The new rules have been a long time coming. The original law adding "radiology and certain other imaging services" to the federal anti-referral law was adopted by Congress in 1994 and went into effect Jan. 1, 1995. This version has been termed Stark II, since the original federal law restricting Medicare referrals related solely to clinical labs. The proposed rules were not published until January 1998, however, and the final rule has been released in two stages. Phase I rules were published in January 2001, and phase II rules take effect later this month.

Few issues have dominated radiology's political agenda in recent years like physician self-referral, and the controversies over it continue. The American College of Radiology said this year that a major part of its legislative agenda will be to eliminate perceived loopholes in the Stark law that permit nonradiologists to perform (frequently unnecessary) radiology services in their own offices.

The fundamental premise of Stark is clear: If a physician or a member of a physician's immediate family has a financial relationship with a healthcare facility, the physician may not refer Medicare or Medicaid patients to that facility for designated health services such as radiology unless an exception applies.

Radiology Services

Under the rule, the technical and professional components of "radiology and certain other imaging services" that are subject to Stark are identified by CMS via a list of CPT/HCPCS codes. Both interventional radiology and nuclear medicine were excluded from this category.

In the new rules, the nuclear exemption remains, but CMS said it was aware of issues involving the exemption and that "parties should be mindful that arrangements involving nuclear medicine may violate the anti-kickback statute, depending on the circumstances."

The definition of "referral" was also modified. The rule has long excluded from Stark prohibitions a request by a radiologist for diagnostic radiology services if the request results from a consultation initiated by another physician. This exclusion now permits the sharing of radiology duties in group practices and keeps radiology ownership of interests in imaging centers outside the scope of the self-referral bans.

Moreover, CMS signaled its support for the performance of imaging services by radiation oncologists. For radiation oncology, CMS states in its preamble to the phase II rule that, in addition to radiation therapy services ordered pursuant to a consultation, it would permit radiation oncologists to order diagnostic imaging services that are considered necessary and integral to radiation therapy. (CMS, however, apparently neglected to make any changes to the actual Code of Federal Regulations language to permit this, so the effect of this comment is unclear.)

CMS declined a request to create a similar exception to permit interventional radiologists to order diagnostic, noninterventional radiology procedures.

In-Office Ancillary Services Exception

Without question, the Stark exception used most often is the in-office ancillary services exception. This is aimed at stopping financial returns to physicians from their "passive" referrals while still permitting them to furnish their own services within their own practices, provided they are functioning within the scope of their licensure.

The phase I rule required a referring physician (or another physician who is a member of the same group practice) to furnish in the same building "substantial" physician services that are unrelated to their designated health services. Now, to meet the "same building" qualifications, the practice must satisfy one of three new tests:

• Full-time practice site with 35/30-hour test. The first test generally describes buildings that are the principal place of practice for physicians or their groups. It provides that a designated health service will be considered to be furnished in the "same building" if the building is one in which the referring physician or his or her group practice has an office that is normally open to patients at least 35 hours per week, and the referring physician or one or more group members regularly furnishes physician services to patients there at least 30 hours per week.
• Part-time office site with eight/six-hour referring physician test. Under the second test, services will be considered furnished in the same building if the building is one where a referring physician or his or her group practice has an office that is normally open to patients at least eight hours per week. The referring physician also must regularly practice medicine and furnish physician services to his or her patients in that office at least six hours per week. Services provided by members of a referring physician's group practice will not count toward the individual referring physician's six hour threshold. The building must be one in which the patient receiving the designated health service usually sees the referring physician or other members of his or her group practice.
• Part-time office site with eight/six-hour referring physician or group member present for designated health service test. The third test describes buildings in which referring physicians or group practice members provide services to patients at least one day per week and the designated health services are ordered during a patient visit, or the physicians are present during the furnishing of the designated health service. This test requires that the designated health service being furnished must be in a building in which the referring physician or his or her group practice has an office normally open to patients at least eight hours per week, and the referring physician or other group member regularly practices medicine and furnishes physician services to patients at least six hours per week in that office. The referring physician must be present and order the designated health service in connection with a patient visit during the time the office is open, or the referring physician or a member of his or her group practice must be present while the designated health service is furnished. Presence in the same space or part of the building is not required.

The requirements under these new same building tests are more objective, but they also make it more difficult for the group practice to refer to a shared facility in the same building where the group performs nondesignated health services. For the group with a full-time office in a building, the 35/30 hour test appears to be fairly achievable. As a consequence, it will continue to invite criticism by advocates like the ACR that seek further reform of the self-referral laws.

Nevertheless, radiologists should be mindful of the unintended consequences of a wholesale elimination of this exception. The in-office ancillary services exception is useful not only for nonradiologist physician groups that provide diagnostic imaging services, but also for radiology groups that provide clinical interventional radiology services. Radiology groups rely on this exception when interventional radiologists order diagnostic tests to be performed in the radiology group's own offices.

Purchased Diagnostic Test

The new rule contains a significant new exception that would allow arrangements involving purchased diagnostic tests to be completely exempt from Stark. Phase II provides that a group practice is not considered an "entity" under Stark when it simply purchases the technical component of a diagnostic test from a third party and subsequently bills Medicare for the test pursuant to special rules for purchased tests. To submit a claim for a purchased diagnostic test, the group practice must perform the professional component and may not mark up the charge for the technical component. Further, the practice may contract with another practice or physician-such as radiologists-to perform the professional component of the diagnostic test either onsite or at a location away from the practice.

Under this provision, for example, an orthopedic group and a radiology group can enter into a written agreement for the orthopods to purchase the technical component of the diagnostic tests. The radiology group can perform the radiology interpretation (professional component) and reassign billing rights, and the orthopedic group can then bill for both the technical and professional components. This arrangement should qualify for protection from liability under Stark through the purchased diagnostic test exception, even if the two groups have not met the more stringent same building requirements.

Professional Courtesy

CMS used its discretionary authority to establish a number of new exceptions. One covers "professional courtesy" services provided to a physician or his or her immediate family members. The arrangement must meet the following conditions:

1. The service is offered to all physicians on the medical staff or in the facility's local community without regard to the volume or value of referrals or other business generated between the parties.
2. The healthcare items and services provided are of a type routinely provided by the facility.
3. The facility's professional courtesy policy is set out in writing and approved in advance by the governing body of the healthcare provider.
4. The service is not offered to any physician (or immediate family member) who is a federal healthcare program beneficiary, unless there has been a good faith showing of financial need.
5. If the courtesy arrangement involves any whole or partial waiver of any coinsurance obligation, the insurer is informed in writing of that reduction so that the insurer is aware of the arrangement.
6. The service arrangement does not violate the anti-kickback statute or any billing or claims submission laws or regulations.

Because of provision number 6, compliance with the anti-kickback rule remains an issue in courtesy services provided by radiologists to referring physicians. The Office of the Inspector General says it will consider two factors in deciding whether a professional courtesy arrangement runs afoul of the anti-kickback rule: how the recipients of the professional courtesy are selected, and how the professional courtesy is extended. If recipients are selected in a manner that directly or indirectly takes into account their
ability to affect past or future referrals, the anti-kickback statute that prohibits giving anything of value to generate federal healthcare program business may be implicated. If the professional courtesy is extended through a waiver of copayment obligations such as "insurance-only" billing, other statutes may be invoked, including the prohibition of inducements to beneficiaries. Claims submitted as a result of either practice, according to the OIG, may also violate the civil False Claims Act.

In short, the new Stark exception does not reopen the door to all professional courtesy arrangements. The legality of particular professional courtesy arrangements will turn on the specific facts presented and, with respect to the anti-kickback statute, on the intent of the parties.

Penalties and Enforcement

The basic sanction under Stark is the disallowance of claims or bills, which affects the designated health service entity, not the referring physician. Violators of Stark are subject to the following sanctions: nonpayment of claims for designated health service furnished as a result of a prohibited referral, and the obligation to refund amounts collected as a result of submitting claims for designated health services performed pursuant to a prohibited referral. Individuals and entities that knowingly violate the prohibition are also subject to civil monetary penalties.

In the phase II rule, CMS declined to automatically extend protection to arrangements that receive a favorable advisory opinion from the OIG on the application of the anti-kickback statute. CMS said the reasons underlying a favorable OIG anti-kickback determination may not apply to the different legal requirements of Stark. In particular, CMS noted the difference between Stark's strict liability features and the anti-kickback law's intent requirement.

Now that the Stark phase II regulation has been finalized, the industry can expect enforcement to intensify, but CMS also promises to reinstitute its own advisory opinion process. In the meantime, radiologists should pay careful attention to any financial relationship with referring physicians.