On January 4, 2001, the Health Care Financing Administration (HCFA) published the first phase of what will be a two-phase regulation interpreting the federal physician self-referral law, commonly known as the Stark Law. HCFA also stated that it intended to publish the second phase of the regulations soon.

HCFA also took the unexpected step of making almost all of the final regulation effective January 4, 2002, a year after its publication, and published the regulation with a 90-day comment period that has been extended until June 4, 2001. This final rule addresses three sections of the self-referral law, the general prohibition on physician self-referrals and associated claims, the statutory exceptions that apply to both ownership and compensation arrangements, and the definitions of key terms, including the definition of a group practice and each of the 11 designated health services. The final rule also addresses new regulatory compensation exceptions promulgated by HCFA under its statutory authority to issue new exceptions to the Stark law. This leaves several important sections of the Stark law for Phase Two of the rule, including the statutory ownership and compensation exceptions, reporting requirements, sanctions, and expansion to Medicaid.

Clarification of Definitions

In the final rule, HCFA clarified and made certain important changes to its proposed definitions of key terms. A number of these key terms are reviewed because of their relevance to radiology services.

Referral. With certain key exceptions discussed below, the final rule defines referral broadly, effectively including within the definition any indication by a physician, in any form, that he or she believes the service is necessary. Thus, any request for, order of, certification or recertification of the need for, or establishment of a plan of care that includes a designated health service is a referral unless an exception applies.

The self-referral law only prohibits referrals “to an entity.” Thus, a physician who orders or prescribes a designated health service for a patient that may be obtained at any number of entities has not referred the patient “to an entity” unless the physician suggests to or informs the patient that the service can be obtained at a particular entity. However, a physician cannot evade responsibility for a referral by making the referral indirectly through others directed or controlled by the physicians. Further, if a physician makes a referral to or requests a consultation with a specialist, and knows or has reason to suspect that the specialist will refer the patient for a designated health service to an entity with which the referring physician has a financial relationship, the specialist’s referral for the designated health service will be imputed to the referring physician.

HCFA initially took the position in the proposed regulation that physicians make referrals to an “entity,” even when the referring physician initiates and personally performs or provides the designated health service. In the final rule, HCFA abandoned this position and now excludes from the definition of “referral” a referral for a designated health service personally performed or provided by the referring physician. This exception allows entities furnishing designated health services to give employed or contracted referred physicians productivity credit for personally performed designated health services, such as echocardiography reads.

The final rule clarifies the statutory exception from the definition of “referral” for referrals by radiologists and certain other specialists pursuant to consultations. Specifically, the final rule excepts requests by a radiologist for diagnostic radiology services if the request for the service results from a consultation requested by another physician, from the physician consultant, or from the physician consultant’s group practice, and the test or services are furnished by or under the supervision of the radiologist.

Significant Changes

Designated Health Services. In the final rule, HCFA made two significant and helpful changes in its proposed approach to designated health services in general. First, a designated health service that is a component part of a bundled service paid at a composite rate (eg, a radiograph included in an ambulatory surgery center payment rate) is excluded from the definition of designated health services. Second, radiology and a number of other designated health services are now defined by reference to a list of CPT and HCPCS codes attached to the final rule, which will be posted on HCFA’s Web site and updated at least annually as part of HCFA’s physician fee schedule rule-making. While defining these designated health services by reference to a list of codes will provide bright line guidance to health care providers, the fact that the list is subject to annual updates introduces a new uncertainty into the definition of these designated health services.

The final rule modifies the definition of “radiology services,” expressly excluding all x-ray, fluoroscopy, and ultrasonic procedures that involve the insertion of a needle, catheter, tube or probe through the skin or into a body orifice. Thus, diagnostic angiography, an invasive radiology procedure commonly performed in cardiac catheterization laboratories, is clearly excluded from the definition of “radiology services,” as are endoscopy procedures. Nuclear medicine (but not radiation therapy) and radiology procedures that are integral to and performed during nonradiological medical procedures are also expressly excluded from the definition. While the CPT code for bone densitometry (DEXA) scans has been left off the list of included radiology procedures, the code is not on the list of excluded preventive screening tests. Thus the status of DEXA scans is not completely clear.

Notably, the codes for echocardiography and vascular ultrasound procedures are expressly included in the definition of radiology services.

Implications for Joint Ventures

The implications of these changes for clinical joint ventures are significant. For example, the new definition of radiology services clears the way for cardiac catheterization laboratories and gastrointestinal laboratory ventures, and makes it easier to develop diagnostic cardiology ventures. However, the status of new domestic imaging technologies, such as electron beam computerized scans (ultra-fast CT or heart scans), for which there is not a specific CPT code, is uncertain. The mere absence of a CPT code for these new technologies may not reflect a deliberate decision by HCFA to exclude them from the definition of radiology services, but rather may simply reflect the lack of a national coverage policy for them. Consequently, individuals and entities considering investments in such ventures should obtain clarification from HCFA before going forward.

In-Office Ancillary Services Exception. The in-office ancillary services exception permits the physician owners of a medical group, and other members of the group, to refer patients to their own group for certain designated health services, such as radiology. It also permits physicians in medical groups to develop shared designated health service facilities under certain circumstances.

The final rule expands the scope of designated health services protected by the in-office ancillary services exception, provides a more flexible definition of a group practice that may qualify for the exception, relaxes the level of physician supervision required to meet the exception for certain designated health services, and allows certain independent contractor physicians to supervise designated health services. At the same time, the final rule narrows the ability of group practices to use “block lease” or other part-time arrangements to provide designated health services on a shared basis in a centralized building, such as an imaging facility, in which the groups do not routinely provide substantially the full range of their nondesignated health services.

A number of these changes and clarifications are of importance to radiology and diagnostic imaging. First, the new “group practice” definition clarifies many aspects of the definition, and revises it to better reflect how most modern medical groups are actually formed and operate. For example, under the Stark law, a group practice must consist of two or more physicians practicing through a single legal entity. In the final rule, HCFA clarified the single legal entity requirement and expanded the types of entities that may qualify to include any organizational form recognized by the state in which the group practice establishes its legal status, including, but not limited to, a partnership, professional corporation, limited liability company, foundation, not-for-profit corporation, faculty practice plan, or similar association.

Second, under the Stark law, designated health services must be furnished in the same building in which the referring physician, or another physician who is a member of the same group practice, furnishes physician services unrelated to the designated health services. However, under the final rule, the term “same building” does not include exterior spaces, such as courtyards, lawns, driveways, parking lots, or interior parking garages. Thus, the in-office ancillary services exception will not apply to referral services performed on mobile MRI or CT equipment jointly owned by physicians practicing in the same building if the vehicle housing the equipment is parked in the building’s parking lot. The centralized building option requires a group practice to operate in a location where the practice provides some or all of its designated health services and an additional location where the group provides substantial physician services unrelated to the designated health services.

The final rule defines “centralized building” to mean all or a part of a building (including a mobile vehicle, van, or trailer that is owned or leased on a full-time basis, ie, 24 hours per day, 7 days per week, for at least 6 months) owned by a group practice and that is used exclusively by the group practice. This exclusivity requirement precludes the use of a centralized building for shared facilities. The final rule, therefore, prohibits group practices from “block leasing” or otherwise sharing time on MRI or CT equipment at a jointly owned imaging center that does not meet the same building definition. Part-time centralized arrangements also are precluded. However, since a centralized building can include a van, a single group practice that exclusively leases mobile MRI, CT, or other imaging equipment may circulate the equipment among its own group practice locations. Thus, a group practice may have more than one centralized location for the provision of imaging services.

This article provides a very broad overview of only a small number of the provisions of the final rule that relate to the provision of imaging services. While the final rule did a great deal to clarify various definitions and to address a number of issues raised during the comment period, the final rule also underscores the incredible complexity of the Stark law and makes compliance with numerous detailed requirements essential.

Douglas Mancino, JD, is a health care attorney in the Los Angeles offices of McDermott, Will & Emery, and a member of the Decisions in Axis Imaging News editorial advisory board.