On Aug. 27, CMS issued its Phase III revisions to the Stark Law regulations. One of these changes in particular affects the relationship between physicians
by Neil Caesar

On Aug. 27, CMS issued its Phase III revisions to the Stark Law
regulations. One of these changes in particular affects the
relationship between physicians and home care companies. This
change must be understood by every HME provider that has a
financial relationship with physicians, or with entities owned in
whole or in part by physicians.

The so-called Stark Law is one of the most notorious weapons in
the government's arsenal of anti-fraud legislation. While the law
revolves around physicians, it impacts all referrals between
physicians and providers generally, including home care companies.
The rule states that a physician may not refer a patient for a
“designated health service” to an entity with which the
physician has a financial relationship; further, the entity may not
present a claim or bill for such services.

The list of designated health services includes durable medical
equipment and supplies. Thus, a physician who refers a patient for
DME may not have a financial relationship with that supplier,
unless that relationship falls into one of the Stark Law's
exceptions. Similarly, a physician may not provide DME in-house
without qualifying under an exception.

There is a specific carve-out for some DME as part of the
broader exception that covers services provided in a medical
practice's facility. But that exception is limited to ambulatory
infusion pumps, blood glucose monitors and a few other ambulatory
devices necessary for the patient to be able to leave the office
(crutches, canes, walkers, folding manual wheelchairs, etc.).

Some attorneys and consultants have suggested for several years
that a physician could ignore the DME limitations by personally
providing the equipment. The idea here is that if the physician
personally hands the DME to the patient, personally educates, fits
and calibrates the equipment, etc., then no referral has been made
and the Stark Law should not apply. In fact, some commentary
surrounding the Stark Law arguably supported this response.

This potential loophole, however, has now been clearly and
thoroughly closed by CMS. Specifically, CMS confirmed that any
physician providing DME must be enrolled as a supplier and must
personally be in compliance with all of the supplier standards.

Such a result is unrealistic. As CMS noted in its comments to
the new regulations: “The enrollment requirements and
professional supplier standards are not waived in those situations
in which a physician furnishes DME directly to the patient.”
The comments said those services to be personally performed by the
physician include:

  • Personally fitting the item for the beneficiary;

  • Personally providing necessary information and instructions
    concerning use of the DME;

  • Advising the beneficiary that he or she may either rent or
    purchase inexpensive or routinely purchased DME;

  • Explaining the purchase option for capped rental DME;

  • Explaining all warranties;

  • (Usually) delivering the DME to the beneficiary at home; and

  • Explaining to the beneficiary at the time of delivery how to
    contact the physician in his or her capacity as a DME supplier by

“A referring physician claiming to provide DME personally
would need to maintain adequate documentation to establish that the
physician personally performed these and other related DME supplier
activities,” CMS said.

What does this mean for your relationship with physicians?
Clearly, except in very limited instances, home medical equipment
may not be provided by physicians as part of their office practice
to Medicare or Medicaid patients without violating the Stark Law.
The so-called loophole that would allow physicians to avoid the
prohibition against DME by “personally providing” the
equipment is so impractical as to be virtually impossible to
satisfy on a consistent basis.

Every venture between a home care company and a medical group by
which the medical group or its physicians provides DME to Medicare
or Medicaid patients, or by which the physician receives some sort
of financial reward for equipment provided to Medicare or Medicaid
patients, must be revisited immediately. This includes sleep lab
ventures and the provision of CPAP equipment.

As CMS stated in its comments, “the dispensing of CPAP
equipment by a physician would almost always constitute a
‘referral’ for purposes of the [Stark Law], as would
the dispensing of CPAP equipment by anyone else affiliated with the
referring physician such as a nurse or physician assistant. We note
that CPAP equipment is DME and does not qualify for the in-office
ancillary services exception.”

These new rules take effect at the end of October, so look over
your physician relationships promptly and discuss any concerns with
your health lawyer.

One thing is clear: the government remains concerned about
physician referrals and physician financial relationships. Be
warned and be careful.

Materials in this article have been prepared by the Health Law
Center for general informational purposes only. This information
does not constitute legal advice. You should not act, or refrain
from acting, based upon any information in this presentation.
Neither our presentation of such information nor your receipt of it
creates nor will create an attorney-client relationship.

Neil Caesar is president of the Health Law Center (Neil B.
Caesar Law Associates, PA), a national health law practice in
Greenville, S.C. He also is a principal with Caesar Cohen Ltd.,
which offers compliance training, outsourcing and consulting and
the author of the Home Care Compliance Answer Book. He can be
reached by e-mail at target="_blank">ncaesar@healthlawcenter.com or by telephone at