The Centers for Medicare & Medicaid Services (“CMS”) is authorized to issue advisory opinions regarding whether a proposed arrangement violates the Ethics in Patient Referral Act of 1989, 42 U.S.C. § 1395nn, and its corresponding regulations at 40 C.F.R. § 411.350 et seq. (the “Stark Law”). The Stark Law prohibits physician referrals of Medicare or Medicaid patients for designated health services, as defined by the statute, to any entity in which the physician, or an immediate family member, has a financial relationship, unless a regulatory exception applies. It also prohibits an entity from making a claim for payment under the Medicare or Medicaid programs for the provision of a designated health service referred by a physician with a financial interest in the entity, unless a regulatory exception applies. Under the Stark Law, a financial relationship includes either direct or indirect ownership/investment interests or direct or indirect compensation arrangements. If a financial arrangement violates the Stark Law, the otherwise prohibited physician referral will be permissible if an appropriate exception is fully satisfied. Advisory Opinions often address whether or not an exception applies in a given situation. Advisory Opinions are issued to the party requesting the opinion and are only binding on CMS. While such guidance has no applicability to arrangements other than those described in the opinion, they are often helpful in determining how CMS will interpret similar action by other parties. CMS has released two advisory opinions within the past month addressing referral relationships between physicians and entities in which the physicians have a financial relationship. Seeing as CMS has only issued seven advisory opinions since 1998, excluding those issued to specialty hospitals, the issuance of two opinions within a few weeks highlights CMS’s increased attention on the Stark Law. In CMS Advisory Opinion 2008-01, a nonprofit hospital proposed to license custom software interfaces to its medical staff physicians. The software interfaces would allow the physicians to order or communicate the results of tests and procedures furnished by the hospital. The software could not be used for any other purpose and the physicians could not sell, transfer, or otherwise assign its license to access the hospital software system. The software would allow the hospital to integrate its software information system with the individual systems used by the physicians in their respective private practices. The hospital would pay for the costs associated with the software interfaces. Consequently, CMS determined that the proposed arrangement would not constitute a compensation arrangement (i.e., a financial relationship) prohibited by the Stark Law. The definition of a compensation arrangement under the Stark Law excludes “[t]he provision of items, devices, or supplies that are used solely… to order or communicate the results of tests or procedures for such entity.” 42 U.S.C. § 1395nn(h)(1). Because the system’s functionality fit directly within this exception, CMS concluded that the proposed arrangement would not violate the Stark Law. However, CMS cautioned that it was not making a determination regarding systems that function beyond the sole purpose of ordering or communicating the results of test or procedures. Consequently, this opinion leaves open the question of whether or not similar systems which provide functions beyond solely ordering or communicating test results would violate the Stark Law if provided by hospitals to physicians on the medical staff. Such arrangements may fall under the exception for nominal non-monetary compensation or for medical staff incidental benefits. However, each arrangement must be viewed on a case by case basis in order to determine if an exception to the Stark Law applies. In CMS Advisory Opinion 2008-02, physician owners of a diagnostic center asked whether their arrangement fell under the rural provider exception to the Stark Law. The center offers physician consultations, clinical laboratory services, and diagnostic radiology services. The physician owners make referrals to the center for such services. CMS noted that since the county where the center is located is not a metropolitan statistical area (i.e., it is a rural area) and since at least seventy-five percent (75%) of the designated health services were furnished to individuals outside a metropolitan statistical area, the elements of the rural provider exception were satisfied. CMS cautioned that the requirements of the rural provider exception are ongoing. Therefore, since the rural provider exception is often used to bring arrangements into compliance with the Stark Law, providers should carefully review the two-prong test for meeting the exception. Furthermore, providers should continue to monitor their practices, as situations may change that cause an otherwise prohibited arrangement to no longer satisfy the exception. For a copy of these and other CMS Advisory Opinions, visit: http://www.cms.hhs.gov/PhysicianSelfReferral/07_advisory_opinions.asp. CMS Rescinds New “Incident To” Guidelines As discussed in last month’s publication, on May 2, 2008, the Centers for Medicare and Medicaid Services (“CMS”) published what it called “clarifications” for “incident to” billing by a physician in a physician’s office. The new provisions were intended to go into effect June 2, 2008. However, due to criticism from various physician trade groups that the “clarifications” were in reality new rules for incident to billing, CMS issued a one sentence notice rescinding the new provisions. (Unfortunately, the notice was issued after the June Birmingham Medical News went to press.) At this time, there is no indication if and when CMS will republish any of the clarifications. The fact that the clarifications were rescinded does not change long-standing “incident to” billing provisions, including the requirement that any incident to service be provided under the direct supervision of a physician. Those provisions can be found at Medicare Benefit Policy Manual, Chapter 15, Section 60.1. Further, billing incident to remains prohibited for services having their own Medicare Part B benefit category, including diagnostic tests. Kelli Fleming is an associate with Burr & Forman LLP and practices exclusively within the firm’s Health Care Practice Group. July 2008