CMS Publishes STARK II Phase III Final Rule
Knoxville Academy of Medicine Bulletin – October 2007
By Patti T. Cotten and Jessica Kulkarni

In the September 5 Federal Register, the Center for Medicare and Medicaid Services (“CMS”) published its Stark II, Phase III final rule, which will take effect December 4, 2007.  In Phase III, CMS relaxes burdensome requirements of certain Stark provisions, but makes some key changes which might prompt healthcare entities and providers to restructure certain arrangements with physicians.  Here are some of the more notable changes:

• Direct/Indirect Compensation Arrangements:  The Phase III rule creates a “stand in the shoes” concept that requires financial relationships between providers of designated health services (“DHS”) and physician groups to be analyzed as if each individual physician in the group has a direct compensation arrangement with the DHS entity.  The DHS entity can no longer analyze these deals as “indirect compensation arrangements.”
• Physician Recruitment.  Physician groups may now impose reasonable practice restrictions (including non-competes which comply with state law) on recruited physicians, as CMS has relaxes the physician recruitment exception. 
• Non-Monetary Compensation.  Hospitals and other DHS entities are still subject to the cap of, currently, $329 per year in providing non-monetary compensation to physicians, but if they exceed the cap, they may escape Stark liability if the physician promptly pays back the excess.  And, these entities can throw one medical staff appreciation function per year for its entire staff without regard to the cap so long as any gifts handed out at the event are subject to the cap.
• Hourly Compensation:   CMS deletes the “safe harbor” for hourly compensation rates, which could be determined by comparison to emergency room hourly rates or at least four of six national surveys.  It is still prudent practice to consult multiple, objective, independently published compensation surveys, but a DHS entity can no longer be assured that hourly rates based on such comparisons will be deemed consistent with fair market value.
• Ancillary Services Exception.  Groups with satellite offices which appear to satisfy the “same building” requirement under the in-office ancillary services exception should be aware that the physician services unrelated to DHS provided in satellite offices are subject to scrutiny for  “sham” arrangements.
• Independent Contractor Physicians.  CMS clarified that independent contractor physician must provide services on premises in a group’s facilities to qualify for the phyisician services or in-office ancillary services exception. 

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.