Stark III partial effective date delay published today

CMS today published a rule delaying the effective date of the Stark III "stand in the shoes" rule, as it applies to AMCs and 501(c)(3) integrated health systems, for one year (i.e., until December 4, 2008). The one-year delay in the effective date of part of the Stark III rule was announced November 9, as academic medical centers and their advisors sought to have CMS delay, amend or clarify portions of the rule that would remove Stark exception protections from many current mission support payment arrangments between faculty practice plans and other components of AMCs.

In one of the few bits of editorializing in this brief issuance, CMS staff responded to the suggestion by some that tax-exempt AMCs need to toe the line in order to maintain their tax-exempt status and avoid intermediate sanctions that may be imposed by the IRS — thus insinuating that "double oversight" by two Federal agencies is unnecessary — thus:

We note that, in a prior rulemaking (Phase I), in response to a comment that compensation arrangements between organizations regulated under the IRS rules pose minimal risk of program or patient abuse, we indicated that regulation under IRS rules, though beneficial, is not necessarily sufficient to prevent fraud or abuse (66 FR 917).  Our action delaying the date of applicability of the Phase III provisions in § 411.354(c)(1)(ii), § 411.354(c)(2)(iv), and § 411.354(c)(3) with respect to integrated section 501(c)(3) health care systems should not be read as a reversal of our previous position. As stated above, we are delaying the date of applicability of these provisions in a targeted manner in order to evaluate any unintended impact of the Phase III ‘‘stand in the shoes’’ provisions.

While CMS may end up clarifying some ambiguities in the rule, a wholesale rollback is probably too much to ask for.  There will, nevertheless, likely be some significant back-and-forth between CMS and the regulated community between now and next December.

In the interim, it is worth reiterating that the delay in effective date applies to a very narrow range of situations — see the relevant portion of the regulation with the delayed-effective-date "stand in the shoes" language highlighted.  The delayed sections of the reg only apply to two narrow categories of provider: (1) AMC, as defined in the Stark reg, and (2) integrated 501(c)(3) health system, where each component of the system is a 501(c)(3) tax-exempt entity.

While the good folks at CMS further "evaluate" this reg, they will also be pondering the Stark 2.5 rule (or is that now Stark IV?) embedded in the 2008 MPFS.  As that reg works its way through the process, it may have even more far-reaching effects.

— David Harlow