New CMS anti-referral rules tighten knot on leasing arrangements

August 12, 2008

Following its charge to reduce costly imaging overutilization, the Centers for Medicare and Medicaid Services has announced more stringent prohibitions against self-referral practices. Final Stark rules for the Hospital Inpatient Prospective Payment System for 2009 could force providers to restructure numerous space and equipment arrangements.

Following its charge to reduce costly imaging overutilization, the Centers for Medicare and Medicaid Services has announced more stringent prohibitions against self-referral practices. Final Stark rules for the Hospital Inpatient Prospective Payment System for 2009 could force providers to restructure numerous space and equipment arrangements.

Changes to Stark law regulations had anticipated since CMS discussed some proposals in its 2008 rule. Medicare had then noted that more than 1000 comments had provided enough input to implement future regulations without further discussion. The new provisions broaden the definition of Designated Health Services (DHS) "entities" and prohibit under-arrangements and "per-click" arrangements for space and equipment leases.

Until now, only those healthcare institutions billing Medicare for DHS had been considered as DHS entities under Stark rules. The final IPPS rule has expanded the definition to include any facilities that perform DHS, regardless of whether they bill CMS or not.

The old Stark rules prohibited physicians from referring patients to any facilities with which they have a direct financial interest. The rules, however, allowed referring physicians to have indirect compensation arrangements with hospitals to which they referred Medicare patients for imaging studies. This compensation from the hospital flows from a physician's ownership in an entity that furnishes technical component services to the hospital receiving the physician's referrals pursuant to under-arrangement contracts between the entity and the hospital. The new Stark rules will make it impossible for referring physicians to enter such type of contracts.

The old rules also allowed for certain percentage-based or per-click payments to physicians for the lease of space and equipment. CMS has come to consider such payments as an incentive to earn compensation for each referral a physician makes. The final Stark rule will no longer permit them. Lease arrangements in which the referring physician or the physician's practice is either a lessor or lessee are implicated by the new rule.

The final IPPS rules will become effective Oct. 1, 2009. They will be published in the Aug. 19 issue of the Federal Register.

The implications for radiologists are positive. The new rules will take further incentive away from self-referral and will make lease arrangements with imaging centers less attractive, said attorney Thomas W. Greeson, a partner in the law firm of Reed Smith LLP in Falls Church, VA,

"It will also mean that many of the arrangements where hospitals have been able to establish relationships with referring physicians based on ownership or leasing of services on a per-click basis will be less attractive and give radiologists the opportunity to be part of the technical component services that otherwise were provided under these various arrangements," Greeson told Diagnostic Imaging.

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