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Aaron Krupp, MGMA Senior Counsel for Government Affairs

Healthcare is scrutinized by the government like no other industry, and medical professionals rely on their contingent relationship with attorneys to keep them informed and well within regulations. The federal physician self-referral law, referred to as the Stark law, dictates much of what legal professionals consider in their daily workings with medical clients. Now, over a year after Stark II, Phase II, a look into the medical-legal world paints the picture of an ever increasing rift between hospitals and physician practices and the realities of structuring business deals in the healthcare industry. In addition, new stipulations are making the law more convoluted. Since early last year, the designated health services (DHS) had become finalized, with CMS ensuring that physicians could not benefit from self-referring Medicare or Medicaid beneficiaries to an entity in which they or an immediate family member hold a financial interest, from employment contracts to lease agreements. The law also laid some important exceptions, namely the in-office ancillary exception and one excluding nuclear medicine from the DHS list.

This year new developments with the law included the lifted moratorium on specialty hospitals and the inclusion of nuclear medicine as a DHS. Attorney Gary McClanahan with Baker, Donelson, Bearman, Caldwell and Berkowitz who handles the Stark law for clients all over the nation, says physicians can now look into ventures with specialty hospitals.

"It's good news for physicians who wish to invest in existing specialties," he says. "For the new specialties, however, the difficulty is the response from CMS, which is reviewing it's process for approving Medicare participation for new specialty hospitals, effectively extending the moratorium.

McClanahan, who's concentrated his practice on fraud and abuse laws for over 10 years, says he has been working under the shadow of the Stark Law since the early 90s. He works with clients to make sure the structuring or restructuring of their transactions apply with the final set of Stark II regulations, especially the important in-office ancillary services. Physicians have to comply with not only Stark, however, when it comes to Medicare beneficiaries. Between Stark, the Medicare Anti-Kickback law and Medicare reimbursements, it becomes more difficult.

"Physicians require more finesse in their transactions if a group must lease equipment and a technician to provide ancillary services," McClanahan stresses. "With Stark, a lot of structuring is for in-office ancillary services provided for less than 40 hours per week, or the ability to bring in an outside physician such as a radiologist and create a situation where physicians hit a specific Stark definition, including medical director agreements. You have to take the specific language of the Stark exceptions and work within them."

Physician groups are still interested in hospitals providing them with financial assistance when a new physician is being recruited to the community. Stark II, Phase II made it possible under certain circumstances for a hospital to recruit a physician into a community even when that physician is going to join an existing group. The difficulty with that, McClanahan explains, is a hospital's inability to reimburse for costs beyond the actual incremental costs incurred by the existing group. He thinks CMS made a sincere effort to recognize how complicated business deal are, however, problems arose that can create further difficulties in these dealings.

McClanahan explains how pairing the anti-kickback statute requirement with a number of Stark exceptions has erased the bright line this law once boasted to be.

"The government has frequently admitted they can't protect some innocuous agreements through safe harbors and must evaluate them on a case-by-case basis," he says. "The safety net of obtaining advisory opinions is not practical. It can take years. The bright line is erased."

While McClanahan spends his time helping clients structure transactions to meet all the Stark exceptions, he now has to question whether they meet the anti-kickback statute.

"Now I'm in a position where I say, 'Yes, you meet all the requirements of the Stark exception except for possibly the anti-kickback statute,' because there is so much gray area there."

Physicians may feel the skewed lines of the law as an impediment on the growth of their practice, making it difficult to expand ancillary services; however senior counsel for government affairs with MGMA, Aaron Krupp, predicts the anti-kickback clause will not cause too many problems. He also stresses that the lifted moratorium on specialty hospitals is not a loop hole.

"CMS is in a review process now so until further notice, they won't approve applications until their analysis is complete," Krupp says. "Big hospitals are strongly opposed to specialty care hospitals so they are taking more time to see how it affects big hospitals."

The impact of the lifted moratorium will be hard to determine, he reasons. Only time will tell.

"I think it's impacted how physicians and hospitals deal with each other and how physicians deal with one another," explains Krupp. "They're really had to look at how they structure their business dealings."

In configuring deals, both Stark and the anti-kickback statute must be analyzed, but the main difference is the anti-kickback statute is intent-based. Stark requires no specific proof of intent.

"It's tough to predict what will happen with the specialty hospital issues," Krupp says. "In my opinion, I think there is certainly support for trying to revise reimbursements to hospitals. I don't see a future ban but I see other established payment systems. It will reduce the risk of "cherry picking" that hospitals are concerned about."

In early August, CMS proposed expanding the scope of the Stark law to include nuclear medicine, including PET scans. If this proposal is finalized, it could likely have a significant impact on PET scan and diagnostic imaging center segments of the healthcare industry.

For Mid-South Imaging and Therapeutics, a hospital based physicians group, the inclusion of nuclear medicine as a DHS won't directly affect their business because of their relationship with the Baptist Memorial Health Care system. The practice does not refer patients themselves. Worth Saunders, chief administrative officer for the group says he thinks the nuclear medicine stipulation will have more of an impact on mobile nuclear medicine providers. Physicians can utilize the in-office ancillary exception but it will be more restrictive.

"It affects us indirectly because it impacts where referrals are sent," Saunders says. "If referrals are changed due to Stark changes, that impacts us as a hospital based physician group."

There is no doubt bitterness for physicians who have consistently seen their compensation go down as regulation goes up, McClanahan asserts. The reality of such governmental inquiry can be tough to chew and for new physicians coming in, it's hard to say what lies beyond their horizon. On top of that, the divide between the interests of hospitals and physician practices grows with increased regulation. The advances of technology have brought many modalities out of the halls of hospitals and into the smaller outpatient clinics. But the basic relationship remains between them, the need for bright physicians and a place for inpatient care.

"As services move outside the hospital and the availability of outpatient treatment increases," asserts McClanahan, "physicians and hospitals will want to invest in specialty hospitals and ancillary services and they're going to have to work together through Stark."

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