Delay permits continued use of indirect compensation arrangement analysis for certain academic medical centers and tax-exempt health care system transfers.
The Centers for Medicare and Medicaid Services (CMS) have issued a final rule delaying the effective date of the “stand in the shoes” provisions of the Stark Law Phase III Rule for certain arrangements involving academic medical centers (AMCs) and integrated section 501(c)(3) health care systems. This final rule was published in the November 15, 2007, Federal Register. In our September 2007 White Paper "CMS Publishes Phase III Stark Law Rule" regarding the Phase III Rule, we noted that the application of “stand in the shoes” to common AMC arrangements could create serious problems under the Stark Law. Responding to public and industry comments, CMS has delayed until December 4, 2008, the effective date of the “stand in the shoes” provisions to (i) compensation arrangements between a faculty practice plan and another component of the same AMC, where that AMC satisfies the definition of an AMC found in the Stark AMC exception, and (ii) compensation arrangements between an affiliated DHS entity and an affiliated physician practice in the same integrated 501(c)(3) health care system.
The net effect of this delay is to permit continued use of an indirect compensation arrangement analysis to support payments and other non-fair market value transfers involving faculty practice plans, as well as those involving “captive” 501(c)(3) medical groups within a tax-exempt health care system.
Equally important is what the delay does not cover. Arrangements between components of an AMC that does not meet the definition of an AMC found in the Stark AMC exception do not qualify for the delay. Similarly, arrangements between a faculty practice plan and any non-AMC component do not qualify for the delay, and for Stark purposes the faculty physicians will “stand in the shoes” of the faculty practice plan in such arrangements. Finally, hospital-organized “captive” medical groups organized as for-profit professional corporations or professional associations will not qualify for the delay. Any non-fair market value transfers between a hospital and such groups should be revisited prior to the Phase III effective date, December 4, 2007.
CMS officials have indicated informally that they intend to use the one-year delay to gather additional information and perhaps reformulate their approach to “stand in the shoes” as applied to these two industry segments. Ideally, their approach can be formalized in the first half of 2008 to permit adequate time for any restructuring that might need to occur for the affected parties.