As you know, the Health Care Financing Administration (HCFA) is preparing to implement the Stark II regulations, the ambiguous law aimed at prohibiting self-referral and fraud.

The proposed "clarifying" Stark II regulations, expected to be published in 2000, are in some instances unclear, and some say unfairly restrictive to ophthalmologists. The American Academy of Ophthalmology (AAO) and the American Society of Cataract and Refractive Surgery (ASCRS) have worked for years to get several points in the Stark II legislation clarified for ophthalmologists. With their prodding, Rep. Bill Thomas (R-CA) introduced a bill that would let you provide post-cataract intraocular lenses, eyeglasses and contact lenses without risking charges of fraud.

Medicare already limits the amount it’ll pay for post-cataract glasses or contacts. The bill says that therefore no risk exists for physicians to abuse the ownership and referral provisions of Stark II. If the bill passes, you would be able to provide ophthalmic-related devices without concern.

"We’re hopeful that this year when they go to fix the Medicare changes, they’ll be able to add in the Stark II fixes," says Catherine Cohen, vice president of the AAO’s government affairs division. "They know that it’s not an area of abuse, and they know the burdens that Stark II (without the clarifications) would bring upon the ophthalmologist’s office."

But what could hold up the ophthalmology-friendly Thomas bill is another bill proposed by Rep. Pete Stark (D-CA). The bills divide ideologically on compensation regulations, but both contain the changes for ophthalmology. But it could be bad news if the legislators can’t compromise. Cohen says that HCFA is dedicated to implementing Stark II regulations in 2000. That could mean moving directly to a final rule without providing legislative relief for ophthalmologists.

Cohen says ophthalmologists technically comply with the concept of the law. But the law could put you at risk of violation if it passes without the proposed legislative relief. At this point, your safest strategy is to make sure your practice complies with the Stark II as it exists now, without the pro-ophthalmology changes that may or may not pass.

By answering the questions check-marked on the following pages, you can evaluate your situation for potential violations. Your answer to each of the following questions will either end your analysis by stating that you have no apparent Stark II involvement – or take you to the next question. If you find that you don’t qualify for an exception to the current self-referral or fraud provisions of Stark II by the end of this article, you may be in violation of the law.

Use this as a guide. You’ll also need to check with your state laws, which may have similar or additional rules that could affect you, even if you’re compliant with Stark II. Consult with a knowledgeable healthcare attorney.

Be aware that, under the Stark II proposed regulations, when the definition of a designated health service differs from the Medicare definition under a state Medicaid plan, the state’s definition takes precedence. This is important, because state plans vary on whether glasses are (or are not) prosthetics.

If your answer is, "Yes," proceed to the next question.

For Stark legislation purposes, a referral is a request by a physician for an item or service. This includes:

• consultations from other physicians
• the development of a plan of care that includes a designated health service (see below)
• a written prescription.

If your answer is yes, continue to the next question.

Stark II prohibits you from making referrals for designated health services when those services are furnished by someone with whom you have a financial relationship and such services are reimbursed by Medicare or Medicaid.

Making a referral for designated services to someone you have a financial relationship with puts you in danger of having reimbursements forfeited, civil fines and exclusion from Medicare and Medicaid. These designated services include:

• clinical lab services
• physical and occupational therapy
• radiology services
• radiation therapy services and supplies
• durable medical equipment and supplies
• parenteral and enteral nutrients, equipment and supplies
• prosthetics, orthotics and prosthetic equipment and supplies (including eyeglasses or contact lenses furnished after each cataract surgery with the insertion of an IOL; the IOL itself; and artificial eyes)
• home health services and supplies
• outpatient prescription drugs
• inpatient and outpatient hospital services. Under the proposed regulations eye surgery and other ophthalmic services provided as inpatient hospital services are designated services if they are provided under arrangements with a hospital and the hospital bills for them.

If your answer is "Yes," proceed to the next question.

The financial relationships covered by the law include direct and indirect investment interests, loans and compensations relationships between you or a member of your immediate family and an entity furnishing designated health services.

Financial relationships are defined as:

• ownership or investment interest (Under the proposed regulations, an interest in an entity that holds an ownership or investment interest in any entity providing designated health services is included.)
• compensation arrangements that are direct or indirect, overt or covert, in cash or in kind and including discounts and forgiveness of loans.

If yes, continue to the last question.

This question varies from the others. If you find that you qualify for any of exceptions listed below, you’re not violating Stark II. If you don’t qualify, you are violating Stark II and need to rectify the situation or face penalties and possible exclusion from Medicare and Medicaid.

The exceptions, encompassing referrals from other physicians, hospital arrangements or even equipment, include:

• Physician services provided personally by, or under the personal supervision of, another physician in the same group practice as the referring physician.
Under proposed regulations, personal supervision means that the group practice physician is legally responsible for monitoring results and is available to assist the provider of the services. However, the supervising physician doesn’t need to be present while services are provided.
• In-office ancillaries
. This doesn’t apply to durable medical equipment (except crutches) and enteral/parenteral nutrients, supplies and equipment. It does apply to infusion pumps.
Services must be provided personally by the referring physician, a member of the referring physician’s "group practice" or under the "direct supervision" of a group physician. (See the end of this document for a definition of "group practice.")
• Direct supervision requires the physician’s presence in the office suite. However, exceptions are made. You can take a break for lunch, for example.
  Services must be provided:
• in a building where the referring physician or another group member provides physician services unrelated to designated health services (i.e, the medical office)
• in another building used by the group to provide some or all of the group’s clinical laboratory services
• in another building used by the group for the centralized provision of the group’s designated health services.
• Prepaid plans.
This applies to services provided by prepaid plans and HMOs. Referrals of a physician’s Medicare fee for service patients don’t qualify for this exception.
• Publicly traded securities and mutual funds.
This doesn’t apply in the case of ownership by a physician, or an immediate family member, of investment securities purchased on the open market. These must be available easily to the public. The exception wouldn’t apply if the option involves the purchase of stock on terms that aren’t generally available.
• Hospital/provider exceptions.
This includes hospitals in Puerto Rico, rural providers and hospital ownership.
• Rental space and equipment.
There must be a written lease specifying premises or equipment. The lease must be signed by both parties.
Leased space or equipment must be necessary and reasonable for legitimate business purposes and used by lessee exclusively during rental period. It’s permissible to pay a share of common space expenses.
The rental term must be for at least 1 year, with rent set in advance, at fair market value and unrelated to the volume or value of referrals. The lease must be commercially reasonable, absent referrals.
• Bona fide employment.
This applies to physicians or immediate family members. Employment is for identifiable services and compensation at fair market value not related to volume or value of referrals. Compensation may be based on personal productivity.
Compensation is paid pursuant to an agreement that is commercially reasonable absent referrals.
• Personal services arrangements.
Services must be specified in writing; the agreement must be signed by both parties.
The agreement must cover all services to be provided by the physician or immediate family member. Services must be necessary and reasonable for a legitimate business purpose. The term of the agreement must be for at least 1 year.
Compensation must be set in advance, at fair market value, and not based on volume or value of referrals or other business generated between parties.
• Physician incentive plan
. This applies to compensation arrangements between an entity and a physician or physician group that takes into account directly or indirectly the volume or value of referrals. No payment may be made as incentive to limit or reduce medically necessary services.
If a physician or group assumes substantial risk, the plan must meet other requirements of the Social Security Act.
• Remuneration unrelated to designated health services
. This includes stipends for department chairs and medical directorships.
• Recruitment.
This includes payments by a hospital to induce a physician to relocate to the hospital. A physician must not be required to refer to the hospital. Remuneration must not be related to volume or value of referrals.
• Isolated transaction
. Includes practice sales and one- time sale of property.
• Group practice arrangements with hospitals
. Included are designated health services provided by a group and billed for by the hospital, with the hospital then paying the group.
• This provision applies to arrangements existing before Dec. 19, 1989 and continued without interruption. Inpatients must meet the inpatient services definition under the Social Security Act.
• There must be a written agreement specifying services to be provided and compensation to be paid. The agreement must be commercially reasonable absent referrals.
• Compensation must be fair market value; compensation per unit of service must be fixed in advance and may not be related to volume or value of referrals, or other business generated between the parties.
• Payments from physicians for items or services
. It includes payments to laboratories in exchange for clinical laboratory services. Payments must be fair market value.
• ASCs
. Under the proposed regulations, items and services performed at ASCs won’t be considered designated health services if the payment for those services is included in the ASC payment rate. Therefore, IOLs implanted at an ASC after cataract surgery aren’t considered designated health services because they’re covered under the payment rate. However, eyeglasses or contacts prescribed after such surgery would be considered a designated health service.
• Optical shops.
Under proposed regulations, an ophthalmologist with an optical shop as part of his practice isn’t prohibited from referring Medicare patients to the optical shop for any conventional eyewear that isn’t covered under the Medicare program.

Even if you’re not in violation of Stark, you must consider potential violations of the federal "fraud and abuse" statute, and applicable state law. These legal issues are complex and often perplexing. If you’re uncertain about how the Stark legislation and regulations may affect your practice, don’t make any changes in your practice until you have that talk we recommend with a knowledgeable healthcare attorney.