CMS Proposes Another Layer of Stark Regulation
The Centers for Medicare and Medicaid Services (CMS) recently issued the Fiscal Year 2009 Hospital Inpatient Prospective Payment System proposed rule (2009 IPPS Proposed Rule). In keeping with the agency's recent practice, CMS included in the 2009 IPPS Proposed Rule a smattering of proposed changes to the Stark regulations. The most significant proposals address the “stand in the shoes” concept, the period of payment disallowance following a Stark violation and the disclosure of physician financial relationships. CMS also solicited comments on the wisdom of a gainsharing exception and the need for additional regulation of physician-owned device or implant companies. The 2009 IPPS Proposed Rule will be published in the Federal Register on April 30, 2008, and public comments are due by June 13, 2008.
"Stand in the shoes"
In the Stark II Phase III final regulations (published Sept. 5, 2007; effective Dec. 4, 2007) CMS expressed concerns about the breadth of the indirect analysis under the Stark Law. In an effort to narrow the application of the indirect analysis, Phase III introduced the rule that a physician would be deemed to “stand in the shoes” of his or her group practice or physician organization for purposes of analyzing the financial relationship between the physician organization and another provider of designated health services—in other words, the relationship between the physician and the provider of designated health services would be deemed a direct one where the intervening entity is a “physician organization,” and that relationship would therefore have to fit within a direct exception under the Stark Law.
Academic medical centers (AMCs) and other integrated delivery systems quickly objected to the “stand in the shoes” rule explaining that it would cause significant disruption of relationships that were clearly not abusive. On Nov. 15, 2007, CMS recanted and issued a notice delaying for one year the application of “stand in the shoes” to AMCs and tax-exempt integrated delivery systems. This one-year delay was widely perceived as a stopgap measure to give the agency time to develop a permanent solution.
In the 2009 IPPS Proposed Rule, CMS makes its first attempt to craft a permanent solution to the problems created by “stand in the shoes.” In fact, CMS proposes three separate ways of addressing the problem. Under the first solution “stand in the shoes” would not apply to a physician if the total compensation from his or her physician organization either: (a) fits within the employment, personal services arrangement, or fair market value exception; or (b) the compensation arrangement meets the AMC exception; or (c) the compensation arrangement is between a physician organization and a component of an AMC through a written agreement necessary to satisfy the AMC's obligation under the Medicare Graduate Medical Education rules. This first solution seems to be the one CMS is leaning toward because it is the only one for which the agency proposed actual regulatory text. It appears, however, that this solution is not sufficiently broad to avoid the disruption to AMCs and other integrated delivery systems that the agency purportedly intended to address. Moreover, it would require the recipient of the referral (a hospital, for example) to determine whether the internal compensation arrangements of contracting medical groups satisfy a Stark exception.
The second solution CMS suggests is to limit the application of “stand in the shoes” to those physicians who hold an equity interest in their physician organizations. In other words, a physician would “stand in the shoes” of a group or physician organization only if the physician owns all or part of the organization. This is the simplest and most comprehensive of the solutions but not the one that the agency currently appears to favor.
The third “stand in the shoes” solution would involve the development of a new exception for mission support and similar payment arrangements among physicians, physician organizations and other related designated health service providers. This solution raises a host of definitional questions that the agency acknowledges but does not address in the 2009 IPPS Proposed Rule. This last solution would appear to be the most complicated, and some have suggested that it likely would collapse of its own weight should the agency attempt to pursue it.
"Stand in the shoes": application to entities
Last summer, in the 2008 Medicare Physician Fee Schedule Proposed Rule, CMS indicated that it was considering the circumstances under which a designated health service entity should be deemed to “stand in the shoes” of another organization that it owns or controls. In the 2009 IPPS Proposed Rule, CMS revisits this issue, proposing that a designated health service entity will “stand in the shoes” of any wholly owned organization. As proposed, however, an entity would not “stand in the shoes” of another entity that it controls, but does not own. Thus, a for-profit corporation would “stand in the shoes” of its wholly owned subsidiary but a nonprofit organization would not “stand in the shoes” of an affiliate of which it was the sole member. Similarly, joint ventures owned by more that one entity would not be affected by this proposal.
"Stand in the shoes": double vision?
The 2009 IPPS Proposed Rule also addresses what should happen under circumstances where both the physician “stand in the shoes” rule and the entity “stand in the shoes” rule would apply. This discussion reads like a complicated math story-problem and will likely create confusion. The problem is exacerbated by the agency's failure to provide regulatory text to guide the reader through the maze. The thrust seems to be that one should apply the entity “stand in the shoes” rule except in those instances where doing so would result in eliminating the opportunity to have the physician “stand in the shoes” of his or her organization.
Period of disallowance
During the more than 15 years of rulemaking under the Stark Law, CMS has never stated how long the effect of a violation lasts. That is, when a physician has a financial relationship with a provider of designated health services that fails to fit within a Stark exception, for what period of time is the physician prohibited from referring to that entity? In the 2009 IPPS Proposed Rule, CMS finally proposes an answer to this question. For non-monetary violations, the referral prohibition ends when the relationship between the physician and the entity is brought into compliance with a Stark exception. For monetary violations the referral prohibition ends when the overpayment or underpayment is repaid (including interest) and the relationship otherwise fits within an exception.
Disclosure of financial relationships
In 2007 CMS proposed a Disclosure of Financial Relationships Report (DFRR) that it planned to send to 500 hospitals across the nation. The DFRR was criticized as overly burdensome and for several months it languished in the review process at the Office of Management and Budget (OMB). Just before the issuance of the 2009 IPPS Proposed Rule, CMS withdrew the DFRR from OMB. The agency chose instead to incorporate the DFRR into the 2009 IPPS Proposed Rule.
By posing a comprehensive set of questions to a significant number of hospitals, CMS apparently believes it will learn whether additional rulemaking is appropriate. Although CMS has the authority to impose civil monetary penalties on hospitals that fail to comply, it promises to be flexible. Upon a demonstration of good cause, a hospital may receive an extension of time to complete the DFRR.
CMS solicits comments on the DFRR process, including:
- Whether the data collection effort should be recurring, and, if so, on what basis.
- Whether the report as currently drafted requests the right information.
- How much time it will take hospitals to complete the report.
- Whether all hospitals should be required to complete the report.
- Whether hospitals, once having completed the DFRR, should be required to submit annual updates.
As noted above, CMS adopted the “stand in the shoes” concept as a means of narrowing the application of the Stark indirect compensation analysis. This indirect analysis, which is the agency's own creation, applies when there is an organization in between the physician and the designated health service provider in the chain of financial relationships. In the 2009 IPPS Proposed Rule, CMS indicates that it intends to clarify the test for determining when an indirect financial relationship exists, thereby increasing the number of relationships that must be structured to fit within the indirect compensation arrangement exception.
The government has run hot and cold on physician gainsharing programs over the years. While gainsharing was virtually eliminated in 1999 by an Office of Inspector General (OIG) Special Advisory Bulletin interpreting the Hospital Physician Incentive Plan Law, in recent years the OIG has been more favorably disposed to the concept. The Medicare Payment Advisory Commission (MedPac) has become a vocal supporter of gainsharing as a means of aligning incentives to control costs and enhance quality. Over the course of this long debate CMS has remained all but silent on how physician gainsharing programs should be analyzed under the Stark Law. In the 2009 IPPS Proposed Rule, CMS invites public comment on whether the agency should adopt a specific exception for gainsharing programs and, if so, what the parameters of that exception should be.
In the 2009 IPPS Proposed Rule, CMS acknowledges the recent criticism of physician-owned device and implant companies (POCs). The agency expresses concern about the influence of a financial relationship on physician referrals and utilization, and asks for public comment on whether POCs should be regulated through the Stark Law or if other means of addressing the concerns would be more appropriate.
The 2009 IPPS Proposed Rule is a good example of what the industry can expect from CMS in terms of future Stark rulemaking. At least yearly, if not more often, the industry should expect the agency to issue another layer of Stark regulations along with CMS's interpretative gloss of existing regulations in the fee schedule rules. The 2009 IPPS Proposed Rule is primarily noteworthy for its attempt to fix the “stand in the shoes” problem and for proposing parameters for the period of disallowance. CMS also solicits comments on a variety of important issues and the industry would be well served if more organizations took the time to submit thoughtful comments to assist the agency in this process.