Some hotly debated rules governing Medicare and Medicaid payment to doctors have been made final. The regulation changes affect Physicians' interests in referrals and leasing arrangements.

The revised Physician Self-Referral and Hospital Ownership Disclosure Provisions of the Inpatient Prospective Payment System (IPPS) Fiscal Year 2009 regulations have just been published in the Federal Register by the Centers for Medicare and Medicaid Services (CMS). The regulations carry out the original physician self-referral laws, in section 1877 of the Social Security Act, popularly known as the "Stark Laws."

The Final Rule of this provision of the IPPS, published August 19, will generally be effective for discharges on or after October 1, 2008, except for certain rules deferred until 2009 (see below)*.

The Final Rule also requires a physician-owned hospital, defined as a hospital in which a physician or an immediate family member of the physician has an ownership or investment interest, to furnish upon a patient's request a list of physicians or immediate family members who own or invest in the hospital, unless no physician owners or members of their immediate families refer patients to the hospital. In addition, a physician-owned hospital must require all physician owners or investors who are also active members of the hospital's medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose in writing their ownership or investment interests in the hospital to all patients they refer to the hospital.

The Stark Laws, prohibiting physicians from referring Medicare/Medicaid program patients for certain services to an entity with which the physician or an immediate family member has a financial relationship, were originally passed in 1989. Congressman Pete Stark (D-CA) had proposed a Federal physician self-referral law in 1988, which led to the passage of "Stark I," at a time when Congress was revising Medicare's physician payment program. Stark I law applied only to clinical laboratory services. Congress then expanded the Stark law to cover a considerable list of designated health services in addition to the clinical lab services. These amendments, effective January 1, 1995, were known as "Stark II."

*The changes in the FY 2009 Rules are as follows:

1) The Rule finalizes CMS's proposed rule placing the burden of proof that the services were not rendered pursuant to a prohibited referral on the entity submitting the claim and appealing payment denial.

2) Revisions to the exception for obstetrical malpractice insurance subsidies permit parties to either comply with the anti-kickback statute safe harbor, or comply with revised requirements of CFR 411.357(r).

3) The Final Rule prohibits the use of "per-click" leases for office space or equipment, to the extent that the per-click payment is for office space or equipment used by the lessee to treat patients referred by the physician lessor. This changes the previous rule where time-based or per-click leases were allowed so long as the payment at the beginning of the lease term was at fair market value and did not change during the term in a manner that takes into account the volume or value of DHS referrals by the physician/lessor (or physician/lessee). This rule has delayed effectiveness until October 9, 2009, in order to allow parties to restructure their arrangements.

4) The Final Rule provides a "period of disallowance" in which a physician is prohibited from referring Medicare patients to an entity for DHS, and in which the DHS entity could not bill Medicare because the financial relationship between the referring physician and the entity failed to satisfy all of the requirements of an exception to the general prohibition on physician self-referral. The period of disallowance ends no later than the date on which all excess compensation is returned to the party that paid it, or the date on which all additional required compensation is paid to the party to which it is owed.

5) The Final Rule provides that "ownership and investment interests" in an entity do not include an interest in a retirement plan offered to a physician or his or her immediate family member as a result of the physician's (or family member's) employment by the entity.

6) A second type of lease arrangement, percentage-based compensation formulae in the determination of rental charges for the lease of office space or equipment, is also prohibited as it poses a heightened risk of program and patient abuse. This new rule is also effective on October 1, 2009 in order to allow parties to restructure their arrangements.

7) The Final Rule provides that a physician owner of (or investor in) a physician organization "stands in the shoes" of the physician organization for the purpose of analyzing the financial relationships between DHS entities and referring physicians if the physician has the ability or right to receive financial benefits of the ownership or investment. However, a merely titular owner (one who does not have the ability or right to receive the financial benefits of ownership or investment) is not required to stand in the shoes of his or her physician organization, although they may stand in the shoes of their physician organization if they choose to do so. CMS is not finalizing its proposal to consider a DHS entity provisions at this time.

8) Where parties have failed to obtain a signature necessary to satisfy the requirements of an exception to the physician self-referral law, CMS provides for alternative compliance with the exception if the financial relationship between the entity and the referring physician otherwise fully complied with an applicable exception and: (1) If failure to comply with the signature requirement was inadvertent, the entity rectifies the failure to comply with the signature requirement within 90 days after the commencement of the financial relationship; or (2) If the failure to comply with the signature requirement was not inadvertent, the entity rectifies the failure to comply with the signature requirement within 30 days after the commencement of the financial relationship. This provision may be used by an entity only once every three years with respect to the same referring physician.

9) The Final Rule modifies the definition of ''entity'' at CFR 411.351 to clarify that a person or entity is considered to be ''furnishing'' DHS (and thus subject to physician self-referral rules) if it is the person or entity that has performed the DHS, (notwithstanding that another person or entity actually billed the services as DHS) or presented a claim for Medicare benefits for the DHS. CMS is delaying the effective date of the amendment to the definition of ''entity'' at CFR 411.351 until October 1, 2009 in order to afford parties an adequate time to restructure arrangements.
The Stark laws can be found at 42 U.S.C.S. 1395nn, and regulations to further define and carry out procedures of the law may be found in 42 C.F.R. 411.350 through 411.389.

The 2009 Final Rules may be accessed at:
http://www.cms.hhs.gov/AcuteInpatientPPS/downloads/CMS-1390-F.pdf