CMS Publishes 2009 IPPS Proposed Rule Containing Modifications to Stark Regulations
On April 30, 2008, the Centers for Medicare and Medicaid Services ("CMS") published its 2009 Inpatient Prospective Payment System ("IPPS") Proposed Rule. See 73 Fed. Reg. 23528 (Apr. 30, 2008). Summarized below are CMS's proposals that relate to the physician self-referral, or "Stark" law, 42 U.S.C. § 1395nn. CMS is currently soliciting public comments on these proposals, and thus providers may want to review them and understand their potential implications.

a) Modifications to the "Stand in the Shoes" Provisions for Physicians and Physician Organizations

Under the existing Phase III Stark Rules, physicians "stand in the shoes" of physician organizations for purposes of analyzing Stark financial relationships. The rule would effectively convert what used to be indirect relationships into direct financial relationships, and often no Stark exception will apply. On November 15, 2007, CMS delayed the effective date of the "stand in the shoes" rule for compensation agreements involving Academic Medical Centers ("AMCs") and integrated section 501(c)(3) health care systems. See 72 Fed. Reg. 64,164. With the 2009 IPPS Proposed Rule, CMS appears to be revisiting the "stand in the shoes" rule in its entirety, as it now proposes various alternatives to modifying (or preserving) the existing rule:

• Leaving the rule as-is with no modifications (including no modifications to address AMCs or integrated health systems).


• Leaving the rule as is, but promulgating a new exception for "non-abusive arrangements" that warrant protection. This exception would address arrangements such as AMC mission support payments.


• Modifying the rule so that a physician would be deemed not to stand in the shoes of his or her physician organization if the compensation arrangement between the physician and the physician organization satisfies: (i) the bona fide employment exception; (ii) the personal services arrangements exception; or (iii) the fair market value exception.


• Modifying the rule so that the "stand in the shoes" provision would apply only to physician ownership interests in a physician organization. Compensation arrangements would not be subject to the rule, even if they do not satisfy the employment, personal services, or fair market value exceptions.

b) Modifications to the "Stand in the Shoes" Provisions Pertaining to DHS Entities

In its CY 2008 Physician Fee Schedule ("PFS") proposed rule, CMS proposed creating a corollary "stand in the shoes" rule that would apply to the Designated Health Service ("DHS") entity link in a financial relationship chain. CMS proposed that a DHS entity to which a physician refers Medicare patients for DHS would stand in the shoes of an entity it owns or controls. CMS did not adopt this stand in the shoes "DHS entity" rule when it issued its final 2008 PFS rule, but again offers the DHS entity rule in the 2009 IPPS Proposed Rule, with some modifications. As to ownership, the DHS entity would stand in the shoes of an entity in which it has a 100% ownership interest, but CMS seeks comments as to whether a lesser ownership amount should also trigger application of the rule. CMS is also seeking comments as to what level of control should trigger application of the entity "stand in the shoes" provision.

c) Modifications to the Stark Period of Disallowance

CMS offers several proposals that would refine the "period of disallowance" for Stark violations. Previously, in its CY 2008 PFS proposed rule, CMS proposed simply that the period of disallowance would begin on the date that a financial relationship failed to comply with Stark, and would end on the date that the arrangement came into compliance or ended. CMS now proposes:

• Where the reason for Stark noncompliance does not relate to compensation (e.g., a missing signature, or the agreement was not in writing), the period begins on the date the arrangement was first out of compliance and ends when the arrangement was brought into compliance.


• Where the reason for Stark noncompliance relates to compensation that is not fair market value, the period ends no later than the date the excess compensation is returned to the party that provided it, or the date the party makes up any shortfall in compensation to the party owed. The arrangement must otherwise satisfy the requirements of an applicable exception.


• If a non-compliant arrangements ends before it was brought into compliance, or if the reason for Stark noncompliance relates to the compensation varying with the volume or value of referrals, the period of disallowance would be determined on a case-by-case basis.

d) Other Stark Modifications Under Consideration

Definition of "Indirect Compensation Arrangement." CMS may revise its definition of "indirect compensation arrangement" or may provide additional guidance on interpreting certain aspects of that definition. For example, CMS believes providers conclude too infrequently that the "aggregate compensation" element is satisfied and thus an indirect compensation arrangement may exist (see 42 C.F.R. § 411.354(c)(2)). CMS believes that aggregate compensation can vary "in a wide range of circumstances, including, without limitation, arrangements involving: variable, per-click, or percentage-based compensation; exclusive contracts; inflated fixed payments; or explicit or implicit tying of compensation to other referrals."

Percentage-Based Compensation and Gainsharing Arrangements. CMS is considering whether to issue an exception to its percentage-based compensation rule to address physicians who participate in gainsharing arrangements.

Applications of Stark Law to Physician-Owned Implant and Medical Device Companies ("POCs"). CMS again is soliciting comments as to whether Stark should apply directly to POC entities (such as by amending the definition of DHS entity), or whether concerns about physician ownership in these companies is better addressed through the False Claims Act, Anti-Kickback Statute, and other fraud and abuse laws.

e) Solicitation of Public Comments

Comments to CMS's 2009 IPPS proposed rule are due by 5 PM EST June 13, 2008, and can be sent electronically at www.regulations.gov (enter file code CMS-1390-P), or via regular mail to CMS, DHHS, Attention: CMS-1390-P, P.O. Box 8011, Baltimore, MD 21244-1850.

If you have any questions regarding this Client Alert or would like assistance with the submission of comments to CMS, please contact David Robbins, Anne Redman, Lisa Dobson Gould, Renee Howard, or Megan Grembowski at 206-622-5511.