On July 2, 2007, the Centers for Medicare and Medicaid Services (CMS) posted on its website the proposed updates to the Medicare Physician Fee Schedule for 2008. These proposed changes included a number of significant revisions to the federal physician self-referral prohibition otherwise known as the Stark Law. This article includes a brief summary of some of the proposed changes to the Stark Law regulations. The Kean Miller healthcare regulatory group will issue an expanded summary of the changes to the Stark Law regulations included in the proposed changes for 2008.

Some of the significant proposed changes to the Stark Law regulations in the Medicare Physician Fee Schedule for 2008 include:

(1)          “Per Click” Equipment and Space Lease Payments: CMS  proposed that 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 who are referred by a physician lessor to the entity. For example, CMS commented that this would apply to arrangements such as where a physician leases equipment that the physician owns to a hospital, and the physician receives a per-use (per-click) fee each time a patient is referred by the physician-owner to the hospital for the use of the equipment.

CMS stated that it is also concerned with arrangements where a physician is the lessee and rents space or equipment from a hospital or other entity on a per-click basis. For example, a physician may rent an MRI machine from a hospital only when the physician refers a patient for an MRI.

This proposal would effectively require physicians and hospitals to restructure or terminate any per-click equipment or space lease arrangements that involve the furnishing of services subject to the Stark Law prior to January 1, 2008.

(2)          Services Furnished “Under Arrangements”: CMS is proposing a significant change to the definition of “Entity” within the Stark Law regulations in an apparent effort to prohibit arrangements under which referring physicians supply items and services to entities (i.e., hospitals) that ultimately bill Medicare for such items and services. CMS commented that there has been a proliferation of joint ventures that may have been created to allow referring physicians an opportunity to make money on referrals for services that were previously provided and paid solely to another provider such as a hospital.

CMS also commented that more procedures are being performed as arranged for hospital services on an “under arrangements” basis, and that this may be a result of the recent decrease in Medicare reimbursement for services in a non-hospital setting. CMS cited recent Medicare payment reductions for imaging services performed in a non-hospital setting and surgical services performed in ambulatory surgical centers.

CMS is specifically proposing to revise the definition of an entity at 42 C.F.R. § 411.351 so that an Entity furnishing a designated health service subject to the Stark Law would include both the person or the entity that performs the designated health services, as well as the person or entity that submits claims or causes claims to be submitted to Medicare for a designated health service. The potential effect if this proposed change to the definition of an “Entity” is finalized is that the Stark Law would prohibit referring physicians from participating in a joint venture that provide services under arrangement to hospitals or other providers. As an example of a possible outcome of this change would be that a cardiologist could not refer a Medicare patient to a hospital for a cardiac imaging service that was actually performed pursuant to an “under arrangements” agreement between the hospital and a joint venture between separate cardiology practices in which the joint venture provides cardiac imaging services through a 64-slice CT scanner owned by the joint venture.


(3)          Percentage-Based Compensation: CMS proposed to change the “set in advance” requirement in the compensation exceptions to the Stark Law to provide that percentage compensation arrangements: (1) may only be used for paying for personally performed physician services; and (2) must be based on the revenues directly resulting from the physician services rather than based on some other factor such as a percentage of the savings by a hospital department.

This proposed change to the “set in advance” requirement would essentially prohibit a physician group from receiving payments based on a percentage of collections or similar percentage formula for an office lease, equipment lease, personnel lease, billing service agreement, management services agreement, or any agreement other than a professional services agreement with a physician.

(4)          Soliciting Comments to Services Permissible Under the In-Office Ancillary Services Exception: CMS also commented at length regarding practices used by physician practices to bill services such as lab services, physician therapy services and certain diagnostic tests through shared-expense arrangements by physician practices. As a result, CMS stated it is soliciting comments to the following questions that it will address in Phase III of the Stark Law regulations: (1) whether certain services should not qualify for the in-office exception (for example, any therapy services that are not provided on an incident to basis, and services that are not needed at the time of the office visit in order to assist the physician in his or her diagnosis); (2) whether an, if so, how CMS should make changes to the definitions of “same building” and “centralized building”; and      (3) whether non-specialist physicians should be able to use the exception to refer patients for specialized services involving the use of equipment owned by the nonspecialists.

The above changes, if adopted as final by CMS, would be effective January 1, 2008. The public may submit comments to CMS on the proposed changes to the Medicare Physician Fee Schedule payment regulations until August 31, 2007.