CMS Proposes Changes To Stark (Again)

On April 14, 2008, the Centers for Medicare & Medicaid Services (CMS) released its annual proposed inpatient prospective payment systems regulations (Proposed IPPS Rule), which contains important quality initiatives and reimbursement changes that we will address in separate Legal News Alerts, and a number of proposed changes to the Stark regulations. The proposed Stark revisions would (1) modify when physicians are deemed to "stand in the shoes" of their physician organizations, (2) add a new stand in the shoes approach for entities wholly owned by providers of designated health services, (3) mandate that hospitals report to the CMS all of their financial relationships with physicians, (4) require physician-owned hospitals to disclose these ownership interests to patients, and (5) establish precise time periods for disallowing Medicare claims for services performed in violation of Stark regulations. Also, the CMS invites comments on whether a Stark exception is necessary and appropriate for physician-owned implant and medical device companies, or for gainsharing arrangements.

The proposed changes are the latest in a flurry of proposed and actual revisions to the Stark regulations that the CMS has issued in the past eight months, including the Phase III rules that became effective December 4, 2007 (Phase III), and reflect recent efforts to clarify, refine, and strengthen the Stark regulations. The following are some of the more significant proposed changes:

Greater Flexibility for Stand in the Shoes

One of the most important changes in Phase III was the stand in the shoes (SITS) rule, which jeopardizes many arrangements between "physician organizations" (POs) and entities such as hospitals, to which physicians refer certain designated health services (DHS). Prior to Phase III, if the relationship between the physician and the PO satisfied requirements under the definition and exception for "indirect compensation," then referrals of DHS to the entity were permitted under Stark regulations. The SITS rule changed that framework and requires all compensation arrangements between a PO and a DHS entity to meet a direct Stark exception. The Stark-compliant relationship between the physicians and the POs is irrelevant because the physician stands in the shoes of the PO. One unintended consequence that the CMS soon came to recognize is that this potentially prohibited many support payments and other beneficial and customary financial relationships among components of a health care delivery system. Accordingly, the CMS delayed application of the SITS rule to certain nonprofit health systems and academic medical centers, although it left the SITS rule in place to threaten many other arrangements, including arrangements with for-profit entities and POs.

The CMS now proposes a compromise to limit the potential harsh results of the SITS rule. This proposal seems to return to an analysis...