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Other Bulletins

Winter, 2008
Health Law Bulletin

By Vanessa L. Smith, Esq.

On September 5, 2007, the Centers for Medicare and Medicaid Services (“CMS”) published final regulations to the Stark physician self-referral law that became effective on December 4, 2007. Under Stark, physicians cannot refer Medicare patients for certain “designated health services” (“DHS”) to entities with which they, or their immediate family members, have a financial relationship, unless the arrangement meets one of a number of exceptions. Stark also prohibits an entity from billing for services provided pursuant to an impermissible referral. The new regulations, referred to as Stark “Phase III,” do not establish any new exceptions under Stark; they primarily provide clarification regarding the interpretation of the existing regulations. The Phase III regulations will nonetheless require re-examination of financial relationships between physicians and DHS entities to ensure continued compliance.

Highlights of some of the more significant aspects of Phase III are as follows:

  • “Stand in the shoes”: Perhaps the most widely discussed aspect of the regulations is the “stand in the shoes” concept. Under Phase III, the physician will be deemed to “stand in the shoes” of his or her physician organization (defined to include a physician, a physician practice, or a “group practice” within the meaning of Stark) for purposes of determining whether a physician has a direct or indirect compensation arrangement with a DHS entity. Many arrangements that formerly would have been considered “indirect compensation” arrangements will now be considered direct compensation arrangements, and must meet one of the Stark exceptions. Arrangements that were in place as of September 5, 2007 and compliant with the Stark indirect compensation exception are exempt from the compliance with the “stand in the shoes” provision for the original or current renewal term of the agreement. [NOTE: On November 9, 2007, CMS announced its decision to postpone the effect of the “stand in the shoes” rule until December 4, 2008, as applied to academic medical centers and “integrated section 501(c)(3) health care systems.”]
  • “Physician in the group practice”: CMS has modified the definition of “physician in the group practice” to clarify that an independent contractor physician must furnish patient care services for the group practice under a direct contractual arrangement with the group (as opposed to an arrangement between the group practice and another entity).
  • Physician recruitment: Phase III expands the physician recruitment exception, which protects remuneration to physicians to induce a physician to relocate his or her practice into the geographic area served by a hospital or a federally qualified health center. Phase III expands the exception to apply to rural health clinics. Among other things, Phase III also clarifies the definitions of “geographic area served by the hospital” and “relocate” and exempts certain physicians from the relocation requirements (e.g., physicians in practice one year or less and physicians employed full time for the previous two years by a federal or state bureau of prisons, the Department of Defense or Department of Veterans Affairs, or the Indian Health Service, and who did not maintain a separate private practice).
  • Non-monetary compensation: Prior to Phase III, Stark protected non-monetary compensation to physicians up to an annual total of $300. Phase III provides for annual adjustments of this figure for inflation; clarifies that the $300 total applies to a calendar year, as opposed to any 12-month period; allows physicians to repay non-monetary compensation in excess of $300 in order to remain in compliance; and allows entities with a formal medical staff to provide one medical staff appreciation function for the entire medical staff each year, without regard to the $300 limit (although any gifts or gratuities provided in connection with the event are subject to the $300 limit).

CMS has said that it will issue a technical correction notice concerning Phase III that will address, among other things, the “stand in the shoes” provision. CMS also is expected to issue interpretive guidance on Phase III and to develop responses to frequently asked questions concerning Phase III, to be posted on CMS’s website. In addition, providers can expect further and more expansive changes to Stark down the road. CMS originally had included significant physician self-referral provisions in the proposed 2008 Medicare Physician Fee Schedule. CMS included only one of the proposals (an anti-markup provision for diagnostic tests) in the final version of the fee schedule published November 27.


If you have any questions or would like further information concerning the Phase III regulations or other aspects of compliance with the health care fraud and abuse laws, contact Kelly A. McCarthy, Esq. (413.272.6306), Vanessa L. Smith, Esq. (413.272.6213), or Peter H. Barry, Esq. (413.272.6316).