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Friday, February 23, 1996

Common questions and answers about "Stark II"

by David A. Lovett
Academy Washington Office

More than one year after the implementation of the federal law banning certain types of physician self-referrals, better known as "Stark II," the Academy's Washington office still receives about five inquiries a week concerning compliance with this law. Because of the problems the orthopaedic community has experienced, James W. Strickland, MD, president of the Academy, last spring testified before Congress to highlight the effects of "Stark II" on the delivery of orthopaedic care, and to urge that several changes to this self-referral ban be made. Today, although there has been bipartisan support for amending "Stark II" to correct some of the unintended consequences of this law, so far Congress has not acted on these legislative changes. Following are a few of the more common questions that have been asked.

When did "Stark II" become effective?

The "Stark II" provisions, sponsored by U.S. Rep. Fortney "Pete" Stark (D-Calif.), were included as a part of the Omnibus Budget Reconciliation Act of 1993, and went into effect on January 1, 1995. "Stark II" limits certain referral and compensation arrangements for physicians.

Have regulations on "Stark II" been issued by the Health Care Financing Administration (HCFA)?

HCFA has not yet issued regulations on "Stark II." There is no indication when regulations may be issued. Inasmuch as Congress has proposed some changes to "Stark II," it is possible that HCFA will not issue any regulations until these changes are enacted into law. With no regulations for guidance, there are many ambiguities in the law, and orthopaedic surgeons have received contrary opinions from attorneys on certain compliance issues. For now, HCFA has stated that physicians affected by provisions of "Stark II" should make a "good faith" effort to comply with the statutory mandate of this self-referral ban.

How does "Stark II" affect a solo practitioner?

It was the intention of "Stark II" not to interfere with the in-office ancillary services such as X-rays or physical therapy which were provided to the patient in the same office by the physician, or another person under the direct supervision of the physician.

What about X-rays or physical therapy done in my office?

In-office ancillary services such as X-rays or physical therapy, so long as they are provided to the patient in the same office by the physician, or another person under the direct supervision of the physician, are not banned by "Stark II. " However, when the physical therapist is an independent contractor (not an employee of the practice), or when an X-ray machine is shared by several physicians (who bill Medicare individually), these situations may be in violation of "Stark II." Almost every fact pattern is unique to that particular practice, and it is impossible to give an answer that applies to all circumstances.

Can I provide durable medical equipment to my patients?

Since the provisions of the law specifically list durable medical equipment (DME) as a designated health care service, and also specifically excluded DME from in-office ancillary services, it can be argued that it is a violation of "Stark II" for even a solo practitioner to provide incidental but integral DME to the patient (such as a splint or brace). Today, legislation is pending in Congress to allow orthopaedic surgeons to providing DME to their patients without running afoul of "Stark II." For now, since DME is an essential part of health care for the orthopaedic patient, many orthopaedic physicians, both in solo and group practices, are provided DME, and are being reimbursed by the Medicare Durable Medical Equipment Regional Carriers; some have chosen to stop providing DME, and some have developed relationships with independent contractors who are providing this DME in-office.

What is the group practice exemption to "Stark II?"

The law provides for several exceptions to the ownership and compensation arrangement prohibitions. One of these exemptions is for a group practice. (A group practice is composed of 2 or more physicians legally organized and recognized as a business entity (i.e. one corporate or Federal tax number and only one Medicare billing number), with shared space billing, staff, equipment, and facilities. A group practice, however, still must comply with some other provisions of "Stark II." For instance, although profits and productivity bonuses are permitted, in group practices the share of bonus must not be determined in any manner which is directly related to the volume or value of referral (use of X-ray machine or physician therapy, etc.) by the physician.

Is there a similar exemption for shared facilities?

There is no exemption for shared facilities (where two or more physicians share overhead and staff, much like a group practice, but bill Medicare individually with each physician having his own tax number). Therefore, a shared facility performing the same functions and providing the same services to patients, exactly like a group practice can be in violation of "Stark II," anyway.

Are there other exemptions to "Stark II?"

Yes, there are several exemptions, including those for rural health care and certain types of managed health care plans. "Stark II" contains more than seven pages of exceptions from the ban on physician self-referral.

Are there any measures in Congress to amend "Stark II?"

All of the problems experienced by the orthopaedic community, as outlined in this article, have been addressed in legislation before the Congress. As a part of the Seven-Year Balanced Budget Act, which was vetoed by President Clinton, provisions were included to create a shared facilities exemption, remove durable medical equipment from the list of designated health services, and to postpone enforcement of "Stark II" until regulations are issued by HCFA. These non-controversial changes to "Stark II" are still tied to the broader budget and Medicare reform deliberations, and it is unclear whether changes to "Stark II" will be enacted into law anytime in the near future.

Note: These questions and answers are designed to provide general information about "Stark II" compliance. They do not constitute specific legal advice, and do not represent an official position of the American Academy of Orthopaedic Surgeons. Your particular situation may not be identical to the ones outlined in this article. Therefore, for specific questions about compliance with "Stark II," the Academy suggests that orthopaedic surgeons contact a local health care attorney to get further clarification about the requirements of this ban on physician self-referral. (This self- referral law can be found in Title 42 of the United States Code, Section 1395nn).

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