1. Pediatric Grand Rounds: Case Studies in Stark July 21, 2006 Presented by: Brigid M. Maloney, Esq. U.B. Associates, Inc.

2. Stark Law If a physician (or immediate family member) has a financial relationship with an entity, then the physician may not make referrals to the entity for the furnishing of designated health services (unless an exception applies).

3. Designated Health Services Clinical lab services Clinical lab services Physical therapy, occupational therapy & speech-language pathology services Physical therapy, occupational therapy & speech-language pathology services Radiology & other imaging services not including nuclear medicine (until January, 2007) Radiology & other imaging services not including nuclear medicine (until January, 2007) Radiation therapy not including nuclear medicine Radiation therapy not including nuclear medicine Durable medical equipment and supplies Durable medical equipment and supplies Prosthetics, orthotics & prosthetic devices & supplies Prosthetics, orthotics & prosthetic devices & supplies Home health services Home health services Outpatient prescription drugs Outpatient prescription drugs Parental/enteral nutrients and PEN-associated equip’t & supplies. Parental/enteral nutrients and PEN-associated equip’t & supplies. Inpatient hospital services Inpatient hospital services Outpatient hospital services Outpatient hospital services If a physician (or immediate family member) has a “financial relationship” with an entity, then the physician may not make referrals to the entity for the furnishing of “designated health services”, and the entity may not submit a bill for the furnishing of any such services.

4. Referrals A “referral” is a request by a physician for an item or service for which Medicare Part B may pay, including a request for a consultation (including any tests ordered by the consultant). A referral does not include a request for a DHS item or service that is provided or performed by the referring physician. If a physician (or immediate family member) has a “financial relationship” with an entity, then the physician may not make “referrals” to the entity for the furnishing of “designated health services”, and the entity may not submit a bill for the furnishing of any such services.

5. Financial Relationship Compensation Arrangement --or-- Ownership or Investment Interest If a physician (or immediate family member) has a “financial relationship” with an entity, then the physician may not make referrals to the entity for the furnishing of “designated health services”, and the entity may not submit a bill for the furnishing of any such services.

6. Compensation Arrangement Direct or indirect remuneration between a physician and an entity, overtly or covertly, in cash or in kind. If a physician (or immediate family member) has a “financial relationship” with an entity, then the physician may not make “referrals” to the entity for the furnishing of “designated health services”, and the entity may not submit a bill for the furnishing of any such services.

7. Compensation Arrangements -- Examples Physician employment arrangements Physician professional service agreements (e.g., independent contractor agreements) Medical director agreements Lease of office space or equipment Lease of time or a “per service” lease with an MRI imaging center.

8. Compensation Arrangements-- Exceptions Office space and equipment rentals Bona fide employment relationships Personal service arrangements In-office ancillary services

9. Exceptions To qualify for most exceptions, the arrangement must: be set in advance*; be set in advance*; be in writing*, with specific terms and conditions; be in writing*, with specific terms and conditions; be for a term of at least one year*; be for a term of at least one year*; be fair market value for the services rendered; be fair market value for the services rendered; NOT take into account the value or volume of NOT take into account the value or volume of referrals made between the parties. * Except employment & in-office ancillary services

10. Employment Exception Employment is for identifiable services Employment is for identifiable services Compensation is FMV Compensation is FMV Compensation not determined in a manner that takes into account the volume or value of referrals by the referring physician Compensation not determined in a manner that takes into account the volume or value of referrals by the referring physician Compensation is commercially reasonable Compensation is commercially reasonable

11. In-Office Ancillary Services Physicians may be able to refer patients for in-office ancillary services within own group provided the Stark “group practice” definition is met. To qualify, the services must be furnished: (1) personally by the referring physician, (2) by a physician who is in the same group practice, or (3) by individuals who are "directly supervised" by one of those physicians.

12. Case Study #1 Hospital pays Dr. Jovial the Surgeon to see patients in the hospital clinic, four sessions per week. Many of the clinic patients eventually undergo surgery within the hospital. This arrangement has been in place for many years and there has never been any need for a contract because both the hospital and Dr. Jovial have always held up their ends of the bargain. The compensation paid to Dr. Jovial is FMV.

13. Case Study #1 Financial Relationship: Clinical compensation. Referral: Surgical patients referred to the hospital. DHS: Inpatient/outpatient services. Exception: Personal services exception does not apply because there is no written contract.

14. Case Study #2 Dr. Friendly the Family Doctor is employed by and receives a set annual salary from a group practice. The group practice owns an x-ray machine, which is located in the same building where the group sees its patients. When necessary, Dr. Friendly sends his patients down the hall for x-rays rather than referring them to an outside entity. The x-ray machine has been an excellent source of revenues for Freddy’s group.

15. Case Study #2 Financial Relationship: Compensation/EmploymentReferral: Patients referred for x-rays. DHS:Radiology.Exception: In-office ancillary services exception permits group practice physicians to refer patients for ancillary services performed in the same building where the group practice is located.

16. Case Study #3 Dr. Happypants uses office space and an examining room in a hospital to see both hospital clinic patients and private patients. Her group practice bills and collects on the private patients while the hospital bills and collects on the clinic patients. There is no formal written lease but the space is compensated through offsets from the clinic billings. Dr. Happypants refers all of the patients in need of lab work to the hospital lab because it is nearby and convenient for the patients.

17. Case Study #3 Referral: Patients referred to the lab. DHS: Clinical lab services. Financial Relationship: Use of office space (“direct or indirect remuneration between a physician and an entity…in cash or in kind.”) Exception: Lease exception does not protect this arrangement because the requirement that the lease be in writing is not met.

18. Case Study #4 A hospital wishes to hire Dr. Steadihands, a well-respected pediatric surgeon. The hospital knew that contracting with Dr. Steadihands would mean a large increase in referrals because Dr. Steadihands was a well-known surgeon in the area. As an incentive to Dr. Steadihands, the hospital offered him an attractive salary plus bonus package. The bonus would be based on the number of patients Dr. Steadihands referred to the hospital.

19. Case Study #4 Financial Relationship: Employment/Salary plus bonus. Referral: Patients would be referred to the hospital. DHS: Inpatient and outpatient hospital services. Exception: The employment exception would not apply because his compensation varies with the number of referrals he makes to the hospital.

20. Case Study #5 A physician group that refers many patients to various community labs have decided to open a lab of their own. The plan was simple: operate an off-site lab, refer all their patients to that lab, and enjoy the profits from all of the business they refer to their lab.

21. Case Study #5 Financial Relationship: Ownership interest. Referral: Patients referred to the lab. DHS: Clinical lab services. Exception:None.

22. Case Study #6 Dr. Wedlock is a podiatrist who has a small suburban practice. Dr. Wedlock’s wife is employed as a receptionist at a local hospital where Dr. Wedlock refers all of his patients. Mrs. Wedlock doesn’t have a written employment agreement but her salary and job duties are FMV and consistent from year to year.

23. Case Study #6 Financial Relationship: Employment of immediate family member. Referral: Patients referred to the hospital. DHS: Inpatient/Outpatient hospital services. Exception: Employment exception probably applies.

24. Case Study #7 A physiatrist is paid under a contract with a hospital for clinical services he provides in the Rehab Unit. Many of his patients are referred for PT/OT/ST within the hospital. The contract is in writing, compensating him at FMV, with a term of 2 years. The physiatrist sees private patients in the clinic as well, for which his group practice bills and collects. As a convenience to him, and to ensure that he is available to the hospital when needed, the hospital permits the physiatrist to share a nurse, a receptionist, and office supplies and equipment free of charge while he is seeing his private patients.

25. Case Study #7 Financial Relationship: (a) Compensation/contract (b) Compensation/space & supplies Referral: (a)Patients referred to the lab. (b) Patients referred for therapy services. DHS: (a) Clinical lab services; (b) therapy services. Exception: (a) Personal services exception (b) Space & equipment lease exception not satisfied.

26. Brigid M. Maloney, Esq. General Counsel U.B. Associates, Inc. 3435 Main Street, BEB Rm. 149 Buffalo, New York 14214 (716) 829-3176 bmaloney@buffalo.edu