January 9, 2020

QUESTION:        Why can’t someone come up with a straightforward definition of what it means for a physician’s compensation to vary with, or take into account, the volume or value of the physician’s referrals to a hospital?

ANSWER:          Good question.  CMS is trying, but the federal courts continue to make this analysis much more complicated than Congress intended when it adopted the Stark Law.

Some courts have mistakenly held that if a physician is employed by a hospital in a hospital-based service, and is paid on an RVU basis, then since the more professional services that the physician personally performs, the more referrals they will make to the hospital and as a result, the physician’s compensation varies or takes into account the physician’s referrals to the hospital.

This is incorrect and is part of the reason that the Third Circuit had to reissue its decision in U.S. ex rel. Bookwalter v. UPMC (discussed in this week’s HLE).

CMS has apparently heard these concerns.  On October 17, 2019, CMS published proposed Stark regulations that will provide clear, helpful guidance on this and many other aspects of the Stark Law if they are adopted in final form as proposed.

As CMS has repeatedly stated, the requirement that compensation not vary with or take into account the volume or value of physician referrals, which appears in a number of statutory or regulatory exceptions, should be uniformly interpreted wherever it appears.  Such uniform interpretation is essential.  However, as pointed out in the Preamble to the Proposed Regulation, some courts have interpreted the volume or value standard to consider the subjective intent of the parties, rather than applying an objective “bright line” test as Congress intended, making compliance with the statute much more difficult and uncertain than intended by the statute.

CMS wants to address this confusion by proposing a much clearer definition of the volume or value standard in the regulations.  CMS has stated that this vital term should be interpreted to mean that the volume or value standard will be violated only if the amount paid to the physician or the amount due from the physician (i.e., a rental payment) will increase or decrease in correlation to the referrals that the physician makes to the hospital.

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CMS then gave the following examples of the types of compensation arrangements that will violate the Stark Law.

To illustrate, assume a physician leases medical office space from a hospital.  Assume also that the rental charges are $5000 per month and the arrangement provides that the monthly rental charges will be reduced by $5 for each diagnostic test ordered by the physician and furnished in one of the hospital’s outpatient departments.  Under proposed § 411.354(d)(6)(i), the compensation (that is, the rental charges) would take into account the volume or value of the physician’s referrals to the hospital.  The mathematical formula that illustrates the rental charges paid by the physician to the hospital would be:  Compensation = $5000 – ($5 x the number of designated health services referrals).  The policy at § 411.354(d)(6)(ii)(A) with respect to when compensation from a physician (or immediate family member of the physician) to an entity takes into account other business generated would operate in the same manner.

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As another example, assume that a physician leases medical office space from a hospital and the rental charges are as follows:  $2000 per month if the physician is in the top 25 percent of admitting physicians at the hospital (measured by the gross charges per inpatient admission); $2500 per month if the physician  is in the second quartile of admitting physicians on the hospital’s medical staff (measured by the gross charges per inpatient admission); and $3500 per month if the physician is in the bottom half of admitting physicians at the hospital (measured by the gross charges per inpatient admission).  Under our proposed additional approach to the volume or value standard and other business generated standard, the compensation (that is, the rental charges) would be determined in a manner that takes into account the value of the physician’s referrals and other business generated for the hospital.

These proposed amendments to the Stark Volume or Value Standard, as well as the proposed definition of fair market value and commercial reasonableness (which recognized that it does not violate the law to lose money on a physician’s practice and that published salary surveys are to be used as benchmarks only), will make compliance with the Stark Law much more straightforward.  These proposed regulations also provided valuable guidance on value-based arrangements and recognize that the fair market value of the physician’s input and cooperation with a value-based enterprise is generally not reflected in the hourly payment rates for the services actually performed by the physician.

The comment period for these proposed regulations ended on December 31, 2019.  We have urged CMS to issue the proposed regulations in final form without delay so that providers and the federal courts can begin to take advantage of this guidance.

If you want to learn more about value-based compensation, these regulations or the proposed Safe Harbor regulations that were issued on the same day, join Dan and Henry in Chicago on April 23-25 for the Hospital Physician Contracts Clinic.

November 21, 2019

QUESTION:        We need to employ physicians in order to provide the care needed by our patients.  The main reasons that private practice is no longer a viable option for many physicians are the ever increasing costs of operating a practice (especially malpractice insurance and EHR costs) while professional reimbursement keeps decreasing.  However for the same reasons, we rarely break even on a physician practice.  Does anyone in the government understand this or do they assume that we overpay physicians to get their referrals?

ANSWER:          Unfortunately, many courts do not understand your dilemma.  Some courts seem to take the position that a hospital paying a physician more than the physician generates in professional fees is evidence of unreasonable compensation that violates the Stark Law.

However, help is on the way.  In the October 19, 2019, proposed Stark Regulations, CMS has provided an excellent description of the analysis that should be followed when assessing whether the compensation paid to a physician violates the Stark Law.

For the first time, CMS has included a definition of the term “commercially reasonable” that specifically states that an arrangement may be commercially reasonable even if “it does not result in a profit for one or more of the parties.”  CMS has also substantially revised the definition of “fair market value” and has made it clear that in order to violate the “volume or value” standard there must be a direct correlation between the physician referrals and the amount to be paid to the physician.

CMS also stated that salary surveys are to be treated as benchmarks, not the last word on physician compensation and even provided easy to understand examples such as the following in order to make this point crystal clear:

By way of example, assume a hospital is engaged in negotiations to employ an orthopedic surgeon.  Independent salary surveys indicate that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital.  However, the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the entire country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate.  Thus, although the employee compensation of a hypothetical orthopedic surgeon may be $450,000 per year, this particular physician commands a significantly higher salary and the general market value (or market value) of the transaction may, therefore, be well above $450,000.  The statute requires that the compensation is the value in an arm’s length transaction, but that value must also be consistent with the general market value (or market value) of the subject transaction.  In this example, compensation substantially above $450,000 per year may be fair market value.

The proposed rules also provide much needed guidance on value-based arrangements.

The comment period will end on December 31, 2019.  We hope that CMS will finalize these proposed regulations as soon as possible after that date and that the federal courts begin to adopt CMS’s analysis.

November 7, 2019

QUESTION:        Did CMS recently change its regulations on supervision of physician assistants?


ANSWER:          Yes.  CMS recently issued a final rule that revised its regulations on physician supervision.  This rule explains that CMS will largely defer to state law and state scope of practice rules for issues involving supervision of physician assistants (“PAs”).  In situations where there is no state law governing physician supervision of PA services, CMS will look for documentation of the PA’s scope of practice and the working relationships the PA has with supervising physicians (when furnishing professional services).

Crucially, you will need to check your state law to verify whether these changes will have a significant impact on your organization.

October 31, 2019

QUESTION:        I thought I saw something recently about the Stark and Safe Harbor Regulations being changed?  Did I hallucinate after eating too much Halloween candy?

ANSWER:          Well, you may have been hallucinating, but it wasn’t about the Stark and Safe Harbor Regulations.  On October 9, 2019, CMS issued a proposed rule to modernize and clarify the Stark regulations and, at the same time, the OIG published proposed amendments to the Anti-Kickback Safe Harbor regulations.  Comments will be accepted through December 31, 2019.

The proposed amendments to the Stark regulations would:

  • create new, permanent exceptions to the Stark Law for value-based arrangements;
  • solicit comments about the role of price transparency in the context of the Stark Law and whether to require cost-of-care information at the point of a referral for an item or service;
  • provide additional guidance on several key requirements that must often be met in order for physicians and healthcare providers to comply with the Stark Law, including how to determine if compensation is at fair market value;
  • provide guidance on a wide range of other technical compliance issues; and
  • propose a new Stark exception for donations of certain cybersecurity technology.

The revisions proposed by the OIG to the Anti-Kickback safe harbors apply to certain coordinated care and associated value-based arrangements between or among clinicians, providers, suppliers, and others and add protections under the anti-kickback statute and civil monetary penalty (“CMP”) law that prohibit inducements offered to patients for certain patient engagement and support arrangements to improve quality of care, health outcomes, and efficiency of care.

The proposed rule would add a new safe harbor for donations of cybersecurity technology and amend the existing safe harbors for electronic health records (“EHR”) arrangements, warranties, local transportation, and personal services and management contracts.  The proposed rule would also add a new safe harbor related to beneficiary incentives under the Medicare Shared Savings Program and a new CMP exception for certain telehealth technologies offered to patients receiving in-home dialysis.

Do you want to know more?  HortySpringer partners Henry Casale and Dan Mulholland went over these proposals in detail earlier this month in a Special Audio Conference and told everyone what they should be doing right now to get ready for them.  You can order a recording of that audio conference here.

October 17, 2019

QUESTION:        A few years ago, CMS proposed a rule that would have required hospitals to send a copy of the discharge instructions and the discharge summary to practitioners responsible for the patient’s follow-up care.  Specifically, the proposed rule attached a 48-hour deadline to this requirement, with an exception for pending test results (which would have been due within 24 hours after becoming available).  Was the 48-hour deadline ever finalized?

ANSWER:          No, CMS ultimately decided not to impose this 48-hour deadline.  At the end of September, the agency published a final rule explaining its rationale.  CMS received numerous comments that supported the idea of requiring hospitals to send a copy of the discharge instructions and discharge summary to the practitioners responsible for the follow-up care, so long as those practitioners were known and had been clearly identified.  However, most of the commentators expressed concern about the idea of a 48-hour time frame.  In the Federal Register, CMS explained that it found these concerns convincing.  Specifically, it acknowledged that the 48-hour deadline would not be reasonable or appropriate for all situations.  It therefore eliminated that specific time frame requirement and instead gave hospitals discretion on when to send this information.

However, CMS did finalize a requirement for hospitals to “discharge the patient, and transfer or refer the patient where applicable, along with all necessary medical information pertaining to the patient’s current course of illness and treatment, post-discharge goals of care, and treatment preferences.”  This does place certain obligations on the hospital (and discharging practitioners) to ensure that necessary medical information is ready to be sent at the time of discharge.

To hear more on this topic and other recent CMS changes, tune in to our upcoming audio conference:

“Patients Over Paperwork”? The New CMS Rules and Their Impact on Your Patients and Policies

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October 10, 2019

QUESTION:        The five medical staffs in our system are thinking about unifying.  Are there any particular steps we need to follow and any changes we need to make to our bylaws?


ANSWER:          In May 2014, CMS revised the Medicare Conditions of Participation to allow a multi-hospital system to have a unified and integrated Medical Staff.  There are several steps that must be taken in the integration process.  First, the system must ensure that there is nothing in the state hospital licensing statutes or regulations that would prohibit the medical staffs of separately licensed hospitals from integrating into a single staff.

Second, the Board (and there must be a single Board) must document in writing its decision to use  a unified medical staff model.  This decision would be conditioned on acceptance by the hospitals’ medical staffs to opt-in to an integrated medical staff model.

Third, the medical staff of each of the hospitals must take a separate vote to opt in or opt out of the unified medical staff.  The vote at each hospital must be governed by the respective medical staff bylaws in effect at the time.  Only voting members of the medical staff who hold privileges to practice on site at the hospital may participate in the vote.

Fourth, the unified medical staff will also want to adopt new medical staff bylaws and related policies.  The new bylaws should take into account the unique circumstances of each hospital, including any significant differences in the patient populations and the clinical services that are offered at each hospital.

Importantly, the new bylaws must also include a process by which the voting members of the medical staff who exercise clinical privileges at the hospital may vote to opt out of the unified medical staff in the future.

October 3, 2019

QUESTION:        Are two Critical Access Hospitals (“CAHs”) allowed to unify their medical staffs?

ANSWER:          No. Moreover, as CMS made clear in analyzing the comments it received to the proposed regulations related to unified QAPI and infection control programs in the final version published on September 30, 2019, there are other limits: “One commenter requested that CMS include ‘affiliate’ and CAHs in the unified and integrated QAPI and infection control requirements.”  CMS responded:

A CAH must be separately evaluated for its compliance with the CAH CoPs (found at 42 CFR part 485, subpart F), which would not include the requirements included in this section of the rule since these are hospital CoPs. It would not be possible to evaluate the CAH’s compliance as part of an evaluation of a hospital’s compliance.  However, this does not preclude a multi-hospital system’s single governing body from also serving as the CAH’s governing body, so long as the governing body clearly identifies the policies and decisions that are applicable to the CAH.  84 Fed. Reg. at 51742.

However, CMS stated that it encourages CAHs to “work with other hospitals or CAHs in their network (if available) for pharmaceutical support” (among other resources) in dealing with the revised antibiotic stewardship requirements.  84 Fed. Reg. at 51783.

The regulations pertaining to CAHs are just a small part of the entire set of regulations.

Join Charlie Chulack and Joshua Hodges for a special audio conference entitled:

“Patients Over Paperwork”?
The New CMS Rules and Their Impact on Your Patients and Policies

October 29, 2019
1:00 to 2:30 pm (ET)

They will discuss the key points in these new regulations, particularly those that affect Medical Staff Rules & Regulations and policies, and revisions you should think about now.

And stay tuned for another special audio conference coming in 2020 on Medical Staff basics for Critical Access Hospitals.

September 19, 2019

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What is the significance of the CMS “Pathways to Success” program for ACOs in the Medicare Shared Savings Program?

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ANSWER:            At the end of 2018, the Centers for Medicare & Medicaid Services (“CMS”) redesigned the Medicare Shared Savings Program.  Although the Medicare Shared Savings Program had been in operation since 2012, it had failed to generate the kinds of cost savings that CMS hoped to manifest.  “Pathways to Success” was intended to accelerate the process of transitioning Accountable Care Organizations (“ACOs”) to performance-based risk models.

Among other things, the Pathways to Success program implemented certain kinds of “risk tracks” that offer different mixtures of risk and reward.  Each risk track balances factors such as the potential for financial rewards (in the form of shared savings), the risk of financial penalties (in the form of shared losses), and the opportunity to qualify as an Advanced Alternative Payment Model (which provides certain benefits for individuals subject to the MIPS program).

There are many different variables that govern an ACO’s performance and opportunities under the Shared Savings Program, which means that a full discussion of the program details falls well outside the scope of this article.  The key takeaway to understand is that Pathways to Success was designed to accelerate ACOs to take on higher levels of financial risk and responsibility.  This is yet another example of the ongoing federal effort to promote population health while simultaneously combating the growth of health care expenditures.

To learn more about the Medicare Shared Savings Program, click here.


September 12, 2019

QUESTION:        Our Bylaws state that all of the members of the Active Staff are required to provide call coverage for our ED.  Assuming that we only have two neurosurgeons who are able to cover the ED each month, does this mean they must take 15 days of call each?  Our physician leaders are telling us that this is a tremendous burden, but we do not want to violate EMTALA.


ANSWER:            A tough question, made even tougher by the fact that CMS has provided very little guidance on the reasonableness of hospital call schedules.  In fact, it has even denounced a common “rule of thumb” that many hospitals have decided to follow over the years.

We are referring to the “rule of three” approach, which is based on prior, informal guidance from CMS that said if there were three physicians in a particular clinical specialty on a medical staff, the hospital had the obligation to provide emergency services on a 24/7/365 basis for that specialty.  This has been extrapolated to mean that, in a specialty with fewer than three physicians (like in the question above), each physician should provide 10 days/month of call coverage.

But before you start revisiting your own On-Call Policy requirements, keep in mind that CMS never put this rule in writing and now denies it ever existed.  Instead, it uses a rather nebulous “all relevant” factors test to evaluate the reasonableness of a hospital’s call schedule.  This means that each hospital should consider factors like the number of physicians available to take call, other demands on these physicians, frequency of emergency cases in that specialty, etc. to determine its on-call schedule.

This may not be as helpful as a “rule of three” or “rule of five” approach that we still see some hospitals follow, but it is important to recognize CMS does not have a bright line rule that require 24/7/365-day coverage for each specialty, so there is some flexibility.

July 18, 2019

QUESTION:              If we allow registered dieticians (“RDs”) to order therapeutic diets, do we have to grant them privileges through the Medical Staff?

ANSWER:                 Yes, you do according to CMS.  This is based on a change made in 2014.  Traditionally, CMS restricted the ability to order therapeutic diets to “practitioners responsible for the care of the patient.”  However, in its Final Rule dated May 12, 2014, CMS changed its position on this matter and revised 42 C.F.R. §482.28(b)(2) to read:

All patient diets, including therapeutic diets, must be ordered by a practitioner responsible for the care of the patient, or by a qualified dietician or qualified nutrition professional as authorized by the medical staff and in accordance with State law governing dieticians and nutrition professionals.

CMS went on to explain the rationale for this change in the Final Rule as follows:

In order for patients to have access to the timely nutritional care that can be provided by RDs, a hospital must have the regulatory flexibility either to appoint RDs to the medical staff and grant them specific nutritional ordering privileges or to authorize the ordering privileges without appointment to the medical staff, all through the hospital’s appropriate medical staff rules, regulations, and bylaws.  In either instance, medical staff oversight of RDs and their ordering privileges would be ensured.  Therefore, we proposed revisions to §482.28(b)(1) and (2) that would require that individual patient nutritional needs be met in accordance with recognized dietary practices.  We would make further revisions that would allow for flexibility in this area by requiring that all patient diets, including therapeutic diets, must be ordered by a practitioner responsible for the care of the patient, or by a qualified dietitian or other clinically qualified nutrition professional as authorized by the medical staff and in accordance with State law.  We believe that hospitals that choose to grant these specific ordering privileges to RDs may achieve a higher quality of care for their patients by allowing these professionals to fully and efficiently function as important members of the hospital patient care team in the role for which they were trained.  In the proposed rule, we stated that we believe hospitals would realize significant cost savings in many of the areas affected by nutritional care.

However, not all states allow for this type of flexibility.  For example, in our home state, Section 111.27 of the Pennsylvania Code states that therapeutic diets must be prescribed by a physician.  Accordingly, any hospital that wants to allow RDs to practice in this manner must first obtain an exception from the Pennsylvania Department of Health in order to implement the approach outlined in the new CMS Final Rule.

Also keep in mind that allowing RDs to practice in this way is not required; rather, it is at the discretion of each individual hospital, as explained in a series of responses to comments in the Final Rule:

Comment: Another commenter asked for clarification on whether the proposed requirement only provides a hospital with the option of credentialing and privileging a dietitian.

Response: The requirement, including the revisions we are finalizing here, does not require hospitals to credential and privilege dietitians as a condition of participation, but, as previously stated, allows for it as an option if consistent with State law.

Comment: A few commenters stated that they were concerned about ordering diets for critically ill patients or making specific patients “NPO.” They further state that they would feel comfortable ordering diets only if there was a “‘diet order per dietitian’ order from the doctor.”

Response: As we have stated, the requirement does not require dietitians and nutrition professionals to order diets, but only allows for it as an option if consistent with State law and if a hospital chooses to grant such privileges after considering the recommendations of its medical staff.  An individual dietitian or nutrition professional would then need to apply for these ordering privileges.