The following is a brief summary of the recently released regulations:

Changes to Fair Market Value Definition

CMS has set forth a specific definition for fair market value that provides that certain hourly payments made for physicians' personal services shall be considered to be fair market value when they are based either on the hourly rate paid to emergency room physicians in the referring physician's market or when the hourly rate is based on the fiftieth percentile national compensation for physicians with the same specialty as set forth in at least four named physician compensation surveys, divided by 2,000 hours.

Allowance of Percentage Compensation Arrangements

CMS reconsidered its position concerning percentage compensation arrangements. CMS modified the "set in advance" definition to allow a formula for calculating percentage compensation so long as it is prospectively established with specificity, is objectively verifiable, and may not be changed over the course of the agreement based on the volume or value of referrals or other business generated by the referring physician.

Changes to Same Building Definition

CMS substantially revised the "same building" test under the in-office ancillary services exception to provide greater flexibility and a clearer rule. The Phase II Rules now include three alternative tests, one of which must be met to satisfy the "same building" requirement of the in-office ancillary services exception.

Recruitment of Physicians

CMS revised the physician recruitment exception to focus on relocation of the physician's office and percentage of new patients, rather than the physician's residence. Also, the physician recruitment exception now specifically allows certain joint recruiting with existing group practices.

Radiology and Certain Other Imaging Services.

The definition now substitutes the word "ultrasound" for "ultrasonic" procedures that are excluded from the definition if requiring the insertion of a needle, catheter, tube, or probe through the skin or into a body orifice.

Group Practice Single Legal Entity

A single legal entity may be organized or owned (in whole or in part) by another medical practice, provided that the other medical practice is not an operating physician practice (regardless of whether the medical practice meets the conditions for a group practice). In addition, the Rule added a provision to allow a group practice operating in more than one state to be considered to be a single legal entity, notwithstanding that it is composed of multiple legal entities, if the following conditions are met: (1) the states in which the group practice is operating are contiguous (although each state need not be contiguous to every other state); (2) the legal entities are absolutely identical as to ownership, governance, and operation; and (3) organization of the group practice into multiple entities is necessary to comply with jurisdictional licensing laws of the states in which the group practice operates.

Services Furnished by Group Practice Members

A leased employee physician would be considered an employee of the group practice and therefore a member of the group, if the physician qualifies as a bona fide employee of the group under IRS rules. Further, the regulations address situations where a group practice member's donation of volunteer services to a free clinic would impair the group's ability to meet the 75% threshold for the substantially all test.

Group Practice Unified Business

CMS deleted the third part of the unified business test, which required the group have centralized utilization review.

Group Practice Productivity Bonuses and Profit Shares

Profit shares or productivity bonuses can be based directly on services that are "incident to" the physician's personally performed services.

Compensation

Compensation will be considered "set in advance" to allow compensation based on a specific formula that is set in an agreement between the parties before the furnishing of the items or services for which the compensation is to be paid, so long as the formula for determining the compensation is set forth in sufficient detail so that it can be objectively verified. The formula may not be changed or modified during the course of the agreement in any manner that reflects the volume or value of referrals or other business generated by the referring physician. This revision of the Rule was made to allow percentage compensation arrangements to meet the "set in advance" standard.

Direct Supervision

An individual who is supervised by the referring physician or, if the referring physician is in a group practice, by another physician in the group practice, provided the supervision complies with all other Medicare payment and coverage rules for the services. This change will allow solo practitioners who have refrained from providing DHS in a shared facility for fear that they would not meet the direct supervision requirement of the in-office ancillary services exception to take advantage of the exception.

Isolated Transactions

Stark now allows installment payments, but only if the total aggregate payment is: (1) established before the first payment is made; and (2) does not take into account, either directly or indirectly, referrals or other business produced by the referring physician. Further, the outstanding balance on the installment sale must be guaranteed by a third party, secured by a promissory note, or some other instrument must be in place to insure payment even if the purchaser defaults.

Professional Courtesy