Stark II Phase II

On March 26, 2004, the Centers for Medicare and Medicaid Services ("CMS" formerly known as "HCFA"), issued the interim final rule for the Stark II, Phase II regulations for the physician self-referral ban, commonly referred to as the Stark Law. The new regulations are set to go into effect July 26, 2004. As many of you know, the Stark Law prohibits a physician from referring Medicare patients for "designated health services" to entities which the physician has an ownership and/or financial relationship, unless an exception applies.

The Phase II regulations provide additional clarification, guidance, and exceptions that had not previously been addressed in other parts of the self-referral law. The good news is that in general the Phase II regulations provide greater flexibility than had previously been allowed and clarifies previous inconsistencies when applying the Stark regulations to physician financial arrangements. As such, a more practical, realistic approach to Stark issues is emerging. However, with the additional clarification and guidance, there is less room for interpretation and a better understanding of what constitutes a violation under the Stark Law.

Below are a few of the highlights of Phase II regulations:

• Extends the physician recruitment exception to certain "co-recruitment" initiatives with community medical groups;

• Eliminates the reporting obligations of financial relationships with physicians and their immediate family members to CMS;

• Allows for "termination without cause" in agreements as long the parties do not enter into same or substantially the same arrangement during the original term of the agreement;

• Adopts the Anti-Kickback safe harbors for referral services and obstetrical malpractice insurance subsidies;

• Provides a narrowly tailored exception for professional courtesy offered by an entity to a physician or physician office staff;

• Broadens the definition of academic medical center and imposes certain percentage requirements for the determination substantial academic services or clinical teaching that qualify for the academic medical center exception;

• Establishes a methodology for setting hourly physician compensation that would constitute fair market value;

• Protects arrangements falling out of compliance with Stark exceptions for a limited time period and meeting certain preconditions; and

• Redefines the "set in advance" standard for compensation to allow for percentage-based compensation in certain circumstances.

The Phase II regulations, in combination with the Phase I regulations and the original Stark exceptions, are a voluminous and complex set of rules that cannot be properly addressed in such a limited format. Anyone who would like additional information or further information is more than welcome to give me a call at 545-9362.