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Jan 18

Under-Arrangements – a brief overview

Let’s start off the week with intense subject – “under arrangements.” “Under arrangements” services are inpatient and outpatient hospital services billed by the hospital but performed by a third party, which is often a physician owned entity (Physician Entity).

As most of you know, effective October 1, 2009, the Stark definition of “entity” is expanded in 73 Fed. Reg. at 48751 (revising 42 CFR § 411.351) to include not only the entity (the hospital) that bills for the designated health services (DHS), but also the entity that performs it, as follows:

Entity means . . . (i) . . . the person or entity that has performed services that are billed as DHS; or (ii) . . . the person or entity that has presented a claim to Medicare for the DHS, including the person or entity to which the right to payment for the DHS has been reassigned in accordance with §424.80(b)(1) (employer) or (b)(2) (payment under a contractual arrangement).

Thus, both the hospital and the Physician Entity that provides equipment and staff services and performs the DHS are “entities” to which the referral for DHS is made under this expanded version of Stark.

The in-office ancillary services exception (which applies to both compensation and ownership arrangements) can apply to the services billed by Physician or Physician’s group practice. For services billed by the Hospital, the only ownership exception for the Physician Entity that could be available is the rural provider exception. A “rural area” is defined as an area that is not (1) a Metropolitan Statistical Area (MSA) or New England County Metropolitan Area, as defined by the Executive Office of Management and Budget, which has a list of such areas on its website; or (2) certain New England counties that are deemed to be parts of urban areas under the Social Security Act. Thus, the rural provider exception has limited applicability.

Restructuring Problem Situations

Options for restructuring the relationship where a physician owned Physician Entity performs inpatient or outpatient hospital services:

  1. Third party buys all of physician ownership in the third-party service provider;
  2. Hospital purchases the service provider;
  3. Hospital purchases the necessary equipment and employs the staff; or
  4. Convert the “under arrangements” Physician Entity to a leasing entity (of employees or equipment but not both) that does not “perform” the DHS.

Depending on the state, some of the restructuring options may require obtaining or transferring a certificate of need (CON).

Example – Physician Ownership of Hospital Sleep Services Entity

Hospital does sleep studies. The hospital provides space, furniture, and utilities. The Physician Entity, owned by Physician, provides Physician as medical director, equipment, staff, and supervision. The contract pays Physician Entity admin/medical director fee for supervision of $XXX/hour, not to exceed $YYY per year and a stated dollar fee per study, which is a fixed amount per study depending on the type of study. When an unrelated physician refers a patient to the hospital for a sleep study, Physician evaluates the patient in a clinic setting to assess whether the patient satisfies the criteria for a sleep study. Thus, Physician is acting as a gatekeeper, and his determination of whether a sleep study is indicated for a patient is an accreditation requirement for the sleep lab. The 411.351 definition of “referral” includes “certifying or recertifying the need for” DHS. Physician is certifying the need for DHS when he confirms a sleep study is indicated for a patient. CMS has a broad view of what is a referral. Logically, what Physician is doing is like a pathologist, radiologist or radiation oncologist in that he is implementing the request of another physician. However, CMS has expressly declined to extend that exception to the referral definition beyond these three specialties.

The Physician Entity is performing DHS, i.e., hospital sleep study services, and unless Physician meets rural ownership exception, the arrangement violates Stark beginning Oct. 1, 2009 as to Medicare and Medicaid patients due to Physician’s ownership of the Physician Entity.

About Reed Tinsley, CPA

As a top advisor to physicians, I help increase practice profits by delivering hands-on, expert medical accounting/tax support, practice counsel, and revenue-building strategies. Read more →