UROLOGY ANCILLARY REVENUE OPPORTUNITIES CMS Proposed Regulations - An Update and Additional Guidance By Greg L. Smith Healthcare attorney practicing with Womble Carlyle Sandridge & Rice, PLLC Click for Guideline Letter

As reported last month, on July 2nd the Center for Medicare and Medicaid Services (CMS) issued the Medicare Physician Fee Schedule (MPFS) Proposed Rules that, if finalized, could materially negatively affect many urology ancillary revenue opportunities. In this letter we will provide additional clarification of the MPFS proposed rules, as well as guidance to assist you in submitting comments to CMS before the August 31, 2007 deadline. Through your comments to CMS, you can make a difference in preserving the quality of patient care provided by the urological community, while also protecting urologists' ability to participate in ancillary revenue opportunities.

A. Proposed Regulation Stark Law Changes

The new MPFS proposed rules, if finalized, would make sweeping changes to the Federal Stark law. The Stark Statute prohibits a physician from making referrals to an entity, with which the physician or his immediate family has a financial interest, for the furnishing of specified designated health services (DHS) under Medicare, unless an exception applies. Targeted financial interests include compensation arrangements and ownership arrangements. The new MPFS proposed rule suggests changes to the Stark Statute and its regulatory exceptions that could limit many urology ancillary revenue opportunities.

1. Services Furnished Under Arrangements.
The Medicare statute permits providers, such as hospitals, to furnish services to beneficiaries "under arrangements" with third party vendors. Lithotripsy and bph laser services are commonly provided by urologist-owned vendors that contract under arrangements with hospitals. Historically, CMS interpreted "entity" under the Stark Statute to only mean the entity billing for the service in an under arrangement contract, which would be the hospital. The Stark financial interest in such circumstance would be a compensation arrangement between the hospital and physician owned vendor, and most urologist-owned lithotripsy and bph vendors have historically relied on the Stark indirect compensation arrangement to comply with the Stark law. The new MPFS rule proposes to change the Stark definition of entity to mean not only the hospital that bills for the services, but also the person or entity that either provides the DHS (e.g., the urologist vendor) or "causes a claim to be presented" for the DHS.

If the contracting urologist lithotripsy or bph vendor is interpreted to be the entity "performing" the DHS service or "causing" the claim for DHS to be presented, then the urologists' ownership interest in the contracting vendor could require a Stark ownership exception. As there is no applicable Stark ownership exception under such circumstances, the proposed rule could be interpreted to prohibit the physician-owned entity from contracting under arrangements with hospitals for DHS services. However, this is not a foregone conclusion. What does "causes a claim to be presented" mean under the new proposed rule? Urologist vendors have little influence on causing Medicare claims to be presented by a contracting hospital. Further clarification is required. Also, lithotripsy and bph laser services are DHS only if billed by a hospital. Consequently, if the Stark "entity" is the urologist-owned vendor, it could be argued that the urologist vendor is performing non-DHS lithotripsy and bph services, and not DHS hospital inpatient or outpatient hospital services. Again, further clarification is required. In the American Lithotripsy Society vs. Thompson case, the court held that lithotripsy is not a DHS. Consequently, a further argument exists that a urologist-owned lithotripsy vendor cannot be deemed to be performing a DHS service that requires a Stark ownership exception. There is also legislative history that supports that Congress intended that under arrangements contracts only require a Stark compensation exception, and not an ownership exception, which raises questions whether CMS has the authority to issue regulations contrary to congressional intent.

2. Unit of Service (Per-Click) Payments.
Most service arrangements between urologist vendors and hospitals provide for payment for services on a per procedure basis. Current Stark regulations for space and equipment leases (and personal services) allow payment on a per procedure basis. Under the new proposed regulations, the Stark equipment lease and space rental exceptions would be modified to prohibit per unit of service rental charges. Consequently, an individual urologist would no longer be allowed to lease a bph laser or lithotripter to a hospital for a per procedure fee. It should be noted, however, that the new proposed rule does not contemplate adding a similar prohibition to the personal services exception or indirect compensation arrangements exception. The latter exception is relied upon by most urologist vendors in their leases of equipment to hospitals. There is danger, however, that the new regulations could be modified to apply to indirect compensation arrangements. CMS has also hinted that it may modify the indirect compensation arrangement definition in the anticipated Stark III regulations. It is likely that the future Stark III regulations will collapse together individual physicians with their group practices in any revised indirect compensation arrangement definition, which would trigger the use of the direct equipment rental Stark exception, and the corresponding per procedure rent prohibition under the proposed MPFS regulation. It is uncertain whether the impending Stark III regulations would also collapse together joint ventures with their physician owners. Any attempt by CMS to prohibit per procedure payments, however, will be subject to serious challenge on the basis that it is contrary to clear congressional intent, as expressed in the Stark legislative history, to permit per procedure payments under the Stark exceptions.

3. Restriction on Percentage Fee Payments.
Several important Stark exceptions require that compensation be "set in advance;" e.g., personal service arrangements, fair market value compensation, and the office and equipment lease exceptions. Historically, CMS interpreted the "set is advance" requirement to permit percentage fee payments. In the proposed MPFS rule, CMS would change the "set in advance" definition to prohibit percentage based fees, except for professional services. The proposed regulations would prohibit an individual urologist from directly leasing equipment to a hospital in exchange for a percentage fee. It is notable, however, that the Stark indirect compensation arrangement exception does not have a "set in advance" requirement, so the proposed percentage fee prohibition would not appear to apply to urology practices or typical urologist joint venture equipment lease arrangements with hospitals. As discussed previously, there is a danger that the new proposed regulations may be modified to extend the percentage fee prohibition to physician practice and joint venture equipment lease arrangements. The anticipated Stark III regulations could also negatively modify the indirect compensation arrangement exception.

4. In-Office Ancillary Services Exception.
The Stark Statute in-office ancillary services exception allows a physician to furnish and benefit from many ancillary services that are DHS, as long as the services are provided in the physician's office and certain other requirements are met. Specifically, urologists rely on this exception to provide path lab, CT imaging and IGRT/IMRT within their individual group practices. In its commentary to the proposed MPFS rules, CMS expresses concern that the in-office ancillary services exception is being used to allow physicians to benefit financially from referrals that are not closely related to a physician's professional practice. CMS expresses particular concern with growing reliance on the exception to allow in-office path labs and use of expensive imaging equipment in physicians' offices. Without proposing new regulations, CMS solicits comments on whether changes are needed to the in-office ancillary services exception to stop perceived program abuse. CMS specifically requests comments on (i) whether certain services not fully integrated into a practice should be excluded from the exception, (ii) whether changes should be made to the exception to limit where the ancillary services can be performed, and (iii) whether non-specialists (e.g., urologists) should be allowed to use the exception for specialty services (e.g., anatomical pathology, external beam radiation and CT imaging) involving equipment owned by the non-specialist (e.g., path lab equipment, IGRT/IMRT and CT). CMS has hinted that the anticipated Stark III regulations may modify the in-office ancillary services exception to at least shut down off-site anatomical path labs. In drafting the Stark law, Congress specifically excluded certain DHS from the exception (e.g., durable medical equipment), which raises questions whether CMS has the independent authority to exclude any other DHS services not contemplated for exclusion by Congress.

5. "Stand in the Shoes".
In the MPFS commentary, CMS solicits comments, without issuing a rule, on providing additional restrictions on "indirect" relationships involving multiple DHS entities. Specifically, CMS proposes that where a DHS entity (e.g., a hospital) owns or controls another entity (e.g., an ambulatory surgery center) to which a physician refers Medicare patients for DHS, the controlling and controlled DHS entities would be collapsed together so that the referring physician would be deemed to have a compensation arrangement with the controlling entity. This is a complicated provision and it has many applications, but in the context of urology ventures, it will most likely have the greatest impact on urologist-owned bph laser and lithotripsy vendors contracting with ambulatory surgery centers (ASC) owned or controlled by hospitals. Bph laser and lithotripsy services only trigger the Stark Statute when they are provided at hospitals, so traditionally those services don't have to comply with a Stark exception when provided at an ASC. Under the CMS proposal, however, a hospital-owned or controlled ASC would be collapsed into the hospital, and a urologist-owned bph laser or lithotripsy vendor contracting with the ASC would have to comply with Stark. Note that under other regulations published by CMS, it is anticipated that Medicare will reimburse lithotripsy services performed at ASCs beginning in 2008.

B. Proposed Reassignment/Purchased Diagnostic Test Rules

Under the existing Medicare purchased diagnostic test rule, if a physician bills the technical component of a diagnostic test performed by an outside supplier, the physician is required to bill Medicare the lower of the Medicare reimbursement for the technical service, or the amount charged to the practice by the outside supplier for the technical service. This old rule essentially prohibits a physician from profiting from the purchase of the technical component of a diagnostic test performed by an outside supplier. The new MPFS proposed rules expands this concept to the professional component of diagnostic tests as well. Consequently, under the new proposed rule if a urology practice owns and operates imaging or lab equipment in its office, and globally bills Medicare for both the technical and professional components of the related service, the practice cannot make any profit on the professional component of the service, unless the professional performing the services is a full-time employee of the urology practice. Therefore, if the party providing the professional component (e.g., pathologist or radiologist) is a part-time employee or independent contractor, or full–time independent contractor, then either the entire Medicare professional component must be paid to such party by the urology practice, or the global fee professional component billed to Medicare must be reduced to reflect the amount actually paid to such professional. The proposed rules also prohibit a urology practice from offsetting against the professional fee paid to the outside physician (e.g., pathologist or radiologist) any billing and collection administrative expenses, or other overhead costs.

It should be stressed that the July 2nd MPFS rules are proposed only and do not change the current laws under which urologists provide ancillary services.

C. Guidance on Submitting Your Comment Letter to CMS
The deadline for submitting your written comments to CMS regarding the proposed MPFS rule is 5:00 p.m. August 31. It is very important that CMS hears from you, and from as many other individual urologists as possible, regarding the unfairness of the proposed rules, and the negative impact they would have on patient access to the most innovative medical technologies.

1. Guidance in Submitting Written Comments.
In Sections A and B of this Update, we highlight the most material provisions of the proposed rules that could negatively impact ancillary urology revenue opportunities, and those provisions should be the focus of your comments. CMS gives little to no weight to mass prepared form letters, so it is important that you prepare your own individual comments that reflect your personal circumstances and concerns. Given the complexity of the proposed regulations, we appreciate that preparing an individual comment letter can be a daunting task. If you would like additional assistance in preparing your comment letter, please contact us at [add organization e-mail address here], and we will e-mail you a guideline with bullet points relating to each material proposed regulation provision for you to consider incorporating into your own letter. Although there are strong legal arguments that certain proposed provisions shouldn't apply to many ancillary urology revenue opportunities, comments must direct CMS to clarify the proposed regulations to ensure contracting hospitals will accept such arguments.

2. U.S. Mail Written Comments.
Written responses must be received by CMS by 5:00 p.m. August 31, 2007. If you plan to submit your comments by regular U.S. mail, then you should post them (one original and two copies) no later than August 27, 2007 to the address below:

Center for Medicare and Medicaid Services
Department of Health and Human Services
Attention: CMS-1385-P
P.O. Box 8018
Baltimore, MD 21244-8018

3. Overnight Mail Written Comments.
If you are going to overnight mail your written comments, they should be posted (one original and two copies) no later than August 30, 2007 to the address below:

Center for Medicare and Medicaid Services
Department of Health and Human Services
Attention: CMS-1385-P
Mail Stop C4-26-05
7500 Security Boulevard
Baltimore, MD 21244-1850

4. Electronic Mailed Comments.
You may submit electronic mail comments before 5:00 p.m. August 31, 2007 by clicking on the following web link http://www.cms.hhs.gov/eRulemaking. Once on the website, click on the link "Submit electronic comments on CMS regulations with an open comment period" and follow the instructions. Emailed attached comments may be in WordPerfect, Microsoft Word or Excel formats.

We encourage you to timely submit your comments to CMS in order to protect your patients access to high quality urology services, and preserve your opportunity to participate in urology ancillary revenue opportunities.

This Update on the new proposed regulations was prepared and submitted by Greg L. Smith, a healthcare attorney practicing with Womble Carlyle Sandridge & Rice, PLLC, and specializing in urology-based ancillary revenue opportunities. Greg can be reached at gsmith@wcsr.com and 336-721-3665.

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