On August 1, 2008, the Centers for Medicare & Medicaid Services ("CMS") issued the final FY 2009 inpatient prospective payment system rule ("IPPS Rule"). The IPPS Rule, which will be published in the Federal Register on August 19, 2008, contains numerous and profound changes to the federal physician self-referral law, commonly know as the "Stark Law." Sonnenschein will provide its clients and friends with a detailed analysis of these changes in the upcoming weeks. In the interim, we offer the following highlights:

Changes Effective October 1, 2008

Stand In the Shoes. Physician owners/investors will be deemed to stand in the shoes of their physician organization ("PO"). Physicians who have only a "titular" ownership/investment interest, or no ownership/investment interest at all (e.g., physician employees and contractors), are permitted (but not required) to stand in the shoes of their PO. 

Disallowance Periods. The outer limit for the period of disallowance (i.e., the period in which (1) a physician may not refer a Medicare patient to an entity and (2) the entity may not bill for designated health services ("DHS") furnished to such patient) is as follows. If the basis for non-compliance is non-monetary in nature (e.g., a missing signature), then the period of disallowance will end no later than the date on which the reason for the non-compliance is remedied or the arrangement at issue is terminated. If, however, the non-compliance stems from the absence of a fair market value exchange (i.e., too much or too little remuneration), then the disallowance period will end no later than the date on which the excess remuneration is repaid to the overpaying party (or supplemented to the underpaid party).

Alternative Compliance Provision. Parties will be able to remedy non-compliance due to missing signatures for a limited time period. Specifically, where an arrangement does not meet an exception because the parties inadvertently failed to secure a signature to the operative agreement, the parties will be afforded a 90-day grace period to obtain the missing signature. Where the failure was advertent, however, the grace period is 30 days.

Obstetrical Malpractice Subsidies. The exception for obstetrical malpractice insurance subsidies is being expanded to cover a broader range of geographies.

Ownership/Investment in Retirement Plans. A physician who receives an interest in an entity’s retirement plan by virtue of his or her employment with the entity will not be deemed to have an ownership/investment interest in the entity as a result of that interest.

Burden of Proof. If a claim for reimbursement is denied or challenged (by CMS or its contractors) because it covers improperly referred DHS, the burden of proof will be on the provider of services to establish that the referral in question did not violate the Stark Law. Changes Effective October 1, 2009

Entity. The definition of the term "furnishing entity" will be expanded to cover not only the entity that is paid by CMS (or its contractors) for DHS, but also the entity that "performs" the DHS. CMS will not grandfather arrangements, believing that parties have sufficient time (i.e., 14 months) to unwind non-compliant diagnostic and therapeutic joint ventures and service lines furnished "under arrangements."

Per Unit Leases. Per unit of service (e.g., per click) payment methodologies will no longer be deemed to satisfy the requirements of either the space or equipment lease exceptions to the Stark Law, regardless of whether the physician or physician owned organization is the lessor or the lessee. To avoid circumvention, this proviso also will apply to the fair market value and indirect compensation arrangements exceptions.

Percentage Based Lease Payments. Percentage based payment methodologies also will no longer satisfy the requirements of the space lease, equipment lease, fair market value or indirect compensation arrangements exceptions.