(2017 Update) By R. Gregory Cochran, Nossaman LLP

Transcription

1 Stark vs. Speier: A Comparison of the Federal and California physician Self-referral Laws (2017 Update) By R. Gregory Cochran, Nossaman LLP and Morgan Muir Callahan, Nossaman LLP The following article updates a California Health Law News article published in by summarizing the numerous changes to the Stark Law since then and discussing whether these changes impact an arrangement s compliance with the Speier Law, which has not changed since I. Introduction In 1989, the Office of Inspector General of the Department of Health and Human Services (OIG) determined and reported to Congress, not surprisingly, that physicians who have an ownership interest in a clinical laboratory are much more likely to refer patients to those laboratories and also to refer substantially more patients for laboratory services generally. 2 The OIG explained to Congress that physicians in financial relationships with laboratories and other facilities/providers may be improperly incentivized to make unnecessary referrals, and that this over-utilization leads to higher costs to patients and payors. These arrangements also may harm patients, who, for example, could suffer a complication arising out of an unnecessary service. In 1992, in response to the OIG s report, Congress enacted the Ethics in Patient Referrals Act, 3 prohibiting, with certain exceptions, physicians from making referrals for Medicare-covered services to clinical laboratories with which the physician has a financial relationship. The original act, authored and introduced by U.S. Representative Pete Stark (D California), later became known as Stark I. Seemingly well-intended, simple and narrowly tailored, in the quarter century since its enactment, Congress and the Centers for Medicare & Medicaid Services (CMS), the agency responsible for implementing and enforcing Stark I, have revised the statute and its corresponding regulations many times, ultimately transforming it into the now exceedingly complex, often confusing and unforgiving behemoth that is more generally referred to as simply Stark or the Stark Law. After Stark I came about, the states also became increasingly involved in monitoring and policing physician self-referrals. California enacted the Physician Ownership and Referral Act, known as the Speier Law, in Like the Stark Law, the Speier Law (or simply Speier ) prohibits a physician from referring a patient for certain health care services if he or she (or an immediate family member) has a financial interest with the entity receiving the referral, unless an enumerated exception applies. 5 Unlike the Stark Law, which applies only to services covered under federal programs, the Speier Law applies without respect to payor source. The Speier Law is also substantially shorter and addresses fewer types of physician financial relationships than the Stark Law. Because Speier addresses many of the same types of relationships, many of its exceptions are modeled after their Stark Law counterparts, but the Speier Law also contains many unique exceptions without Stark Law analogs. Likewise, the Stark Law includes many unique exceptions not found in the Speier Law. Compared to the numerous and substantial revisions to the Stark Law since its inception, there have been very few changes to the Speier Law since its enactment, and none since the 2009 article on this topic. Further, unlike Stark pursuant to which CMS has promulgated countless regulations and has published extensive interpretative commentary Speier is not associated with any regulations. After providing an overview of both Stark and Speier, this article highlights some California Health Law News 7

2 of the most commonly used exceptions in both, and discusses significant differences between them. Table 1 provides a summary comparison of Stark and Speier and their most commonly used exceptions. Information added to Table 1 since the 2009 article was published is italicized. II. Stark Law Overview The Stark Law prohibits a physician from referring Medicare 6 patients for certain designated health services (DHS) to providers of such DHS, if the physician (or an immediate family member) has a direct or indirect financial relationship with the DHS provider, unless one or more exceptions apply to the arrangement. 7 Stark also prohibits DHS providers from submitting claims to Medicare if the service arose out of a prohibited (or tainted ) referral. Additionally, certain entities furnishing services for which payment may be made under Medicare must report information concerning certain financial arrangements to CMS or to the OIG. 8 In its first legislative changes to Stark I legislation known as Stark II Congress added to laboratory services ten additional DHS categories, effective January 1, Since then, DHS has included eleven categories of services: clinical laboratory services; physical therapy services; occupational therapy services; radiology or other diagnostic services; radiation therapy services; durable medical equipment; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. 10 The Stark regulations define all of those DHS in great detail, in many cases with reference to lists of hundreds of treatments or procedures and codes, known as Common Procedural Terminology (CPT) codes. 8 California Health Law News A financial relationship exists where a physician has either an ownership or an investment interest, or a compensation arrangement with, a DHS provider. 11 Compensation in such arrangements includes any remuneration between the physician and the DHS provider, whether direct or indirect, overt or covert, in cash or in kind. 12 The Stark Law provides numerous exceptions that permit physicians in a financial relationship with a DHS provider to refer patients to such provider, provided the relationship fits the applicable exception precisely. Since Stark II was enacted, CMS has promulgated numerous sets of regulations, beginning with a 2001 Phase I final rule, followed by a 2004 Phase II interim final rule, and eventually culminating in the Stark II, Phase III regulations, which became effective December 4, On August 19, 2008, CMS published the 2009 Inpatient Prospective Payment System Final Rule (IPPS Final Rule), 14 which further revised the Stark Law by, most significantly: (i) requiring non-owner physicians to stand in the shoes of their physician organizations 15 ; (2) prohibiting rental charges based on per-click 16 or revenue percentage formulae 17 in space or equipment leases between DHS entities and referring physicians or entities in which referring physicians have an ownership investment interest; and (iii) prohibiting many under arrangements between hospitals and referring physicians by changing the definition of DHS entity to include both the entity that bills for the DHS and the entity that performs the DHS. 18 The 2010 Physician Fee Schedule Final Rule 19 further clarified that, for purposes of determining the nature of a physician s compensation arrangements with DHS entities, physician owners are deemed to stand in the shoes of their medical practice entities. Those arrangements may be signed by an authorized representative of the practice and need not be signed by every physician who stands in the shoes of the practice. 20 The 2011 Outpatient Prospective Payment System Final Rule 21 narrowed access to the whole hospital and rural provider exceptions to conform to the amendments made to those exceptions under section 6001(a)(3) of the Patient Protection and Affordable Care Act, which prohibit their use by new physician-owned hospitals and limit the ability of existing physicianowned hospital to expand their capacity. The 2012 Outpatient Prospective Payment System Final Rule 22 made additional changes to the whole hospital and rural provider exceptions to provide a process for a hospital to request an exception to the prohibition on expansion of facility capacity. The 2012 Final Rule also established changes to provider agreement regulations requiring that all hospitals and critical access hospitals: (i) provide written notice to all patients, inpatient or outpatient, if a physician is not present in the hospital 24 hours a day, 7 days a week; and (ii) describe how the hospital will meet the medical needs of a patient when no physician is present. 23 The 2013 Electronic Health Record (EHR) Final Rule 24 excludes laboratory companies from the Stark exception that permits certain arrangements involving the donation of EHR items and services. The 2015 Outpatient Prospective Payment System Final Rule 25 finalized the requirement from the 2012 Final Rule to use filed hospital cost report data for purposes of facility capacity expansion exception requests for the whole hospital and rural provider exceptions.

3 In the CY 2016 Medicare Physician Fee Schedule Final Rule (the 2015 Final Rule), 26 CMS made the most significant changes to the Stark Law since 2008 and seemed to be signaling a move toward easing some of the law s technical compliance and self-disclosure burdens. The 2015 Final Rule established two new Stark exceptions (for non-physician practitioner recruitment and for timeshare arrangements) and also clarified certain aspects of the physicianowned hospital exception and some technical requirements of most of the commonly used exceptions, including the requirement for an arrangement to be in writing, to have a term of at least one year, and the length of a holdover period. 27 In its most recent change to the Stark Law, on March 28, 2017, CMS issued a new voluntary self-referral disclosure protocol (SRDP) for disclosing actual or potential violations of the law. Originally established in the Affordable Care Act in 2010, the SRDP requires CMS to develop a protocol for self-disclosure of actual or potential violations of the Stark Law and authorizes the agency to reduce the amount owed for such violations, based on a number of factors, such as the nature and extent of the violation, the timeliness of the self-disclosure and the entity s cooperation in providing additional information requested by CMS in relation to the disclosure. The key difference between the previous protocol and the new protocol is that the new protocol requires entities to make their disclosures by filling out and submitting a single set of CMS-provided fillable forms, rather than a letter, as required under the previous protocol. 28 CMS encouraged, but did not require, entities submitting self-disclosures prior to June 1, 2017 to use the new forms. Other major changes in the new protocol include requirements for the reporting entity to provide certain specific information, including a description of how common or frequent the disclosed noncompliance was in comparison with similar arrangements between the disclosing entity and physicians; a separate information form for each physician included in the disclosure, detailing the terms of his or her noncompliant compensation arrangement; and a specific financial analysis worksheet to quantify and report the potential overpayment. III. Speier Law Overview Like the Stark Law, the Speier Law prohibits a physician from making referrals for the furnishing of certain health care goods and services to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies to the arrangement. 29 Speier, unlike Stark, is entirely statutory with no associated regulations or regulatory exceptions. Unlike Stark, which applies only to referrals for Medicare services, Speier prohibits the referral recipient from presenting claims to the patient or any third-party payor for payment of health care goods or services rendered pursuant to a prohibited referral, regardless of payor source. The Speier Law mandates written disclosure of a physician s financial interest to referred patients, whether the referral is to an entity in which the physician has an ownership interest or to another physician within the same practice group. 30 Serving as the counterparts to Stark s DHS, Speier covers referrals for the following healthcare goods and services: laboratory; diagnostic nuclear medicine; radiation oncology; physical therapy; physical rehabilitation; psychometric testing; home infusion therapy; and diagnostic imaging goods or services (including X-ray, CT, MRI, PET, mammography and ultrasound) (collectively, the Speier Designated Services or SDS). IV. Comparison of Stark and Speier After addressing some differences between Stark s DHS and Speier s SDS, this section then discusses provisions that are unique to each of the two. Then we provide a summary of some of the exceptions that are common to both, and we conclude by comparing the penalties under the two laws. A. Designated Services The only Speier Law s SDS that are not Stark Law DHS are psychometric testing and infusion therapy. 31 B. Provisions Unique to Stark or Speier The lengthy and complex manner in which the Stark Law regulations expound upon and attempt to clarify the basic referral prohibition gives rise to countless provisions, exceptions, and otherwise, that are unique to Stark. For example, the Stark Law regulations include detailed descriptions of the various aspects of the financial relationships that implicate the law, such as the Special Rules on Compensation and numerous definitions for terms such as entity, fair market value, physician in a group practice, employee and incident to services, to name just a few. The Speier Law is silent on most terms and situations, and a full explanation of all such Stark Law provisions is thus beyond the scope of this article. Rather, we now summarize some of the Stark Law exceptions that do not appear in the Speier Law. California Health Law News 9

4 1. Stark Law Exceptions Not Found in the Speier Law There are a number of additional exceptions in the Stark Law without specific corresponding sections in the Speier Law. For example, the Stark Law s electronic prescribing and electronic health records exceptions permits a health facility to provide nonmonetary remuneration to physicians (such as software or information technology and training services) necessary and used predominantly to receive and transmit electronic prescription information or to create, maintain, transmit, or receive electronic health records, provided that several conditions are satisfied, including that neither the eligibility of a physician for the items or services, nor the amount or nature of the services takes into account the volume or value of referrals. The Speier Law s health facilities exception may protect such arrangements. The 2015 Final Rule (discussed above) included the two newest Stark Law exceptions which became effective on January 1, 2016: non-physician practitioner (NPP) compensation assistance and timeshare arrangements. Analogous to the physician recruitment exception, the NPP compensation assistance exception permits remuneration made by a hospital, federally qualified health center (FQHC) or rural health clinic (RHC) to a physician (or physician organization) to assist the physician in employing or contracting with an NPP in the geographic area served by the hospital, FQHC, or RHC. 32 Since the 2009 article, an increased demand for primary care services and changes to delivery models arising out of the Affordable Care Act have resulted in more NPP roles in primary care services. The new exception encompasses NPPs who provide mental health services, as well as primary care services, subject to the restrictions outlined in Table California Health Law News The timeshare arrangement exception clarifies that arrangements for a physician s non-exclusive use of another person s or entity s premises, equipment, personnel, items, supplies, or services used predominantly for the provision of evaluation and management services is permissible. 33 Physicians and hospitals have long entered into timeshare arrangements, raising questions about whether some arrangements might have been considered violations until now. Under this exception, CMS refers to the parties to a timeshare arrangement as licensor and licensee to distinguish those terms in this exception from the terms lessor and lessee in the exception for leases of office space and equipment whereas a license grants a licensee a privilege to act on a licensor s property, a lease transfers dominion and control of the property from the lessor to the lessee. This exception protects only those arrangements granting use privileges of certain enumerated property types. Notably, though the proposed rule required that all timeshare equipment should be located in the same office suite where a physician performs evaluation and management (E&M) services, the Final Rule states that such equipment need only be located within the same building where such E&M services are furnished. 34 Additional Stark Law exceptions that are not found in Speier include: implants furnished by an ambulatory surgery center; erythropoietin and other dialysis-related drugs; preventive screening tests, immunizations and vaccines; eyeglasses and contact lenses following cataract surgery; intra-family rural referrals; physician incentive plans; certain arrangements with hospitals; group practice arrangements with a hospital; payments by physicians; charitable donations by a physician; nonmonetary compensation; fair market value compensation; medical staff incidental benefits; risk-sharing arrangements; compliance training; indirect compensation arrangements; referral services; obstetrical malpractice insurance; professional courtesy; retention payments in underserved areas; community-wide health information systems; electronic prescribing items and services; and electronic health records items and services. With respect to such arrangements where the DHS provider is a hospital or other health facility, the Speier Law s health facilities exception is likely to protect the arrangement in many cases. 2. Speier Law Exceptions Not Found in Stark The Speier Law contains very few exceptions that are not found in the Stark Law. Those exceptions unique to the Speier Law include exceptions for physician relationships with nonprofit foundations under Health & Safety Code Section 1206(l) and certain multi-specialty clinics, as well as to certain loans and to referrals for cardiac rehabilitation services and emergency care. (See Table 1.) Because of its detailed provisions and numerous definitions pertaining to the question of whether there is a financial relationship subject to the law, and because of its much lengthier number of possible exceptions, the Stark Law generally imposes greater burdens on physicians and providers than does the Speier Law, and most Stark-compliant transactions will thus be Speier-compliant. However, health care entities should consult counsel to ensure that a proposed arrangement is acceptable under both laws. V. Exceptions Common to the Stark Law and Speier Law The following summarizes some of the more commonly used Stark exceptions and their respective analogous Speier exceptions.

5 A. Physician In-Office Ancillary Services The Stark Law s in-office ancillary services exception permits a physician to make referrals to his own practice for certain ancillary services if: (1) the services are furnished personally by the referring physician, a physician who is a member of the same group practice as the referring physician, or an individual who is supervised by the referring physician or by another physician in the group practice; and (2) the services are furnished in the same building, a centralized building that is used by the group practice for the provision of some or all of the group practice s clinical laboratory services, or a centralized building that is used by the group practice for the provision of some or all of the group practice s DHS (other than clinical laboratory services). 35 The Speier Law s group practice exception broadly permits referrals for services performed within, and goods provided by, a physician s office or group practice. 36 The Speier Law s exception is sufficiently broad to cover most instances that would fall under the Stark exception. B. Whole Hospital Exception The Patient Protection and Affordable Care Act (the ACA) narrowed Stark s whole hospital exception, which previously had stated that a physician s ownership interest in a hospital does not constitute a financial relationship if: (1) the referring physician is authorized to perform services at the hospital; (2) effective for the 18-month period beginning on December 8, 2003 (or such other period as Congress may specify), 37 the hospital is not a specialty hospital; and (3) the ownership or investment interest is in the entire hospital and not merely in a distinct part or department of the hospital. The ACA narrowed this exception by limiting the ability of those hospitals to increase the number of operating rooms, procedure rooms, and beds beyond that for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of this date, but did have a provider agreement in effect on December 31, 2010, the date of effect of such agreement). 38 The ACA also directed CMS to promulgate regulations to create a process for a physician-owned hospital to request an exception to the prohibition on expansion of facility capacity. The Speier Law contains a very broad health facilities exception that permits physicians to refer patients to health facilities with which they have a financial relationship as long as there is no compensation for referrals and any equipment lease between the parties meets the Speier Law lease exception. In most situations involving a physician s ownership interest in a hospital, this health facilities exception will apply. 39 C. Lease of Office Space or Equipment The Stark Law contains two distinct exceptions for the lease of office space and for the lease of equipment. Specifically, the Stark Law permits payments for the use of office space and equipment made by a lessee to a lessor if there is a rental or lease agreement where: (i) the lease is written, signed by the parties, and specifies the covered premises or equipment; (ii) the term is at least one year; (iii) the space or equipment does not exceed that which is reasonable and necessary and is used exclusively by the lessee when being used by the lessee; (iv) the rental charges are set in advance, based on fair market value; (v) the rental charges are not determined in a manner that takes into account the volume or value of any referral 40 ; and (vi) the arrangement is commercially reasonable even if no referrals are made. 41 The Speier Law contains a comparable exception that permits a lease of space or equipment between a licensee (physician) and the recipient of his or her referrals if the lease is written, has commercially reasonable terms, has a fixed periodic rent payment, has a term of one year or more, and the lease payments are not affected by either party s referral of any person or the volume of services provided by either party. 42 If a lease arrangement complies with the more robust Stark Law lease exception, it will also comply with the Speier Law lease exception. D. Personal Services Exception Both the Stark Law and the Speier Law provide an exception for personal service arrangements. The Stark Law exception permits remuneration from an entity if: (i) there is a written agreement that is signed by the parties and specifies the services to be furnished by the physician to the entity; (ii) the aggregate services do not exceed those that are reasonable and necessary; (iii) the term of the agreement is for at least one year; (iv) the compensation is set in advance, does not exceed fair market value, and does not take into account the volume or value of referrals. 43 The Speier Law exception exempts a personal services arrangement between a physician (or an immediate family member) and the recipient of his or her referrals if essentially the same requirements of the Stark Law personal services exception are met. In addition, the physician must California Health Law News 11

6 provide written disclosure of the arrangement to referred patients, including information indicating where he or she may file a complaint against the licensee or the immediate family member. 44 E. Physician Recruitment Another frequently relied-upon Stark Law exception pertains to physician recruitment. This exception permits a hospital to recruit a physician with incentives paid directly to the physician (or, more commonly, to a medical group that is to employ the physician) necessary to induce the physician to relocate to the geographic area serviced by the hospital in order to become a member of the hospital s medical staff. In addition, (1) the arrangement must be set out in writing; (2) the arrangement must not be conditioned on the physician s referrals to the hospital; (3) the hospital may not determine the amount of the remuneration to the physician based on the volume or value of actual or anticipated referrals by the physician; and (4) the physician must be allowed to establish staff privileges at any other hospital. 45 There is no corresponding exception in the Speier Law. However, the health facilities exception discussed above may apply, as long as there is no compensation for referrals and any equipment lease between the parties meets the lease exception. 46 F. Bona Fide Employment Relationships Stark Law s bona fide employment relationship exception permits an employer to compensate an employed physician (or immediate family member) provided that: (1) the employment is for identifiable services; (2) the compensation is based on fair market value and does not take into account the volume or value of any referrals; and (3) the remuneration is provided under a commercially reasonable agreement even if no referrals were made to the employer. 47 Although there is no specific corresponding exception in the Speier Law, the health facilities exception is likely to apply in most employment circumstances where the hospital is the employer. Additionally, the group practice exception may apply in many arrangements between physicians and medical groups. VI. Penalties Under the Stark Law, if a DHS provider makes a claim to Medicare for services rendered pursuant to a prohibited referral, and if such payment is made, the claimant is liable to the payor for a refund. In addition, the government may impose civil penalties up to $15,000 for each service, for knowingly presenting a bill or a claim for a service for which payment may not be made. Further, any person who fails to meet a mandated reporting requirement may be liable for up to $10,000 for each day after the reporting deadline. Physicians or entities who enter into certain prohibited schemes, such as improper cross-referral arrangements, are subject to additional civil penalties, up to $100,000 for each arrangement. The government commonly pursues recovery from alleged Stark violators under the False Claims Act, under the theory that claims for items or services arising out of Stark-tainted referrals are false. A Speier Law violation is a misdemeanor criminal offense, punishable by a fine up to $5,000 for each offense. Additionally, upon conviction, the Medical Board of California (MBC) may commence disciplinary proceedings if it determines that a physician engaged in unprofessional conduct. Cross-referral schemes are punishable by a fine of up to $15,000 per violation, and disciplinary actions otherwise available to the MBC. 48 ABOUT THE AUTHORS R. Gregory Cochran, MD, JD, is of counsel in the San Francisco law firm of Nossaman, LLP and on the faculty of the University of California, Hastings College of the Law, where he serves as Lecturer in Law and Associate Director for the UC San Francisco/ UC Hastings Consortium on Law, Science and Health Policy s master s degree program in health policy and the law. Dr. Cochran advises clients and teaches on a broad range of health law and policy matters, with a focus on the regulatory and transactional framework pertinent to health care providers. Morgan Muir Callahan, JD, is an associate in the San Francisco law firm of Nossaman, LLP. Ms. Callahan s practice focuses on both health care providers and health plans, including managed care plans, hospitals and health facilities as well as physicians groups on a wide range of regulatory, contracting, and licensing issues. She also advises medical staffs on peer review investigations, hearings and other disciplinary actions, bylaws, rules and regulations, Joint Commission compliance and compliance with state and federal laws, and patient care issues. Ms. Callahan also represents individual health care providers in disciplinary actions taken by their licensing boards, such as the Medical Board of California and the Board of Registered Nursing. 12 California Health Law News

7 TABLE 1 TOPIC BASIC PROVISIONS STARK II, Phase III (42 C.F.R through ) A physician may not refer a Medicare patient for designated health services if the physician (or an immediate family member) has a direct or indirect financial relationship with the entity receiving the referral. An entity may not present a claim or bill to Medicare for designated services referred to the entity by a physician with a financial relationship with the entity (a). DHS includes: (1) clinical laboratory services; (2) physical, occupational and speech therapy; (3) radiology and certain other diagnostic services; (4) radiation therapy services and supplies; (5) durable medical equipment and supplies; (6) parenteral and enteral nutrients, equipment and supplies; (7) prosthetics, orthotics and prosthetic devices and supplies; (8) home health services; (9) outpatient prescription drugs; and (10) inpatient and outpatient hospital services SPEIER (Business and Professions Code Sections and ) It is unlawful for a physician to refer a patient for certain designated services if the physician (or immediate family member) has a financial interest with the entity receiving the referral. It is unlawful for an entity receiving an illegal referral to present a claim for payment to any payor including the patient and third party payors for the service. It is unlawful for a payor to pay a charge for services rendered from an illegal referral. It is unlawful to enter into cross referral arrangements (a). The covered services include: (1) laboratory; (2) diagnostic nuclear medicine; (3) radiation oncology; (4) physical therapy; (5) physical rehabilitation; (6) psychometric testing; (7) home infusion therapy; and (8) diagnostic imaging goods or services (including X-ray, CT, MRI, PET, mammography and ultrasound) (a). EFFECTIVE DATE January 1, (Similar legislation has been in effect since January 1, 1992 for clinical laboratory services.) January 1, The Speier legislation was amended in 1995 and 1996, and the amendments are retroactively effective on January 1, DEFINITIONS AND TERMINOLOGY Financial relationship under Stark; Financial interest under Speier Includes: (1) an ownership or investment interest in an entity (through debt or equity); (2) a compensation arrangement between the physician (or family member) and the entity. A compensation arrangement is any arrangement involving remuneration, direct or indirect, between a physician and an entity Includes direct and indirect ownership interest, debts, loans, leases, compensation, remuneration, discount, rebate, refund, dividend, distribution, subsidy, or other form of direct or indirect payment, in money or otherwise. Excludes the receipt of capitation payments that are prepaid in exchange for a promise of a licensee to provide specified health care services to specified beneficiaries. Also excludes the receipt of remuneration by a medical director of a hospice, so long as the medical director agreement is in writing, has a term of at least one year, specifies the services to be provided and compensation is set in advance and is unrelated to referrals or other business between the parties (b)(2). California Health Law News 13

8 Immediate family member Physician in Stark Licensee in Speier Characteristics of a group practice Referral Fair Market Value (FMV) Signature requirement A physician s husband or wife; birth or adoptive parent, child, or sibling; stepparent, stepchild, stepbrother, or stepsister; father-in-law, mother-in-law, son-in-law, daughter-in-law, brother-in-law, or sister-in-law; grandparent or grandchild; and spouse of a grandparent or grandchild 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 Social Security Act. A physician and the professional corporation of which he or she is a sole owner are the same for purposes of this subpart Each group member provides substantially all of the patient care services throughout the shared resources of the group; substantially all group members services are billed and collected in the name of the group; and the income and expenses of the group are distributed in accordance with methods determined by the group Request by a physician for an item or service, including consultation, which is paid for by Medicare. Requests by a pathologist for clinical lab or pathology services, by a radiologist for diagnostic radiology services, or by a radiation oncologist for radiation therapy are not deemed to be referrals if the services are furnished pursuant to a consultation by another physician The value in arm s-length transactions, consistent with the general market value An entity may submit a claim or bill and payment may be made to an entity that submits a claim or bill for a designated health service if the parties obtain the required signature(s) within 90 consecutive calendar days immediately following the date on which the compensation arrangement became noncompliant and the compensation arrangement otherwise complies with all criteria of the applicable exception (g)(1). A licensee s parent, spouse, child and spouse of child (b)(3). M.D., D.O., psychologist, optometrist, dentist, podiatrist, acupuncturist or chiropractor (b)(4). An office or offices in which two or more licensees are legally organized as a partnership, professional corporation, or not-for-profit corporation, where each provides substantially the full range of services; substantially all of the services are billed in the name of the group; and the income and expenses of the group are distributed in accordance with methods determined by the group (b)(6). Not defined. However, application requests by a pathologist for clinical lab or pathology services, by a radiologist for diagnostic radiology services, or by a radiation oncologist for radiation therapy are not deemed to be referrals if the services are furnished pursuant to a consultation by another physician (j). Not defined. 14 California Health Law News

9 Writing requirement Term requirement Stand in the Shoes A single formal written contract is not required to comply with the in writing requirement if contemporaneous documents evidence the course of conduct between the parties, e.g., board minutes, s/correspondence, fee schedules, payment authorizations, time sheets, schedules, checks, etc. CMS re-worded ten exceptions that contain the in writing requirement by substituting the word arrangement for agreement (a) office space rental (b) - equipment rental (d) - personal services (e) - physician recruitment FMV compensation (p) - indirect compensation (r)- OB malpractice insurance subsidies (s) - professional courtesy (x) - assistance to compensate NPP (y) - timeshare The duration of the lease arrangement is at least 1 year. To meet this requirement, if the lease arrangement is terminated with or without cause, the parties may not enter into a new lease arrangement for the same space during the first year of the original lease arrangement (a)(2) office space rental (b)(3) equipment rental (d)(1)(iv) - personal services arrangements For all exceptions, all physicians in a physician organization (not just the owners) are counted in the requirement that compensation cannot take into account volume or value of physician referrals. Only one authorized representative of the physician organization is required to sign the written agreement. No analogous provision. No analogous provision. California Health Law News 15

10 General exceptions to the referral prohibition related to both ownership/investment and compensation Physician Services Physicians services, including diagnosis, therapy, surgery, consultations, and home, office, and institutional calls, provided that the services are provided either: (1) personally by another physician who is a member of the referring physician s group practice or is a physician in the same group practice as the referring physician; or (2) under the supervision of another physician who is a member of the referring physician s group practice or is a physician in the same group practice as the referring physician, provided that the supervision complies with all other applicable Medicare payment and coverage rules for the physician services. Physician services includes only those incident to services that are physician services (a). Any service for a specific patient that is performed within, or goods that are supplied by, a licensee s office, or the office of a group practice (f). Physician In-Office Ancillary Services Ownership Interest in Publicly Held Entities Services are permitted if: (1) The services are furnished personally by one of the following individuals: (a) the referring physician; (b) a physician who is a member of the same group practice as the referring physician; or (c) an individual who is supervised by the referring physician or by another physician in the group practice. (2) The services must be furnished in one of the following locations: (a) the same building, and meet one of three specific conditions; (b) a centralized building that is used by the group practice for the provision of some or all of the group practice s clinical laboratory services; or (c) a centralized building that is used by the group practice for the provision of some or all of the group practice s DHS (other than clinical laboratory services) (b). Exceptions to the referral prohibition related to ownership or investment interests The ownership or investment interest does not constitute a financial relationship where it involves the ownership of investment securities that at the time the DHS referral was made could be purchased on the open market and are either (1) listed on the NYSE, ASE, or any regional exchange, or foreign securities listed on a recognized exchange; or (2) traded under an automated interdealer quotation system operated by the NASD; and the interest is in a corporation that had shareholder equity exceeding $75 million at the end of the corporation s most recent fiscal year or on average during the previous three fiscal years (a). Referrals are permitted for services performed within, and goods provided by, a physician s office or group practice (f). Ownership in publicly held corporations if the corporation had in the most recent fiscal year, or on the average over the last three fiscal years, stockholder equity exceeding $75 million; the interest is available to the general public through a licensed exchange; the corporation has no separate class of interest for referring physicians; and distributions are not affected by the value or volume of referrals (b)(3). 16 California Health Law News

11 Mutual funds Rural Providers Hospitals Rental of Office Space Ownership of shares in a regulated investment company if the company had, at the end of its most recent fiscal year, or on average during the previous 3 fiscal years, total assets exceeding $75 million (b). Ownership or investment in a rural provider in the case of DHS furnished in a rural area by the provider (c)(1). Ownership of shares in a regulated investment company, if the company had, at the end of the company s most recent fiscal year, or on average during the previous three fiscal years, total assets exceeding $75 million (b)(4). A physician may refer a patient for a designated service if there is no alternative provider of the service within either 25 miles or 40 minutes shortest traveling time on a paved road (a). A hospital that is located outside of Puerto Rico, in the A licensee may refer a person to a health case of DHS furnished by such a hospital, if (1) the referring facility or any facility owned or leased by a physician is authorized to perform services at the hospital; health facility, if there is no compensation for (2) effective for the 18-month period beginning on 12/8/2003 referrals and any equipment lease between the (or such other period as Congress may specify), the hospital is parties meets the lease exception. Nothing not a specialty hospital; and (3) the ownership or investment shall preclude this subdivision from applying interest is in the entire hospital and not merely in a distinct to a licensee solely because the licensee has an part of department of the hospital (c)(3). The specialty hospital moratorium ended June 8, 2005 and was not cility or an entity that owns or leases an entire ownership or leasehold interest in an entire fa- subsequently extended. health facility (c)(1). Exceptions to the referral prohibition related to compensation arrangements Payments for the use of office space made by a lessee to a lessor if there is a rental or lease agreement where: (1) the lease is written, signed by the parties, specifying the covered premises; (2) the term is at least one year; (3) the space or equipment does not exceed that which is reasonable and necessary and is used exclusively by the lessee when being used by the lessee; (4) the rental charges are set in advance, based on FMV; (5) the rental charges are not determined in a manner that takes into account the volume or value of any referrals; and (6) the arrangement is commercially reasonable even if no referrals are made (a). In addition to rental charges not taking into account volume or value of referrals, as of October 1, 2009, rental charges over the term of the agreement also may not be determined [u]sing a formula based on (A) a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space; or (B) per unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee. A holdover office space rental agreement (with the same terms and conditions in the immediately preceding agreement) is permitted following the expiration of an agreement of at least one year that previously satisfied the requisite conditions (a). A lease of space with a written lease with (1) commercially reasonable terms; (2) fixed periodic payments; (3) a term of one year or more; and (4) payments which are not affected by the value or volume of referrals between the parties (b)(2). California Health Law News 17

12 Rental of Equipment Bona Fide Employment Relationships Payments made by a lessee or lessor for the use of equipment where: (1) a rental or lease agreement is set out in writing, signed by the parties, specifying the equipment it covers; (2) the equipment rented or leased does not exceed that which is reasonable and necessary; (3) the agreement provides for a term of rental or lease of at least one year; (4) the rental charges are set in advance, consistent with FMV, and are not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; and (5) the agreement would be commercially reasonable even if no referrals were made between the parties. In addition to rental charges not taking into account volume or value of referrals, as of October 1, 2009, rental charges over the term of the agreement also may not be determined [u]sing a formula based on (A) a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space; or (B) per unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee. A holdover equipment rental agreement (with the same terms and conditions in the immediately preceding agreement) is permitted following the expiration of an agreement of at least one year that previously satisfied the requisite conditions (b). Any amount paid by an employer to a physician who has a bona fide employment relationship with the employer for the provision of services provided that: (1) the employment is for identifiable services, (2) the amount of the remuneration under the employment is: (i) consistent with the fair market value of the services; (ii) not determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician; and (iii) the remuneration is provided under an agreement that would be commercially reasonable even if no referrals were made to the employer (c). A lease of space with a written lease with (1) commercially reasonable terms; (2) fixed periodic payments; (3) a term of one year or more; and (4) payments which are not affected by the value or volume of referrals between the parties (b). 18 California Health Law News

13 Personal Services Agreement Remuneration from an entity under an arrangement or multiple arrangements where: (1) each arrangement is set out in writing, signed by the parties, and specifies the services covered by the arrangement; (2) the arrangement covers all of the services to be furnished by the physician to the entity; (3) the aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement; (4) the term of each agreement is for at least one year; (5) the compensation is set in advance, does not exceed FMV, and is not determined in a manner that takes into account the volume or value of any referrals; (6) the services to be furnished do not involve the counseling or promotion of a business arrangement or other activity that violates any federal or state law; and (7) a holdover personal services agreement (with the same terms and conditions in the immediately preceding agreement) is permitted following the expiration of an agreement of at least one year that previously satisfied the requisite conditions (d)(1). A personal services arrangement between a licensee or an immediate family member of the licensee and the recipient of the referral if the arrangement meets all of the following requirements: (1) is set out in writing and signed by the parties; (2) specifies all of the services to be provided by the licensee or an immediate family member of the licensee; (3) the aggregate services contracted for do not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement; (4) a person who is referred by a licensee or an immediate family member of the licensee is informed in writing of the personal services arrangement that includes information on where a person may go to file a complaint against the licensee or the immediate family member of the licensee; (5) the term of the arrangement is for at least one year; (6) the compensation to be paid over the term of the arrangement is set in advance, does not exceed fair market value, and is not determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties; and (7) the services to be performed under the arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates any state or federal law (b)(6). California Health Law News 19

14 Physician Recruitment Remuneration provided by a hospital, federally qualified health center (FQHC), or a rural health clinic (RHC) to recruit a physician that is paid directly to the physician and intended to induce the physician to relocate to the geographic area serviced by the hospital/fqhc/rhc in order to become a member of the hospital/fqhc/rhc s medical staff, provided: (1) the arrangement is set out in writing; (2) the arrangement is not conditioned on the physician s referrals to the hospital/fqhc/rhc; (3) the hospital/fqhc/ RHC does not determine the amount of the remuneration to the physician based on the volume or value of actual or anticipated referrals by the physician; and (4) the physician is allowed to establish staff privileges at any other hospital/ FQHC/RHC (e). The geographic area served by a FQHC or RHC is the area composed of the lowest number of contiguous or noncontiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis. The geographic area served by the FQHC or RHC may include one or more zip codes from which the FQHC or RHC draws no patients, provided that such zip codes are entirely surrounded by zip codes in the geographic area described above from which the FQHC or RHC draws at least 90 percent of its patients (e)(6). The health facility exception found in (c) may apply. 20 California Health Law News