PRACTICE RESOURCES > Regulation/AUA Positions, Letters, and Talking Points > AUA Comments Stark Final Rule II

AUA Comments Stark Final Rule II

June 24, 2004

Mark McClellan, MD, PhD
Centers for Medicare and Medicaid Services (CMS)
Department of Health and Human Services
Attention: CMS-1810-IFC
P.O. Box 8013
Baltimore, MD 21244-8013

Re: CMS-1810-IFC—Medicare Program; Physicians' Referrals to Health Care Entities with Which They Have Financial Relationships (Phase II).

Dear Dr. McClellan:

On behalf of the American Urological Association (AUA), which represents 10,000 urologists practicing in the United States, I am pleased to submit comments on Phase II of the Final Rule implementing the federal physician self-referral, or Stark II, law, published on March 26, 2004. The AUA recognizes and appreciates the Centers for Medicare and Medicaid Services' (CMS) thoughtful and extensive review of the many comments to phase I of the Stark II rule and its inclusion of additional exceptions that will be helpful to physicians striving to comply with this complicated law.

For the most part, CMS has achieved its goal of attempting to preserve the core statutory prohibition while providing sufficient flexibility to minimize the impact of the rule on many common and non-abusive business arrangements. However, we point out in our comments below additional changes that would provide even more flexibility in the law without jeopardizing the core statutory prohibition against physician ownership of designated health service (DHS) entities and any attendant abuses. Our comments follow the order that the issues are presented in the rule.

I. Physician Compensation Under the Stark Law; Definition of Set in Advance

In the Phase II rule, CMS addresses the definition of set in advance as it applies to compensation. In the Phase I rule, the regulatory text stated that "percentage compensation arrangements do not constitute compensation that is set in advance in which the percentage compensation is based on fluctuating or indeterminate measures or in which the arrangement results in the seller receiving different payment amounts for the same service from the same purchaser" (66 Fed. Reg. at 959). Based on comments, CMS delayed the effective date of this sentence relating to the definition of set in advance so it could reconsider its position without unduly upsetting existing percentage compensation arrangements. This issue is especially important for academic medical centers.

We applaud CMS for its acknowledgement in the Phase II regulations that the original language was overly restrictive and for thus deleting this language. As a result, the definition of "set in advance" includes percentage compensation arrangements and per-click arrangements as long as they meet the other requirements for the formula.

II. Exceptions Applicable to Ownership and Compensation Arrangements

  1. In-Office Ancillary Services Exception

    The AUA supports the in-office ancillary services exception that allows physicians to refer patients for ancillary services in their own practices, and the exception that allows physicians to refer to other physicians in a group practice, under certain limited circumstances. These exceptions are vital to assure timely and convenient patient access to procedures that are truly ancillary to the medical services being provided by the physician practice.

  2. Group Practice Definition; Distribution of Profits and Bonuses in Group Practices

    To reiterate our comments on Phase I of the final rule, we ask that CMS reconsider its subgrouping of physicians within the definition of a group practice to recognize smaller subgroups of physicians who share a similar practice focus or practice emphasis. Under Phase I of the Final Rule, CMS expanded the permissible methods by which a group practice's profits may be distributed to its members, concluding that differing methodologies for distributing profits to sub-groups of five or more physicians may be employed by the group, but rejected the suggestion to permit a grouping of only three physicians (66 Fed. Reg. at 909).

    In Phase II, CMS once again rejected comments that groups be permitted to distribute profits based on pools of fewer than five physicians. This suggestion was rejected on the basis that a threshold of at least five physicians is broad enough to attenuate the ties between an individual physician's compensation and his or her referrals and a lesser threshold would result in pooling that would be too narrow and therefore potentially too closely related to DHS referral. However, we encourage CMS to reconsider this conclusion in certain limited instances where the grouping of less than five constitutes an identifiable specialty or practice focus within the group.

    Group practices of urologists typically exist in one of two structures: (1) a single-specialty group practice of two to ten urologists, within which there are smaller sub-groupings with two to four physicians with entirely different clinical practice focus (e.g., urological oncology, pediatric urology, etc.), or (2) a multi-specialty group with two to four urologists. For example, according to the AUA's 2003 Gallup Survey of Practicing Urologists, 40 percent of urologists are in a single-specialty group practice or partnership and 8 percent of urologists practice in a multi-specialty group. Additionally, 40 percent of urologists are in a practice with two to five urologists and 11 percent are in a practice with six or more urologists, with the median number of urologists in a practice being two.

    Within these single-specialty and multi-specialty group practices, the most equitable distribution and the preferred manner of distributing profits within the group would be based on the subgroups of variant practice focus. While the regulations will permit this if the practice scope subgroup reaches five physicians, it is not permitted in the more common urological group in which only two or three physicians make up a practice subgroup or specialty focus due to CMS's concern that such narrowly defined groups may too closely tie referrals of DHS to compensation. However, CMS permits solo practitioners and group practices of less than five to be compensated in this method.

    For example, if a group practice consists of three urologists, they would be able to divide their DHS profits so that each of them received one-third of the profit. However, if those same three urologists were the only urologists practicing within a multi-specialty group, they would, under the current regulations, have to divide their DHS profit with at least two other physicians in the practice who were not urologists in order to meet the requirement of dividing profit among at least five physicians. Similarly, suppose the same three urologists were in a single-specialty urology group, but were the only three urologists in the group with a particular urological sub-specialty. These three urologists would also have to divide their DHS profit with at least two other urologists in the group in order to create a group of five that would comply with the current rules, even though the subgroup of three does entirely different work than the other urologists in the group.

    Therefore, the AUA urges CMS to reconsider whether groupings of less than five physicians should be permitted when the group practice can reasonably justify such grouping on the basis of some identifiable practice focus or specialty. Such a conclusion would support CMS's general intent expressed in the commentary to Phase I of the final rule of permitting groupings based on location or specialty (66 Fed. Reg. at 909), and may actually more accurately reflect that intent insofar as groupings of less than five would be required to demonstrate an identifiable specialty or practice focus to support the differing profit distribution methodologies.

    While the sub-grouping in this instance may be narrowly drawn, it will reflect a bona fide specialty or practice emphasis preventing any ad hoc groupings for the sole purpose of rewarding high ancillary service referring physicians. Therefore, we believe that permitting such arrangements would reflect CMS's stated intent, raise no greater risk of program abuse than that raised by the solo practitioner or group practices of less than five applications of the regulations, and permit group practices to pay profits to members in the most equitable manner.

III. Exceptions Relating to Other Compensation Arrangements

  1. Personal Services Exception

    The Phase II regulations provide two new safe harbor methodologies for determining fair market value for the purposes of hourly physician compensation under the personal services exception: 1) The hourly rate can be less than or equal to the average hourly rate for emergency room physician services in the relevant physician market, provided that there are at least three hospitals providing emergency room services in the market; and 2) The hourly rate can be determined by averaging the 50th percentile national compensation level for physicians within the same specialty from at least four of six identified national surveys and dividing by 2,000 hours. For these methodologies, we are concerned that areas below the national average may be artificially raised and areas above the national average may need to use a methodology not included in the safe harbor.

    We applaud the creation of "bright line" safe harbors, but are concerned that the use of national surveys makes them of little value in areas where local compensation rates are above the national average. The use of national averages also can result in overpayments to physicians in areas where local compensation is below the national average. We believe that the use of appropriate regional data would resolve these potential inequities.

  2. Physician Recruitment Exception

    In Phase II, CMS included the regulations pertinent to the physician recruitment exception, which excepts remuneration provided by a hospital to a physician to induce the physician to relocate to the geographic area served by the hospital in order to be a member of the hospital's medical staff (as long as certain conditions are met). Based on requests by commenters that CMS should expand this exception to include hospital payments to medical groups in connection with the recruitment of a new physician to join the group, CMS included some narrowly-tailored accommodation for recruitment into existing groups that would be appropriate under the recruitment exception.

    These new regulations provide that the exception will apply to remuneration provided by a hospital to a physician indirectly through payments to another physician or physician practice as long as certain conditions are met. One of the conditions that must be met is that the payments be passed directly through to the recruited physician and the group may only retain "actual costs" incurred by the physician or group practice in recruiting the new physician. Thus, the exception does not allow payments for incremental costs. CMS should allow incremental costs.

    In addition, although a recruited physician may meet the relocation test (moving one's medical practice a minimum of 25 miles or establishing a practice with a substantial base of new patients) of the recruitment exception, if the physician does not move into the geographic area of the hospital, which is narrowly defined, the exception may not be met. The way the current recruitment exception is drafted, a recruited physician must also move his or her practice within the fewest contiguous zip codes that make up 75% of the hospital's population. This limitation restricts hospitals from recruiting a physician into a rural area near the hospital, but not within the geographic area as defined in the regulations. It would also prohibit a hospital that has clinics away from the hospital's main campus to recruit physicians to such locations. We believe the geographic location requirement is unnecessary and unduly restrictive.

  3. Exception for Payments Made by a Physician for Items and Services

    In Phase II, CMS maintains the exception for payments made by a physician for items and services, which covers physician payments to clinical labs and other entities for items and services, as long as the payments are at fair market value. CMS clarifies that this exception covers payments by immediate family members for items or services of any kind (not just those covered by Medicare) and for items and services purchased at a legitimate discount. CMS also clarifies that this exception is not available for items or services that are specifically covered by any other exception. For example, this exception could not be used for lease payments that a physician makes to a landlord, because they would be covered under the exception for rental of office space. This requirement causes unnecessary confusion and we urge CMS to reconsider allowing this exception to be used in any situation in which it applies.

IV. Definitions

  1. Definition of Radiation Therapy Services and Supplies - Brachytherapy

    On July 1, 2003, CPT® code 55859, Transperineal placement of needles or catheters into prostate for interstitial radioelement application, with or without cystoscopy, was added to the Medicare ASC list of covered services for which an ASC can bill for a facility fee. CPT® code 55859 is also listed under the DHS category of radiation therapy services and supplies. However, section 411.351 of the regulation states that "DHS do not include services that are reimbursed by Medicare as part of a composite rate (for example, ambulatory surgical center services or SNF Part A payments), except to the extent the services listed in paragraphs (1) through (10) of this definition are themselves payable through a composite rate (for example, all services provided as home health services or inpatient and outpatient hospital services are DHS)."

    Based on our understanding, this means that if a urologist who has an ownership interest in an ASC performs brachytherapy at that ASC, the ASC is able to bill a facility fee for CPT® code 55859 without violating the Stark law because CPT® code 55859 is paid under the ASC payment system using a composite, or bundled, rate. We seek clarification that this is an accurate interpretation.

    However, brachytherapy seeds and the radiology procedures that accompany brachytherapy surgery are paid for outside of the ASC bundled payment rate for CPT® code 55859, but are billed by a radiation oncologist or a urologist, not by the ASC. If these procedures are considered DHS, this further confuses the issue when brachytherapy is performed in an ASC. Phase II also states that "To the extent that a urologist provides the services, there are a number of exceptions that could be available, depending on the circumstances." We agree with this comment to the extent that these services are DHS provided by a urologist who makes a referral, but seek clarification on this issue.

    According to CMS, an ASC becomes a DHS entity when it furnishes items that are DHS but are not bundled in the ASC composite rate (69 Fed. Reg. at 16111). In fact, this is why CMS created the exception for implants done in an ASC. However, many items other than implants are DHS that are also not bundled in the ASC composite rate, but are still an integral part to the surgical procedure that is on the ASC list and are paid for separately under Medicare rules.

    Therefore, it seems that the exception should apply to any services that are not bundled in the ASC composite rate but that are integral to the surgical procedure that is on the ASC list. For this reason, we request that CMS broaden the definition of the exception for implants in an ASC so that other procedures will fall within the scope of the exception when performed in an ASC. If this change is not made, we request that CMS clarify any other exceptions that could be used in this example to assure compliance with the Stark law.

    Phase II also says "We recognize that there would be no exception available for a facility fee billed by an entity owned by a urologist, unless the entity were located in a rural area of the DHS qualified under the in-office ancillary services exception." (69 Fed. Reg. at 16105). In light of the composite rate provision above, this last sentence is confusing, and we seek clarification that this statement does not apply to an ambulatory surgery center.

  2. Definition of Inpatient and Outpatient Hospital Services - Lithotripsy Services

    There were significant changes in the phase I final rule that suggested CMS's intent to allow many traditional physician owned lithotripsy service arrangements to continue. These changes included the addition of the indirect compensation exception as well as clarification that fair market value per-unit or per-procedure payments will be permitted. However, phase I did not exclude lithotripsy services provided under arrangement to hospital patients from the final definitions of designated health services (DHS), or otherwise provide an explicit exception for the provision of lithotripsy services, as we believe is supported by Stark II's legislative history.

    In the Phase II rule, CMS acknowledges the "unique legislative history" regarding the application of the Stark law to lithotripsy and agrees that lithotripsy will therefore not be considered an inpatient or outpatient service, and thus not a DHS, under the law. Although CMS is not changing the text of the regulations to reflect this change, the AUA applauds CMS's acknowledgement that lithotripsy is not a DHS, as this is in keeping with the intent of the statute's author, Rep. Pete Stark, and the Congress that enacted Stark II. In our past comments, we have urged CMS to exempt lithotripsy from the definition of inpatient and outpatient services due to this fact and also due to the fact that lithotripsy is only considered an outpatient service because Medicare's billing rules require that a hospital bill for lithotripsy.

  3. Definition of Referral

    After seeking and receiving comments, CMS specifically declined to exclude services performed by a physician's employees incident-to the physician's service from the definition of referral. We are concerned with CMS's unwillingness to exclude incident-to services from the definition of referral in the same manner that they exclude the physician's personal services. The supervision rules are very clear for incident-to services and because of that, there is very little risk of a physician violating the Stark provisions by handing over tasks to appropriate staff members.

    The AUA continues to contend that the performance of Designated Health Services by non-physician providers or ancillary staff as services provided "incident-to" a physician's services should not be considered referrals that would trigger either (1) a prohibition against these services or (2) the necessity of meeting an exception under the Stark II provisions. Regulations already exist to govern the delivery of "incident-to" services to reduce the risk of fraud or abuse and clearly outline the penalties for violations.

    In the same fashion that services personally provided by the ordering physician are not considered referrals, those same services provided by an employee of the physician or the group practice and appropriately supervised by the ordering physician should not be considered referrals. To continue to include them under the definition of referrals is to create an unnecessary and arbitrary barrier to the efficient delegation of tasks requiring less skill and/or training by the physician, and ultimately reduces the opportunities for all Americans to have equal access to quality healthcare.

V. Regulatory Exceptions

  1. Professional Courtesy Exception

    We applaud CMS for creating a new exception for professional courtesy, which is a longstanding tradition among physicians and is given in the spirit of collegial cooperation.

  2. Exceptions - Temporary Noncompliance

    We applaud CMS for creating a new exception for certain arrangements that have unavoidably and temporarily fallen out of compliance with other exceptions. This exception applies for certain arrangements that have fully satisfied another exception for at least 180 consecutive days, but have fallen out of compliance with the exception for reasons beyond the control of the DHS entity. Parties must take steps to rectify their noncompliance or otherwise comply with the statute as expeditiously as possible under the circumstances.

    The exception lasts up to 90 calendar days following the date of the initial event resulting in noncompliance with an exception and applies to DHS furnished during the exception period and applies to DHS furnished during the exception period. By the end of the 90-day exception period, parties must either comply with another exception or terminate their otherwise prohibited arrangement. However, due to the complexity of the Stark statute and regulations, and due to the fact that the exception is based on 90 days from the date of noncompliance and not from the date the noncompliance was discovered, we urge CMS to allow this exception to apply for 120 days rather than 90 days.

Thank you for considering our comments. If you have any questions or need additional information, please contact Robin Hudson, Manager of Regulatory Affairs, at 410-689-3762 or


Brendan M. Fox, MD
American Urological Association

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