ALS MEMBER UPDATE: January 4, 2001

Stark II Regulations Published

The Stark II Final Regulations were placed for public inspection today. They will be published in the Federal Register likely next week. The regulations will not be effective until the date one year from publication in the Federal Register, some time in January of 2002.

Our initial reading of the regulations relating to lithotripsy is as follows:

HCFA reconfirmed that all services performed under arrangement with the hospital are included as "inpatient or outpatient hospital services" including specifically lithotripsy when so performed.
While HCFA did not address it specifically, it is clear that lithotripsy is only a "designated health service" when performed "under arrangement." That means that whenever the ambulatory surgery center rates for lithotripsy are finalized, physician ownership and referral of lithotripsy patients to an ASC will be unaffected by the Stark II Regulations.
Professional physician services, including physician services for performing the lithotripsy procedure are not themselves "designated health services" i.e., only payment for technical services will be considered designated health services and thus subject of the Stark II self-referral ban.
HCFA confirmed that the character of the relationship between a physician-owned lithotripsy provider and a hospital "under arrangement" is a "compensation relationship" not an "ownership" or "investment" relationship. Accordingly, if the hospital/physician-owned lithotripsy provider relationship is structured to meet either the "lease" exception or "personal services" exception, physicians may continue to own lithotripsy facilities and refer their patients to them.
HCFA reconsidered its proposal to ban "per use" or "per click" lease payments where the equipment leased was owned by physicians who referred their patients for treatments using the equipment. The final rule specifically permits per use equipment rentals so long as:

the payment per unit is set in advance and is at fair market value at inception

the payment does not change during the contract period (required to be at least one year in duration)

the lease otherwise meets the requirements of the Stark exception (in writing, signed by both parties; accurately states the equipment, space, etc. being leased; does not exceed that which is reasonable and necessary for the legitimate business purpose of the lease and is used exclusively by the lessee when being used by the lessee; commercially reasonable even if no referrals were made between the parties)

We are disappointed that HCFA maintains its position that lithotripsy, when provided under arrangement with a hospital, continues to be a "hospital inpatient and outpatient service" and thus covered by Stark II. As HCFA pointed out in its regulations, however, and as pointed out in the ALS Compliance Guidelines, an "arrangement" with a hospital constitutes a "financial relationship" between a physician owner of a lithotripter and the hospital, thus requiring that any lithotripsy arrangements must meet a Stark exception anyway if other referrals are made to the hospital for other "designated services" e.g., normal admissions, radiology, radiation oncology, ambulance services, durable medical equipment, prescription drugs, etc.

We are continuing to review with counsel over 600 pages of regulations. Since the regulations will not be final for a year, we have considerable time to do that. Although these regulations are "Final" it bears repeating that they are not effective for another year and HCFA is again soliciting comments for a period of 90 days from publication in the Federal Register. ALS intends to file additional comments with HCFA during this new 90-day comment period. The ALS is also evaluating the effect regulations will have upon its membership, and exploring all options available to it in the event that it concludes its membership will be seriously adversely affected by the final regulations.

As always, ALS recommends that its members who are affected by these new Stark II Regulations consult qualified health care counsel with respect to the structure and substance of any physician-related ventures.

The regulations may be found online at The discussion of lithotripsy is found particularly at pp. 511-527 and 127-140.



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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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