February 2001 Bulletin

Stark II final regs clarify basic questions

Rule permits practices to dispense crutches, canes, wheelchairs at a profit

By Robert J. Saner

The crazy aunt of federal health care law has come out of the closet once again. New Stark II regulations appeared in the Federal Register of Jan. 4, 2001. The Stark self-referral law has never been fully implemented, but the new rules put the government closer than ever before to a regulatory scheme that could reasonably be enforced. The new rules implement most, but not all, of Stark and are effective Jan. 4, 2002; until then the underlying statute remains in effect.

The new rules are ripe with implications for orthopaedic practices, and like everything else about Stark, are lengthy and maddeningly complex. Application to any particular practice or transaction requires detailed review. However, basic questions have been clarified.

Designated service definitions. Stark applies only to physician referral of Medicare patients for certain "designated health services" (DHS). Two categories of DHS services–radiology and physical therapy–are provided by many orthopaedic practices. The final rule lists by CPT code the services covered in each. The list includes most technical component imaging services that an orthopaedic practice might provide in-house, or to which its physicians refer externally. The PT list is also inclusive, but far more reasonable than the outrageously broad definition first proposed by HCFA in 1998.

In-office ancillary services. Most DHS provided "in-office" by a solo or group orthopaedic practices are presumptively eligible for protection under the law’s "in-office" exception, but that, too, requires compliance with detailed requirements. The final rule clarifies several issues. First, DHS services provided by nonphysician personnel can be supervised by any owner, employee or contract physician in the practice. Supervision need not be "in the suite" unless otherwise required for Medicare coverage and payment.

Second, the site-of-service requirement has been changed. For solo physicians, the DHS must be furnished in the same building–but not necessarily the same part of the building–in which the physician practice is housed and the physician provides a full range of physician services. For group practices, the rule permits compliance with an alternative test, referred to as the "centralized building" option. Groups may have as many ancillary facilities treated as "centralized" as they desire, with no particular configuration mandated. However, the rule does not permit groups to rely on the "centralized" option unless the facility is used exclusively by the group. Similarly, a mobile until would not be considered "centralized" unless used full time.

Durable medical equipment. DME, with the exception of certain infusion pumps, is not eligible for the "in-office" exception. HCFA was roundly criticized for forcing orthopaedic patients to hobble from the physician’s office to some outside supplier just to get a cane. The final rule permits practices to dispense canes, crutches, walkers and folding manual wheelchairs, for a profit, but only under tightly controlled circumstances. The item has to be used in departing the office, furnished in the "same building," and as part of the treatment for which the patient saw the physician. It must be furnished by the physician who ordered it, another physician in the practice or an employee–not by contract or supplier personnel. The practice must meet all HCFA standards for DME suppliers.

Group Practice Compensation. To be a bona fide group practice for Stark purposes, the group must meet a compensation test. The rule now permits direct productivity credit for a DHS if the doctor personally performs it, or supervises a service billed "incident to" his services. It also establishes certain "safe harbor" compensation practices that groups may rely on. Notably, the rule permits profit sharing of DHS revenues by satellite or specialty grouping within a large practice, as long as the unit consists of at least five physicians.

Robert J. Saner is a partner in the Washington D.C. health care law firm of Powers Pyles Sutter & Verville.

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