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.

Federal Trade Commission Issues Guidance on How State Licensing Boards May Avoid Antitrust Scrutiny

Written by Joanne Ceballos

Earlier this year DE Health Law reported on a decision by the U.S. Supreme Court, North Carolina State Board of Dental Examiners v. Federal Trade Commission, holding that a state professional licensing board could be liable under federal antitrust laws for engaging in anticompetitive behavior in the absence of “active supervision” of the board by the state.  In particular, the Supreme Court held that a state board on which a controlling number of decision makers are active market participants in the occupation the board regulates may invoke the “state action defense” to federal antitrust enforcement only when two requirements are satisfied: first, the challenged restraint must be clearly articulated and affirmatively expressed as state policy; and second, the policy must be actively supervised by a state official (or state agency) that is not a participant in the market that is being regulated.  (Click here to review the previous post.)

In the wake of the Supreme Court’s decision, state officials sought guidance from the Federal Trade Commission regarding antitrust compliance for state boards regulating occupations.  In response, the FTC’s Bureau of Competition issued a 13-page document (available by clicking here) that provides an overview of antitrust considerations implicated by the activities of state licensing boards and also offers specific examples of when “active state supervision” is required and what may constitute “active state supervision” for purposes of  the “state action defense.”

The state must exercise “active supervision” over a board “on which a controlling number of decision makers are active market participants.”  According to the guidance, an “active market participant” is an individual who is licensed by the board or “provides any service subject to the regulatory authority of the board.”   Active market participants constitute a “controlling number of decision makers” if they comprise a majority of the board, or if they effectively control the board’s decisions as a matter of procedure or custom.  While the guidance cautions that whether a board is controlled by active market participants is a fact-bound inquiry, it provides several examples of scenarios when a board might be considered controlled by active market participants even when licensees comprise a minority of the board’s voting members. 

As to what may constitute “active state supervision” that satisfies the state action defense, the guidance identifies a number of factors the FTC will consider, namely whether the “supervisor” (1) has obtained the information necessary for a proper evaluation of the action recommended by the regulatory board; (2) has evaluated the substantive merits of the recommended action and assessed whether the recommended action comports with the standards established by the state legislature; and (3) has issued a written decision approving, modifying, or disapproving the recommended action, and explaining the reasons and rationale for such decision.  The guidance goes on to give examples of what might be considered satisfactory state supervision in the contexts of a board’s issuance of a regulation with potential anticompetitive effects and a board’s administration of its disciplinary process.

With the exception of the Board of Examiners of Nursing Home Administrators, the majority of members of all the boards licensing health care professionals in Delaware are required by statute to be licensees and, hence, “active market participants.”  Accordingly, the Supreme Court’s decision and the FTC’s subsequent guidance are particularly relevant to the conduct of those boards. 

Labels:  Antitrust, Licensing Board, State Action

Five Years Post-Bradley

Written By Joanne Ceballos 

Five years ago, on September 1, 2010, one of the nine “Bradley” bills, House Bill 459, took effect in Delaware.  Among other things, this bill clarified the obligations of hospitals to report any disciplinary action affecting a physician’s privileges, the obligations of law enforcement to report unprofessional conduct by a physician, and that a physician’s failure to report unprofessional conduct of another physician is itself unprofessional conduct.  Subsequent legislation incorporated “failure to report” into the definition of “unprofessional conduct” applicable to other health care professionals as well. 

The Delaware Division of Professional Regulation’s website includes links to lists of physicians and nurses who have been publicly disciplined.  The physician list dates back to 1963, the nurse list back to 1990.  As one might expect, the number of physicians and nurses who were disciplined by their respective professional boards increased dramatically beginning in 2010.  With respect to physicians, prior to 2010 the highest number of physicians disciplined by what was then the Board of Medical Practice was 10 physicians in 2008.  Of the ten physicians disciplined that year, two of them had their licenses revoked.  In 2010, 15 physicians were disciplined, and while no licenses were revoked in 2010, 12 physicians received some type of suspension, including six emergency temporary suspensions.  According the DPR’s list, from 1963 through 2009, a total of only 11 physicians (including Earl Bradley) had their licenses suspended (although 24 licenses were revoked during the same time period, with the highest number of revocations being 4 in 2007).  Below are figures for physician disciplinary actions for the period from 2011 to the present (the DPR last updated the physician list on August 25, 2015):

Year	Physicians Disciplined	Suspensions	Revocations
2011	22	7	1
2012	23	5	2
2013	35	6	3
2014	34	3	4
2015	17 (to date)	1	2

As illustrated above, in 2011 and 2012, the Board of Medical Licensure and Discipline sanctioned double the number of physicians it had disciplined during its former peak year of 2008, and three times as many physicians in 2013 and 2014 as it had in 2008.  While the number of suspensions increased more or less proportionately (the 12 suspensions imposed in 2010 being somewhat of an aberration), the number of revocations did not.  Thus the figures indicate that while more violations of the physician licensing statute and regulations are being reported and investigated, there has not been a concomitant increase in violations that merit the most serious sanction of revocation.

The list of publicly disciplined nurses also shows a jump in the numbers beginning in 2010.  Prior to 2010, the highest number of nurses publicly disciplined in a given year was 43 in 2005, with the Board of Nursing suspending seven and revoking two licenses.  After 2005, the number of disciplinary actions declined steadily to 14 in 2009, when the Board revoked one license and suspended one license.  In 2010, the Board disciplined about two and a half times as many nurses as it had in 2009, suspending 16 of them and revoking 6 licenses.  The figures for the period from 2010 to the present are as follows (the DPR last updated the nurse list on August 17, 2015): 

Year	Nurses Disciplined	Suspensions[1]	Revocations
2010	39	16	6
2011	47	13	4
2012	68	14	4
2013	83	42	3
2014	68	26	0
2015	69 (to date)	17	0

 

While the Board of Nursing had imposed at least one suspension every year from 1990 through 2009, the number of suspensions in proportion to the total number of disciplinary actions in a given year was generally less than a third.  In 2009, however, over 40 percent of the sanctions imposed were suspensions, and half the sanctions imposed in 2013 were suspensions.  As with physicians, however, the number of revocations did not increase proportionately to the number of disciplinary actions.

The tables above demonstrate that since the Bradley legislation was enacted, the total number of disciplinary sanctions imposed on physicians and nurses was the highest in 2013    (thus far).  It remains to be seen whether the numbers will level off or decline in the coming years. 

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[1] “Temporary suspensions” and “Stayed suspensions” are not included in the below figures.