FY 2009 IPPS Rule. Recent Stark Developments. Recent Stark Developments. Edwin Rauzi Partner Davis Wright Tremaine LLP Seattle, WA

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1 Don Romano Partner Arent Fox LLP Washington, D.C Edwin Rauzi Partner Davis Wright Tremaine LLP Seattle, WA Gadi Weinrich Partner Sonnenschein, Nath & Rosenthal LLP Washington, D.C. 1 FY 2009 IPPS Rule Finalized Topics: 1. Physician Stand in the Shoes (SITS) 2. Period of Disallowance 3. Alternative Method for Compliance 4. Percentage Compensation Arrangements 5. Per-click Leases 6. Under Arrangements 7. Obstetrical Malpractice Insurance Subsidies 8. Ownership or Investment in Retirement Plans 9. Burden of Proof 2 1

2 Stand in the Shoes Provisions 1. Physician stand in the shoes (SITS) Effective date: October 1, 2008 Policy: A physician is deemed to stand in the shoes of his or her physician organization if the physician has an ownership or investment interest in the physician organization. Exception: A physician whose ownership or investment interest is titular only is not required to stand in the shoes of the physician organization. Rationale: Simplicity 3 Final Rule: Only Owners SITS Ind. Cont. MD (d) Ind. Cont. MD (l) MD Employee (c) PO MD Owner Mandatory SITS Permissive SITS 4 2

3 Final Rule: Exception for Titular Owners ** Titular owner does not SITS; rules regarding indirect compensation arrangements apply MD Titular Owner; no right to distributions, etc. Contract for Management Services PO 5 Final Rule: Other Stand in the Shoes Provisions Opt in SITS: A non-owner or titular owner physician is permitted to stand in the shoes of his or her physician organization Addresses concerns of DHS entities that may not be aware of, or cannot ascertain the status of, all physicians in a physician organization with which the DHS has a compensation arrangement SITS provisions do not apply to an arrangement that satisfies the requirements of the exception in (e) for academic medical centers. New rule does not require restructuring of agreements structured to comply with the Phase III SITS rules. 6 3

4 Entity Stand in the Shoes Provisions Re-proposed in FY 2009 IPPS proposed rule: a DHS entity would stand in the shoes of an organization in which it holds a 100 percent ownership interest Not finalized No conventions for applying physician and entity stand in the shoes provisions necessary (and, therefore, none finalized) Warning: interposing entities in a chain of financial relationships between a DHS entity and a referring physician may violate the physician self-referral law, constitute a circumvention scheme, or violate the antikickback statute 7 Stand in the Shoes Definitions Revised Definitions Physician means a doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor, as defined in section 1861(r) of the Act. A physician and the professional corporation of which he or she is a sole owner are the same for purposes of this subpart. Physician organization means a physician (including a professional corporation of which the physician is the sole owner), a physician practice, or a group practice that complies with the requirements of

5 Final Rule: Period of Disallowance 2. Period of Disallowance Effective Date: October 1, 2008 (but existing policy) Begins (in all cases) at the time the financial relationship fails to satisfy the requirements of an applicable exception Ends no later than Where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all of the requirements of an applicable exception 9 Final Rule: Period of Disallowance Period of Disallowance (cont d) Ends no later than Where the noncompliance is due to the payment of excess compensation, the date on which all excess compensation is returned by the party that received it to the party that paid it and the financial relationship satisfies all of the requirements of an applicable exception Where the noncompliance is due to the payment of compensation that is of an amount insufficient to satisfy the requirements of an applicable exception, the date on which all additional required compensation is paid by the party that owes it to the party to which it is owed and the financial relationship satisfies all of the requirements of an applicable exception 10 5

6 Final Rule: Period of Disallowance Period of Disallowance (cont d) Similar to a safe harbor Merely places an outside limit on the period of disallowance in these three specified circumstances No specific guidance for when noncompliance is never corrected or excess or required compensation is not repaid/paid Parties may continue to determine the end of the period of disallowance on a case-by-case basis Beginning and end of financial relationship do not coincide necessarily with the beginning and end of a written agreement 11 Hypos Physician defaults on repayment of $5,000 loan. May hospital end the POD by entering into a settlement agreement for less than $5,000 (payable in one lump sum)? Is sending the debt to a collection agency and writing-off the amount as bad-debt after bona fide collection efforts enough end the POD? 12 6

7 Final Rule: Alternative Method for Compliance 3. Alternative Method for Compliance with Signature Requirements Effective Date: October 1, 2008 Grace period of 90 consecutive calendar days for inadvertent noncompliance with a signature requirement 30 consecutive calendar days for knowing noncompliance with a signature requirement Compensation arrangement must satisfy all other requirements of an applicable exception Clock begins running at the commencement of the compensation arrangement Does not matter whether referrals have been made or compensation has actually been paid 13 Hypos Due to sudden departure of a cardiologist, hospital and physician agree to compensation and the use of hospital s standard form for physician to provide call coverage. Physician provides call coverage and signs agreement next day. Same facts as above, but physician makes minor changes to the agreement before returning it to hospital. Hospital contracts with physician to provide medical directorship at the hospital beginning January 1, but physician does not sign the written agreement until January 15, when it is returned from the physician s attorney following legal review. Same facts as above, but agreement has been with the lawyer because parties are still negotiating terms. 14 7

8 Final Rule: Percentagebased Compensation 4. Percentage-based Compensation Formulae Effective Date: October 1, 2009 Amends four compensation exceptions Office space lease arrangements Equipment lease arrangements Fair market value compensation arrangements Indirect compensation arrangements Targeted approach; addresses primary CMS concerns Proposal in CY 2008 PFS proposed rule would have limited percentage-based compensation formulae to personally performed physician services ONLY 15 Final Rule: Percentagebased Compensation Percentage-based compensation formulae (cont d) Rental charges for the rental of office space or equipment may not be determined using a formula based on A percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or through the use of the equipment. 16 8

9 Final Rule: Per-click Compensation 5. Unit of Service ( Per-click ) Payments in Lease Arrangements Effective Date: October 1, 2009 Amends four compensation exceptions Office space lease arrangements Equipment lease arrangements Fair market value compensation arrangements Indirect compensation arrangements Includes both physician as lessor and DHS entity as lessor Proposal in CY 2008 PFS proposed rule included only physician as lessor, but sought comments regarding the inclusion of DHS entity as lessor 17 Final Rule: Per-click Compensation Unit of Service ( Per-click ) Payments in Lease Arrangements (cont d) Rental charges for the rental of office space or equipment may not be determined using a formula based on Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee. 18 9

10 Titular owner Physician Owner SITS Prohibition on Per-click and Percentage-based Lease Arrangements Referrals for services to patients that will be provided on the leased equipment PO Lessor Per-click or Percentage-based Lease Arrangement Lessee 19 Prohibition on Per-click and Percentage-based Lease Arrangements Non-owner Physician Referrals for services to patients that will be provided on the leased equipment JV Lessor JV Owner Physician Per-click or percentage-based equipment lease Lessee 20 10

11 Prohibition on Per-click and Percentage-based Lease Arrangements Referrals for services to be performed on the leased equipment Owner SITS PO Lessor Equipment Sublease Per-click or % Equipment Lease Hospital-owned Management Company 21 Final Rule: Definition of Entity 6. Services Provided Under Arrangements (Revised Definition of Entity ) Effective Date: October 1, 2009 Revised the definition of entity at Modified from proposal Prior to October 1, 2009, a person or entity is considered to be furnishing DHS if it is the person/entity to which CMS makes payment for the DHS Both parties to an arrangement may be considered an entity if one party performs the DHS and the other party bills for the DHS 22 11

12 Final Rule: Definition of Entity Services Provided Under Arrangements (Revised Definition of Entity ) (cont d) Entity means A physician's sole practice or a practice of multiple physicians or any other person, sole proprietorship, public or private agency or trust, corporation, partnership, limited liability company, foundation, nonprofit corporation, or unincorporated association that furnishes DHS. An entity does not include the referring physician himself or herself, but does include his or her medical practice. A person or entity is considered to be furnishing DHS if it Is the person or entity that has performed services that are billed as DHS to which CMS makes payment for the DHS, directly or upon assignment on the patient's behalf; or Is the person or entity that has presented a claim to Medicare for the DHS Basic Under Arrangements Structure Referrals for hospital services Sends hospital patient to Service Provider Service referred to Service Provider is billed as an I/P or O/P hospital service $$ Physicianowned Service Provider 24 12

13 Final Rule: OB Malpractice Insurance Subsidies 7. Exception for Obstetrical Malpractice Insurance Subsidies Effective Date: October 1, 2008 Retains in (r)(1) the existing exception that incorporates the safe harbor (at (o)) to the anti-kickback statute Applies to subsidies provided by any entity Parties may choose, instead, to satisfy the prescribed criteria of (r)(2) All commenters agreed with CMS concerns regarding narrow scope of previous exception Applies to subsidies provided by hospitals, FQHCs, and rural health clinics (r)(2) Physician practice must be Final Rule: OB Malpractice Insurance Subsidies In a primary care HPSA, rural area, or area with demonstrated need (advisory opinion) Comprised of patients at least 75 percent of whom reside in a medically underserved area (MUA) or are part of a medically underserved population (MUP) Similar requirements regarding composition of patients treated under the malpractice insurance subsidy 26 13

14 Final Rule: OB Malpractice Insurance Subsidies (r)(2) Arrangement may not be conditioned on the physician s referral of patients Bona fide insurance policy or program Amount of payment may not be determined directly or indirectly based on the volume or value of any actual or anticipated referrals by the physician or other business generated between the parties Physician may establish privileges at any other facility Payment must be made directly to the organization providing the malpractice insurance Physician must treat Federal health care program recipients in a nondiscriminatory manner 27 Final Rule: OB Malpractice Insurance Subsidies CMS Commentary Rejected requests to extend the exception to other types of malpractice insurance subsidies (that is, other specialties) CMS noted that other exceptions may be available for such compensation Rejected request to reduce from 75 percent to 25 percent the number of patients treated under the malpractice insurance subsidy Beneficiary and patient access concerns Required to ensure no risk of program or patient abuse, when considered in combination with other requirements 28 14

15 Amending Agreements CMS reconsidered the position articulated in Phase III regarding amendments to the rental charges (or financial terms) of compensation arrangements Previous position: amending the rental charges in a lease agreement or financial terms of an agreement for personal services would not satisfy the requirement that compensation be set in advance New position: amendments are permitted, provided that certain conditions are met 29 Amending Agreements Amendments permitted where All requirements of an applicable exception are satisfied Amended rental charges or other compensation (or the formula) is determined before the amendment is implemented Formula for amended rental charges or compensation does not take into account the volume or value of referrals or other business generated between the parties Amended rental charges or compensation (or the formula) remains in place for at least 1 year from the date of the amendment Applies to all exceptions that have a 1-year term requirement Parties may amend the compensation terms during the 1- year amendment extension, but the new compensation terms must be scheduled to remain in place for at least 1 year from the date of the second (or any subsequent) amendment 30 15

16 Hypos Physician and hospital have entered into an agreement that has been in effect for more than one year. They amend the agreement on February 1 to increase the compensation to reflect FMV. Same facts as above, but the parties enter into a second amendment August 1 to increase the compensation for additional services provided. Same facts as second bullet above, but the physician begins providing the additional services and the hospital begins paying increased compensation May 1 (i.e., prior to the amendment on August 1). 31 Mandatory Reporting, DFRR and the Core 32 16

17 Mandatory Stark Reporting was part of the original design (f) REPORTING REQUIREMENTS- Each entity providing covered items or services for which payment may be made under this title shall provide the Secretary with the information concerning the entity's ownership, investment, and compensation arrangements, including-- * * * (2) the names and all of the medicare provider numbers of the physicians who are interested investors or who are immediate relatives of interested investors. Such information shall be provided in such form, manner, and at such times as the Secretary shall specify. Such information shall first be provided not later than 1 year after the date of the enactment of this section. Pub. Law (1989) 33 Then came the first delay 34 17

18 Then came the regulations authorizing mandatory reporting in 1991! 56 Fed. Reg (Dec. 3, 1991) 35 Then came the Ten State Survey 60 Fed. Reg (Aug. 14, 1995) 36 18

19 Then came Comment: This would be expensive, onerous and burdensome Why the disconnect? Response: We believe that the information we are requiring the entities to maintain is information that they would have and maintain already... We believe that this burden is a result of usual and customary business practice Fed. Reg (Mar. 26, 2004) 38 19

20 What s old is new again Father of DFRR (to specialty hospitals and competitors) DFRR 1.0 DFRR 1.1 DFRR The New and Improved DFRR 400 hospitals One-time information collection effort Burden estimate of 100 hours per hospital 60 days to respond, unless CMS grants extension upon showing of good cause CMS may impose CMP of up to $10,000 per day for each day the DFRR submission is late 40 20

21 NOTE TO: Chief Executive Officers or Chief Financial Officers of Medicare Participating Hospitals Your hospital has been selected as one of 400 hospitals that are required to submit physician investment, ownership, and compensation arrangement information. Each hospital respondent is required to complete the attached Disclosure of Financial Relationships Report (DFRR). The complete DFRR (original and one copy) must be received by us no later than 60 days from the date that appears on this cover letter or transmission to you. 41 A few people may be very, very surprised

22 Can your organization provide this level of detail? 43...and documentation? Unless you have a calendar fiscal year, this probably means you must include agreements for two years 44 22

23 This means... Your hospital could be one of the Lucky 400 that is included in the mandatory survey... (and we know who 290 of you are now) CMS may use its power to require responses more than once in your professional lifetime (and they may get you then). 45 So, when your Board Chair asks... Are we complying with Stark II? 46 23

24 On what basis do you answer? 47 24