Health Law Advisory Bulletin
Nuclear Medicine to Become a Stark Designated Health Service
By Robert G. Homchick and Edwin Rauzi
[November 2005]
In regulations released on Nov. 21, 2005, the Centers for Medicare and Medicaid Services (CMS) announced its decision to bring nuclear medicine within the scope of the Stark rules by Jan. 1, 2007. Although CMS and physician-investors disagree on whether “fire sales” will result, it is clear that many financial relationships will need to be restructured over the next year. According to CMS, a physician who has invested in either nuclear medicine equipment or a facility that provides nuclear medicine services has three options:
(1) divest the interest;
(2) restructure the financial relationship so that it complies with an exception; or
(3) maintain the interest and refer his or her patients to another entity.
The Tortured History of Nuclear Medicine
The Stark Law prohibits a physician from referring a Medicare beneficiary for certain designated health services (DHS) to a health care entity with which the physician (or a member of the physician's immediate family) has a financial relationship, unless an exception applies. If an entity receives a prohibited referral, it may not bill Medicare for the resulting services.
As defined in the statute, DHS includes both radiology and radiation therapy services and supplies. For several years, however, the status of nuclear medicine under the Stark Law was uncertain. The statute was silent and CMS refused to address the issue. In 2001, CMS finally settled the controversy. Phase I of the Stark II final regulations declared that nuclear medicine was not a designated health service. CMS reached this conclusion based on its review of the legislative history and its reading of congressional intent.
What was once settled became, first, unsettled, and ultimately, reversed. For more than four years the rule has been that nuclear medicine was not a designated health service. In August 2005, CMS did an about face: proposed regulations were issued listing nuclear medicine as a Stark DHS (a type of radiology service). This proposed change generated significant controversy, particularly among physicians with investment interests in PET scanners and nuclear cameras.
When announcing its change of heart, CMS solicited comments on, among other things, whether to grandfather existing relationships. In the final rule released last week, CMS responded to the comments it received. These comments can be grouped into the following categories:
- Does CMS have the authority to change its interpretation?
- Are the procedures at issue subject to overuse?
- Will the proposed changes deprive patients access to needed care or detrimentally affect the quality of nuclear medicine available to Medicare benficiaries?
- Should existing arrangements be afforded special status?
In responding to the comments, CMS dismissed all questions about its authority and ignored its 2001 statements about congressional intent. Instead, CMS’s responses focused on the issue of overutilization. The agency referred to several studies suggest ing that a physician who invests in nuclear medicine services orders more services. CMS also cited:
- A complaint about the “proliferation” of PET and PET/CT imaging centers set up as joint ventures between select groups of referring physicians and venture capitalists.
- A summary of the findings from a self-generated clinical and financial database regarding the incidence of physician self-referral for nuclear medicine services.
- An assertion that the “proliferation” of imaging units in non-hospital environments has contributed significantly to the increase in diagnostic imaging costs , and that nuclear medicine services and supplies should have been included in the original listing because the potential for abuse is no different than for CT scans or MRI scans.
- Offsetting charges about who behaves more anti-competitively. MedPAC asserted that physician-investors undermined competition, and persons speaking on behalf of physician-investors asserted that limiting physician competitors was the bigger problem. (CMS agreed with MedPAC.)
CMS made short shrift of comments in support of physician investments as either lacking support or involving propositions that were contrary to government reports. Moreover, CMS was not persuaded that the change to the Stark Law would affect patient access to nuclear medicine services. Finally, despite the efforts of several commenters to link physician investments with better outcomes, CMS did not accept the contention that the decision to make nuclear medicine a Stark DHS would lower the quality of care to beneficiaries. CMS emphasized the congressional decision to restrict the circumstances under which physicians can financially benefit from DHS they order, and suggested that access and quality issues would be easily solved as other investors replaced the physician-investors.
Marketplace Disruption
In the proposed regulation issued in August, CMS asked whether it was necessary to take steps to moderate the effect of the rule change on physicians who are currently parties to arrangements that involve nuclear medicine services and supplies. CMS identified two ways of addressing this concern: delay the effective date or grandfather existing relationships. CMS questioned whether it had the authority to grandfather existing relationships, but – without recognizing the possibile contradiction in logic – decided it did have authority to delay the effective date of the changes.
In arguing for relief, the American Medical Association raised the specter of “fire sales,” while another commenter predicted “bargain basement” sales as the fate of physician-investors. Once CMS acknowledged that its authority to continue the status quo was questionable in light of its conclusion that nuclear medicine is a radiology service, the remaining issue was how long to delay the effective date. With some commenters arguing for more and others for less, CMS concluded that nuclear medicine would become a Stark DHS effective Jan. 1, 2007.
The CPT and HCPCS codes that are involved include the following: http://www.dwt.com/practc/healthcr/bulletins/Table31-NuclearMedicine.pdf
For more information, please contact:
This Health Law Advisory is a publication of the Health Law Group of Davis Wright Tremaine LLP. Our purpose in publishing this Advisory is to inform our clients and friends of developments in health care law. It is not intended, nor should it be used, as a substitute for specific legal advice as legal counsel may only be given in response to inquiries regarding particular situations.
Copyright 2005, Davis Wright Tremaine LLP.
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