Sweeping changes to the federal anti-self-referral rules, approved more than a year ago, will take effect Oct. 1, potentially causing many physician-hospital arrangements to fall out of compliance if doctors are not prepared. Being unaware of the Stark law revisions or the structure of a particular deal will not excuse physicians from liability, legal experts say.

"What the changes did was make it much more difficult for physicians and other entities providing designated health services, primarily hospitals, to do joint ventures around hospital services," said Boston attorney Lawrence W. Vernaglia, co-chair of Foley & Lardner LLP's national health care payments, fraud and abuse, and compliance work group. "Stark is a strict-liability statute. So even if you have the most innocent of intentions, you are still subject to the grossest of penalties, as if you meant to violate the law."

The Stark law generally prohibits physicians from referring patients to entities in which they have a financial stake, with certain exceptions. The Centers for Medicare & Medicaid Services in an August 2008 final rule instituted broad revisions to the Medicare hospital inpatient prospective payment system that will restrict:

• So-called "under arrangements," in which hospitals contract with physician-owned entities to provide a wide range of ancillary services, such as clinical labs or imaging services.
• Per-use or "per-click" payments for equipment and space leases.
• Compensation deals based on a percentage of revenue generated by space or equipment use.

The regulation changes were delayed one year from the original Oct. 1, 2008, implementation date.

Attorneys representing physicians and hospitals said many of these arrangements would have to be restructured to avoid federal penalties. Some deals may have to be unwound completely.

"Medicare really took a broad cut at reforming its self-referral regulations and really wanted to tackle what it saw as potentially abusive arrangements" that could lead to improper referrals and overutilization, said Thomas Hoffman, the American College of Radiology's associate general counsel. "CMS anticipated that with the under-arrangement change, players were going to look for other buckets to fit into for exceptions. And that's where the per-click and lease-arrangement changes come into play."

Readying for restructure

Historically, CMS rules treated physician-hospital arrangements for ancillary services as an indirect compensation relationship that qualified for a variety of safe harbors under Stark, said San Francisco attorney Daniel A. Cody, who works with physicians and hospitals on such arrangements. Under the final rule, however, physician groups will be considered to have a direct ownership stake in the designated health services they provide, effectively barring referrals unless they can meet stricter ownership exceptions under Stark.

"The problem is, there are much more limited exceptions for ownership arrangements," said Cody, a partner at Reed Smith.

Doctors generally are barred from referring patients to entities in which they have a financial stake.

Doctors likely will have to restructure contracts to narrow the scope of services they perform for a hospital, he said. For example, a physician-owned entity may need to limit its clinical services but still could conduct billing and management activities. Many contracts include provisions allowing physicians to amend or dissolve a deal to comply with a change in law, he added.

Vernaglia said physicians still can lease equipment or space they own, but they may have to consider unbundling such services from other arrangements. Doctors also may have to adjust the compensation structure to a flat fee, such as a per-month payment. Any change in compensation must reflect fair market value, he noted.

Because such physician-hospital deals have been a long-accepted practice, Vernaglia recommended that doctors "first look hard at the older deals that have been around for 10 or 15 years and that you are complacent about. Those are the deals that will come back and bite you."

Vernaglia noted that doctors have little legal recourse against alleged Stark violations. He pointed to a January ruling in which the 3rd Circuit Court of Appeals found that a hospital ran afoul of the Stark law because it did not update its contract with an anesthesiology group to reflect a change in the services provided by the physicians. Because of the alleged Stark law violation, the court in Kosenske v. Carlisle HMA also allowed a false claims case to proceed against the hospital and physician group. That case is still pending.

Impact on patient care

Meanwhile, some physician organizations expressed concern that the rule changes will limit access to care.

In an Aug. 9 letter to CMS, the American College of Cardiology said the physician-hospital arrangement prohibitions "may unnecessarily eliminate some physician-owned services that enhance access to high-quality cardiovascular care." The organization -- while generally supportive of CMS efforts to prevent abuse -- is asking the agency once again to defer the Oct. 1 implementation deadline and consider whether certain deals "provide benefit to the Medicare program and should perhaps be exempted."

The American Medical Association, in various letters to CMS, also advocated against the revisions. The Association said the additional regulatory layers unnecessarily complicate physician practices, driving up health care costs and possibly eliminating long-standing, nonabusive relationships that can create more efficient care.

But the American College of Radiology's Hoffman said access limitations are unlikely, because doctors have options to restructure in a way that ensures continuity of care. The organization supported the changes but also requested the extension until Oct. 1 to give doctors time to adapt.

"Are the [restructured deals] going to be as economically attractive? Perhaps not. But doctors should not rule out looking at them," Hoffman said. "They have to structure what is best for patient care."

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Washington -- The reactions of governors and other Medicaid stakeholders to a Senate Finance Committee's Medicaid expansion proposal ranged from reserved praise to open hostility.

The proposed expansion is part of Senate Finance Committee Chair Max Baucus' (D, Mont.) long-awaited health system reform bill, the America's Healthy Future Act. The bill, starting in 2014, would increase Medicaid eligibility for those U.S. citizens earning up to 133% of the federal poverty level. Most states offer very limited, if any, Medicaid coverage to adults without children.

Baucus negotiated the bill with five other senators, including three Republicans, none of whom supported the legislation as introduced on Sept. 15. Baucus said he and other bill authors held a conference call that day with about a dozen governors and heard few complaints.

"I frankly think that [the Medicaid expansion] is pretty much resolved," Baucus said. His committee began marking up the legislation Sept. 22.

On average, the federal government would pay for about 90% of the expansion, which would cover 11 million of the country's 46 million uninsured. States would pay at least 5% and possibly up to 22.7% of the state-specific cost. A preliminary Congressional Budget Office estimate released Sept. 16 pegged the expansion at $287 billion over a decade. Additional spending would be partially offset by a mandatory increase in manufacturers' Medicaid drug rebates, Baucus said. (See correction)

The American Medical Association sent a Sept. 21 letter to Baucus that does not reference the Medicaid expansion. But it lodges serious concerns about the reform bill's lack of a permanent Medicare physician payment solution. It also calls for major changes to provisions that effectively would ban new physician-owned hospitals, require doctors to report quality information to Medicare, cut pay for some services to provide bonuses for others, and establish an independent Medicare commission to adjust payment rates for services, among other proposals.

Governors say no thanks

The chairs of the bipartisan National Governors Assn. and the Republican Governors Assn. panned Baucus' Medicaid expansion less than 24 hours after Baucus suggested it was a done deal.

"It is an unfunded mandate that will come to the American people as state tax increases," said Mississippi Gov. Haley Barbour, chair of the Republican Governors Assn. Barbour estimated that covering 5% of the cost would require $80 million in additional funding in Mississippi.

In contrast, the pending House health reform bill would cover the entire cost of increasing Medicaid eligibility to people earning 133% of poverty. It also eventually would raise physician Medicaid pay to equal Medicare rates. The Finance bill does not address doctors' Medicaid fees.

Vermont Gov. Jim Douglas, chair of the National Governors Assn., said many states have cut education, underfunded pension plans and laid off employees during the latest recession. State revenues are expected to be weak for years. "We can't expect states to put every new dollar into a health care system when all these other important and vital public services have been neglected or underfunded." Douglas said the federal government should cover the entire cost of the Medicaid expansion.

Even Senate Majority Leader Harry Reid (D, Nev.) had mixed opinions on the Baucus bill. Reid offered muted praise for the legislation in a news release aimed at a national constituency on the Senate Democrats' Web site. The proposal "is another important piece to the puzzle and brings us a step closer to having a comprehensive health insurance reform bill on the Senate floor."

But Reid was more critical in a news release targeting Nevadans and posted on his personal Senate Web site. "While this draft bill is a good starting point, it needs improvement before it will work for Nevada." Reid said the state would face the second-highest increase in Medicaid spending under the Finance Committee bill.

On Sept. 22, Baucus said he had amended the bill to provide full federal funding to states that experience a significant increase in Medicaid enrollment due to the size of their current programs and their unemployment rates. Other senators filed more than 550 amendments in advance of the markup.

Some qualified support

Although the American Academy of Family Physicians supports expanding Medicaid eligibility to cover the uninsured, the organization is concerned about the Finance Committee's bill, said AAFP President-elect Lori Heim, MD. For example, the Finance measure doesn't provide funding for the millions of people who are eligible for Medicaid now but are not enrolled.

Still, Dr. Heim said, Medicaid coverage would be a step up for many. "There are a lot of good things about being on Medicaid if you have no insurance coverage at all."

But Dennis Smith, who ran Medicaid during the Bush administration, said its eligibility should be narrowed to focus on people with disabilities and people needing long-term care, not expanded to cover more able-bodied people. The latter would be better off with vouchers for private insurance because many don't stay enrolled in Medicaid for more than a couple of years, said Smith, former director of the Centers for Medicare & Medicaid Services' Center for Medicaid and State Operations and now a senior fellow at the Heritage Foundation.

Smith said the Finance bill's authors want to use Medicaid to cover more people because it pays physicians less than Medicare or private insurance. "They're doing it for budget reasons, not policy reasons."

The National Assn. of Public Hospitals and Health Systems has consistently supported expanding Medicaid, said NAPH President Larry Gage. Expanding Medicaid probably would be cheaper than trying to provide private insurance to the Medicaid-eligible population. "Medicaid is a flawed program, but it already exists. You don't have to create it."

Both the Senate Finance and House bills would reduce by billions federal payments to hospitals that care for the uninsured, but the Finance measure would do so more quickly, Gage said.

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Family health insurance premiums in 2009 increased by a relatively moderate 5% for the third consecutive year, while premiums for single coverage remained virtually unchanged. But many workers felt a greater impact this year due to the recession and steadily growing out-of-pocket costs.

"To working people and employers, moderation just looks like another year of health care costs going up, up and up," said Kaiser Family Foundation President and CEO Drew Altman, PhD. On Sept. 15, the foundation and the Health Research and Educational Trust released the 2009 version of its Employer Health Benefits Survey, an annual report detailing trends in employer-sponsored health insurance.

Family coverage reached an average of $13,375 in 2009 -- a hike of 5%, or $695 -- while single coverage premiums increased by $120 to reach an average of $4,824 annually, an increase of less than 0.3%.

Although family premiums increased by the same percentage as they have in recent years, workers likely felt the impact more this time around, said Roger Feldman, PhD, Blue Cross Professor of Health Insurance at the University of Minnesota. This year, with inflation decreasing by 0.7%, the difference between the growth of premiums and of inflation was 5.7 percentage points. Last year this "real" increase in premiums was only 1.1 percentage points. Typically the figure stands at two to three percentage points, Feldman said.

Consumers also faced larger deductibles and a significant increase in co-pays this year, according to the report. For example, 22% of all workers with employer-sponsored coverage in 2009 had a general annual deductible of $1,000 or more, up from 18% of workers in 2008. The trend occurred in both small and large firms.

8% of insured workers were enrolled in health plans with high deductibles in 2009.

Patients also paid more for office visits. Co-payments for in-network primary care physician visits increased by $1 to reach $20; co-pays for visits to specialists grew by $2 to reach $28. Although small, those hikes were statistically significant, meaning they were outside the margin of error, according to Gary Claxton, lead author of the study and director of the Kaiser Family Foundation's marketplace research.

Altman said continued higher health insurance costs are driving support for health reform legislation in Congress this year. "It's this, really -- the transformation of health into an economic pocketbook issue -- that has fueled the health reform debate."

Senate Finance Committee Chair Max Baucus (D, Mont.) said the increasing costs of health insurance are another source of motivation for him. "This survey provides yet another illustration of the need to reform America's health care system and ensure fiscal security."

The number of employers offering coverage dropped to 60% in 2009, down from 63% in 2008.

A plateau for consumer health plans?

Enrollment in high-deductible health plans with savings options held steady in 2009. Eight percent of workers with health insurance enrolled in these plans, which have deductibles of at least $2,000 for family coverage and which allow enrollees to put pre-tax income into savings accounts for health spending.

For the first time, the percentage of small employers -- those with three to 199 workers -- that offered high-deductible plans with health savings accounts did not increase, according to the Kaiser/HRET report. "Large firms are offering them, but large firms tend to offer a choice of plans. And while they're offering them, their workers are not responding," Claxton said.

22% of workers with employer coverage in 2009 had an annual deductible of $1,000 or more.

Roy Ramthun, MPH, senior health policy adviser to President George W. Bush on health savings accounts, was skeptical that small businesses were dropping consumer-directed plans. Other surveys, focusing on larger employers, found that the number of firms that offered or planned to offer such plans rose more than seven to eight percentage points in 2009, he said.

"This is the first survey that I've seen that suggests there is a slightly different trend going on," said Ramthun, now president of HSA Consulting Services, a Silver Spring, Md., firm specializing in consumer-directed health care. The dip might be explained by smaller firms dropping coverage in general because of the recession, he said.

In addition, PPOs are increasing deductibles and growing to resemble high-deductible plans that offer savings accounts, Ramthun said. The percentage of PPOs with an annual deductible of $2,000 or more grew from 12% in 2006 to 23% this year, the report found, and the trend was even stronger for HMOs and point-of-service plans.

The general trend toward higher-deductible health plans is changing the nature of health insurance, Altman said. "The broader trend is simply the growth of high-deductible health plans. You could also say less comprehensive insurance for people ... particularly for small employers."

Employers have favored increasing deductibles and cost sharing over hiking premiums, but even the latter will probably happen eventually, Altman said.

"A return to the more typical increase rates we've seen over the last 10 years is entirely a possibility," Altman said, adding that 7% to 9% hikes would be typical. "There's absolutely no reason to believe that we've done anything meaningful to deal with the fundamental drivers behind the rates of increase we see in health care costs."

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Washington Medicaid claims information submitted by states to the Centers for Medicare & Medicaid Services is slow in being released to the public and often does not contain many data elements that can assist in fraud detection, according to a report by investigators from the Dept. of Health and Human Services Office of Inspector General.

In an Aug. 26 letter to Cindy Mann, the director of the CMS Center for Medicaid and State Operations, OIG states that CMS did not fully disclose or document information about the accuracy of data collected by the Medicaid Statistical Information System. Timely, accurate and comprehensive data can be used to help interagency efforts in combating health care fraud, the report notes.

States must submit claims files to CMS within 45 days after the end of each quarter. The system is designed to serve as an accurate database pertaining to standardized enrollment, eligibility and paid claims of Medicaid beneficiaries.

In a review of MSIS files, OIG determined that data took an average of more than 1½ years after the initial state submission before being relayed by CMS to the public. This time frame included an average of six months that states took to submit MSIS files in a CMS-acceptable format and averages of four months and nine months for CMS to validate the data and release the files.

CMS also could not explain why it approved more than 1,500 exceptions to a process designed to identify claims errors. The MSIS program produces reports that show the numbers and types of errors identified. But CMS periodically adjusted individual state error tolerances to allow particular files or sets of files to pass data validation tests.

"These undocumented error tolerance adjustments allowed the affected state MSIS files to clear quality review with an unknown number of errors," OIG reported.

Also, MSIS does not capture a number of data elements that can assist in fraud, waste and abuse detection, OIG wrote. The system, for example, does not capture the referring physician's identification number. Without it, fraud analysts cannot use MSIS to assess whether a qualified physician submitted the order as required for a beneficiary to receive certain medical benefits.

The report was issued directly to CMS in final form with no specific recommendations. It did not include a CMS response.

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An anti-abortion group is asking the Illinois Supreme Court to order immediate enforcement of a state law requiring physicians to notify a minor's parent or legal guardian at least 48 hours before performing an abortion.

The Parental Notice of Abortion Act of 1995 was blocked from taking effect for more than a decade until the high court in 2006 finally issued mandated rules allowing young women to ask a court to bypass the notice requirement. It would be up to the court to decide if a waiver is in the minor's best interest. After additional litigation, the 7th U.S. Circuit Court of Appeals in July upheld the law's constitutionality in Zbaraz v. Madigan and dissolved a long-standing injunction preventing its implementation. The statute took effect Aug. 4.

But concerns from the medical community about compliance prompted the state medical board to delay enforcement of the law by three months. Under the act, any doctor who does not act in good faith to obey the law would face a misdemeanor charge as well as disciplinary action by the medical board.

In an Aug. 5 announcement, the agency said it wanted to give physicians more time to institute new protocols "to ensure both compliance with the act and protection of patients' medical care" and "to effectively counsel their minor patients about all of their options."

But Chicago's Thomas More Society, a faith-based law firm, and a group of parents that oppose abortion say doctors have had plenty of time to get up to speed. They allege that the medical board lacked the legal authority to change the rules, according to a petition filed Aug. 31 with the Illinois Supreme Court.

The Dept. of Financial and Professional Regulation, Illinois' medical board, is reviewing the case, said spokeswoman Susan Hofer. She declined to comment further. The Illinois State Medical Society has not taken a position on the matter.

Illinois is among 35 states that have abortion parental consent or notice laws, according to the Guttmacher Institute, a nonprofit organization that supports worldwide advances in reproductive health and tracks related policy.

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