Stricter Self-Referral Rules Under Stark May Bring an End to Some Physician-Hospital Contracts

Major changes to the federal anti-self-referral rules known as the Stark law take effect October 1, 2009.  These changes were approved over a year ago, and could potentially cause many physician-hospital arrangements to fall out of compliance if doctors are not prepared. Lack of knowledge of the Stark law revisions or the structure of a particular agreement will not excuse physicians from liability.

The changes to the Stark law make it much more difficult for physicians and other entities providing designated health services to enter into joint ventures around hospital services. Stark is a strict-liability statute, so even if physicians have innocent intentions, they are still subject to penalties for violating the statute.

The Stark law generally prohibits physicians from referring patients to entities in which they have a financial stake, although there are several exceptions to the rule. In August 2008, the Centers for Medicare & Medicaid Services (“CMS”) issued a final rule making broad revisions to the Medicare hospital inpatient prospective payment system that will restrict:

  • So-called “under arrangements,” where hospitals contract with physician-owned entities to provide a broad range of ancillary services, such as clinical labs or imaging services.
  • Per-use or “per-click” payments for equipment and space leases.
  • Compensation deals based on a percentage of revenue generated by space or equipment use.

The changes were delayed one year from the original October 1, 2008, implementation date.

In order to comply with the changes to the Stark law, physicians will need to restructure contracts to narrow the scope of services they perform for a hospital.  For example, a physician-owned entity may need to limit its clinical services but still could conduct billing and management activities.

How Should Physicians Prepare for the Stark Changes?

Here are some steps physicians can take to ensure compliance with the rules taking effect October 1, 2009:

  • Consult an attorney to determine whether current hospital joint ventures or space and equipment leases will continue to be compliant with Stark.
  • Review contracts for clauses that allow parties to amend or dissolve agreements as a result of changes in the law. Be sure to include such clauses in future contracts.
  • Consider restructuring existing deals to limit the scope of services provided or to take advantage of other applicable safe harbors. In some instances, physicians may be forced to unwind the arrangements.
  • Make sure any changes to compensation reflect fair market value.
  • Review any state self-referral laws.
  • Make any changes to agreements in writing.

© 2009 Parsonage Vandenack Williams LLC

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