The Centers for Medicare & Medicaid Services (CMS) on July 31, 2008 issued a final rule adopting payment and policy changes for inpatient hospital services paid under the Inpatient Prospective Payment System (IPPS) for discharges in Fiscal Year (FY) 2009. The final rule also adopts a number of important changes and clarifications to the physician self-referral rules, based on proposals in the IPPS FY 2009 Notice of Proposed Rulemaking (NPRM), as well as proposals in the Medicare Physician Fee Schedule (MPFS) Calendar Year (CY) 2008 NPRM that were not addressed in the MPFS CY 2008 final rule.
The provisions in the final rule are designed to prevent potential program and patient abuse resulting from physician referrals to certain health care entities with which they have financial relationships, while giving providers and suppliers greater flexibility in structuring health care transactions where appropriate. The new rules will also help make the relationships between physicians and the entities to which they refer Medicare business more transparent.
The physician self-referral law prohibits physicians from referring Medicare and Medicaid patients for 11 designated health services (DHS) to an entity with which the physician or a member of the physician's immediate family has a financial relationship--unless an exception applies. The list of DHS includes:
- Clinical laboratory services;
- Radiology and certain other imaging services (including magnetic resonance imaging (MRI) services, computed tomography (CT) scans and ultrasound);
- Radiation therapy services and supplies;
- Durable medical equipment and supplies;
- Orthotics, prosthetics, and prosthetic devices;
- Parenteral and enteral nutrients, equipment and supplies;
- Physical therapy, occupational therapy, and speech-language pathology services;
- Outpatient prescription drugs;
- Home health services and supplies;
- Inpatient hospital services; and
- Outpatient hospital services.
The law also prohibits an entity from presenting or causing to be presented a bill or claim to anyone for a DHS furnished as a result of a prohibited referral.
POLICIES ADOPTED IN IPPS FY 2009 FINAL RULE:
IPPS FY 2009 NPRM Provisions Being Finalized in This Final Rule:
Period of Disallowance –The final rule provides guidance for certain circumstances as to the period of time for which a physician is prohibited from referring Medicare patients to an entity for DHS, and the period for which the DHS entity is prohibited from billing for such DHS. Specifically, for financial relationships that are non-compliant for reasons that do not relate to compensation, the period of disallowance ends no later than the date the arrangement is brought into compliance. For example, if an arrangement would have met one of the exceptions to the self-referral ban if it had been the subject of a written agreement, the period of disallowance would end no later than the day a written agreement describing the arrangement is executed and the arrangement otherwise fully complies with all requirements of an exception. Where the reason for non-compliance relates to compensation, the period of disallowance would end no later than the date all excess compensation is returned, or all shortfall in compensation is repaid (as applicable), and the arrangement otherwise fully complies with all requirements of an exception.
Physician-owned Hospitals– The final rule requires a physician-owned hospital, defined as a hospital in which a physician or an immediate family member of the physician has an ownership or investment interest, to furnish to patients, on request, a list of physicians or immediate family members who own or invest in the hospital, unless no physician owners or members of their immediate families refer patients to the hospital. In addition, a physician-owned hospital must require all physician owners or investors who are also active members of the hospital's medical staff to agree, as a condition of continued medical staff membership or admitting privileges, to disclose in writing their ownership or investment interests in the hospital to all patients they refer to the hospital.
The final rule also authorizes CMS to terminate the Medicare provider agreement of a physician-owned hospital if it fails to comply with these disclosure provisions or with the requirement that a hospital disclose in writing to all patients whether there is a physician on-site at the hospital 24 hours per day, 7 days per week.
“Stand in the Shoes” Provisions– The final rule provides that a physician owner of (or investor in) a physician organization stands in the shoes of the physician organization for the purpose of analyzing the financial relationships between DHS entities and referring physicians if the physician has the ability or right to receive financial benefits of the ownership or investment. However, a merely titular owner (that is, one who does not have the ability or right to receive the financial benefits of ownership or investment) is not required to stand in the shoes of his or her physician organization. (However, we are permitting non-owner physicians and titular owners to stand in the shoes of their physician organization if they choose to do so.) CMS is not finalizing its proposal to consider a DHS entity that has a 100 percent ownership interest in an organization to be standing in the shoes of that organization. Finally, CMS is finalizing its proposed revisions to the definitions of “physician” and “physician organization.”
MPFS CY 2008 NPRM Proposals Finalized in this IPPS Final Rule:
Services Provided Under Arrangements(revised definition of “entity”) –Under existing rules, an entity is considered to be furnishing DHS, and thus subject to the physician self-referral rules, only if it is billing Medicare for the DHS. Currently, hospitals are able to refer patients to a physician service provider in which they have an ownership/investment interest, without having to meet an ownership exception, if the physician service provider performs the service but sells it to a hospital or other provider that bills it as DHS to Medicare. The final rule revises the definition of a DHS “entity” to include both the entity that bills Medicare for the service as well as the entity that performs the service.
Leases of Equipment or Space – The final rule addresses two types of leasing arrangements that have the potential to encourage overutilization and to pose a heightened risk of program and patient abuse. These are leases in which the lessor receives a payment each time the equipment or space is used by the lessee (“per-click” leases) and leases in which the compensation to the lessor is determined using a percentage-based formula. The final rule prohibits the use of “per-click” leases for office space or equipment, to the extent that the per-click payment is for office space or equipment used by the lessee to treat patients referred by the lessor.
The rule also prohibits the use of percentage-based compensation formulae for determining the rental charges for the lease of office space or equipment. This provision would not prohibit the use of percentage-based compensation formulae in management agreements, billing services arrangements, and gainsharing (or shared savings) arrangements.
Alternative Method of Compliance - Where parties have failed to obtain a signature necessary to satisfy the requirements of an exception to the physician self-referral law, CMS provides for an alternative method to comply with the exception if the financial relationship between the entity and the referring physician otherwise fully complied with an applicable exception and the following conditions are met: (1) where the failure to comply with the signature requirement was inadvertent, the entity rectifies the failure to comply with the signature requirement within 90 days after the commencement of the financial relationship (without regard to whether any referrals have occurred or compensation has been paid during such 90-day period); or (2) where the failure to comply with the signature requirement was not inadvertent, the entity rectifies the failure to comply with the signature requirement within 30 days after the commencement of the financial relationship (without regard to whether any referrals have occurred or compensation has been paid during such 30-day period). This provision may be used by an entity only once every 3 years with respect to the same referring physician.
Disclosure of Financial Relationship Report - CMS will be publishing a revised Paperwork Reduction Act (PRA) package for the Disclosure of Financial Relationships Report (DFRR) in the Federal Register. The DFRR is a mandatory disclosure instrument that specifies the form, manner and timeframes that will apply to hospital reporting of financial relationships with referring physicians. In the revised PRA package, CMS is increasing its estimates of the time and burden associated with completing the DFRR.
The final rule will appear in the August 19 Federal Register and will generally be effective for discharges on or after October 1, 2008. The prohibitions on the use of percentage-based compensation formulae for determining the rental charges for the lease of office space or equipment, and on certain “per-click” payments in lease provisions, and the revised definition of “entity,” have a delayed effective date of October 1, 2009.
For more information on the final IPPS rule, see:
For more information on Physician Self-Referral issues, see:
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