How the new Stark rules affect you

February 1, 2008

You'll applaud some changes, but have trouble with others.

An update to the regulations prohibiting physician self-referrals-the so-called Stark rules-is never going to be front-page news or the latest buzz within the blogosphere.

In certain quarters, though, the new Stark rules, which except for certain arrangements and organizations took effect on Dec. 4, have been as hotly debated as the presidential race, and with good reason. For physicians and others in healthcare, the new regs-along with some revisions in the 2008 Medicare Physician Fee Schedule-contain some good news, some bad news, and some it's-all-a-matter-of-how-you-look-at-it news. Let's turn to the good news first.

Help with physician recruitment is here

Previously, if you owned a group practice and your local hospital helped you to recruit a new physician-in the form, say, of an income guarantee-Stark stopped you from inserting even a reasonably drafted noncompete clause in that doctor's employment contract. For groups trying to maintain their competitive edge (to say nothing of hospitals trying to satisfy unmet patient needs), that presented a real problem. "Groups need to know that their investment of time, resources, and transitioned patients won't be rewarded with the new physician walking out the door to join a competing group," says attorney Lawrence W. Vernaglia, a partner at Foley & Lardner, in Boston.

CMS has reversed its former position. Noncompetes that are reasonable and legal in the state in which your group is located are now permitted. The revision, says Vernaglia, "gives the recruiting group the chance to compete with other groups in the area on an even footing."

CMS supports physician recruitment in other ways, too. Let's say "Good Care Hospital" wants to induce you to move to its geographical service area to open up a new practice. The Stark rules define that area as the lowest number of contiguous ZIP codes from which the hospital draws at least 75 percent of its inpatients. Go beyond that limit, and Good Care risks a Stark violation.

But what happens if Good Care Hospital draws fewer than 75 percent of its inpatients from ZIP codes that are next to each other, the remainder coming from noncontiguous ZIP codes? Under the new rules, the hospital can still consider its geographical service area-and thus its allowable recruitment zone-to be all the contiguous ZIP codes from which it draws inpatients. What's more, the new Stark rules include an alternative boundary test for rural facilities-one of several changes designed to ease the recruitment burden on rural hospitals and physician practices.

The new rules also make it easier for hospitals and groups to recruit certain categories of physicians who in the past would have been off limits. These include doctors employed full time by designated government agencies (state and federal bureaus of prisons and the Indian Health Service, among others), provided that they haven't simultaneously maintained a private practice on the side. Hospitals and groups may now also recruit doctors whose existing medical practice, in the judgment of the Secretary of Health and Human Services, hasn't competed with the recruiting hospital or group for patients-and isn't likely to do so.

You are your group, CMS now says

Now let's turn to Stark changes that will complicate life for physicians, none more so than revisions to the indirect compensation exception.

In the past, if you were an employee or owner of a group practice that had a financial relationship with a hospital providing designated health services-through an office space lease, say, or a personal services contract-Stark looked upon your relationship with that hospital as a form of indirect compensation, assuming certain requirements were met. Such a relationship wasn't subject to the standard Stark provisions and prohibitions.