ANTI-KICKBACK RESTRICTIONS SELF-REFERRAL PROHIBITIONS (Stark I and II) Presented by John Shonyo Physician Recruiter/Ad

1. ANTI-KICKBACK RESTRICTIONS • SELF-REFERRAL PROHIBITIONS (Stark I and II) Presented by John Shonyo Physician Recruiter/Administrator Mayo Health System Rochester, MN 2/2004

2. ANTI-KICKBACK STATUTORY PROHIBITION: The knowing and willful solicitation, offer, payment or receipt of any remuneration, whether direct or indirect, overt or covert, in cash or in kind, in return for or to induce: (a) Referring or influencing the referral of an individual for the furnishing of any item or service; or (b) Purchasing, leasing or arranging or recommending for the purchase, lease or ordering, of any item or service. Paid in whole or in part under Medicare or Medicaid (expanded to all federal health programs by HIPAA).

3. KEY POINTS TOANTI-KICKBACK ANALYSIS • Any transaction that does not reflect fair market value for good or services creates some kind of remuneration • It is a violation of the anti-kickback restrictions if just one purpose is to induce referrals, even if there are other legitimate purposes for the payment • “Knowingly and willfully” standard. • Fraud Alerts and Advisory Opinions provide guidance on how the OIG interprets the anti-kickback restrictions • Compliance Plans • A factor in determining sanctions and penalties • Model plans for various providers

4. ANTI-KICKBACK SAFE HARBORS(42 C.F.R. § 1001.952) • 24 circumstances where the OIG will not contest the arrangement (generally removing the payment from the definition of “remuneration”) • Failure to meet the requirements of a safe harbor does not mean the arrangement is illegal

5. SAFE HARBORS INVESTMENT INTERESTS IN SMALL ENTITIES • 40/40 Rules on investors and revenues • Active/Passive Investors • Investment cannot be tied to referrals • Entity cannot finance the investment • Returns must be proportionate to investment

6. SAFE HARBORS SPACE AND EQUIPMENT RENTAL • Lease must be in writing, for a term of not less than 1 year • Lease must specify the premises or equipment covered • If lease is for periodic use, it must specify the schedule of such intervals, their length and the rent per interval • Aggregate rent must: • Be set in advance • Reflect a fair market value • Not take into account the value or volume of referrals or services

7. SAFE HARBORS PERSONAL SERVICE AND MANAGEMENT CONTRACTS • Written agreement, for a term of not less than 1 year • Specify the services to be rendered • If services are at periodic intervals, agreement must specify the schedule, the length of each interval and the charge for each interval • Aggregate compensation must: • Be set in advance • Reflect fair market value • Not be determined in a manner which takes into account the value or volume of referrals or services

8. SAFE HARBORS AMBULATORY SURGERY CENTERS 1. Uniform Requirements • Terms on which investment offered cannot be related to previous or expected referrals or services • Entity or any investor may not loan funds to or guaranty a loan for another investor • Returns to investors must be proportional to their investments • Entity and providers must treat Medicare and Medicaid patients • Ancillary services provided must be directly and integrally related to ASC procedures

9. SAFE HARBORS AMBULATORY SURGERY CENTERS 2. Surgeons • General surgeons or surgeons in same surgical specialty • Non-referring, unrelated investors • 1/3 of income of each surgeon must come from ASC procedures 3. Single Specialty Owners • All must be in the same specialty • 1/3 of income from ASC procedures

10. SAFE HARBORS AMBULATORY SURGERY CENTERS 4. Multi-Specialty Owners • All must be potential referrers and perform ASC procedures • 1/3 of income from ASC procedures • 1/3 of ASC procedures at this ASC 5. Hospital/Physician ASCs • At least 1 hospital owner and qualified physicians • May not use space in or owned by hospital unless meet lease safe harbor • ASC costs may not be included in hospital cost report • Hospital may not be in a position to make or influence referrals to physicians

11. SAFE HARBORS • Investment in Group Practice • Employment Relationship • Remuneration does not include compensation in a bona fide employment relationship • Sale of Practice • Referral Services • Warranties and Discounts • Group Purchasing

12. STARK LAWS A physician may not make a referral for a DHS to an entity in which the physician (or an immediate family member of the physician) has a financial relationship, unless a specific exception applies. A provider of DHS may not submit a bill for services provided pursuant to a prohibited referral.

13. STARK LAWS “Designated health services”: a. clinical laboratory services (prohibited under Stark I); b. physical and occupational therapy services; c. radiology services (including MRI, CT and ultrasound); d. radiation therapy services and supplies; e. durable medical equipment and supplies; f. parenteral and enteral nutrients, equipment and supplies; g. prosthetics, orthotics and prosthetic devices and supplies; h. home health services; i. outpatient prescription drugs; j. inpatient and outpatient hospital services.

14. STARK LAWS “Financial Relationship”: a. Ownership or investment interest - direct or indirect, through equity, debt or other means, including interest in an entity having interest in another entity which provides DHS b. Compensation arrangement

15. STARK LAWS Referral a. Any request for a DHS for which payment may be made under Medicare or Medicaid programs b. Includes establishing a plan of care which includes DHS

16. STARK EXCEPTIONS Ownership and Compensation Exceptions a. Physician services by physician in same group practice b. In-Office Ancillaries c. Services pursuant to HMO Medicare contract

17. STARK EXCEPTIONS Compensation exceptions: a. Rental of office space or equipment b. Employment relationship c. Personal service arrangements d. Remuneration unrelated to the provision of DHS e. Physician recruitment incentives f. Isolated transactions g. Sole service provider arrangement with hospital h. Payments by physician for services

18. STARK EXCEPTIONS Ownership/Investment exceptions: a. Publicly-traded entity b. Rural hospitals c. Ownership interest in a hospital by medical staff member, if interest is in hospital as a whole Anything else HCFA decides by regulation.

19. STARK LAW “Group Practice” a. Distinct legal entity; b. Each physician who is a member of group furnishes substantially the full range of patient care services he/she routinely furnishes through joint use of shared office space, facilities, equipment and staff. c. Substantially all of the patient care services by members of the group (i.e., at least 75%) are rendered through the group and billed in the name of the group, and receipts from such billings are treated as revenue of the group;

20. STARK LAW “Group Practice” d. Practice expenses and income are distributed in accordance with previously determined methods. e. Group members must personally conduct not less than 75% of the patient care encounters of the group. f. A physician in the group may be paid a share of the overall profits of the group or a productivity bonus based on his/her individual services (which cannot be related to the value or volume of referrals).

21. STARK LAW In-Office Ancillary Exception: Physicians in a group practice may provide and be paid for most designated health services if: a. The DHS is provided by the referring physician personally, by another physician member, or by a person supervised by a physician member. b. The DHS is furnished in a building where the group practice furnishes other services or which is a central facility for the group’s DHS. c. The DHS is billed by the group practice, under a billing number assigned to the group, or by an entity wholly owned by the group.

22. STARK REGULATIONS • Final Stark I Regulations - August, 1995 • Proposed Stark II Regulations - January, 1998 • Phase I Final Stark II Regulations - Issued January, 2001, to be effective January, 2002

23. PHASE I “Financial Relationship” Statutory Definition: (1) An ownership or investment interest of a referring physician (or an immediate family member of a referring physician) in the entity furnishing the DHS, or (2) A compensation arrangement between the referring physician and the entity furnishing the DHS.

24. “Financial Relationship” • The financial relationship does not have to be relating to the designated health service. • “Direct” financial relationship: Any arrangement between the entity furnishing the DHS and a referring physician with no person or entity (other than agents) interposed between them.

25. “Indirect” Financial Relationship • An indirect ownership or investment interest will exist if: (A) Between the referring physician and the entity furnishing the DHS there exists an unbroken chain of any number of persons or entities having an ownership/investment interests between them; and (B) The entity furnishing the DHS has actual knowledge, or acts in reckless disregard or deliberate ignorance of the fact that the referring physician has some ownership/investment interest (through any number of intermediate interests). • The entity does not need to know or disregard the precise composition of the chain or the terms of ownership.

26. “Indirect” Financial Relationship • An indirect compensation arrangement will exist if: (A) There is between a referring physician and an entity furnishing DHS an unbroken chain of persons or entities that have financial relationships between them (either ownership/ investment interests or compensation arrangements). (B) The aggregate compensation received by the referring physician from the person/ entity with whom the physician has a direct financial relationship varies with or otherwise reflects the value or volume of referrals or other business generated by the physician for the DHS entity. (C) The DHS entity must have actual knowledge (or act in reckless disregard or with deliberate ignorance) that the aggregate compensation received by the referring physician varies with or reflects the value or volume of referrals.

27. “Indirect” Compensation Relationship • In the referring physician’s direct financial relationship is an ownership/ investment interest, whether there is a compensation arrangement that varies with or reflects the value/volume of referrals will be determined by looking at the closest compensation arrangement to the physician in the unbroken chain.

28. Special Rules on Compensation • Compensation will be considered “set in advance” if the aggregate compensation or a time-based or per unit of service-based amount is set in advance in the initial agreement in sufficient detail so it can be objectively verified. • The payment must be fair market value compensation, not taking into account the value/volume of referrals or other business generated by the referring physician • Percentage compensation, originally not included as “set in advance,” is now being reconsidered

29. Special Rules on Compensation • Compensation will not be deemed to take into account the value/volume of referrals or other business generated if it is fair market value and does not vary over the course of the agreement in any manner that takes into account referrals or other business generated by the physician, including private pay referrals. • Compensation to a physician may be conditioned on the physician’s referrals to a particular provider of goods/services under certain circumstances.

30. “Referrals” • Proposed regulations included in “referrals” of a DHS ordered by a physician that the physician personally performed. Phase I excludes services performed personally by the referring physician. • A physician may make a referral by requesting others, including his or her employees, co-workers or independent contractors, to perform a DHS. • New Exception: DHS entity not prohibited from billing for DHS when it did not know or have reason to know referral came from a physician with whom it had a financial relationship.

31. Phase I - Definitions of DHS • Clinical laboratory services, physical therapy services, occupational therapy services, radiology services and radiation therapy services and supplies are now defined by CPT or HCPCS codes, as per schedules to be published annually by CMS. • Services that would otherwise be DHS but which are paid as part of a composite global payment for a group of services (such as ASC or SNF rates) will not be treated as DHS. • “Outpatient prescription drugs” includes all prescription drugs paid for by Medicare Part B. • New exception for dialysis-related drugs.

32. EXCEPTIONS APPLICABLE TO OWNERSHIP AND COMPENSATION ARRANGEMENTS 1. Physician Services Stark prohibitions do not apply to a referral for physician services if the services are performed by a physician who is a member of the same group practice or who qualifies as an independent contractor “physician in the group” or under the supervision of such a physician.

33. EXCEPTIONS APPLICABLE TO OWNERSHIP AND COMPENSATION ARRANGEMENTS 2. In-Office Ancillary Services Stark II: DHS (except for DME and parenteral and enteral nutrients, equipment and supplies) can be provided as in-office ancillary services if the services are: 1. furnished personally by a referring physician or another physician in the same group practice or by individuals “directly supervised” by such physicians; 2. furnished in a building where the referring physician (or a member of the same group practice) furnishes physician services unrelated to the DHS or in a centralized DHS facility for the referring physician’s group practice; and 3. are billed by the physician performing/ supervising the service, by such physician’s group practice, or by an entity wholly owned by the physician or his group practice.

34. Phase I Clarifications 1. Scope of permissible ancillary services: • outpatient prescription drugs may be furnished in the office even if the patient takes them at home • chemotherapy infusion drugs may be furnished as in-office ancillaries • certain DME (such as crutches) may be furnished in a physician’s office for the convenience of patients

35. Phase I Clarifications 1. “Direct supervision” : • May be provided by independent contractors physicians to the group practice if there is a contract for the physician to provide services for the group’s patients and meets the reassignment rules for payment by Medicare • “Physician in the Group” but not a member of the group practice • The supervision requirement is satisfied by the level of supervision in applicable Medicare payment and coverage requirements

36. Phase I Clarifications 3. Building requirements: • A centralized DHS facility must be owned by the group practice or leased 24/7 for at least 6 months • Same building: • must furnish substantial physician services unrelated to the DHS • the unrelated services must represent substantially the full range of clinical services that the physician routinely provides • the DHS must be furnished to patients whose primary nexus with the referring physician is the receipt of physician services other than DHS

37. Phase I Clarifications 4. Billing: • The group practice may have and bill under several billing numbers it may use • Wholly-owned entities may not be joint ventures

38. Group Practice Requirements 1. Single Entity: • Formed primarily for the purpose of being a physician group practice • May have a variety of ownership structures, as long as at least two physicians are owners or employees (“Members” of the group) • Cannot be amalgamation of separate group practices joined together to share profits from referrals or which are linked through control by a management company or healthcare system

39. Group Practice Requirements 2. Members of the Group: • Owners or employees of group • Owners of single or multiple-owner P.C. that is an owner of the group • Physicians are “Members” of the group during the time they provide patient care services to patients of the group or for the benefit of the group • Independent contractors are not members

40. Group Practice Requirements 3. Unified Business Test: • Centralized decision-making by a representative body that has control over the group’s assets and liabilities (including compensation) • Consolidated billing, accounting and financial reporting • Centralized utilization review • Location and specialty-based compensation practices are permitted with non-DHS revenues and with DHS revenues if they comply with productivity bonus rules

41. Group Practice Requirements 4. Productivity bonuses and profit shares: • Overall profits: group’s entire profits from DHS or DHS profits of a component of the group practice that has at least 5 physicians, if: 1. Profits are divided per capita; or 2. DHS revenues are distributed based on the distribution of non-DHS revenues; or 3. DHS revenues are less than 5% of the group’s total revenues and the allocation to each physician is less than 5% of his/her total contribution; or 4. Overall profits are divided in a reasonable and verifiable manner not directly related to the volume or value of the physician’s referrals of DHS

42. Group Practice Requirements 4. Productivity bonuses and profit shares continued: • Productivity bonuses will be deemed not to relate to volume/value of DHS referrals, if: 1. Bonus is based on total patient encounters or relative value units (RVUs); or 2. Bonus is based on the allocation of compensation attributable to services that are not DHS services; or 3. Revenues from DHS are less than 5% of the group’s total revenue, and the allocation to each physician in the group practice is less than 5% of his/her total compensation; or 4. The Bonus is calculated in a reasonable and verifiable manner not directly related to the volume/value of DHS referrals.

43. New Exceptions A. Academic medical centers. B. Fair market value compensation • Any compensation arrangements between a DHS entity and a physician or group of physicians if: • consistent with Fair Market Value • Not determined in a manner that takes into account the volume/value of referrals or other business generated by the referring physician C. Non-Monetary compensation up to $300 D. Incidental medical staff benefits of low value (less than $25 per occurrence)

44. New Exceptions E. Compliance training. F. Indirect compensation arrangement if: • the compensation fair market value, not taking into account the volume/value of referrals or other business generated • arrangement is set out in writing, signed by both parties and specifies the services covered • the compensation arrangement does not violate anti-kickback laws or other laws or regulations on billing/claims submission G. Risk-sharing arrangements: • compensation such as withholds, bonuses or risk pools between a managed care organization or IPA and a physician