New Stark Law Proposal Would Ease Traps For Unwary

The Centers for Medicare and Medicaid Services

("CMS") has made available its proposed changes to

the Medicare inpatient prospective payment system for 2009. Download PDF here. Within this proposal

are some important proposed changes to the federal physician

self-referral ("Stark") regulations. This article

will briefly examine these proposals.

1. "Stand in the Shoes"

   Proposals

   The final Stark rulemaking of September 5, 2007 (72 Fed.

   Reg. 51012) required that a physician "stand in the

   shoes" of his or her physician organization, such that a

   physician has, for Stark purposes, the same compensation

   arrangements with the same parties and same terms, as the

   physician organization in whose shoes the physician stands. As

   a result of this change many business arrangements between a

   hospital or other entity that bills for Stark designated health

   services (the "DHS Entity") and a physician group

   create direct financial relationships between each of the

   group's physicians and the DHS Entity; whereas the

   relationship between the individual physicians and the DHS

   Entity was, prior to the effective date of the September 5,

   2007 regulations, an indirect financial relationship at most.

   Arrangements with physician groups often did not create a

   financial relationship between the DHS Entity and the

   individual physicians at all.

   Many DHS Entities that relied on the previous regulatory

   structure in which relationships with physician groups did not

   create direct Stark relationships with the group's

   individual physicians have struggled in some circumstances to

   find an applicable direct exception to Stark as required under

   the "stand in the shoes" provisions. One prominent

   example of such newly-problematic arrangements is support

   payments that an academic medical center may make to an

   affiliated faculty practice plan. In order to study this issue

   further, CMS delayed the effective date of the "stand in

   the shoes" provisions for certain physician groups and DHS

   Entities. CMS is now proposing to refine the "stand in the

   shoes" concept to resolve this issue.

   Under an approach for which CMS proposes actual regulatory

   language, physicians would not "stand in the shoes"

   of their physician organization if the individual

   physician's compensation relationship with the physician

   organization satisfies the Stark exception for either: (1) bona

   fide employment relationships; (2) personal services

   arrangements; or (3) fair market value compensation. If the

   physician's compensation relationship with the physician

   organization satisfies one of these three Stark exceptions,

   then any relationship between the physician organization and a

   DHS Entity would be analyzed using the indirect compensation

   definition and exception.

   This proposal would limit the operation of the "stand

   in the shoes" provisions to physicians who are owners or

   investors in their physician organization.

   Indirect physician relationships are less likely to create

   inadvertent Stark compliance problems for DHS Entities.

   Consequently, any proposal to limit the operation of the

   "stand in the shoes" provisions would be a favorable

   development for...