It took more than five years, but the federal government last week released its final regulations implementing Stark II, a oft-debated and complex statute that bars self-referrals of Medicare and Medicaid patients.
The regulations, which took up more than 100 pages of the Federal Register, aren't expected to trigger a dramatic change in the way physicians and hospitals conduct patient referrals under the law, which targets kickback schemes.
But the regulations help clarify parts of the statute and appears to relax strict limits on self-referrals by physicians, providing a welcome guidebook on exceptions to a long list of prohibitions, some healthcare industry observers said. The new regulations also will "substantially" reduce potential liability for hospitals, federal officials said.
"Finally, we have regulations," said Jason Hill, lobbyist for the American Medical Group Association, which represents about 300 practices and more than 60,000 physicians. "Only time will tell what effect it has. We'll have to wait and see how the Department of Justice interprets it. That's the next big step."
The final regulations were released by outgoing HHS Secretary Donna Shalala, who said they will protect beneficiaries and taxpayers while making it easier for physicians and providers to comply with the federal law.
"We've taken a common-sense approach to the law to prevent potentially abusive referrals while recognizing many legitimate business practices and financial arrangements," Shalala said. "Physicians should be able to structure their business arrangements to comply with the law while continuing to provide high-quality healthcare to beneficiaries."
Stark II was intended to limit physicians' ability to refer Medicare and Medicaid patients for 10 designated healthcare services to organizations with which the physician or immediate family members have an ownership interest or compensation arrangement. The final rule clarified proposed regulations first published in 1998 by HCFA. It expands on an earlier law, the so-called Stark I statute enacted in 1989, which bars some referrals for clinical laboratory services.
The final rule bars physicians from referring patients to most organizations that they own in whole or in part. But it "generally permits" physicians to make those referrals "as long as the compensation paid to the physician is no more than would be paid to someone who provided the same services but was not in a position to generate business for the entity."
Though widely embraced by the medical community, even this so-called fair-market-value compensation provision has attracted critics because of its potential for ambiguity.
"Anytime you say, `Yes, that's OK, but,' there's a possibility for confusion," said Michael Fleming, M.D., of Shreveport, La., who is speaker of the congress of delegates of the 89,400-member American Academy of Family Physicians. "I'm pleased they clarified some language. But I'm not pleased with the law in the first place. The premise itself is onerous."
Officials of the American Medical Association, which opposed Stark II, were still poring over HCFA's new regulations and were unable to comment specifically on its impact.
"Obviously, it's taken a long, long time to get these rules out," said Yank Coble, M.D., a member of the AMA's board of trustees. "We'll have to study them carefully. We have to be extremely careful about these administrative burdens. We've got attorneys doing nothing but working on Stark."
Gabriel Imperato, a healthcare attorney with Broad & Cassells in Fort Lauderdale, Fla., said the final regulations appear to be a much-needed compromise on the part of federal officials.
"It appears as if HCFA and the office of inspector general of HHS have made an effort to provide some flexibility in the interpretation of the statute provisions that were not possible without this clarification," he said.
He suggested that the concessions may have been triggered by pressures from Capitol Hill lawmakers who wanted to gut Stark II under a withering assault from medical groups.
"There has been some congressional pressure to amend the statute," Imperato said. "Now, there's been a lot of smoke without much fire, but I think the regulatory package may, to some extent, alleviate some of those concerns on the Hill."
The final rule "substantially reduces" hospitals' potential liability for providing services and submitting claims for prohibited referrals when they neither knew nor had reason to suspect an indirect financial relationship with the referring physician. Under the proposed rule any claim submitted for prohibited referrals would have been denied, even if the hospital or other organization wasn't aware of an indirect financial relationship.
Maureen Mudron, the Washington-based legal counsel for the American Hospital Association, said most of the final rules released last week don't have any additional impact on hospitals. An impact will be felt when a second set of final regulations, in phase II of the regulations, is announced sometime after the 90-day comment period for last week's announcement, she said.
"They want to get the word out in terms of the physician practice side of it," she said of HCFA officials. "And they're reserving for another (time) getting into compensation arrangements and ownership and all its intricacies."
She said the provision that reduces hospital liability "looks very helpful; it protects against having an innocent situation work against the hospital."
The new regulations also clarify some exceptions to the self-referral prohibition and offer guidance on how to structure financial arrangements to comply with the exceptions. The final regulations will take effect Jan. 4, 2002.
"The final rule should allow physicians and healthcare businesses to stay competitive in a rapidly changing industry," said Robert Berenson, HCFA's acting deputy administrator.
One HCFA spokesman said the agency "tried to make things simpler. This is a more provider-friendly rule. We've interpreted the prohibitions narrowly and the exceptions broadly."
The final rule also expands the law's exceptions for services provided in a physician's office and for services provided by managed-care plans. It also eases the criteria under which a group of physicians can qualify as a group practice. And it protects financial arrangements between academic medical centers and their faculty if certain criteria are met.
Hill, the AMGA's lobbyist, called the in-office ancillary service exceptions "much broader" under the final regulations.
Stark I prohibited physicians from referring a patient to a clinical laboratory with which they had a financial relationship. Stark II expanded that premise to prohibit physicians from referring patients to providers in 10 other categories of healthcare services when a financial interest was involved.