Again, the Centers for Medicare and Medicaid Services (“CMS”) has proposed a number of potentially significant changes to the Federal Physician Self Referral regulations (the “Stark” regulations) – and it has virtually buried those changes within hundreds of pages of unrelated Medicare rules. This time, the proposed Stark changes are included within the 2009 Hospital Inpatient Prospective Payment System (“IPPS”) rules that were issued by CMS on April 30, 2008. CMS included in the proposed IPPS rule (the “Proposed Rule”) not only changes to the Stark rules, but also solicited comments on possible new rules governing gainsharing arrangements and physician-owned implant and medical device companies. Finally, the Proposed Rule suggests new requirements for hospitals to disclose certain financial relationships with physicians.

Among other things, CMS has proposed changes in the Stark Rule’s “stand in the shoes” concept. “Stand in the shoes” is a new rule, itself – introduced for the first time with the December 2007 Stark “Phase III” final rules – that purportedly fills a perceived gap in the coverage of the Stark law prohibitions related to transactions that formerly were considered to be permissible “indirect compensation” arrangements. Under this new concept, CMS proclaimed that a physician would now stand in the shoes of his or her physician organization (e.g., medical practice), effectively disregarding that physician organization as a separate entity. This meant that any compensation relationships between the physician organization and a hospital (or any other provider of designated health services (“DHS”)) must now fit within one of Stark’s exceptions for “direct” compensation arrangements – space or equipment leases, personal services, employment, etc. The stand in the shoes rule hit particularly hard academic medical centers and certain integrated health systems -- where certain mission, support or other payments among the entities might not fit one of the Stark exceptions, even though there was no risk of abuse. The Proposed Rule – if it becomes final – may help a bit, by refining the stand in the shoes concept to allow for certain “mission support payments” within academic medical centers (“AMCs”) and integrated tax-exempt health care delivery systems. There is still considerable uncertainty about the Proposed Rule, and its impact. Moreover, it will be months (following a period for public comments) before it may become final.

Further, after discussing potential risks and benefits of gainsharing arrangements between physicians and hospitals, under a separate section of the IPPS, CMS announced that it is soliciting comments on the development of an additional Stark exception relating to such arrangements.

Currently, because implant and medical device companies do not bill Medicare for their devices (hospitals, ASCs, or DME providers typically do), these companies are not “entities” subject to the Stark rules and, therefore, physicians are not prohibited from investing in such companies. Stay tuned………that could change. Under yet another section of IPPS, and noting the proliferation of physician-owned implant and medical device companies (“POCs”), CMS announced that it also is soliciting comments as to whether it should publish new Stark rules to address POCs and physician investment in such companies.

Finally, to better “police” hospital/physician arrangements that are subject to the Stark prohibitions, CMS is also proposing new rules requiring certain hospitals to disclose details of their financial relationships with physicians, including:

• The detailed listing of direct and indirect physician investment and ownership in hospitals (and payments between the hospitals and physician owners);
• Separate listing of each rental, personal service and recruitment arrangement between a hospital and physicians; and
• The completion of a final worksheet soliciting information on other types of compensation arrangements, including non-monetary arrangements.

CMS indicates that, initially, it will collect this financial information from 500 selected hospitals to determine compliance with the law and to assist in future rulemaking concerning reporting requirements and physician self-referral provisions. It may, however, expand its information gathering to a larger number of hospitals in the future.

The Proposed Rules contain much that should be of interest to health care practitioners and entities of all shapes and sizes. It signals the Government’s intent to find more effective ways to enforce existing Stark rules – and to craft new and even more complex Stark rules to navigate. The deadline for submission of comments on the Proposed Rule is June 13, 2008. Feel free to call any one of the Taft health care lawyers with whom you work, if you would like more information about the Proposed Rules – or any Stark law compliance matters.

Taft Merges with Sommer Barnard

We also have some very important and exciting news to share. Over the past several months, our law firm has been analyzing opportunities to grow its footprint and business in the Midwest. In the process, we concluded expansion to Indianapolis made sense. In looking at potential existing firms in that area to partner with, we identified Sommer Barnard P.C.—a very prominent Indianapolis law firm with over 100 attorneys. In that connection and after several months of discussions, we have merged the Sommer firm into Taft, effective May 1. The combined strengths of the two firms, now operating as one, give us greater competencies in meeting a variety of your business and individual legal needs. Among other things, the merger will provide you and our other clients added depth to our substantial and growing Health Care practice. For further information on the merger, see our press release.