On September 5, 2007, the Centers for Medicare and Medicaid Services published the long-awaited third phase of its final rulemaking (Phase III) regarding the Stark Law. The regulations promulgated under Phase III will go into effect December 4, 2007. Before December 4, 2007, it is likely that institutional health care providers will need to restructure some of their arrangements with physicians. The following is a selected list of the key types of arrangements that should be reviewed under Phase III.
· Any arrangements with physician groups currently permitted under the Stark Law "indirect compensation" analysis will need to meet a direct compensation exception to the Stark Law before December 4, 2007. For example, lease arrangements with groups will now need to meet the lease exception. Any "shared space" leases will need to be restructured.
· All oral arrangements with groups must be reduced to writing before December 4, 2007. Phase III significantly narrows the types of arrangements that will be subject to the indirect compensation analysis. Historically, a verbal arrangement with a medical group would have been acceptable under the indirect compensation analysis, but under the "stand in the shoes provision" introduced in Phase III, such an arrangement must be in writing and meet a direct compensation exception to Stark.
· Any current recruitment arrangement structured to meet the 75 percent patient base test but in which the physician did not relocate his or her practice from outside to inside the service area, is impermissible and must be restructured before December 4, 2007. Phase III clarifies that a physician must relocate his or her medical practice from outside the geographic service area to a location inside the service area, and either: move his or her medical practice at least 25 miles, or have a new medical practice that derives at least 75 percent of its revenues from professional services furnished to patients (including hospital inpatients) not seen or treated by the physician at his or her medical practice during the preceding three years.
· If the hospital sells anything to physicians, the effect of Phase III is to require a written agreement. This would include sales of supplies as well as drugs from a hospital pharmacy. Phase III mandates compliance with the Stark Law "fair market value" exception for compensation paid by a physician or group of physicians for items and services, which means even simple one-time sales must be in writing. Although some transactions may be considered "unrelated to the provision of Designated Health Services," many other routine transactions will be subject to this new Phase III requirement. Hospitals also will need to implement procedures to facilitate future transactions in a manner that complies with Phase III requirements.
These examples are not exhaustive, but demonstrate the need for a Stark "tune up" well in advance of the December 4, 2007, effective date to allow time for the preparation and execution of required agreements and communication with affected parties.