Medicare Compliance & Reimbursement

Flat fees, fair-market payments won't land providers in hot water.

Nobody ever accused the Stark law of stark simplicity.

That law, named for Rep. Fortney "Pete" Stark (D-CA), says doctors can't refer patients to anyone with whom they have financial relationships, including hospitals. There are myriad exceptions to the rule, but they're head-achingly complicated. Luckily, a few of the exceptions have become simpler recently.

1. Indirect compensation relationships. Instead of the doctor making a deal with a hospital directly, the doctor makes a deal through a third party, like a medical group. That way, the doctor doesn't have a financial incentive to refer more services to the hospital.

In this case, providers don't have to follow all the rules for direct payments from a hospital to a physician, explains Bruce Johnson, an attorney with Faegre & Benson in Denver, CO. If the hospital pays a flat fee to a medical group, such as $10,000 for medical director services, then an exception may not even be necessary.

Further, an indirect compensation agreement can include per-click or per-hour payments and still fit into the exception, says Gadi Weinreich, an attorney with Sonnenschein Nath & Rosenthal in Washington.

But there is some bad news: the test for the indirect compensation exception is tough. There must be an agreement in writing, payments can't vary according to referrals, and the agreement can't violate the anti-kickback law. That last requirement is the trickiest, because it drags in a whole other law, with a stringent set of tests the HHS Office of Inspector General has set.

In addition, providers can't use the indirect compensation exception for "indirect ownership" situations, where there's an "unbroken chain" of financial relationships from a physician to a hospital or other entity, says Thomas Bartrum, an attorney with Waller Landsden Dortch & Davis in Nashville. Indirect-ownership arrangements can fit into any Stark exception that governs direct financial relationships, he adds.

2. The isolated transaction exception governs a single deal, such as the sale of real estate or equipment, explains Johnson.

3. Providers can charge hospitals for items or services as long as they charge fair market value -- but that can be tricky to figure out.

You could hire a third party to value your services, but that would be expensive. Instead, the Centers for Medicare & Medicaid Services says you can take the median of four different surveys to set your hourly rate, according to Johnson. Some people have applied the "average of four surveys" method to salaries as well.

This fair-market value exception has become more useful, because CMS said that you can rent an MRI machine to a hospital and the hospital can pay on a "per-click" basis, as long as the hospital paid "fair market value" for the machine's use, according to David Glaser, an attorney with Frederickson & Byron in Minneapolis, MN.

4. The Stark law used to allow a lot of wriggle room for financial relationships that are unrelated to Designated Health Services -- but CMS took most of it away in the final rule. You can no longer use this exception for medical director services, for example, because CMS says those are related to DHS, says Weinreich.

Party Of 5 Won't Trigger Stark Law

Fortunately, providers can reward a group of physicians within their practice for using many ancillary services, clarifies CMS. In the past, CMS said that if a provider has an MRI machine in the office, then the provider must distribute all income from that MRI machine equally among the office's doctors -- even if one doctor orders 10 scans a day and another doctor orders none.

Now, CMS says providers can divide their practices into groups of at least five doctors each, Johnson explains. So if a practice has 10 doctors and only five of them use a Dexascan machine in the office, the provider can allocate the Dexascan income to the Dexascan-using doctors only, not the others.