Stark’s October 1, 2009 Compliance Deadline for Modifying or Unwinding Certain Health Care Business Arrangements is Almost Here
By: KATHERINE J. DOUGLAS
September 23, 2009
On October 1, 2009, new Stark law regulations will go into effect that will require the restructuring or elimination of three common health care business relationships: (i) “under arrangements” services contracts; (ii) per click leasing arrangements; and (iii) percentage-based compensation arrangements. This article is a reminder to health care providers involved in these arrangements that the compliance deadline is quickly approaching.
Stark applies to a physician’s financial relationship with an “entity.” To date, “entity” has been defined as the person or entity that submits the claim for the designated health service (“DHS”) to Medicare. As of October 1, however, the definition will include not only the person or entity that submits the claim to Medicare, but also the person or entity that performs the service. This broadened definition will have the effect of rendering illegal what are currently permissible physician-ownership interests in under arrangement service providers. An example of an under arrangements relationship that will be affected by this revision is one between a group of referring radiologists and a hospital. Since the hospital, rather than the group, submits the claims for the imaging services, the radiologists’ financial interest in the group is outside the scope of Stark. Under the new Stark regulations, the radiologists’ financial relationship with the group will become subject to Stark analysis if the radiologists are considered to be “performing the service.” The new Stark regulations do not include a definition of “perform the service.” In the preamble to the regulations, however, CMS states that it does not consider any of the following activities to be performing the service: (i) leasing or selling space or equipment used for the performance of the service; (ii) furnishing supplies that are not separately billable but used in the performance of the service; or (iii) providing management, billing services or personnel to the entity performing the service.
“Per Click” Leasing Arrangements
Prior to October 1, space and equipment leases that provide for payment on a per use or per click basis are permissible under the Stark exceptions, as long as other conditions are satisfied. Citing its concern that certain of these arrangements are likely to result in over-utilization and program abuse, CMS revised the exceptions by prohibiting per click charges for services provided to patients referred by the lessor to the lessee. For example, Stark will now prohibit a physician from leasing his or her MRI to a hospital and receiving per click payments for scans performed on patients referred by the physician. The payment provisions of any such leasing relationships therefore need to be restructured to a fixed-rate rent.
CMS has also revised the exceptions for equipment leases, space leases, and indirect compensation arrangements to preclude rent or compensation based on a percentage of revenue generated by the leased space or equipment. However, Stark will continue to allow percentage-based compensation directly resulting from personally performed physician services.
Health care providers who are involved in the above-described relationships must act now to restructure or unwind such relationships before the October 1, 2009 deadline. If you have any questions about the application of the new Stark regulations to your business arrangements or need assistance with restructuring, please contact any member of Fredrikson & Byron’s Health Law Group.