More so than ever, regulators are using a provider’s practice structure as the tool to investigate or deny reimbursement, and convict providers of improper conduct. Doing so has proved fairly simple from the regulator’s standpoint, mainly because many physicians enter and exit medical school, residency, and fellowship programs without having been subjected to education regarding the laws, and regulations that govern appropriate practice structure. As such, many practices are structured and operate in violation of the many healthcare laws.
Although our current educational system is arguably the best for the patient, a gaping hole is left in many physicians’ knowledge base about the requirements of operating their own medical practices. The lack of know-how or understanding of allowable practice structures or constraints is by no means the physician’s fault; in fact, physicians likely did not come across many opportunities to expose themselves to “business of medicine” topics, and when they were exposed, likely such exposure was not more than a glazing of preliminary topics. For instance, a physician may have attended an hour seminar on HIPAA or heard mention of times when a physician is not authorized to make a referral to oneself. Some physicians opt to go it alone, “open up shop,” and see what happens, whereas others elect to work with a knowledgeable attorney to assist in practice structure or potentially with a practice consultant, of whom there are many.
In fact, an entire industry of consultants has arisen to fill the physician “business of medicine” knowledge gap, about which we caution, caveat emptor (buyer beware): a consultant who is not a physician, not a lawyer, not an accountant, and not a financial planner has no formal specialty, so be sure to check credentials, including referrals by a healthcare attorney, before paying a retainer.
The purpose of this article is to highlight the need for each physician and practice manager to understand the importance of their practice structure to ensurereim - bursement for services rendered, and to ensure compliance in operations to protect from potential exposure. In addition to potential criminal exposure for improper structure, many practices are at risk of financial exposure.
In most cases, practices are not in compliance because the practice owners and managers are unaware of the compliance requirements; however, being unaware is not an excuse, should the practice come under scrutiny by a payer (ie, Medicare) or a government regulator (ie, the Office of Inspector General). Failure to comply with applicable structural requirements is a strict liability offense in some instances. If you are not in compliance, then you may not be entitled to payment for a particular claim for Designated Health Services (DHS) or any claim submitted while the practice was not in compliance; this is called “disallowance.” DHS includes most ancillary testing, imaging, durable medical equipment, and physical therapy, as well as other critical services needed by many patients. Whether a service constitutes DHS is not subjective; Medicare has a list of DHS services, by CPT® (Current Procedural Terminology) code, on its website (www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/List_of_Codes.html).
The concept of disallowance is set forth in the Stark Law, as follows (42 CFR § 411.353):
(1) Except as provided in paragraph (e) of this section, no Medi - care payment may be made for a designated health service that is furnished pursuant to a prohibited referral. The period during which referrals are prohibited is the period of disallowance. For purposes of this section, with respect to the following types of noncompliance, the period of disallowance begins at the time the financial relationship fails to satisfy the requirements of an applicable exception and ends no later than—
(i) Where the noncompliance is unrelated to compensation, the date that the financial relationship satisfies all of the requirements of an applicable exception;
(ii) Where the noncompliance is due to the payment of excess compensation, the date on which all excess compensation is returned by the party that received it to the party that paid it and the financial relationship satisfies all of the requirements of an applicable exception; or
(iii) Where the noncompliance is due to the payment of compensation that is of an amount insufficient to satisfy the requirements of an applicable exception, the date on which all additional required compensation is paid by the party that owes it to the party to which it is owed and the financial relationship satisfies all of the requirements of an applicable exception [emphasis added].
Below are examples of hypothetical situations that may arise under the 3 subparts of the statute referenced above.
First, subpart (i) of 42 CFR § 411.353(c)(1) defines the period of disallowance from the date the financial relationship fails to meet the requirements of an exception until such time that the practice is no longer structured improperly. An example of how simple it is for a practice to be structured improperly may be evinced by a simple Stark Law hypothetical. The Stark Law (one of the main statutes applicable to medical practices when ensuring structural compliance) prohibits selfreferring for DHS unless the practice is structured in accordance with certain requirements and meets applicable exceptions (see 42 U.S.C.§ 1395nn). Under the Stark Law, a practice with more than 1 physician must meet the definition of a group practice to potentially qualify for a Stark Law exception, which is required to enable the practice to self-refer to DHS. One of the “group practice” requirements of the Stark Law is that the majority (75%) of all of the patient care services (75%) of the physicians who are members of the group must be furnished through the group (see 42 CFR § 411.351). Smaller group practices with parttime physicians who are ordering and conducting their own imaging services may not be in compliance and, therefore, the analysis as to whether the practice is in compliance need not continue. That practice may be in a period of disallowance.
Second, subpart (ii) of 42 CFR § 411.353(c)(1) defines the period of disallowance from the date the financial relationship fails to meet the requirements of an exception until such time that the identified overpayment is returned to the payer and the financial relationship meets the requirements of an exception. This definition is utilized when the noncompliance is a result of payment of excess compensation. An example of when a practice may be in a period of disallowance for excess compensation is during such period as a practice has received compensation in excess of what it has been entitled to for services rendered, which, for example, may be a result of intentional upcoding. This period of disallowance would continue until such time as the practice returns excess funds to Medicare and all practice structural requirements are met.
Third, subpart (iii) of 42 CFR § 411.353(c)(1) defines the period of disallowance from the date the financial relationship fails to meet the requirements of an exception until the date when additional required compensation is paid and the financial relationship meets the requirements of an exception. This definition may apply where a practice fails to meet an exception due to insufficient compensation. By way of example, where an oncology practice agrees to rent equipment from a vendor and for one reason or another the vendor agrees to offer the equipment at well below the fair market value, the fair market value is a requirement that must be met to qualify for an exception under rental of equipment, should such equipment be used for DHS. Under subpart (iii), until such time as the practice is paying fair market value for the equipment rental, and has paid back-owed rent for underpayments, the period of disallowance would continue and the practice would not be authorized to receive reimbursement for services rendered to Medicare beneficiaries, reimbursable by Medicare for that period of disallowance.
These examples are provided as an explanatory tool, so that practice owners and managers may better understand the definitions of disallowance and how the same may be applicable to a potential practice arrangement. This does not constitute a complete analysis, nor should it be utilized to evaluate an individual practice arrangement. To understand the nuances and intricacies of the applicable laws referenced herein would require a level of mastery above and beyond reviewing an individual article. Equally as important as understanding appropriate practice structure issues is to ensure that you are working with professionals best able to guide you and assist in appropriate practice structure matters.
The intricate laws governing structure and prohibiting certain financial relationships and referrals create strict liability offenses if certain structure parameters are not met. “I didn’t know” is not a tenable defense. The good news is that there is still time to ensure you are operating compliantly. Regulators are conducting more reviews of practice structures, but those reviews are just ramping up, and if you have not yet been targeted, there is still time to take preventive action.
This article is for education and discussion purposes only and does not constitute legal advice.
Jennifer Kirschenbaum, Esq, manages Kirschenbaum & Kirschenbaum’s healthcare department, which specializes in representing healthcare practitioners in regulatory compliance, audit defense, licensure, and transactional matters. She may be reached at 516-747-6700 x302 or by e-mail at
Erica Youngerman, Esq, an associate in Kirschenbaum & Kirschenbaum’s healthcare department, assisted in the preparation of this article and may be reached at 516-747-6700 x308 or by e-mail at EYoungerman@kirschen baumesq.com.