STARK II PHASE IINORTHWEST HOSPITAL

COUNCIL SEPTEMBER 17, 2004

By Bradley J. Berg

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CMS issued Phase II of the Stark II final regulations on March 26, 2004

Phase II became effective July 24, 2004

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HISTORY January 1, 1992 Stark I August 14, 1993 Stark I Regulations January 1, 1995 Stark II January 9, 1998 Stark II

Proposed Regulations January 4, 2001 Stark II

Regulations Phase I July 24, 2004 Stark II

Regulations Phase II

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If a physician (or a physician’s family member) has a financial relationship with an entity, the physician may not refer Medicare patients to the entity for designated health services unless an exception applies.

Stark also prohibits an entity from billing for services provided as a result of a prohibited referral.

THE PROHIBITION

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FINANCIAL RELATIONSHIP

Ownership and Investment Interests can be through debt, equity or other means. Examples of ownership or investment interests include:– physician group practice– investment in an ASC or imaging facility

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COMPENSATION ARRANGEMENTS

Examples:– physician employment by a hospital– medical director agreement with a hospital– use of hospital hardware or software to

access hospital electronic records system from physician office

– physician use of hospital space, equipment or inventory for private practice patient services

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REFERRAL

Referral includes:

– A physician’s request or order for any DHS for which payment may be made under Part B

– The physician’s establishment of a plan of care

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REFERRAL, continued

Referral excludes:

A request by a pathologist, radiologist or radiation oncologist for certain services if performed as a result of a consultation initiated by another physician and the service is furnished by or under the supervision of the pathologist, radiologist or radiation oncologist

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DESIGNATED HEALTH SERVICES

Clinical lab services PT and OT Radiology services (MR, CT, ultrasound) Radiation therapy DME Parenteral and enteral nutrients

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DESIGNATED HEALTH SERVICES, continued

Prosthetics and orthotics Home health Outpatient prescription drugs IP and OP hospital services

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PENALTIES

Payment denial/recovery by Medicare Refund to the individual Civil monetary penalties of up to $15,000

per prohibited service/billing Civil monetary penalties of up to

$100,000 for a circumvention scheme Program exclusion

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ANALYTICAL APPROACH

Is there a direct or indirect financial relationship between the referring physician and hospital? If yes,

Does the physician refer Medicare patients to the hospital for DHS? If yes,

Does the arrangement comply with an exception? If no, any bill submitted for a DHS resulting from a prohibited referral violates the statute.

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THE NEW PHASE II REGULATIONS

Urban/Rural Designations Temporary Lapses Physician Recruitment Physician Retention Community Health Information Systems Intra Family Rural Referral

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URBAN/RURAL DESIGNATIONS

Rural Provider Exception: excludes from the category of ownership or investment interests ownership in an entity if substantially all of the entity’s DHS are furnished to people who live in a rural area.

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URBAN/RURAL DESIGNATIONS, continued

Urban and Rural Defined:“Urban Area” is an area within a Metropolitan Statistical Area as defined by the Office of Management & Budget or such similar area as the Secretary has recognized. “Rural area” is any area outside a Metropolitan Statistical Area or such similar area.

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URBAN/RURAL DESIGNATIONS, continued

Effective Date of Rural Definition: unclear. OMB’s definitions were effective June 30,

2003

CMS has delayed adoption of the new definition for payment purposes until October 1, 2004.

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TEMPORARY LAPSES IN COMPLIANCE

New exception in response to request for a grace period if parties fall out of compliance due to conditions outside their control.

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TEMPORARY LAPSES IN COMPLIANCE, continuedConditions: Arrangement must have satisfied an

exception for at least 180 consecutive days

Noncompliance is beyond entity’s control Entity promptly rectified the compliance

within 90 days Exception limited to once every three

years with same physician

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PHYSICIAN RECRUITMENT

The rule now distinguishes between a recruitment arrangement directly with a recruit and recruitment through another physician or practice.

New limitations on recruitment through another physician or practice.

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PHYSICIAN RECRUITMENT, continued

Arrangement Directly With A Recruit:

A hospital may provide remuneration to a recruit to relocate to the hospital’s geographic area to join its medical staff if:

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PHYSICIAN RECRUITMENT, continued

the arrangement is in writing, signed by the parties;

the arrangement is not conditioned on referrals from the recruit;

the remuneration is not determined based on referrals or other business generated; and

the recruit is allowed to establish privileges at and refer patients to other facilities.

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PHYSICIAN RECRUITMENT, continued

Geographic Area and Relocate Defined: “Geographic area” is defined as the area comprised of the lowest number of contiguous zip codes from which the hospital draws 75% of its patients.

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PHYSICIAN RECRUITMENT continued

“Relocate” means the physician moves his or her practice a minimum of 25 miles or the new practice derives a minimum 75% of its revenue from professional services to patients not treated by the physician in the past three years.Residents and physicians in practice less than one year are not subject to the relocation requirement.

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PHYSICIAN RECRUITMENT, continued

Recruitment Through Another Physician or Group:

except for actual recruiting costs incurred by the physician/group, the remuneration passes directly to the recruit;

in an income guarantee, costs allocated to recruit cannot exceed the actual additional incremental costs attributable to recruit;

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PHYSICIAN RECRUITMENT, continued

physician/practice cannot impose practice restrictions on recruit, such as noncompete; and

records of actual costs and amounts paid to recruit must be maintained for five years and made available to CMS.

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PHYSICIAN RETENTION

Only permitted in HPSAs

Payment must go directly to physician

Must have a written offer elsewhere that requires a move 25 miles or more and outside the hospital’s geographic area

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PHYSICIAN RETENTION, continued

Payment can be lesser of: – the amount offered by other hospital

minus current income, or– the hospital’s cost to recruit a new

physician.

Use is limited to once every five years.

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COMMUNITY HEALTH INFORMATION SYSTEM

Provision of information technology (including hardware and software)

Available to all providers in the community

Enable participation in a community-wide information system

Enhance community’s overall health

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INTRA FAMILY RURAL REFERRAL

Permits a referring physician to cross-refer to an immediate family member or an entity that has a financial relationship with the family member if certain conditions are met.

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INTRA FAMILY RURAL REFERRAL, continued

Conditions: Patient must reside in a rural area No other person or entity is available to

furnish services in a timely manner within 25 miles of patient’s residence

Does not violate anti-kickback statute or other law

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WHAT SHOULD YOU DO NOW?

Review all existing arrangements for compliance

Put procedures in place to ensure that all new financial arrangements with physicians comply with an exception and are properly documented

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Contact information: Bradley J. BergTelephone: 206-447-8970Email: Bergb@Foster.com

Foster Pepper & Shefelman PLLC1111 Third Avenue, Suite 3400Seattle, WA 98101

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