Physicians would be able to invest in hospitals but not hospital-owned ancillary services, including home care, according to long-awaited regulations proposed by HCFA last week.
The proposed regulations spell out how the government plans to enforce the "Stark II" physician self-referral law. The law, which took effect in January 1995, bars physicians from having an ownership interest in 11 types of healthcare facilities or services to which they refer Medicare or Medicaid patients.
The law was sponsored by Rep. Pete Stark (D-Calif.), who sponsored an earlier law banning physician ownership of medical laboratories. That law, known as Stark I, took effect in 1992.
Under the two laws, such self-referrals are considered violations of the federal anti-kickback statutes, which bar any form of remuneration to induce Medicare or Medicaid patient referrals. In theory, doctors who own ancillary services may be induced to refer patients to those services to increase their return on investment.
The new regulations, proposed in the Jan. 9 Federal Register, would permit doctors to refer patients to hospitals in which they have invested -- provided they have admitting privileges.
But a physician's referral to a home health agency, laboratory or other provider the hospital owns would be considered illegal under the proposed regulations. The only time such a referral would be allowed is when the hospital delivers the service directly instead of through a subsidiary provider.
An attorney familiar with self-referral law said the regulation will give hospitals with physician investors an incentive to bring providers of the 11 other "designated health services" within the walls of its corporate structure, not as a subsidiary provider.
"There's this strong preference in the law for everything to be owned by the same corporation," said Lou Glaser, an attorney with Gardner, Carton & Douglas in Chicago.
The language of the regulation, however, states that no matter how an ownership arrangement is structured, it would be impossible for a hospital-owned home health agency to qualify under the hospital-ownership exemption.
That is because Medicare law requires that home health agencies have their own provider agreement with Medicare -- regardless of whether the agency is freestanding or owned by another company -- and comply with a set of conditions of participation laid out by Medicare, HCFA said.
The regulation could affect the ongoing federal fraud probe of Columbia/HCA Healthcare Corp. Federal enforcers have been combing Columbia records for evidence of illegal physician self-referrals and Medicare billing (July 21, 1997, p. 2).
"The home health business clearly is aimed at Columbia," said Larry Oday, an attorney with Vinson & Elkins in Washington.
The investigation is similar to a lawsuit filed in 1996 by two competing home-care agencies in Texas alleging that Columbia pressured physicians to channel patients to Columbia-owned home-care agencies and paid the doctors to do so (March 31, 1997, p. 11).
Columbia has decided to sell off its $1 billion home-care division, the third-largest with 570 sites in 36 states (Aug. 11, 1997, p. 2).
Because of the investigation, Columbia also is unraveling its hospital-physician syndication deals, which allow physicians to hold an ownership interest in an individual hospital or in the Columbia hospitals in a defined market. Taken alone under the Stark II proposed regulation, that arrangement would be legal. But any referral by a physician investor to a Columbia-owned home-care agency could run afoul of the Stark II rules.
Some 3,000 of the 90,000 physicians that admit patients to Columbia hospitals were part of 45 syndication, or investment, deals with the investor-owned giant. So far, 1,500 physicians have pulled out or have promised to pull out of seven of the syndication deals.
The Stark regulations, if they take effect without changes, could provide investigators from numerous federal agencies with more legal ammunition to use against Columbia.
But HCFA Administrator Nancy-Ann Min DeParle said she didn't know if the publication of the regulations would have an effect on the Columbia investigation.
The proposed regulations also contain some good news for hospitals that own home health agencies, said Mary Grealy, senior Washington counsel for the American Hospital Association.
The regulation clears referrals to hospital-based home health agencies by physicians who were employed by hospitals or those who had personal services contracts with the hospital, Grealy said.
Freestanding agencies had challenged the legality of those referrals under a 1980 law that barred physicians from referring patients to any home health agency with which the physician had a financial relationship worth more than $25,000 a year.
The public comment period on the proposal ends March 10. Rules will be published after HCFA analyzes provider comments.
With Patricia B. Limbacher and Eric Weissenstein