Medicare Compliance & Reimbursement

In the Medicare and Medicaid compliance world, the fate of a healthcare provider often hinges on the interpretation of a single word like "reasonable" or "necessary" or "quality." And under the Stark law, a critical word is "entity," which, as of Oct. 1, has a broader impact on how healthcare providers can do business.

In a nutshell: The Stark law forbids physicians from referring Medicare patients for designated health services (DHS) to an entity with which the physician or an immediate family member has a financial relationship -- unless there's a Stark exception. And the Stark regulations now define entity as covering "both the party performing the DHS, as well as the party billing for the DHS," says Nashville, Tenn. attorney Thomas Bartrum. The change affects so-called under-arrangement services, where a hospital or other healthcare provider enlists a third party to provide services to Medicare patients and then bills Medicare for them directly.

Example: In the past, an under-arrangement service provider could deliver cardiac catheter services under arrangement to a hospital without worrying about physician ownership, Bartrum explains. "The under arrangement service provider would typically provide the equipment, supplies, and the technicians necessary to deliver the service. The hospital would then bill the service under its Medicare provider agreement." But now that type of deal, if it involves physician ownership in the ancillary service provider, won't fly under Stark. To comply with Stark, "the physicians' ownership would have to satisfy an ownership exception to the Stark law -- and outside of being in a rural area -- that's almost impossible to do," says Bartrum. "Very few providers will qualify for the [rural] exception," says Chicago attorney Kevin J. Ryan.

The fallout: As a result of the change to Stark, some of the under arrangement service providers have gone away, says Bartrum. Others "were restructured as management arrangements in which the service is no longer being performed by the under arrangement service provider." But "the management fee ends up being substantially less than the under-service arrangement fee, which has negative implications for physicians' overall revenues. And that doesn't make doctors who expend money to buy equipment very happy."