"Stark" reality: self-referral rule holds risk and opportunity

On January 4, 2001, the Health Care Financing Administration (now the Center for Medicare and Medicaid Services or CMS) issued Phase I of the final Stark II regulations (Final Rule). The Final Rule implements the Ethics in Patient Referral Act of 1989 (Stark I), as amended by the Omnibus Budget and Reconciliation Act of 1993 (Stark II), collectively the Stark Law. It is intended to provide more flexibility to providers by interpreting the prohibitions narrowly and the exceptions broadly. Generally, the Stark Law prohibits physicians from referring Medicare or Medicaid patients to an entity for the provision of "designated health services (DHS)" if the physician (or a member of the physician's immediate family) has a direct or indirect financial relationship with the entity. The Final Rule establishes two principal exceptions to the referral prohibition that apply to both ownership/investment interests and compensation arrangements. The physician service exception permits referrals for DHS that are furnished by a member or physician in the same group practice as the referring physician, or under their supervision. The in-office ancillary services exception permits referral for provision of DHS in the same building in which the referring physician or his group routinely provides the full range of the group's or physician's medical services. The final regulations redefine the prior description of radiology and radiation therapy services subject to Stark II. The principal change is to segregate radiation therapy and supplies from radiology and other imaging services. It is uncertain whether Stark Law enforcement will be a priority under the Bush Administration. Nonetheless, because the Final Rule offers more flexibility than the proposed rule, providers and suppliers should revisit proposed and abandoned arrangements that they believed to be prohibited.