Down on the Farm The Attack on Physician Ownership

Self-Referral “Under Arrangement” Scrutiny and IDTF Prohibitions

Certain physician/hospital relationships referred to as “under arrangements” and “per click” leasing ventures have come under increasing regulatory scrutiny. An under arrangements transaction occurs when the hospital contracts with a third party (typically a joint venture owned, at least in part, by physicians who may refer) to provide a hospital service, and the hospital then bills and is reimbursed by Medicare for those services and pays the supplier or joint venture. As the “entity” to which the physicians refer patients is the hospital, not the joint venture, (i.e., the “entity” is deemed to be the entity that submits the reimbursement claim to Medicare), this type of “arrangement” is permitted under Stark.

However, buried in the July 2, 2007, 2008 Medicare Physician Fee Schedule proposed rule, CMS has proposed revisions to the Stark regulations which broaden the definition of “entity” to include the person or entity that performs the designated health services and would prohibit space and equipment lease arrangements where per-click payments are made to a physician lessor who refers patients to the lessee. While the proposed self-referral prohibitions (as well as arrangements where the physician is the lessee and rents space from a hospital) did not appear in the Final Rule, similar provisions are expected in 2008.

CMS has also recently passed restrictions related to IDTF arrangements, under which IDTFs will no longer be allowed, which began Jan. 1, to share practice locations, operations and diagnostic testing equipment with other Medicare-enrolled providers, including leasing and subleasing agreements. While the prohibition does not include sharing of non-clinical space and staff, and does not apply to other types of diagnostic providers, the new rule will likely require significant reconfiguration of IDTF relationships to be brought into compliance.