Recent Physician Self Referral Provisions – Realignment in Hospital and Physician Relationships?

1. Recent Physician Self Referral Provisions – Realignment in Hospital and Physician Relationships?

2. “The physician elf-referral law is one of several federal laws focused on prohibiting or limiting interactions between hospitals and physicians that might have monetary value to either party. While the intent is honorable – to avoid conflicts of interest – it is important that the net effect not impede hospitals’ and physicians’ ability to work together using appropriate incentives to improve quality, patient safety and community access to services. We urge CMS to view the application oh physician self-referral prohibitions not only from the perspective of controlling abusive behavior, but also from the perspective of encouraging care improvement initiatives that would benefit patients, hospitals, and physicians.” • Comments on FY 2009 IPPS proposed rule, Kansas Hosp. Ass’n

3. Physician Self-Referral (Stark) Law – the Basics • Under section 1877 of the Social Security Act, a physician may not make a referral for “designated health services” to an “entity,” and the entity may not bill Medicare for such DHS, if the physician (or an immediate family member) has a “financial relationship” with the entity, unless an exception applies • Financial relationship can be direct or indirect, and can be a compensation relationship or an ownership/investment relationship (or both) • Many exceptions – some by statute, some strictly a creature of the regulations

4. Topics to be Covered • FY 2009 IPPS Final Rule provisions • Under arrangements • “Per click” Leases • Percentage compensation Leases

5. FY 2009 IPPS Rule Issues finalized: • Physician Stand in the Shoes (SITS)+ • Period of Disallowance+ • Alternative Method for Compliance* • Percentage Compensation Arrangements* • Per-click leases* • Under Arrangements* • Obstetrical Malpractice Insurance Subsidies* • Ownership or Investment in Retirement Plans* • Burden of Proof* + Proposed in FY 2009 IPPS proposed rule * Proposed in CY 2008 PFS proposed rule

6. Services Provided “Under Arrangements” (Revised Definition of “Entity” Effective Date: October 1, 2009 • Revised the definition of “entity” at §411.351 • Modified from proposal • Prior to October 1, 2009, a person or entity is considered to be furnishing DHS if it is the person/entity to which CMS makes payment for the DHS • Both parties to an arrangement may be considered an “entity” if one party performs the DHS and the other party bills for the DHS

7. Services Provided “Under Arrangements” (Revised Definition of “Entity”) (cont’d) • Entity means— • A physician's sole practice or a practice of multiple physicians or any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes DHS. An entity does not include the referring physician himself or herself, but does include his or her medical practice. A person or entity is considered to be furnishing DHS if it— • Is the person or entity that has performed services that are billed as DHS to which CMS makes payment for the DHS, directly or upon assignment on the patient's behalf; or • Is the person or entity that has presented a claim to Medicare for the DHS . . .

8. Services Provided “Under Arrangements” -- Background • In 1998 proposed rule CMS stated that it had the same concerns of overutilization regardless of whether physician group billed for services directly or contracted with hospital to furnish services under arrangement • In 2001 “Phase I” rule, however, CMS finalized definition of “entity” to include only the person or entity to whom or which Medicare makes payment • Following the 2004 Phase II rule, CMS received comments that allowing physicians to contract with hospitals to furnish services “under arrangements” raises significant fraud and abuse concerns • MedPAC, in its 2005 Report to Congress, recommended that the definition of physician ownership for purposes of the PSR law should include interests in an entity that “derives a substantial portion of its revenue” from a provider of DHS

9. Services Provided “Under Arrangements” – Evaluating the Comments (cont’d) • Revised definition of “entity” proposed in CY 2008 PFS proposed rule • Many comments in favor and in opposition to proposal received • Commenters in favor of proposal included hospitals and hospital associations, radiation oncologists and radiologists • Commenters opposed included urologists with lithotripsy and other therapeutic urological treatment arrangements, as well as cardiologists who operate cardiac catherization labs

10. Services Provided “Under Arrangements” – Evaluating the Comments (cont’d) • Reasons for opposition: • Hospitals are risk averse and do not wish to invest in new technology or procedures, whereas physicians are willing to invest in order to provide better patient care • Hospitals are unable to afford necessary equipment and do not have sufficient volume to provide service • Arrangements are more efficient and save the healthcare system, including Medicare, money • Patient access, particularly in rural areas, will be adversely affected

11. Services Provided “Under Arrangements” – Evaluating the Comments (cont’d) • Reasons for support of proposal: • Hospitals are being held hostage under threat of losing referral stream • Once physicians invest in new technology, such as IMRT, that is all patients will receive • Present arrangements are contrary to the statute • Overutilization and anti-competitive behavior

12. Services Provided “Under Arrangements” – Rationale for Final Rule • Text of the statute –”the Act provides that an entity that furnishes DHS may not present, or cause to be presented, a Medicare claim. This language demonstrates that the Congress intended that furnishing DHS encompasses not only the entity that bills for the DHS, but also the entity that performs it, if those are not the same entities; otherwise there would be no need to include the language ``cause to be presented.'' • Purpose of the statute-- “We fail to see why the Congress would have intended to prohibit a physician from referring patients to a freestanding laboratory or imaging facility that he or she owns, but would have wanted to permit the physician to make such a referral simply because the laboratory or imaging service is sold to another entity that does the billing for it.”

13. Services Provided “Under Arrangements” – Rationale for Final Rule (cont’d) • Consistent with Congress’s intent in enacting whole hospital exception “ If a physician may not purchase an interest in the radiology department of a hospital, refer patients to the hospital for radiology procedures, and claim the benefit of the hospital exception …, he or she should not be allowed to enter into a joint venture with the hospital through which the hospital effectively moves its radiology department (or part of its radiology department) outside of the hospital and into a facility in which the physician has an ownership interest and to which the physician refers patients for DHS that are billed ``under arrangements.'' • “Finally, we believe that the fact that Congress enacted an ownership exception for in-office ancillary services (which does not include inpatient or outpatient hospital services, and which has specific requirements as to where the services can be performed) is further indication that Congress did not intend to protect generally a physician's ownership in an entity that performs services that are then billed to Medicare as DHS by a hospital ``under arrangements.''

14. Services Provided “Under Arrangements” – Possible Exception? • Delayed effective date of October 1, 2009 • Purpose of delayed effective date is to give arrangements time to unwind or restructure and to solicit comments for possible exception • Solicited comments on whether there should be an exception for certain under arrangements relationships and if so, what conditions should be attached • For use in areas with demonstrated access problems?

15. Unit of Service (“Per-click”) Payments in Lease Arrangements • Effective Date: October 1, 2009 • Amends 4 compensation exceptions • Office space lease arrangements • Equipment lease arrangements • Fair market value compensation arrangements • Indirect compensation arrangements • Prohibits per click payments to lessor for space or equipment used by lessee in treating patients referred by lessor to lessee • Includes both inidividual physicians, and physician entities, as lessors • Also includes entities as lessors

16. Unit of Service (“Per-click Payments in Lease Arrangements (cont’d) • As with under arrangements, many comments both for and against the proposal • Comments and commenters similar to those for under arrangements • Affects urologists who lease lithotriptors even though lithotripsy (currently) is not a DHS, by creating a noncompliant compensation arrangement • Currently does not affect referrals from physicians who are employees or contractors of physician practice or physician entity but who do not have an ownership interest in practice or entity

17. Percentage-based Compensation FormulaeEffective Date: October 1, 2009 • Amends 4 compensation exceptions • Office space lease arrangements • Equipment lease arrangements • Fair market value compensation arrangements • Indirect compensation arrangements • Targeted approach; addresses primary CMS concerns • Proposal in CY 2008 PFS proposed rule would have limited percentage-based compensation formulae to personally performed physician services ONLY

18. Percentage-based compensation formulae (cont’d) • Rental charges for the rental of office space or equipment may not be determined using a formula based on— • A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space; or • A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed on or business generated through the use of the equipment.

19. Percentage-Based Compensation Formulae • Proposal in CY 2008 PFS would have prevented use of percentage-based compensation for gainsharing arrangements • Query whether existing PSR exceptions may be used for incentive payment and shared savings plans