Friday, April 30, 2004

Stark II steps out
With Jim Walsh
J. Walsh

Q. Now that CMS is making more noise about the Stark laws, I’m having trouble understanding what this law means to me as an HME provider. Can you help?

A. On March 26, CMS published its second set of regulations under the physician self-referral law, known as Stark II Law. These rules govern business relationships between referring physicians and entities with which they have financial relationships. The first version of this law dealt only with clinical laboratory services, but it was expanded to 10 additional areas in 1993, including HME.

Generally, the Stark Law prohibits physicians from referring Medicare or Medicaid patients if the physician has a financial relationship with the referred-to business unless an exception applies. Both the physician and the HME are liable for violations, which are punishable by substantial civil monetary penalties and, potentially, exclusion from the Medicare program.

Named after Rep. Pete Stark, D-Calif., the Phase I regulations covered the overall prohibition against self-referrals and the general exceptions to the prohibition on self-referrals. These exceptions apply to specified services, regardless of whether the financial relationship between the referring physician and an entity is one of ownership, investment or compensation. The Phase I regulations also defined many statutory and regulatory terms, defined “indirect” financial arrangements and added a new exception for indirect compensation.

As with the prior iterations of Stark regulations, the newer rules will expand the range of permissible arrangements while limiting others. In response to public comments on Phase I, CMS has attempted to reduce regulatory burdens by broadening exceptions using the HHS Secretary’s discretionary authority to create exceptions that pose no risk of fraud or abuse. The rule is effective July 26, 2004, and comments are due by June 24. Text of the rule is available at

Jim Walsh is the president of VGM Management. He can be reached at 319-274-6510.