Member Updates: December 7, 2001

ALS Lawsuit Challenging Stark II Regulations
Change in HOPPS Rate

There have been several developments on the legal/regulatory front affecting ALS members. The first is an initial ruling in the lawsuit we filed challenging the Stark II regulations. The second is a change in the rate set by CMS under the hospital prospective payment system ("HOPPS") for lithotripsy. The third is a decision by CMS to reconsider how it defines "set in advance" under the Stark II regulations.

I. The Lawsuit against CMS
ALS and the Urology Society of America filed suit against the Health Care Financing Administration, now the Centers for Medicare and Medicaid Services ("CMS") in August seeking a ruling that the Stark II regulations were illegal to the extent they sought to encompass lithotripsy. We further sought an injunction preventing CMS from enforcing the Stark II regulations with respect to lithotripsy. We finally received a ruling from the court on the injunction motion late last week.

Unfortunately, the judge denied our request to bar the regulations from going into effect on January 4, 2002. In a two-page opinion, the judge found that we had not demonstrated the regulations were causing irreparable harm to ALS members. The judge apparently accepted CMS's argument that we had not proven sufficient economic injury to justify an immediate order preventing the regulations from going into effect.

This does not mean the judge has upheld the regulations. The judge's opinion did not address the legality of the Stark II regulations. He will rule on that issue at a later point. While we will push for an early decision on that issue, we must presume, given the judge's track record, that he will not issue a ruling until well after the January 4, 2002 effective date of the regulations.

In the meantime, we intend to appeal the judge's decision on the injunction to a higher court. Our attorneys advise that the lower court judge's opinion is deficient in a number of ways. The judge did not discuss with any specificity the evidence we submitted or why he viewed it as insufficient. He did not address our claims or the issues in the case. Indeed, his opinion does not even mention the regulations.

The appeals court likely would hold the judge committed error by issuing such a cursory opinion. Our hope is that the appellate court would undertake the analysis the lower court failed to do and bar the regulations from going into effect. Of course, the court could agree that the judge's opinion was deficient but find the result should be the same. We are told that the most likely outcome is that the appellate court would reverse the lower court without getting into the substance of the regulations and send the matter back to the lower court to explain with more detail why he found our evidence of harm caused by the regulations insufficient. At the least, that would force the judge to take our case more seriously.

While we will try to get a final decision as soon as possible, we do not see a resolution of the court battle before January 4, 2002. Consequently, all providers of lithotripsy technical services must either come into compliance with the Stark II regulations by that date or discontinue treating Medicare and Medicaid patients. Please note that a decision by lithotripsy centers to stop providing technical services to government-insured patients does not require individual physicians to also stop treating Medicare and Medicaid patients. For more details, please consult your legal counsel.

We realize that once contracts with hospitals are renegotiated to comply with CMS's arbitrary view of fair market value, the damage to some extent is done. Losses resulting from those contracts cannot be recovered. This does not mean, however, the battle is over. If the application of the Stark II regulations to lithotripsy were declared illegal at some point after January 4, 2002, all subsequent contracts can be negotiated without the specter of the regulations. The hospitals have disproportionate leverage because of the regulations. If the regulations are declared unenforceable, the leverage decreases. We therefore strongly recommend a continuation of the legal challenge.

The problem is that we cannot do this alone. ALS and USA do not have the resources to fund the continuation of the fight. All previous contributions have been spent. WE NEED YOUR HELP. We urge all of you with a financial stake in the outcome of this suit to contribute towards the legal fees we will incur in the next few months. Without your support, we may be forced to throw in the towel. Please send contributions to the ALS' Lithotripsy Education and Awareness Fund [LEAF] c/o American Lithotripsy Society – 305 Second Avenue, Suite 200 – Waltham, Massachusetts 02451.

II. Change in HOPPS Rate
On November 30, 2001, CMS released the 2002 HOPPS final regulations. The HOPPS reimbursement rates are effective on January 1, 2002. CMS annually updates the reimbursement rates for HOPPS pursuant to statute.

Lithotripsy performed in a hospital outpatient setting during the 2002 calendar year will be reimbursed at the rate of $2,016.82, subject to increases or decreases in certain locations based on the applicable geographic wage index. The 2002 reimbursement rate is $330.43 less than the 2001 reimbursement rate. The $2,016.82 represents the technical component only. The professional services are subject to a separate payment under the Physician Fee Schedule which was discussed in update number ___.
The decrease in lithotripsy reimbursement results to some extent from increases CMS made to the reimbursement rate for the technical portion of procedures associated with innovative medical device technology. CMS previously reimbursed hospitals for disposable innovative medical devices based upon the hospital's charge associated with the innovative medical device. This reimbursement methodology is commonly referred to as a "pass-through" payment. Costs for the device are separately passed through to Medicare in addition to the technical component associated with the procedure.

Because pass-through payments have skyrocketed, CMS has moved a significant portion of the "pass-through" costs into the technical component of the HOPPS procedure, and dramatically reduced the allowable pass-through charges. CMS is required, however, to ensure that any increases in HOPPS reimbursement rates are budget neutral, i.e., any alteration, modification or change will not increase Medicare's total payments for HOPPS. Therefore, to preserve budget neutrality, CMS had to decrease the reimbursement rate for those procedures generally not associated with a "pass-through" device. Those procedures included lithotripsy.

How CMS calculated the rate or the decrease is not explained in the regulations. CMS did imply in the preamble that lithotripsy costs are inflated due to "the widely variable arrangements hospitals make for use of the extracorporeal lithotriptor," thus suggesting that CMS reduced the rate for lithotripsy more than for other procedures. 66 Fed. Reg. 59855, 59862. While we have not done an exhaustive analysis, the decrease for lithotripsy seems to exceed the decrease for other procedures.

While CMS's action appears somewhat arbitrary, we have no judicial avenue to challenge the rate. Congress expressly has forbidden courts from reviewing CMS's methodology in determining the reimbursement rate pursuant to the HOPPS statute. We nevertheless intend to bring this rate decrease to the attention of the courts hearing the Stark II litigation as evidence why extending the Stark II regulations to lithotripsy is unnecessary.

III. CMS Decides to Delay Implementation of the Stark II Regulations with Respect to the Definition of "Set in Advance"

The one bright spot is that in a separate announcement CMS has stated its decision to delay for one year its interpretation of "set in advance" in the Stark II regulations.

In most cases, compensation received by a lithotripsy center from a hospital must be "set in advance" in order to meet Stark II requirements. The Stark II regulations do not permit certain percentage compensation arrangements with hospitals where the compensation is based on a measurement that fluctuates or is undetermined, or that would give the lithotripsy varying payment amounts for the same service from the same hospital. For example, the following compensation arrangements would not be deemed "set in advance" and therefore would not permitted under the regulations:

  • Payment of a percentage of collections
  • Payment of a percentage of gross or net revenue
  • Payment of a percentage of expenses
  • Payment of a percentage of multiple fee schedules for the same procedure.

The last category is perhaps the most complicated. For example, compensation for lithotripsy technical fees could not be set at 20% of the Aetna fee schedule amount, 20% of the Blue Cross/Blue Shield fee schedule amount, and 20% of the Cigna fee schedule amount, etc. Since each insurer pays a different amount, the fees received by the lithotripsy center would be considered variable rather than fixed. It would be permissible, however, to pay a percentage of a single fee schedule.

CMS's decision delays the effective date of CMS's interpretation of "set in advance" with respect to percentage compensation. Accordingly, until January 6, 2003, any of the percentage compensation arrangements outlined above are permissible. The stated purpose of the delay is to give CMS time to reconsider its definition of when compensation is "set in advance" and whether to modify this portion of the regulations. We do not know what form that modification may take or if any modification will ultimately be made. Again, for further guidance, please consult your legal advisor.

If you have any questions concerning this Member Update, please contact the Executive Director of the American Lithotripsy Society, Wes Harrington at the ALS Headquarters in Waltham, Massachusetts. Watch the ALS Website / Governmental Affairs Updates / for more information regarding this situation in the weeks ahead.

Back to Governmental Affairs

Visit us again to receive up-to-the-minute reports on major issues such as the Health Care Finance Administration's (HCFA) proposed implementation of the Stark II (Physician Ownership) regulations and HCFA's proposed rates for lithotripsy performed in/out patient and ambulatory surgical center settings.

For additional information contact, Wesley E. Harrington, CAE, Executive Director of ALS at:
American Lithotripsy Society, 305 Second Avenue, Suite 200
Waltham, Massachusetts 02451
Telephone: (781) 895-9098
Fax: (781) 895-9088


American Lithotripsy Society
305 Second Avenue, Suite 200
Waltham, Massachusetts 02451
Telephone: (781) 895-9098
Fax: (781) 895-9088

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