August 25, 1999

Ms. Anne Montgomery
Legislative Assistant
Office of the Honorable Pete Stark
239 Cannon House Office Building
Washington, D.C. 20515-0513

Re: Stark Law Amendments

Dear Ms. Montgomery:

Thank you for speaking with me about various issues under the Stark Law at the Stark Law Conference sponsored by the Health Care Compliance Association. You asked if my clients had developed any legislative language that would address some of the issues that we discussed. On behalf of my clients, the American Society of Neuroimaging ("ASN"), the Society of Vascular Technology ("SVT"), the Society of Diagnostic Medical Sonographers ("SDMS"), and the National Electrical Manufacturers Association ("NEMA"), we appreciate the opportunity to submit the following language designed to address four issues under the Stark Law, as interpreted by the Health Care Financing Administration ("HCFA"). Those issues are commonly known as the direct supervision, the solo shareholder, the professional interpretation, and the outsourcing problems. We would appreciate the opportunity to meet with you to discuss our concerns and issues.

A. The Coalition Members

ASN is a professional society comprised of over 800 neurologists and is represented in the House of Delegates of the American Medical Association. ASN members are involved in the delivery of cerebrovascular ultrasound services and other testing related to neurological disorders, including MRI and CT testing.

SVT is a multidisciplinary professional society, with both physician and technologist and other allied health members. Founded in 1977 by a handful of dedicated technologists, SVT now has more than 4,000 members, united in their dedication to the advancement of noninvasive vascular technology and to their commitment to achieve excellence in patient care.

SDMS, which represents general and cardiac sonographers and vascular technologists, has a membership of 11,000. SDMS members are involved in the delivery of high-quality echocardiography, obstetrical, abdominal and ophthalmic ultrasound, and vascular ultrasound services.

NEMA is the leading organization in the United States that represents electrical equipment manufacturers. The NEMA Diagnostic Imaging and Therapy Systems Division represents over ninety-five percent of the United States manufacturers of diagnostic ultrasound, x-ray imaging, computed tomography, radiation therapy, magnetic resonance, nuclear imaging equipment, and medical informatics systems.

B. The Direct Supervision Problem

1. Nature of the Problem

The Stark Law contains an exception that permits a physician to order designated health services and provide those designated within his or her practice so long as certain conditions are met. The primary requirement of the exception is that the designated health services must be provided by the ordering physician, another member of his or her group practice, or another person acting under the direct supervision of the ordering physician or another member of his or her group practice.

Many of the members of the coalition organizations are part of or employed by physician practices that are among the best providers of one or more of the services that are covered by the Stark Law. All of our member organizations have a particular interest in ultrasound services. Ultrasound uses sound waves to create a picture of a body cavity or other structures of the body without radiating the patient or using other more costly and invasive imaging techniques. Many of the members of the coalition organizations are small physician practices of one or two members. Many of these small practices serve under-served and rural communities that may have no or very limited access to ultrasound services, a powerful and important diagnostic tool. Ultrasound services are provided typically by sonographers and technologists under the direction of physicians.

Diagnostic services, including ultrasound, are provided under three possible levels of supervision. The levels of supervision are: personal (meaning that the physician supervisor must be in the room where the service is provided), direct (meaning the supervising physician must be in the office suite where the service is provided), or general. In general supervision, the technologist or sonographer who performs the service is acting under the overall supervision of a physician who is responsible for the training of the sonographer or technologist, the equipment used, and the management of the study, but the supervising physician need not be in the office suite when each service is provided.

Ultrasound is a safe and effective procedure when performed under general supervision. It is clearly established that the standard of medical practice for almost all ultrasound services is general supervision. At a meeting to discuss supervision of ultrasound services that occurred at HCFA in 1998, over forty physician and other practitioner societies agreed that the standard of practice for ultrasound services is general supervision. /

Because many of our members practice ultrasound in small physician practices, they are simply not able to meet a direct supervision standard. Let's take the example of a typical vascular surgeon, who diagnosis problems in the veins and arteries of patients (primarily using ultrasound) and corrects those conditions with surgical interventions. He or she practices by himself or herself, with a single technologist or sonographer, who provides ultrasound services under his or her direction and supervision. Vascular surgeons (and many other physicians who provide quality ultrasound services) have a series of responsibilities that require them to be away from the office. For instance, in the morning, a vascular surgeon will need to go to the hospital to see patients who are recuperating from surgery and to perform critical surgical services. In the afternoon, the vascular surgeon may need to teach a course at the local medical school or to undertake important medical research. /

Under HCFA's current interpretation of the Stark Law, the vascular surgeon would be in violation of the Stark Law if the ultrasound services are provided at any time that the physician is not in the office in order to fulfill essential medical services, even though the prevailing standards of medical practice only require general supervision. Physicians, sonographers, and technologists across the country are extremely upset by this interpretation of the Stark Law. In order to efficiently evaluate patients, it is absolutely necessary for ultrasound examinations to be available at times when physicians cannot be in the office because they are attending to other important medical duties that require a physician's presence elsewhere. The current law discriminates against smaller practices, who, unlike their larger counterparts, cannot arrange schedules to have a physician present in the office suite at all times that a patient needs to be scanned. Although our members are very supportive of attempts to avoid inappropriate self-referrals, we do not believe that the Stark Law should prevent practices from providing appropriate services in a fashion that is completely consistent with the prevailing standards of practice. We believe that our proposed amendment will not in any way impede the Stark Law from preventing inappropriate self-referrals.

2. Our Suggested Legislative Changes

We urge you to have any Stark Law amendments include the following language to address this critical issue:

The standard of supervision required by the in-office ancillary services exception shall be personal, direct, or general supervision, depending upon the prevailing standard of medical practice for the designated health service being provided. Consistent with the prevailing standard of medical practice, the Secretary shall specify by regulation the level of supervision for each designated health service. Nothing in this subsection shall permit the Secretary to specify levels of supervision that are not in accordance with the prevailing standard of medical practice.

This provision will not in any way represent a retreat from the purposes of the Stark Law, as the adoption of the prevailing medical practice will, in some cases, actually represent a toughening of the required standard. By the same token, there is no need for the Stark Law to require supervision which the medical community thinks is unnecessary.

Significantly, HCFA provided for personal, direct, and general supervision standards for all diagnostic services in a payment rule dated October 31, 1997. Accordingly, it would not be difficult for HCFA to implement this statutory directive. We do not believe, however, that this final rule should be incorporated by reference into any statutory change. This is because, as HCFA has itself admitted, it needs to make some revisions in its rule, including the appropriate standard for ultrasound services. Those changes are forthcoming.

C. The Solo Shareholder Problem

1. Nature of the Problem

Another major problem under the Stark Law, as interpreted by HCFA, turns on the statutory definition of a "group practice," as that term is used in the Stark Law. As indicated above, the in-office ancillary services exception permits the services to be performed by the ordering, by another member of the group practice, or by another person under the supervision of the ordering physician or another member of the group practice.

A key feature of the exception, then, is whether or not the practice is a group practice. Under the statute, a group practice is defined as "two or more physicians, legally organized as a partnership, professional corporation, foundation, not-for-profit corporation, faculty practice plan, or similar association . . .."

Until HCFA released its Stark II regulatory proposals, years after the Stark II statute was passed, HCFA took the position, contrary to what virtually every health care attorney in the country believed, that a Stark Law group practice must have two owners to be a group practice. We do not believe that this is what Congressman Stark intended. The Stark II proposal states that "we believe that . . . a partnership consist [sic] of two or more physicians who are partners and that a professional corporation consist of two or more physicians who are incorporated together." This interpretation of the Stark Law is anti-competitive and discriminates against small practices.

To show how unfair this interpretation of the Stark Law is, let's consider the typical way that a solo practitioner considering retirement will prepare for retirement. Several years before retiring, a solo practitioner who, in our case, is a neurologist, will hire a young physician to work with him or her. The solo shareholder neurologist will not initially give the young physician an equity interest in the practice, until the young physician has served an apprenticeship and has shown the skills and commitment necessary to enable the neurologist to entrust his or her practice and, more importantly, his or her patients, to the younger physician.

In a case like this, under HCFA's interpretation, the solo shareholder cannot order a service, leave the office site to see a patient in the hospital, and have the employed physician supervise the delivery of the ordered designated service. This is because (1) only the ordering physician or another member of his or her group practice can provide the required supervision, and (2) the practice is not a "group practice" as defined by HCFA. This interpretation of the statute is, in our view, fundamentally inconsistent with the language of the statute, which requires only the organization of "two or more physicians" in a variety of legal entities. Moreover, it discriminates against small practices. Finally, it is inconsistent with HCFA's own assertion in a later section of the Stark II proposal that both equity owners and employed physicians should be treated as "group practice members."

The absurdity of HCFA's position is further illustrated by the fact that a solo shareholder practice with an employed physician can comply with HCFA's incorrect interpretation of the statute simply by transferring a single share to the employed physician. Accordingly, HCFA's interpretation of the statute has no practical effect other than to create a trap for the unwary solo shareholder physician.

2. Our Suggested Legislative Language

In order to ensure that small practices are not discriminated against by HCFA in its interpretation of the statute, we urge you to adopt the following clarifying amendment:

For purposes of this statute, a group practice involving a professional corporation, association, partnership, or similar entity, other than a faculty practice plan, shall include a physician practice in which there are two or more physicians, where at least one of the physicians has an ownership interest in the group practice.

D. The Professional Read Problem

1. The Nature of the Problem

This issue is of tremendous concern to physicians across the country. Even though the Stark Law specifically states that it is not intended to reach physician services, HCFA, in its Stark II proposal, proposes to define the statutory term "radiology and ultrasound" services to mean both the professional component and the technical component of these services.

This change in interpretation of the statute, which we believe is inconsistent with the statute itself, creates the following problem that will have an affect in every institution in America in which radiology and ultrasound services are performed. Let's consider a vascular surgeon who has admitted an elderly patient to a hospital with gangrene in the leg. The vascular surgeon orders an ultrasound examination of the leg in an effort to determine if the leg should be amputated or if, by surgically creating an arterial graft (a new section of artery), the leg may be saved. In so doing, the vascular surgeon makes two referrals. He refers the patient to the hospital for the purpose of the technical component of the service (i.e., the actual ultrasound images themselves) and to himself and his practice for the professional component of the service (i.e, the "read" or interpretation of the ultrasound service).

Under HCFA's proposal to include professional component services of radiology and ultrasound services as a designated health service, the vascular surgeon cannot read this study that he must rely upon to determine whether or not to amputate that limb. The only exception that could permit this interpretation is the in-office ancillary services exception. That exception cannot protect the surgeon's read of the crucial ultrasound service, however, because the read will not be made "in the office," but in the hospital, where the patient has been admitted. The same issue is raised with respect to interpretations provided in other institutional settings.

HCFA's interpretation of the statute forbids physicians from interpreting studies that are critical to their decision-making. In our view, this is absurd. This is particularly true since there is no chance that the surgeon will admit a patient to a hospital for the purpose of being able to bill for an ultrasound service, a service that he or she will be paid less than $20 for completing. We have brought this issue to the attention of HCFA, but the agency, in a meeting that we had with it, did not indicate that it was prepared to take any action to address our concerns.

2. Our Suggested Language

In order to address this issue, we urge you to include the following clarifying amendment:

Notwithstanding any other provision of this statute, a physician may provide the professional component of a radiology or ultrasound service (1) where the physician has ordered the technical component service, (2) when the professional component is provided at an institutional provider, and (3) the patient has been admitted to the institution at which the professional component service is provided.

E. The Outsourcing Problem

1. Nature of the Problem

In an era of declining reimbursements, many hospitals, skilled nursing facilities, and other institutional providers are outsourcing departments to physician-owned entities that can provide better, higher quality services at lower cost than the institutional providers can. The physicians are used to providing the services under the lower reimbursements that generally apply under the physician fee schedule, and the institutional providers have to either outsource the service or abandon it, a decision that would adversely affect their ability to deliver important services to their patients.

The Medicare program has long recognized the utility of this kind of outsourcing under the "under arrangements" doctrine. This doctrine allows outsourced entities to assist an institutional provider in providing services under a contractual arrangement with the institutional
provider, so long as the services are billed by the institutional provider and the services are provided under the institution's utilization review program. Out of necessity, the outsourced entity is paid on a fee for service basis of a set charge per unit of service provided.

Until the Stark II proposals were announced by HCFA, most health care attorneys did not believe that a physician's ownership interest in an outsourced entity created a Stark issue. This seemed to be true because the "under arrangements" doctrine indicated that, if the physician owner of the outsourced entity made a referral to the institution for a service in which the outsourced entity played a role, there was no self-referral. The referral was to the institution, which was ultimately responsible for the service, as opposed to the outsourced entity, which was only assisting in the provision of the service "under arrangements."

In its Stark II proposal, HCFA has created tremendous confusion and threatened the ability of institutions to use outsourced entities, just as the need for more efficient means of delivering services has become even more important. In its proposal, HCFA uses one example in which it suggests that physician-owned outsourced entities are not prohibited, and another example that suggests that they are.

As a policy matter, we believe that it is essential that physician-owned entities be able to serve as outsourced departments. Indeed, HCFA has recently expressed its concern about the quality and appropriateness of some non-physician-owned entities that provide imaging services. This concern led to the development of new requirements designed to give a measure of physician involvement in these entities.

2. Our Suggested Language

Accordingly, we urge you to include the following language in any amendments that you consider:

Notwithstanding any other provision of this statute, a physician may have an investment interest in an entity that provides services under arrangements with an institutional provider and order designated health services provided by the under arrangements entity, provided that any such services ordered by such a physician are medically necessary and subject to the institutional provider's utilization review program.

We believe that this language strikes the correct balance between the need to give institutions the ability to provide services efficiently, and the need to protect the Medicare and Medicaid programs.

* * * *

Please feel free to call me with any questions that you might have.

Very truly yours,
William A. Sarraille
cc: Coalition Members