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The U.S. Department of Health and Human Services (HHS) has announced final regulations addressing self-referrals by physicians, intended to protect beneficiaries and taxpayers from potentially abusive referral patterns while making it easier for physicians and providers to comply with the law. The effect on providers could be small or large, depending on individual circumstances. An attorney familiar with the issue says risk managers must analyze the situation immediately.
The self-referral regulation, known as the Stark rule, prohibits physicians from referring Medicare patients for certain health care services to entities with which the physicians or their immediate family members have a financial relationship. A financial relationship can be either an ownership interest or a compensation arrangement, and can be direct or indirect. The law also contains a number of exceptions.
The HHS’ Office of Inspector General says its studies and those of other governmental agencies show referrals to entities in which physicians have a financial relationship encourage excessive use of those services. In certain cases, the practices also are considered unethical by the American Medical Association. HHS Inspector General June Gibbs Brown says there was enough fraud to justify the regulation. "We believe this statute is a powerful deterrent to fraud and abuse," she says. "The regulation will be another strong step in the department’s efforts to reduce waste, fraud, and abuse in the Medicare program."
Morris Henry Miller, JD, chairman of the health law practice area for the law firm of Holland & Knight in Tallahassee, FL, says risk managers should make a careful assessment of how the final regulation on self-referrals may affect any physician groups within the organization. The news is not all bad, he says, but adds the real effect of the legislation can only be determined by analyzing specific situations.
The changes from the original proposal relax some previous requirements and tighten others, Miller says. Risk managers must study the regulation carefully to determine which portions apply to their physicians.
"On the whole, this probably makes things a little easier for physicians than they were in the 1998 proposed regulations," he says. "For example, within a group practice, it relaxes somewhat the level of supervision a physician group is required to provide to employees providing ancillary services. The 1998 regulation would have required physicians to be on site any time ancillary services are provided. The final regulation backs off that position and allows supervision under some usual parameters."
Some of the changes could mean trouble nonetheless. Miller says he suspects most physician groups will not have to make major changes to comply with the regulation, but that’s no reason not to look carefully. If you do have to change your practice to comply with the new regulation, there is a major motivation to do so.
The physician referral law provides a variety of sanctions, including denial or refund of payment and civil monetary penalties. Consistent with the proposed rule, the final rule prohibits physicians from making referrals for the targeted services to most entities which the physicians own in whole or in part. In contrast, the final rule generally permits physicians to refer to entities in which they have a compensation relationship, as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to generate business for the entity.
"You could have some specific types of arrangements that have to be changed," Miller says, citing the example of lithotripsy ventures that have proven quite popular with some physician groups. "In 1998, they said they wouldn’t consider lithotripsy a designated health service subject to Stark even when it was provided outpatient in the hospital. But the final version says lithotripsy is a designated health service like any other."
That means physicians invested in lithotripsy services must take at look at how those services are structured. If the physician partnership leases the lithotripsy equipment and then subleases it to a hospital, Miller says the new regulations will require the rent under that sublease be no more than the pro rata portion paid under the prime lease. In other words, no profit. But if the physicians own the equipment outright and lease it at a fair-market rate, the self-referral regulation may have no effect on that arrangement.
Miller also cautions risk managers to take a close look at part-time leasing arrangements for diagnostic imaging equipment. The new regulation cracks down on those arrangements when the diagnostic imaging equipment is not in the same facility as the physicians’ group practice. "The rules make it clear that the group practice can’t make referrals to that facility if the only interest is a part-time lease," Miller says. "But if it’s in-house, that can still be OK. Again, it depends on the specific circumstances, so you have to look carefully."
The final rule also clarifies some of the exceptions to the self-referral prohibition and offers clear guidance regarding how to structure financial arrangements to comply with the exceptions. To give physicians time to adjust existing business arrangements that would not previously have triggered the referral prohibition, the rule becomes effective Jan. 4, 2002.
Robert Berenson, acting deputy administrator of the Health Care Financing Administration (HCFA), the agency that runs Medicare, says most providers should have no trouble complying with the new regulation. He says the final rule also substantially reduces the potential financial liability of hospitals and other entities that provide any of the targeted services and submit claims for prohibited referrals, if they neither knew nor had reason to suspect that they had an indirect financial relationship with a referring physician. Under the proposed rule, any claim submitted by an entity for services rendered pursuant to a prohibited referral would have been denied, even if the entity had no reason to suspect it had an indirect financial relationship with the referring physician.
In defining what practices the law exempts from the self-referral prohibition, the final rule expands the law’s exceptions for services provided in a physician’s office and services provided by managed-care plans. In addition, it allows exceptions to permit certain indirect compensation arrangements, allow small, nonmonetary gifts, and protect financial arrangements between academic medical centers and their faculties if certain criteria are met.
The self-referral law, as enacted in 1989, prohibited a physician from referring a patient to a clinical laboratory with which he or she (or an immediate family member) has a financial relationship. Effective Jan. 1, 1995, Congress extended the law to prohibit a physician from referring patients to providers of 10 other categories of health care services if the physician (or an immediate family member) has a financial relationship with the service provider. The 10 affected services are: physical therapy services; occupational therapy services; radiology services and supplies; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment, and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. The law also prohibits an entity from billing for services provided as the result of a prohibited referral.
The provisions in the physician self-referral rule complement other laws designed to combat waste, fraud, and abuse, including the anti-kickback law. Potentially abusive financial relationships that may be permitted under the physician self-referral law could be addressed through other laws.
HCFA published a final rule covering physician self-referrals for clinical laboratory services on Aug. 14, 1995. The agency then published a proposed rule to implement the expanded law in 1998 and received almost 13,000 comments from the public. The new final rule modifies the proposed rule, addressing the most contentious issues raised in the proposal. HCFA intends to address in another final rule comments received on provisions of the proposed rule that are not addressed in the final rule. The second final rule also will address public comments on the final rule. HCFA says it intends to move as quickly as possible on the second rule.
Miller offers one last word of advice for risk managers assessing their group practice operations: Don’t be lulled into thinking everything is fine once you comply with the new self-referral regulation. There are other traps out there that don’t change with this new rule.
The penalties can be severe if you overlook an arrangement the government deems improper. As a minimum punishment, the group practice will have to return any Medicare funds received as a result of the improper arrangement, but Miller says the result could be worse. The investigation into the self-referral violation could be an open door to other investigations that could find more problems. Even the portions of the practice that stand up to the self-referral scrutiny may not fare well under other standards.
"A Stark violation could be symptomatic of problems that show violations of the anti-kickback law or some sort of false claim. That could lead to more severe criminal or civil penalties," Miller says. "Just because you’re complying with Stark doesn’t mean you’re OK with the kickback statute and other regulations. That could come as a surprise to some risk managers."