ALS MEMBER UPDATE: JANUARY 20, 2002
The District Court, however, disagreed with CMS. A urologist referral for the provision of lithotripsy, is, therefore, not a referral for DHS under the Stark II law even when provided under arrangement. At their core, the District Court decision and Order stand for the proposition that a referral by a urologist to a lithotripsy entity in which that urologist is financially interested is not banned by Stark II, and is not required by the Stark II law or regulations to meet a Stark II exception.
However, the question remains whether the referral to the hospital by a urologist in a lithotripsy venture for DHS other than lithotripsy implicates Stark II. To illustrate, a lithotripsy venture typically is structured as follows:
First, in many urologist-owned lithotripsy arrangements, particularly mobile and transmobile arrangements, the only referrals made to a hospital by the urologist owners are for lithotripsy. Accordingly, as to those arrangements, the District Court decision is conclusive: arrangement not covered; no Stark II exception required as to lithotripsy referrals.
Secondly, in the situation diagramed above, ALS agrees that the investor physician would have an "indirect compensation arrangement" with the hospital, affecting referrals for DHS other than lithotripsy, but only if the compensation paid by the hospital to the lithotripsy entity is on a per procedure basis. In that case, CMS is correct that an exception would be necessary to comply with Stark II as to the referrals to the hospital by the urologist-investor of non-lithotripsy DHS.
If the compensation arrangement between the hospital and the lithotripsy entity is a flat payment rate (e.g., a set daily amount paid weekly, monthly or annually) because such an arrangement is not an indirect compensation arrangement, under the Stark II definition. Accordingly, in that case, the referral for non-lithotripsy DHS from the physician to the hospital would not be subject to Stark II prohibitions (provided, of course, that the physician has no fundamental interest in the non-lithotripsy DHS).
Thirdly, ALS believes that, where Stark II may apply to referrals by urologist owners for non-lithotripsy DHS, the District Court decision undercuts CMS' position on FMV. It would be useful at this point to remind ALS members that CMS adopted a "special" definition of FMV in the Stark II final rule.
"Because the prevalence of physician ownership of lithotriptors may distort pricing in the marketplace, we believe valuation methods that look to the prices charged by persons not in a position to refer to the hospital or that consider acquisition cost and rate of return are especially appropriate."
At the heart of CMS' "special FMV definition", is its conclusion that lithotripsy is a hospital service. Because of the courts ruling that lithotripsy is not an inpatient or outpatient hospital service, CMS' premise that FMV is based upon acquisition cost to the hospital is erroneous. Since the lithotripsy services belongs to the physician owned entity, the entity is certainly entitled to the benefits of its ownership. Accordingly, ALS believes that compliance with the FMV element of any of the applicable exceptions should be met if there is an arm's length negotiation between the parties that accounts for the relative value of the services performed by each party. If, for example, the lithotripsy entity provides and/or performs 90% of the services and the hospital performs 10% of the services, a 90-10 split in the respective lithotripsy fees received by the hospital from the payor should meet the FMV test. We caution that the OIG may not agree with that definition of FMV. But, in light of the findings contained in the District Court decision, ALS believes CMS would be hard pressed to prevail on its contention that the hospital, not the urologist-owned facility, is entitled to the profits or returns of the facility that it does not own.
In summary, the practical significance of the American Lithotripsy Society v. Thompson case, therefore, is that:
(i) if a physician investor in a lithotripsy facility refers his/her patient to a hospital with which the facility has an "under arrangement" relationship, that referral is not subject to Stark II;
(iii) where a physician has an indirect compensation relationship with the hospital (because the lithotripsy facility in which he/she has an ownership interest is paid by the hospital on a per click basis), in light of the courts ruling that lithotripsy is not an inpatient or outpatient hospital service, it appears that the payment by the hospital to the lithotripsy entity will meet the "fair market value" test in each applicable Stark II exception, if the lithotripsy entity receives from the hospital a portion of the lithotripsy fees paid to the hospital which reflects the relative contribution of the lithotripsy facility.
This member update addresses specific elements of the District Court decision in the case brought by ALS and USA against Medicare. It does not purport to be a comprehensive analysis of the Stark II law or regulations. Nor does it address the Anti-kickback law, which remains applicable to every physician referral and financial relationship. This ALS member update is intended to provide members with information on recent legal developments. It should not be construed as legal advice or a legal opinion. As always, ALS strongly encourages each member to consult qualified health care counsel with respect to the particulars of any relationships or transactions which implicate health care law or regulations.
AMERICAN LITHOTRIPSY SOCIETY
American Lithotripsy Society
305 Second Avenue, Suite 200
Waltham, Massachusetts 02451
Telephone: (781) 895-9098
Fax: (781) 895-9088
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