New Stark Law Exception for Sharing Space and Equipment

Written By Nate Trexler 

Physicians often ask about sharing space or equipment with colleagues.  For a number of reasons, regulatory compliance often makes the proposed arrangement impractical, if not impossible.   However, a new Stark exception will, for the first time, permit space and equipment sharing without having to satisfy the sometimes onerous and impractical lease requirements.

The federal Ethics in Patient Referrals Act, more commonly known as “Stark,” prohibits physicians from referring patients for designated health services payable by Medicare to entities with which the physician has a financial relationship, unless the arrangement satisfies an exception.  As a general matter, if an entity (which includes a physician or group practice) provides space or equipment to a referring physician, Stark is triggered and the physician is prohibited from referring patients for DHS to the entity.  To avoid application of Stark, you need to structure the relationship between the parties to comply with an exception.  When it comes to providing space or equipment, one historically looked to comply with the exceptions for leases of space or equipment.  The problem with those exceptions is that they require the written lease agreement to provide for the exclusive use of the space or equipment during the lease term, and leases could not be on an “as needed” basis.  Generally, the leasing entity and the physician could not “share” the same space or equipment during the lease term.

However, effective January 1, 2016, a new Stark exception permits physicians and hospitals or other physician groups to share “space, equipment, personnel, items, supplies or services” in non-exclusive “timeshare” arrangements.  To satisfy the exception, the arrangement must satisfy nine specific conditions.

The arrangement must be in writing and signed by the parties, specifying the premises, equipment, personnel, items, supplies, and/or services covered by the arrangement.  Importantly, the exception will only cover arrangements between a physician (or the physician’s group) and either a hospital or a different physician group.  The premises, equipment, etc. covered by the arrangement must be used “predominantly” for the provision of evaluation and management services to patients, as CMS wished to avoid scenarios where arrangements were set up so the physician only used the premises, equipment, etc. for the purpose of delivering designated health services.  If equipment is involved, it must be located in the same building where the evaluation and management services are furnished and may not be used to furnish DHS that is not incidental to those services.  Advanced imaging equipment, radiation therapy equipment, and clinical or pathology laboratory equipment is generally excluded from the exception.

Furthermore, as is the hallmark of many Stark exceptions, the arrangement may not be conditioned on the referral of patients by the physician to the hospital or physician organization and the arrangement must be commercially reasonable in the absence of referrals between the parties.  Compensation must be set in advance and at fair market value.  Compensation may not be on a “per click” or other similar basis and cannot be based on a percentage of revenue raised, earned, billed or collected.  Essentially, the exception only permits compensation based on a flat fee or based on time, such as per hour or per day.  The arrangement must not violate the federal anti-kickback statute or any federal or state law or regulation governing billing or claims submission.

Finally, the arrangement cannot convey a possessory leasehold interest in the space or equipment that is the subject of the arrangement.  In other words, if it is a true lease, as opposed to a timeshare, licensing-type arrangement, the parties must comply with the original Stark space or equipment lease exceptions.

The new exception gives physicians and hospitals options outside of the traditional lease exceptions, and those interested in timeshare arrangements should discuss compliance with counsel.  In addition, those providers with arrangements currently structured under the space or equipment lease exceptions should review the arrangements with counsel and consider whether they may be restructured under the new timeshare exception to better suit the purpose of the relationship.

The new exception may be found at 42 CFR § 411.357(y).

GAO Analyzes Connection Between Hospital-Physician Consolidation and Increased Medicare Spending for Evaluation and Management Services, Recommends Equalizing Rates for E/M Services in Office and Hospital Outpatient Settings

Written By Joanne Ceballos

On December 21, 2015, the United States Government Accountability Office (GAO) issued a report entitled, “Increasing Hospital-Physician Consolidation Highlights Need for Payment Reform.” (Click here for the full report.)  The GAO’s study was prompted by an inquiry from lawmakers about the more than 8 percent rise in Medicare expenditures for services rendered in hospital outpatient departments (HOPD) between 2007 and 2013, as compared to a 5 percent increase in total Medicare Part B spending during the same time frame.  Some policymakers questioned whether the increase in HOPD spending might be attributable to the growing number of hospital acquisitions of physician practices (“vertical consolidation”), resulting in services that were typically performed in physician offices being performed instead in HOPDs, resulting in higher reimbursement.  For example, in 2015, Medicare’s total payment rate for E/M office visits ranged from $58 to $86 higher when performed in an HOPD compared to a physician office. This discrepancy is due to the fact that when the service is provided in a physician office, Medicare makes a single payment to the physician at Medicare’s physician fee schedule rate, but when the service is provided in an HOPD, Medicare makes two payments, one at the physician fee schedule facility rate and another payment to the hospital, typically at the hospital outpatient prospective payment system (OPPS) rate. The GAO noted that although, beginning in 2014, CMS revised its formula for payment of HOPD E/M visits, the revised approach still results in higher total reimbursement for E/M services performed in HOPDs. 

The GAO confirmed the trend of vertical consolidation, noting that between 2007 and 2013 the number of vertically consolidated hospitals increased from about 1,400 to 1,700, while the number of vertically consolidated physicians nearly doubled from about 96,000 to 182,000. The GAO then used various analytical methods to determine if there was a correlation between consolidation and the increase in HOPD spending.  The GAO found that the percentage of E/M office visits performed in HOPDs, rather than in physician offices, was approximately 10 percent higher in counties with the highest levels of vertical consolidation. 

The GAO recommended that Medicare equalize reimbursement for Evaluation & Management (E/M) services regardless of provider setting, and, absent equalization of E/M reimbursement rates in the HOPD and office settings, the Medicare program would pay more than necessary for E/M services.  The report notes that the Bipartisan Policy Center and Medicare Payment Advisory Commission (MedPAC) have estimated that equalizing payment rates for services, including E/M services, performed in HOPDs and physician offices could save Medicare between $1 billion and $2 billion annually.  The GAO acknowledged, however, that legislative action would be required to achieve equalization as CMS lacks statutory authority to equalize total payment rates between HOPDs and physician offices.