United States: Phase II Of The Final Stark II Regulation

On March 26, 2004, the Centers for Medicare and Medicaid Services (CMS) published Phase II of the final Stark II regulations (the Phase II Regulations), the long-awaited sequel to Phase I of CMS’s rulemaking (the Phase I Regulations). This publication (along with an April 6, 2004 correction), includes the full text of the Stark regulations as amended by the Phase II Regulations, and a preamble discussion by CMS of the Phase II Regulations and key provisions of the Phase I Regulations. Highlights of the rulemaking include:

• methods for establishing physician compensation that will be deemed to be consistent with fair market value;

• an accommodation for percentage and other formula-based physician compensation methodologies;

• CMS’s decision to adopt a very narrow interpretation of the statutory exception for "hospital remuneration unrelated to designated health services;"

• a new bright-line definition of "same building" for purposes of the in-office ancillary services exception;

• a physician recruitment incentives exception that permits certain incentives to residents and interns already practicing in the hospital’s service area, and incentives to physicians recruited to existing medical practices;

• a new physician retention incentive exception; and

• a new exception for unavoidable and temporary lapses in compliance.

Published as an interim final rule, the Phase II Regulations, including certain document retention requirements, are effective July 26, 2004. CMS is accepting comments on the Phase II Regulations through June 24, 2004, and, according to CMS officials, will eventually republish the Phase II Regulations as a final rule in which CMS will respond to such comments.

This Health Law Update provides an overview of the Phase II Regulations, including certain key implications for the health care industry.

The entire publication can be viewed by clicking here.

For a detailed discussion of the Phase I Regulations, please see McDermott’s Health Law Update, "Health Care Financing Administration Issues Phase I of the Final Stark II Rule" (January 26, 2001).