In the third phase of the final regulations implementing the physician self-referral rule, known as Stark III, published in the Federal Register on Sept. 5, physicians will be considered to be “standing in the shoes” of the group practice when their investment arrangements are evaluated for compliance.
The Stark law governs whether, how, and when it is acceptable for physicians to refer patients to hospitals, laboratories, or other entities in which they may have ownership.
This is among the most important changes in the 516-page document, said Daniel H. Melvin, J.D., a partner in the health law department of McDermott, Will & Emery's Chicago office, in an interview. “The application of exceptions will be different going forward.”
Most physicians with referral arrangements will have “a lot of contracts that will have to be looked at and possibly revised,” said Amy E. Nordeng, J.D., a counsel in the government affairs office of the Medical Group Management Association.
Under Stark II—an interim policy that began in 2004—physicians were considered to be individuals, outside of their practices. Exceptions were evaluated using an indirect compensation analysis, which was the subject of many complaints. In comments on Stark II, physician groups, hospitals, and other facilities urged CMS to revert to the old policy.
CMS came to see the indirect compensation analysis as a loophole that allowed potentially questionable arrangements to slip through, said Mr. Melvin.
In the Stark III rule, CMS wrote the change in policy means that, “many compensation arrangements that were analyzed under Phase II as indirect compensation arrangements are now analyzed as direct compensation arrangements that must comply with an applicable exception for direct compensation arrangements.”
There were several other notable changes in Stark III.
In one clarification, physicians who administer pharmaceuticals under Medicare Part B (like chemotherapy or infusions) or who prescribe physical therapy, occupational therapy, and speech-language pathology, are entitled to direct productivity credit for those orders, said Mr. Melvin.
The clarification applies to those two ancillary services only, not to radiology or laboratories, or other services typically offered in-house, he said.
CMS also lifted the prohibition on noncompete agreements. Under Stark II, practices could not impose noncompete agreements on physician recruits. Now, practices can bar competition for up to 2 years, but it's not clear how far geographically that noncompete can extend, said Mr. Melvin.
Practices have to “go back and look at everything,” including how their physicians are being compensated and the arrangements the practice may have for equipment and leasing or services with hospitals or other DHS entities, he said.
“At the very least, they're going to want to do a review of the arrangements in place,” to see if any of the exceptions being relied on will change with Stark III, added Ms. Nordeng.
The final Stark rule went into effect on Dec. 5, 2007.