Physician fee schedule grab bag: CMS proposes self-referral rule changes in advance of Stark Phase III rulemaking

Tacked on to the proposed CMS 2008 physician fee schedule for Medicare, to be published July 12, is the usual grab bag of goodies.  Chief among them to my mind are the proposed revisions to the Stark rule, or physician self-referral regulations.

For those providers and vendors who play in this space, the proposed regs are worth a close read.

Here’s a quick rundown of the proposed changes of most general interest (CMS description begins on page 305 of the display copy of the proposed rule; click "accept" at the bottom of the linked page for the rule):

1.  Anti-Markup Rule  Tightening up the anti-markup provisions (and thus obviating the need for certain proposed changes to the centralized building and purchased test interpretation rules).  The principal proposal is for an anti-markup rule governing both professional and technical components for diagnostic tests, and an exclusion of space or equipment rent paid to a host practice by a diagnostic testing practice or service.

2.  In-Office Ancillary Services  No proposed changes, but the federales are concerned about turnkey operations for in-office labs and other ventures and are soliciting comments and suggestions regarding the following:

• What services should be within the definition of in-office ancillary services?
• Definitions of "same building" and "centralized building"
• Whether non-specialist physicians should be able to use the in-office ancillary services exception to refer patients for specialized services involving the use of equipment owned by the non-specialists
• Other restrictions on ownership or investment of services that would limit program or patient abuse

3.  Click fees  The proposed rule would forbid certain click fees.  Space and equipment leases may not include unit-of-service-based payments to a physician lessor for services rendered by an entity lessee to patients referred by the physician lessor to the entity.  These arrangements are pronounced "inherently susceptible to abuse."

4.  Set in advance/Percentage compensation  Percentage compensation arrangements (e.g., equipment and space leases based on a percentage of revenues) are pronounced "potentially abusive" and percentage comp deals would be limited to personally performed services only, and based on revenues directly resulting from physician services rather than some other factor (such as savings in a hospital department not related to the physician services provided).

5.  "Stand in the shoes" rule  In financial relationships linking referring physicians with providers of DHS (designated health services), indirect relationships would be collapsed into direct relationships, so parties can’t avoid restrictions by interposing extra layers of parties or contracts.

6.  "Under arrangements"  The targets here are physician-hospital JVs that provide services to hospital patients "under arrangements."  The hospital bills Medicare for services, and the JV shares in higher reimbursement than would be available to non-hospital-based providers such as ASCs, IDTFs and physician offices.  (ASC reimbursement, for example, will be cut to 62% of hospital rates for the same services, effective next year.)  Physicians have also established leasing, staffing and similar entities that furnish items and services to entities providing DHS but do not submit claims themselves.  MedPAC has suggested addressing this issue by expanding the definition of physician ownership to include interests in an entity that derives a substantial proportion of its revenue from a provider of DHS.  CMS is proposing instead a revision to the definition of "entity" to include an entity or person that performs the DHS as well as the person or entity that submits claims for the DHS to Medicare.  Comments are welcome . . . . 

There are a handful of other proposed changes, including tightening up rules on attribution of ownership to referring physicians where the owning entity is the physicians’ retirement plan.  On the bright side, the federales propose loosening restrictions on OB malpractice subsidies, and also propose a form-over-substance rule ("alternative compliance"), to be invoked in their discretion, so that arrangements not fully documented, etc., may still avoid penalties.  These points of light are overshadowed by the broad shadow of the long arm of the law, to mix a metaphor or two.  The regulators are clearly intent on mopping up areas where they are concerned that improper arrangements have survived or have even been encouraged by the current rule and its exceptions.

The comment period is open, and a final rule is expected by October 1.

— David Harlow