Evolution of the Stark Law Continues With

the Patient Protection and Affordable Healthcare Act

The federal physician self-referral law, better known as the Stark Law, continues its evolution with changes brought about by the passage of the Patient Protection and Affordable Healthcare Act (the Act) affecting the "whole hospital" and the "in-office ancillary services" exceptions. The Act also requires the development and implementation of a self-disclosure protocol for potential and actual Stark violations by the Secretary of Health and Human Services.

The Whole Hospital Exception

Section 6001 of the Act significantly impacts the "whole hospital" exception to the Stark Law and will effectively curtail future physician ownership in both specialty and non-specialty hospitals. The Stark Law's "whole hospital" exception allows physicians to refer patients to hospitals in which they hold an ownership or investment interest as long as certain conditions are met, primarily that the physician's ownership interest is in the entire hospital itself and not in a subdivision of the hospital. This exception has a long and storied history, including a congressionally mandated moratorium on physician ownership in specialty hospitals for an 18-month period beginning in 2003, and the refusal by the Centers for Medicare and Medicaid Services (CMS) to process new Medicare provider enrollment applications for specialty hospitals that was implemented after the termination of the official moratorium.

In order to qualify for the whole hospital Stark Law exception under the changes brought about by the Act, a hospital must have both existing physician ownership and a Medicare provider agreement in effect as of December 31, 2010 (the Act created a qualifying date of August 1, 2010, but the Health Care and Education Reconciliation Act of 2010 changed that to the December date). New physician ownership in a hospital will not be allowed after this date. The Act also prohibits any hospital that currently has physician investors from increasing the aggregate percentage of the physician-held ownership interest as of the Act's implementation date, March 23, 2010. As drafted, the Act creates some significant ambiguities in implementation dates that will most likely be addressed in the weeks ahead, so stay tuned as these dates may be subject to change.

Physician-owned hospitals will also face severe restrictions on their ability to add beds and operating and procedure rooms to their existing facilities due to provisions in the Act limiting the expansion of such hospitals. The Act also increases a referring physician's disclosure responsibilities to patients referred to a physician-owned hospital and expands the requirements under the whole hospital exception to ensure that physicians are making bona fide investments in these hospitals.

In-Office Ancillary Services Exception

Effective immediately, a physician relying on the in-office ancillary exception to the Stark Law's prohibitions on self-referral is required to inform his or her patients in writing, at the time of the referral, that the patient may obtain the specified service from a provider other than the referring physician, another physician in the referring physician's group, or from an individual directly supervised by the referring physician or group member. A written list of suppliers who furnish the specified services in the area in which the patient resides must be provided to the patient along with this notification. At this time, this provision of the Act specifically applies to MRIs, CTs and PET scans, although it may be expanded to include any designated health service that the Secretary of Health and Human Services deems "appropriate."

Self-Referral Disclosure Protocol

The Secretary of Health and Human Services has been mandated to create a protocol to allow health care providers to self-disclose an actual or potential violation of the Stark Law. The secretary, in conjunction with the Office of the Inspector General, must establish the self-disclosure protocol within six months of the March 23, 2010, implementation date of the Act. Interestingly, the Secretary of Health and Human Services has been granted the authority to consider certain factors when establishing the amount to be assessed in penalties for self-disclosed Stark Law violations, including the nature and extent of the violation, the timeliness of the self-disclosure and the cooperation shown by the individual or entity making the disclosure. This is a significant development because prior to the passage of the Act, CMS did not believe that it had the authority to compromise penalties for Stark Law violations.

For more information regarding the Act's impact on the Stark Law or other provisions concerning the integrity of the Medicare or Medicaid programs, please contact Kevin Woodhouse, Gregory Pemberton or Margaret Emmert.

This publication is intended for general information purposes only and does not and is not intended to constitute legal advice.  The reader must consult with legal counsel to determine how laws or decisions discussed herein apply to the reader's specific circumstances.