliance training does notinclude continuing medical education(CME), Phase III amends the compliancetraining exception to cover compliancetraining programs that involve CMEcredit so long as the compliance trainingis the primary purpose.188
Indirect Compensation Arrangements – 411.357(p)
Phase I of the rulemaking estab-lished a new exception for indirectcompensation arrangements.189 If a rela-tionship meets the three-part indirectcompensation arrangement definition,then it must be structured to complywith the indirect compensation arrange-ments exception. In order for an indirectcompensation arrangement to meet thisexception, the following requirementsmust be met: (1) the compensationreceived by the referring physician (orimmediate family member) from theperson or entity in the chain of financial
relationships with which the referringphysician (or immediate family) has adirect financial relationship is fairmarket value for services and items actu-ally provided and not determined in anymanner that takes into account thevalue or volume of referrals or otherbusiness generated by the referring physi-cian for the entity furnishing DHS; (2) the compensation arrangementbetween the person or entity in thechain with which the referring physicianhas a direct relationship is set out inwriting, signed by the parties, and specifies the services covered by thearrangement (except in the case of abona fide employment relationship); and(3) the compensation arrangement doesnot violate the anti-kickback statute, orany federal or state law or regulationgoverning billing or claims submission.190
Phase II made slight modifications tothe indirect compensation definition toclarify that the special rules on unit-basedcompensation do not apply when analyz-ing whether a relationship meets thethree part indirect compensation defini-tion but they do apply when analyzingwhether an indirect compensationarrangement falls within the indirectcompensation arrangement exception.191
Phase III of the final rulemakingdoes not make any substantive changesto the exception. Under the revised rulesregarding compensation relationships,however, physicians will now be “stand-ing in the shoes” of their group practices,so many arrangements that would havebeen considered indirect compensationarrangements will now be deemed to bedirect relationships, which cannot usethe indirect compensation exception.192
Obstetrical Malpractice InsuranceSubsidies – 411.357(r)
In Phase I of the rulemaking, CMSsolicited comments on creating excep-tions for arrangements that fit squarelywithin an anti-kickback “safe harbor.”193
In Phase II, CMS created an exceptionfor arrangements that fit in the anti-kickback safe harbor for obstetricalmalpractice insurance subsidies.194 PhaseIII does not modify this exception,
however, in the July 2007 MPPFS, CMSproposes to amend the exception toremove the incorporation of the safeharbor for malpractice insurance(1001.952(o)) and to include more flexi-ble criteria.195 In Phase III, CMS doesstate that in addition to the obstetricalmalpractice insurance subsidies excep-tion, there are several compensationexceptions (e.g., fair market value, bonafide employment, or personal services)that potentially permit DHS entities toprovide assistance with malpracticeinsurance.196
Professional Courtesy – 411.357(s)
In Phase II, CMS created an excep-t ion a l lowing ent i t i e s to extend“professional courtesy” to a physician,members of the physician’s immediatefamily, or members of the physician’soffice staff pursuant to several condi-tions.197 Phase II defined professionalcourtesy as the provision of free ordiscounted healthcare items or services.198
To qualify for the professional courtesyexception, the arrangement must meetthe following conditions: (1) the profes-sional courtesy is offered to all physicianson the entity’s bona fide medical staff or inthe entity’s local community withoutregard to the volume or value of referralsgenerated between the parties; (2) thehealthcare items and services provided areof a type routinely provided by the entity;(3) the professional courtesy policy is setout in writing and approved in advanceby the governing body of the healthcareprovider; (4) the professional courtesy isnot offered to any physician (or immedi-ate family member) who is a Federalhealthcare program beneficiary, unlessthere has been a good faith showing offinancial need.; (5) if the professionalcourtesy involves any whole or partialwaiver of any coinsurance obligation, theinsurer is informed in writing of thatreduction so that the insurer is aware ofthe arrangement; and (6) the arrange-ment does not violate the anti-kickbackstatue or billing or claims submission lawsor regulations.199
Phase III deletes the provision of theexception which requires an entity to
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notify an insurer when the professionalcourtesy involves the whole or partialreduction of any coinsurance obligation.Despite the deletion, however, CMSstates that it believes it is prudent prac-tice to provide notification and may stillbe required by some insurers. Phase IIIalso modifies the exception to clarifythat it applies only to hospitals and otherproviders with formal medical staffs, andnot to suppliers, such as laboratories orDME companies. In the Phase III pream-ble commentary, CMS states that itconsiders a group or other physicianpractice to be an entity with a formalmedical staff that can utilize the profes-sional courtesy exception.200
Retention Payments in UnderservedAreas – 411.357(t)
Phase II established a narrow excep-tion for certain retention payments madeto physicians with practices in HPSAs.201
The exception applies to retentionpayments made to a physician with apractice located in a HPSA who has afirm written recruitment offer from anunrelated hospital (or FQHC) that spec-ifies the remuneration being offered andthat would require the physician to movethe location of his or her practice at least25 miles and outside of the geographicarea served by the hospital (or FQHC).Additionally, the retention paymentmust be the lower of: (1) the differencebetween the physician’s current incomefrom physician and related services inthe recruitment offer (over no more thana 24 month period); or (2) the reason-able costs the hospital (or FQHC) wouldotherwise have to expend to recruit anew physician to the geographic area.202
Phase III modifies the exception inseveral respects. It expands the exceptionby allowing rural health clinics to makeretention payments.203 Phase III alsorevises the exception to permit a hospital,rural health clinic, or FQHC to offerassistance to a physician who does nothave a bona fide written offer of recruit-ment or employment if the physiciancertifies in writing that he or she has abona fide opportunity for future employ-ment which would require relocation of
his or her medical practice at least 25miles to a location outside of thegeographic area. In circumstances inwhich the physician provides writtencertification instead of a bona fide writ-ten offer, the retention payment may notexceed the lower of: (1) an amount equalto 25 percent of the physician’s annualincome; or (2) the reasonable costs thehospital would otherwise have to expendto recruit a new physician. Under thisnew certification provision, the physiciancertification must contain at least: (1) details regarding the steps taken toeffectuate the employment opportunity;(2) details of the employment opportu-nity; (3) certification that the futureemployer is not related to the hospitalmaking the payment; (4) the date of theanticipated relocation; and (5) informa-tion sufficient to verify the certification.204
Phase III further expands the excep-tion to permit retention payments thatotherwise satisfy the requirements of theexception when: (1) the physician’scurrent medical practice is located in arural area, a HPSA, or an area of demon-strated need determined by the Secretaryof DHHS in an advisory opinion; or (2) at least 75 percent of the physician’spatients either reside in medically underserved area or are members of amedically underserved population.205
In response to commenters whoquestioned why the retention exceptionrequires a retention payment to becontingent on an offer from a hospital,in Phase III, CMS amends the regula-tory text to allow retention payments ifa physician has a written offer from ahospital, academic medical center, orphysician organization (which is newlydefined in Phase III). The offer cannotbe from a entity that is related to thehospital, rural health clinic, or federallyqualified health care center that ismaking the retention payment.206
Electronic Prescribing Items andServices and Electronic HealthRecords Items and Services –411.357(v) and (w)
In October 2005, CMS published anotice of proposed rulemaking creating
an exception for prescribing technologyand an exception for electronic healthrecords software and information tech-nology and training services.207 Afterpublic comment on the exceptions,CMS published a final rule on August 8,2006.208 The exception for electronicprescribing items and services appears in411.357(v) and the exception for elec-tronic health records software andinformation technology and trainingservices appears in 411.357(w).
Reporting Requirements –411.361
The Stark law contains a reportingprovision requiring all entities to submitcertain information to the Secretary ofDHHS.209 The Phase II rule requiredthat, if requested by CMS or the Office ofthe Inspector General (“OIG”), all enti-ties (except those furnishing 20 or fewerPart A or Part B services in a calendaryear or those furnishing services outsideof the United States) submit certaininformation. The information that canbe requested includes: (1) the name andunique identification number (“UPIN”)of each physician who has a “reportablefinancial relationship” with the entity;(2) the name and UPIN of each physi-cian who has an immediate familymember who has a “reportable financialrelationship” with the entity; (3) thecovered services furnished by the entity;and (4) the nature of the financial rela-tionship (including the extent or value ofthe interest).210
A “reportable financial relationship”means any ownership or investmentinterest (as defined in 411.354(b)) orany compensation arrangement (asdefined in 411.354(c)), except forownership or investment interests thatsatisfy the exceptions set forth in411.356(a) or (b) regarding publiclytraded securities and mutual funds.211
Although interests in publicly tradedsecurities and mutual funds are excludedfrom the reporting requirements, thisexclusion is strictly limited to shareholderinformation. As a result, contractualarrangements concerning these interestsare still reportable.212
21
The reporting requirements statethat, upon request, entities must submitthe required information within thetime period specified by the request.Entities will be given at least 30 daysfrom the date of request to provide theinformation. Any person who isrequired, but fails to submit informationconcerning his or her financial relation-ships, is subject to a civil monetarypenalty of up to $10,000 for each dayafter the deadline until the informationis submitted.213
Phase II also modified the reportingrequirements to specify that the infor-mation required is only that informationthat the entity knows or should know inthe course of prudently conducting busi-ness, including but not limited to,records that the entity is alreadyrequired to retain to comply with IRSand SEC rules and other rules under theMedicare and Medicaid programs.214
Phase III of the rulemaking doesnot make any substantive changes to thereporting requirements at 411.361.However, the exception is modifiedslightly to account for the transition ofthe UPIN to the NPI.215
In response to public comment, inPhase III, CMS states that much of theinformation that it may receive pursuantto 411.361 will be exempt from disclo-sure under the Freedom of InformationAct (FOIA)216 and prohibited fromdisclosure by the Trade Secrets Act.217
But, when CMS receives a request forinformation that has been reported,CMS is required to evaluate whetherthe particular information is exempt orprohibited from disclosure.218
The reporting requirements at411.361 are particularly relevant in lightof the recent mandate sent by CMS to500 selected hospitals. The purpose ofthe CMS mandate is to collect informa-tion that will subsequently be used toanalyze all investment interests orcompensation arrangements betweeneach of the 500 hospitals and theirrespective physicians. CMS is requiringthat the information be submittedwithin 45 days and reminds hospitals of
the $10,000 civil monetary penalty perday beyond the deadline. The disclosurenotice is located on the CMS self-referral website at www.cms.hhs.gov/PhysicianSelfreferral.
Advisory Opinions Relating to Physician Referrals –411.370-411.389
For information regarding the CMSadvisory opinion process, please see 42C.F.R. §§ 411.370-389.
ConclusionThis article is intended to provide a
“full picture” of the Stark physician self-referral prohibition. It addresses thehighlights of Phase III of the final rule-making, identifies other proposals thatmay impact the Stark regulations in thefuture, and provides a comprehensivesummary of the overall Stark regulatoryscheme as finalized by the Phase III finalrule. Although this article is meant tobe a comprehensive “full picture” ofStark, it does not cover every aspect ofthe regulations. Attorneys should care-fully scrutinize the statute, regulations,and preamble commentary beforeattempting to advise a client regardingrelationships that potentially fall withinthe ambit of Stark .
Andrew B. Wachler is the principal ofWachler & Associates, P.C. He graduatedCum Laude from the University ofMichigan in 1974 and Cum Laude fromWayne State University Law School in1978. Mr. Wachler is a member of theState Bar of Michigan, Healthcare LawSection (Health Providers Subcommittee,past member Healthcare Law SectionCouncil), American Bar Association,Health Care Law Section, and theAmerican Health Lawyers Association.
Adrienne Dresevic is a partner withWachler & Associates, P.C. Ms. Dresevicgraduated Magna Cum Laude fromWayne State University Law School in2002 where she was elected as a memberof the Order of the Coif. Ms. Dresevic is a member of the State Bar of Michigan,Health Law Section and the AmericanHealth Lawyers Association. Ms. Dresevic
concentrates her practice on Stark; Fraudand Abuse; healthcare compliance; andMedicare, Medicaid, Blue Cross BlueShield and other third party payer audits.
Endnotes1 Social Security Act § 1877, codified at 42
U.S.C. § 1395nn.
2 72 Fed. Reg. 51012- 51099 (2007).
3 69 Fed. Reg. 16054 (2004). See rulemakinghistory, infra, part II.
4 42 U.S.C. § 1395nn.
5 60 Fed. Reg. 41923 (1995).
6 63 Fed. Reg. 1659 (1998).
7 66 Fed. Reg. 856 (2001).
8 69 Fed. Reg. 16054 (2004).
9 60 Fed. Reg. 41914 (1995).
10 72 Fed. Reg. 51012 (2007).
11 72 Fed. Reg. 51013 (2007).
12 For the sake of simplicity, references through-out this article to sections of the Code ofFederal Regulations (C.F.R.) amended by thePhase III final rule are to the text to becodified, as amended, except as otherwisespecifically noted by date, e.g., “42 C.F.R. §xxx.yyy (2006).”
13 70 Fed. Reg. 59182 (2005), 71 Fed. Reg.45140 (2006).
14 72 Fed. Reg. 51015-51016 (2007).
15 72 Fed. Reg. 51017-51018 (2007), 42 C.F.R. §411.351.
16 66 Fed. Reg. 871-872 (2001).
17 72 Fed. Reg. 51019-51020 (2007).
18 72 Fed. Reg. 51022-51024 (2007), 42 C.F.R. §411.352 (i).
19 72 Fed. Reg. 51061-51063 (2007), 42 C.F.R. §411.354(a)(2), 42 C.F.R. § 411.354(c) (1)(i)-(ii), 42 C.F.R. § 411.354(c)(3)(i)-(ii).
20 72 Fed. Reg. 51027, 51043 (2007), 42 C.F.R.§ 411.354(b)(3)(v).
21 72 Fed. Reg. 51032-51035 (2007).
22 72 Fed. Reg. 51036-51038 (2007), 42 C.F.R. §411.355(e).
23 72 Fed. Reg. 51039-51041 (2007), 42 C.F.R. §411.355(j).
24 72 Fed. Reg. 51045-51047 (2007), 42 C.F.R. §411.357(d).
25 72 Fed. Reg. 51047-51054 (2007), 42 C.F.R. §411.357(e).
26 72 Fed. Reg. 51058-51059 (2007), 42 C.F.R. §411.357(k).
27 72 Fed. Reg. 51059-51060 (2007), 42 C.F.R. §411.357(l).
28 72 Fed. Reg. 51061(2007), 42 C.F.R. §411.357(o).
29 72 Fed. Reg. 51064-51065, 42 C.F.R. §411.357(s).
22
30 72 Fed. Reg. 51065-51068 (2007), 42 C.F.R. §411.357(t).
31 72 Fed. Reg. 38122 (2007).
32 72 Fed. Reg. 38179-38180 (2007).
33 72 Fed. Reg. 38181-38182 (2007).
34 72 Fed. Reg. 38182-38183 (2007).
35 72 Fed. Reg. 38184 (2007).
36 See discussion under part V, infra.
37 72 Fed. Reg. 38186-38187 (2007).
38 72 Fed. Reg. 38184 (2007).
39 72 Fed. Reg. 38183-38184 (2007).
40 72 Fed. Reg. 38169-38171 (2007).
41 72 Fed. Reg. 38180, 38182-38185 (2007).
42 H.R. 3162 § 651 Children’s Health andMedicare Protection Act of 2007.
43 Robert Pear, Senate Passes Children’s HealthBill, 68-31, New York Times, August 3, 2007,ava i l ab l e at ht tp : / /www.nyt imes .com/2007/08/03/washington/03health.html?ex=1343793600&en=3c6c76fb95e1d11d&ei=5088 (last visited September 12, 2007).
44 Disclosures of Investments and CompensationRelationships: CMS to Require Hospitals toComplete Report Concerning InvestmentInterests and Compensation Relationships withPhysicians, available at http://www.cms.hhs.gov/PhysicianSelfReferral/O5a_Disclosure.asp (last visited September 12, 2007).
45 42 C.F.R. § 411.361(c) (2006).
46 42 C.F.R. § 411.361(d) (2006).
47 42 C.F.R. § 411.361(f) (2006).
48 72 Fed. Reg. 51012 (2007).
49 42 U.S.C. § 1395nn.
50 72 Fed. Reg. 51034-51035 (2007), 42 C.F.R. §411.350.
51 42 C.F.R. § 424.80.
52 72 Fed. Reg. 51035 (2007), 42 C.F.R. §411.351.
53 42 C.F.R. § 411.351.
54 66 Fed. Reg. 946 (2001), 42 C.F.R. § 411.351.
55 42 C.F.R. § 411.351.
56 72 Fed. Reg. 51021 (2007).
57 66 Fed. Reg. 872 (2001).
58 69 Fed. Reg. 16063 (2004).
59 72 Fed. Reg. 51019-51020 (2007).
60 42 U.S.C. § 1395nn(h)(6).
61 Current Procedural Technology (CPT) codesare used to identify medical services andprocedures performed by physicians.Healthcare Financing AdministrationCommon Procedure Coding System(HCPCS) is a standard alphanumeric codingsystem primarily representing supplies andnon-physician services which are not coveredby the CPT codes.
62 66 Fed. Reg. 922-924 (2001).
63 For the current list, see 71 Fed. Reg. 70247-70251 (December 1, 2006).
64 66 Fed. Reg. 922-924 (2001).
65 70 Fed. Reg. 70283-70289 (2005).
66 66 Fed. Reg. 937-940 (2001).
67 Medicare Prescription Drug Improvement andModernization Act of 2003, Pub. L. No. 109-73, Title I, § 101, 117 Stat. 2066, 2071-2152(2003).
68 69 Fed. Reg. 16106 (2004).
69 42 C.F.R. § 411.351.
70 42 C.F.R. § 411.351 (2006).
71 72 Fed. Reg. 38122, 38186-87, 38224 (2007).
72 72 Fed. Reg. 51014-51015 (2007).
73 72 Fed. Reg. 51015-51016 (2007).
74 66 Fed. Reg. 894-911 (2001).
75 69 Fed. Reg. 16076-16081 (2004).
76 42 C.F.R. § 411.352(a)-(h) (2006).
77 42 C.F.R. § 411.352(i) (2006).
78 42 C.F.R. § 411.352 (i) (2006).
79 72 Fed. Reg. 51023-51024 (2007), 42 C.F.R. §411.352 (i).
80 69 Fed. Reg. 16057 (2004), 42 C.F.R. §411.353(f) (2006).
81 42 C.F.R. § 411.353 (e) (2006).
82 72 Fed. Reg. 38184-38186 (2007).
83 72 Fed. Reg. 38183-38184 (2007).
84 42 C.F.R. § 411.354(a) (2006).
85 66 Fed. Reg. 876-879 (2001), 69 Fed. Reg.16059 (2004), 42 C.F.R. § 411. 354 (d)(2006).
86 42 C.F.R. § 411.351 (2006).
87 69 Fed. Reg. 16060 (2004).
88 69 Fed. Reg. 16060 (2004), 72 Fed. Reg.51061-51063 (2007), 42 C.F.R. § 411.354 (c).
89 72 Fed. Reg. 51061-51063 (2007).
90 72 Fed. Reg. 51061-51063 (2007), 42 C.F.R. §411.354 (a) (2), 42 C.F.R. § 411.354 (c) (1)(i)-(ii), 42 C.F.R. § 411.354 (c) (3) (i)-(ii).
91 66 Fed. Reg. 864-870 (2001), 42 C.F.R. §411.354 (c) (2) (2006) and 42 C.F.R. §411.357(p) (2006).
92 69 Fed. Reg. 16061 (2004), 42 C.F.R. §411.354(b)(5)(i)(B) (2006).
93 72 Fed. Reg. 51027 (2007), 42 C.F.R. §411.354(b)(3)(v).
94 72 Fed. Reg. 38183-38184 (2007).
95 42 C.F.R. § 411.354(d)(1)-(3) (2006).
96 66 Fed. Reg. 959 (2001).
97 69 Fed. Reg. 16066, 42 C.F.R. §411.354(d)(1) (2006).
98 72 Fed. Reg. 38224 (2007).
99 69 Fed. Reg. 879 (2001), 42 C.F.R. §411.355(a) (2006), 42 C.F.R. § 411.351(2006).
100 72 Fed. Reg. 51033-51034 (2007).
101 72 Fed. Reg. 38179-38180, 38224-38225(2007).
102 66 Fed. Reg. 881-894 (2001), 69 Fed. Reg.16070-16076 (2004), 42 C.F.R. § 411.355(b)(2006).
103 69 Fed. Reg. 16072-16073 (2004).
104 69 Fed. Reg. 16072, 42 C.F.R. § 411.355 (b)(2) (2006).
105 72 Fed. Reg. 38181-38182 (2007), 72 Fed.Reg. 51032-51035 (2007).
106 72 Fed. Reg. 51034 (2007).
107 66 Fed. Reg. 915-917 (2001).
108 69 Fed. Reg. 16108-16111 (2004).
109 42 C.F.R. § 411.355 (e) (2) (i).
110 69 Fed. Reg. 16109 (2004), 42 C.F.R. §411.355(e)(2)(ii) (2006).
111 69 Fed. Reg. 16110 (2004), 42 C.F.R. §411.355(e)(1)(i)(D) (2006).
112 69 Fed. Reg. 16110-16111 (2004), 42 C.F.R. §411.355(e)(1)(iii)(C) (2006).
113 72 Fed. Reg. 51036-51038 (2007).
114 72 Fed. Reg. 51036-51037 (2007), 42 C.F.R. §411.355(e)(1)(ii).
115 72 Fed. Reg. 51036-51037 (2007), 42 C.F.R. §411.355(e)(2)(iii).
116 72 Fed. Reg. 51036 (2007).
117 72 Fed. Reg. 51037-51038 (2007).
118 72 Fed. Reg. 51038 (2007).
119 66 Fed. Reg. 933-934 (2001), 42 C.F.R. §411.355(f) (2006).
120 72 Fed. Reg. 51038 (2007).
121 69 Fed. Reg. 16083-16084 (2004), 42 C.F.R. §411.355(j) (2006).
122 72 Fed. Reg. 51039-51041, 42 C.F.R. §411.355(j)(1)(2).
123 Social Security Act § 1877 (c), codified at 42U.S.C. § 1395 nn(c), 42 C.F.R. § 411.356(a)and (b) respectively.
124 63 Fed. Reg. 1698 (1998).
125 Social Security Act § 1877 (c)(2), codified at42 U.S.C. § 1395nn(c)(2),42 C.F.R. §411.356 (a).
126 Social Security Act § 1877 (c)(2), codified at42 U.S.C. § 1395nn(c)(2),42 C.F.R. §411.356 (b) (2006).
127 69 Fed. Reg. 16081 (2004), 42 C.F.R. §411.356(a) (2006).
128 69 Fed. Reg. 16062-16063, 16081 (2004).
129 Social Security Act § 1877 (d)(2), codified at42 U.S.C. § 1395nn(d)(2),42 C.F.R. §411.356(c)(1) (2006).
130 Medicare Prescription Drug Improvement andModernization Act of 2003, Pub. L. No. 109-73, Title I, § 501, 117 Stat. 2066, 2295 - 2296(2003).
131 69 Fed. Reg. 16083 (2004).
132 72 Fed. Reg. 51042 (2007).
133 Social Security Act § 1877 (d)(3), codified at42 U.S.C. § 1395nn(d)(3),42 C.F.R. §411.356(c)(3) (2006).
134 69 Fed Reg. 16084, 16138 (2004), 42 C.F.R. §411.356 (c)(3)(ii).
23
135 63 Fed. Reg. (1998) 1713, 69 Fed. Reg.16084-16085 (2004).
136 42 C.F.R. § 411.357(a) and (b) (2006).
137 42 C.F.R. § 411.351 (2006).
138 63 Fed. Reg. 1713-1714 (1998).
139 69 Fed. Reg. 16086 (2004), 42 C.F.R. §411.357(a)(2) (2006), 42 C.F.R. §411.357(b)(3) (2006).
140 69 Fed. Reg. 16086 (2004), 42 C.F.R. §411.357(a)(7) (2006), 42 C.F.R. §411.357(b)(6) (2006).
141 69 Fed. Reg. 16086 (2004), 42 C.F.R. §411.357(a)(3) (2006), 42 C.F.R. §411.357(b)(2) (2006).
142 69 Fed. Reg. 16086 (2004), 42 C.F.R. §411.357(a)(3) (2006), 42 C.F.R. §411.357(b)(2) (2006).
143 69 Fed. Reg. 16085 (2004).
144 72 Fed. Reg. 38182-38183 (2007).
145 72 Fed. Reg. 51044 (2007).
146 72 Fed. Reg. 51044 (2007).
147 72 Fed. Reg. 51044-51055 (2007).
148 72 Fed. Reg. 51045 (2007).
149 Social Security Act § 1877(e)(2), codified at42 U.S.C. § 1395nn(e)(2),42 C.F.R. §411.357(c) (2006).
150 63 Fed. Reg. 1700-1701 (1998).
151 69 Fed. Reg. 16087, 42 C.F.R. § 411.357(c)(2006).
152 Social Security Act § 1877(e)(3), codified at42 U.S.C. § 1395nn(e)(3),42 C.F.R. §411.357(d) (2006).
153 69 Fed. Reg. 16089-16093 (2004), 42 C.F.R. §411.357(d) (1) (iv) (2006).
154 Social Security Act § 1877(e)(3), codified at42 U.S.C. § 1395nn(e)(3),42 C.F.R. §411.357(d)(2) (2006).
155 69 Fed. Reg. 16090 (2004), 42 C.F.R. §411.357(d)(2) (2006).
156 72 Fed. Reg. 51046 (2007), 42 C.F.R. §411.352(d)(2), 42 C.F.R. § 411.351.
157 69 Fed. Reg. 16091 (2004), 42 C.F.R. §411.357(d)(1)(ii) (2006).
158 69 Fed. Reg. 16091 (2004).
159 69 Fed. Reg. 16091 (2004).
160 72 Fed. Reg. 51045-51047 (2007), 42 C.F.R. §411.357(d).
161 Social Security Act § 1877(e)(5), codified at42 U.S.C. § 1395nn(e)(5),42 C.F.R. §411.357(e) (2006).
162 42 C.F.R. § 411.357(e) (2006).
163 69 Fed. Reg. 16094-16095, 42 C.F.R. §411.357(e) (2006).
164 69 Fed. Reg. 16095-16097 (2004), 42 C.F.R. §411.357(e)(4) (2006).
165 69 Fed. Reg. 16096 (2004).
166 69 Fed. Reg. 16096, 16139 (2004).
167 72 Fed. Reg. 51053-51054 (2007), 42 C.F.R. §411.357(e)(4)(vi).
168 42 C.F.R. § 411.357(e)(6).
169 72 Fed. Reg. 51048, 51050-51051 (2007), 42C.F.R. § 411.357(e)(2)(ii).
170 72 Fed. Reg. 51049-51050 (2007), 42 C.F.R. §411.357(e)(2)(iii).
171 72 Fed. Reg. 51048, 51050 (2007), 42 C.F.R.§ 411.357(e)(5).
172 72 Fed. Reg. 51052-51053 (2007), 42 C.F.R. §411.357(e)(4)(iii).
173 42 C.F.R § 411.357(e)(3) (2006).
174 72 Fed. Reg. 51051 (2007), 42 C.F.R. §411.357(e)(3)(ii) and (iii).
175 72 Fed. Reg. 51050 (2007), 42 C.F.R. §411.357(e)(2)(iv).
176 72 Fed. Reg. 51052 (2007), 42 C.F.R. §411.357(e)(4)(iii).
177 66 Fed. Reg. 920 (2001), 42 C.F.R. §411.357(k) (2006).
178 69 Fed. Reg. 16140 (2004), 42 C.F.R. §411.357(k)(2) (2006).
179 72 Fed. Reg. 51058 (2007).
180 72 Fed. Reg. 51058-51059 (2007), 42 C.F.R.§§ 411.357(k)(3) and (4).
181 63 Fed. Reg. 1725 (1998).
182 66 Fed. Reg. 917-919 (2001).
183 42 C.F.R. § 411.357(l) (2006).
184 72 Fed. Reg. 50144-51045, 51059-51060(2007), 42 C.F.R. § 411.357(l).
185 72 Fed. Reg. 51059 (2007).
186 66 Fed. Reg. 921 (2001), 42 C.F.R. §411.357(o) (2006).
187 69 Fed. Reg. 16115 (2004).
188 72 Fed. Reg. 51061(2007), 42 C.F.R. §411.357(o).
189 66 Fed. Reg. 865-869, 42 C.F.R. § 411.357(p)(2006).
190 42 C.F.R. § 411.357(p) (2006).
191 69 Fed. Reg. 16059 (2004).
192 72 Fed. Reg. 51061-51062, 42 C.F.R. §411.354(c).
193 66 Fed. Reg. 863 (2001), 42 C.F.R. §1001.952.
194 69 Fed. Reg. 16115, 42 C.F.R. § 411.357(r).
195 72 Fed. Reg. 38122, 51064 (2007).
196 72 Fed. Reg. 51063 (2007).
197 69 Fed. Reg. 16115-16116(2004), 42 C.F.R. §411.357(s) (2006).
198 42 C.F.R. § 411.351 (2006).
199 69 Fed. Reg. 16115-16116 (2004), 42 C.F.R. §411.357(s)(2006).
200 72 Fed. Reg. 51064-51065, 42 C.F.R. §411.357(s).
201 69 Fed. Reg. 16097 (2004), 42 C.F.R. §411.357(t) (2006).
202 69 Fed. Reg. 16097,16142 (2004).
203 42 C.F.R. § 411.357(t)(5).
204 72 Fed. Reg. 51065-51066 (2007), 42 C.F.R. §411.357(t)(2).
205 72 Fed. Reg. 51067 (2007), 42 C.F.R. §411.357(t)(3).
206 72 Fed. Reg. 51066, 42 C.F.R. §411.357(t)(1).
207 70 Fed. Reg. 59182 (2005).
208 71 Fed. Reg. 45140 (2006).
209 Social Security Act § 1877(f), codified at 42U.S.C. § 1395nn(f), 42 C.F.R. § 411.361(2006).
210 69 Fed. Reg. 17933 (2004), 72 Fed. Reg.51068 (2007), 42 C.F.R. § 411.361 (2006).
211 42 C.F.R. § 411.361(d) (2006).
212 69 Fed. Reg. 17933 (2004), 42 C.F.R. §411.361(d) (2006).
213 42 C.F.R. §§ 411.361(e) and (f) (2006).
214 42 C.F.R. § 411.361(c)(4) (2006).
215 42 C.F.R. § 411.361(c).
216 5 U.S.C. § 5552.
217 18 U.S.C. § 1905.
218 72 Fed. Reg. 51069 (2007).
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