CMS Explores Stark Gainsharing and Quality Improvement Program Exception and Alternatives to its Final Diagnostic Test Anti-Markup Rule



In the proposed 2009 physician fee schedule rule published in the Federal Register on July 7, 2008, CMS begins to craft a Stark exception to protect compensation paid by a hospital to members of its medical staff as part of a gainsharing or quality improvement program and explores alternatives to its final expanded anti-markup rule for diagnostic procedures.  CMS will accept comments on the proposed rule until August 29, 2008 and is expected to publish a final rule by November 1, 2008.  As discussed more fully below, it is clear that CMS is still considering its options with respect to both the new gainsharing exception under Stark and the anti-markup rule.  Accordingly, stay tuned for further developments.

After receiving strong support for the protection of gainsharing arrangements, CMS now finally endeavors to craft a new exception.  However, rather than addressing only the types of gainsharing arrangements that have become so well-known over the past few years (thanks mostly to the OIG advisory opinions), CMS elects to address gainsharing in a proposed exception that also would apply to certain quality improvement (pay for performance) programs.  The proposed new exception refers to such arrangements collectively as "incentive payment and shared savings programs."

The proposed new exception would generally protect payments under a documented incentive payment or shared savings program designed to achieve improvement of quality of hospital patient care services through changes in physician clinical or administrative practices or actual cost savings for the hospital resulting from the reduction of waste or changes in physician clinical or administrative practices.  However, in the commentary to the proposed rule, CMS expresses its concern that such programs include sufficient safeguards to ensure that patient care is not affected adversely and that such programs are not used as vehicles to disguise payments for referrals.

With some 16 criteria, the proposed exception would be one of the more lengthy and complicated Stark exceptions.  Many of the criteria should be familiar to those who have attempted to navigate the Stark compensation exceptions in the past (e.g., arrangement must be in writing, compensation not tied to volume or value of referrals, etc.).  However, the proposed exception would include a number of unique requirements, including the following:

  • The term must be at least one (1) year but no more than three (3) years.
  • Payments to physicians (or a formula for such payments) must be set forth in detail sufficient to be verified.
  • The exception covers only remuneration in the form of cash or cash equivalents (non-monetary compensation is not covered). 
  • The exception is available only to hospitals, and all participating physicians must be on the hospitals' medical staffs as of the commencement of the program.
  • Physicians are required to participate in "pools" of at least five (5) physicians or through qualified physician organizations" consisting of at least five (5) physicians.
  • Payments must be distributed to the physicians in each pool or qualified physician organization on a per capita basis. 
  • Hospitals may limit programs to specific departments or specialties, but all physicians in a given department or specialty must participate on the same terms. 
  • Independent medical review of the program must be conducted at the outset of the program and at least annually thereafter to assess the program's impact on the quality of patient care services. 
  • The hospital must provide prior written notice of the program to affected patients. 
  • Physicians must have access to the same selection of items, supplies or devices as was available at the hospital prior to the commencement of the program, and must not be restricted in their ability to make medically appropriate decisions for their patients. 
  • Payments may not be based in whole or in part on a reduction in the length of stay for a particular patient or in the aggregate.

Under long-standing Medicare rules, a physician purchasing a diagnostic test (other than certain clinical diagnostic laboratory tests) from another physician or supplier may not "mark up" the technical component of the test when submitting the bill to Medicare. In November 2007, CMS expanded the anti-markup prohibition to apply to all suppliers and to the technical and professional components of applicable diagnostic tests.  Further, the expanded prohibition would apply both to purchased tests and to tests performed at a site other than the office of the billing physician or supplier. For a summary of the November 2007 final rule, Click Here

Following publication of the final rule, CMS received informal comments alleging that the application of the "site-of-service" component of the expanded anti-markup rule was unclear and would significantly disrupt patient access to diagnostic testing services.  Accordingly, on January 3, 2008, CMS generally delayed until January 1, 2009 the effective date of the expanded anti-markup rule.  Note that the application of the expanded rule was not delayed with respect to the technical component of any purchased diagnostic test or with respect to certain anatomic pathology diagnostic testing services.  CMS now proposes two alternative revisions to the expanded anti-markup rule. 

First Alternative: Replace "Site-of-Service" Component with Supervision Component
CMS proposes to abandon the "site-of-service" component in favor of a supervision component.  The expanded rule would apply to diagnostic tests (i) purchased from an outside supplier or (ii) performed or supervised by a physician who does not share a practice with the billing physician or physician organization.  Highlights of the supervision component include the following:

  • A physician would "share a practice" with a physician organization if the physician is employed by, or contracts with, the physician or physician organization.  The arrangement may be either full-time or part-time.
  • A physician may "share a practice" with only one physician or physician organization at a time.  If a physician is an employee or independent contractor with more than one physician or physician organization, the physician would not share a practice with any of the physicians or physician organizations with which he or she is affiliated.   
  • CMS seeks comments on whether, and how, it should permit a physician to provide occasional services (e.g., locum tenens services) outside of his or her primary physician organization without the second arrangement precluding the physician from "sharing a practice" with his or her primary physician organization.
  • CMS would not consider providing services at a free clinic or moonlighting in a hospital emergency department to be "sharing a practice" (i.e., such activities would not preclude a physician from "sharing a practice" with his or her primary physician organization.

Second Alternative: Retain "Site-of-Service" Component with Clarification
The original expanded anti-markup rule (the version with the "site-of-service" component) provides that the rule applies to (i) purchased tests and (ii) tests performed in other than the billing physician or supplier's office.  As an alternative to the supervision component, CMS proposes retaining the "site-of-service" component but making several clarifications.  Highlights of the clarifications include the following:

  • Clarifications to the definition of "office of the billing physician or other supplier" (e.g., CMS would clarify that the office includes space in the "same building" (as defined for purposes of Stark) where the ordering physician or other ordering supplier regularly furnishes patient care).
  • Clarify that the expanded anti-markup rule applies to the technical component of a diagnostic test if either (i) the test is performed outside the office of the billing physician or other supplier or (ii) the supervision of the test takes place outside the office of the billing physician or other supplier.
  • Clarify that the expanded anti-markup rule does not apply to the technical component of a diagnostic test performed and supervised in the office of the billing physician or other supplier by a physician who is an employee or independent contractor of the billing physician or other supplier (i.e., such a test is not a purchased diagnostic test, and whether the technicians performing the test are employees or independent contractors of the billing physician or other supplier is irrelevant). 
  • Under the expanded anti-markup rule, the billing physician or other supplier may charge Medicare only the lesser of (i) the performing supplier's net charge to the billing supplier; (ii) the billing supplier's actual charge; (iii) the fee schedule amount.  CMS would clarify that the performing supplier in the case of the technical component of a diagnostic test is the physician who supervised the service.  Accordingly, to calculate the maximum amount the billing supplier may charge Medicare, the billing supplier would need to determine what it paid the physician for supervising the service.   

Based upon CMS' comments accompanying the proposed rule, it appears that the new incentive payment and shared savings programs exception and revisions to the expanded anti-markup rule are far from final.  CMS will accept comments on the proposed rule until August 29, 2008.  In addition to the large volume of unsolicited comments that CMS' proposals will no doubt garner from interested parties, CMS specifically requests comments on a variety of issues related to the proposed new exception and the anti-markup rule.  Thus, it would not be surprising to see a number of revisions in the final rule, which is expected to be published by November 1, 2008. 

For more information on the proposed 2009 physician fee schedule rule and its affect on Stark and the anti-markup rule, please feel free to contact Andy Murray, Mark Lewis or any other member of the Boult Cummings Health Care Team.