pill to swallow

Arizona’s Health Care Industry Must Adapt To New Compliance Procedures In 2009

The current economic downturn and the prospect of dramatic changes to the nation’s health care system under a new administration are making 2009 one of the most challenging years ever for Arizona’s medical industry.

If that weren’t enough, however, our state’s hospitals, clinics, and diagnostic and out-patient centers — and the physicians who serve them — are getting a crash course on how to administer sweeping new compliance procedures and regulations recently issued by the Centers for Medicare and Medicaid Services (CMS).

Last year, CMS posted the 2009 Final Hospital Inpatient Prospective Payment System (IPPS) rule, which is having an impact on hospital operations and policies, as well as physician arrangements. Included were several changes to the so-called Stark Law (named for U.S. Rep. Pete Stark, D-Calif.) covering Medicare and Medicaid.

The impetus for the new provisions was a worthy one — curbing physician self-referrals and stopping kickbacks. Nevertheless, Arizona doctors and health care entities are scrambling to alter their ways of doing business. The downside for not doing so: denied payments, or penalties, from Medicare and/or Medicaid.

Some of the provisions went into effect last October and others begin this October. They will result in the significant restructuring of many physician arrangements, particularly joint ventures between doctors and facilities. Some of the rules are providing more flexibility in these arrangements, while others have become more restrictive.

Stand in its Shoes
One area of flexibility is CMS’ decision, effective last October, to decline adopting tougher “stand-in-your-shoes” procedures. This would have mandated that when physicians’ organizations contracted with an entity such as a hospital, each physician in those groups would have been deemed to be part of that contract as well.

Under the finalized rules, only physicians who have an “ownership or investment interest” in such an organization will be considered to “stand in its shoes” for purposes of compliance with the Stark regulations.

Percentage-Based Compensation
Soon to be a thing of the past is percentage-based compensation arrangements for space and equipment rental lease arrangements. CMS initially proposed a broad prohibition for using percentage-based compensation formulas to calculate revenue from services performed or business generated in leased office space or from leased equipment.

This October, the final rules will take a more targeted approach, specifically addressing CMS’ concerns with percentage-based compensation regarding lease arrangements.

Per Click: Lease Arrangement Payments
Also this October, the new procedures will significantly limit the use of unit-of-service, or “per-click,” payments in the context of physicians’ space and equipment lease arrangements. This pertains to physicians leasing time on diagnostic equipment to perform tests on Medicare and Medicaid patients.

Specifically, CMS revised exceptions for such leases, determining fair market value, and for indirect compensation arrangements to prohibit “per-click” payments to a physician lessor where the payments reflect services on patients who had been referred to the lessee by the physician.

Furthermore, the prohibition applies regardless of whether the physician is the lessor or whether the lessor is an entity in which the referring physician has an ownership or investment interest.

CMS states that the new rule does not prohibit physicians from leasing equipment or space to entities on a per-use basis for services rendered to patients who were referred from others. In most cases, CMS will not prohibit time-based deals in which a physician rents time on a CT or MRI scanner.

Services Provided Under Arrangements
Entities, including physicians, that provide services to hospitals “under arrangements” (for example, when a hospital bills for services but arranges for another entity to provide the services), will now be considered DHS (designated health services) entities themselves for Stark Law purposes.

Previously, only the person or entity that billed for DHS was deemed to be “furnishing” the DHS. CMS’ new definition of entity, effective in October, is that a person or entity is considered to be “furnishing” DHS if it has (1) performed the DHS even if another entity bills for the services; or (2) presented a claim for Medicare benefits of the DHS.

As a result, physicians will be limited in their ability to refer patients to “under arrangement” service providers in which they have an ownership or investment interest. Restructuring of existing joint ventures between physicians and hospitals will be needed.

This is only the start. There are several other provisions — including malpractice insurance, physician retirement plans, disallowed referrals, compliance requirements and other hospital-physician agreements. Hopefully, this gives you an idea of the issues and challenges facing Arizona’s health care industry during the rest of 2009.