Contribution: Imaging self-referrals must now include alternate providers
CT perfusion of Peri-Infarct Ischemia.
Image source: Journal of the American College of Cardiology
By Jason Caron, Esq. and Jason Christ, Esq.
As of the first of the year, many physician practices that provide PET, CT and MRI must now disclose in writing to patients that they can receive the same services from other providers. If they fail to do so, they could face stiff penalties.

The new disclosure requirement is part of the final 2011 Physician Fee Schedule (PFS) rule issued by the Centers for Medicare & Medicaid Services (CMS). The change in question concerns the physician self-referral provisions of Section 1877 of the Social Security Act, commonly known as the Stark Law.

Background on the Stark Law
The Stark Law prohibits payment of Medicare or Medicaid claims submitted by a physician (or on that physician's behalf) if the physician has made a patient referral, as defined by the Stark Law and CMS' regulations; the physician or a member of the physician's immediate family has a financial interest in the entity to which the patient has been referred; and the financial relationship does not comply with one of the exceptions set out in the Stark Law (e.g., the In-Office Ancillary Services Exception).

Penalties under the Stark Law are very severe and include the following:
  • The denial of payment and an obligation to refund payments made as a result of a tainted patient referral;
  • Civil monetary penalties of up to $15,000 for each service that a person knows or should know violates the Stark Law;
  • Civil monetary penalties of up to $100,000 for schemes to circumvent the Stark Law;
  • Possible exclusion from the Medicare and Medicaid programs;
  • The imposition of up to three times the amount for each item wrongfully claimed; and/or
  • Potential liability under the Federal False Claims Act.

The In-Office Ancillary Services Exception
The In-Office Ancillary Services Exception to the Stark Law is widely used by the imaging services industry and permits a physician in a solo or group practice to order and provide certain designated health services, which include imaging, provided that certain specific practice, location and billing requirements are met.

To fit within the in-office ancillary exception, designated health services must be:
  • Furnished by the referring physician, a member of his group, or an individual who is supervised by a physician in the group;
  • Furnished to patients in a central building that functions to house the medical group's ancillary services (centralized building test) or in the same building where referring physicians provide their services (same building test); and
  • Billed by one of the following: the physician providing or supervising the designated health services; the group practice in which the physician providing designated health services is a member (or the group practice if the supervising physician is a physician in the group practice); an entity that is wholly owned by the performing or supervising physician or group practice; or a billing company functioning solely as an agent of the performing or supervising physician or by the physician's group practice.

Practices that use the in-office ancillary exception now will be required to:
  • Inform the patient in writing that the patient may obtain certain imaging services from a person other than the referring physician or his or her group practice; and
  • Include a list of "suppliers" who provide the service being referred.

The Patient Protection & Affordable Care Act (PPACA) requires this disclosure for MRI, CT and PET, but PPACA also gave CMS the discretion to extend the disclosure obligation to any other designated health services determined appropriate.

The patient disclosure must include the name, address and telephone number of at least five other suppliers that provide the services for which the individual is being referred and which are located within a 25-mile radius of the referring physician's office location "at the time of the referral" (unless less than five suppliers are within the 25-mile radius, in which case all suppliers in the radius should be listed). If there are no other suppliers that provide the services for which the individual is being referred than the "provision of the written list" is not required. However, the general notification is still required.

Despite CMS' broad authority under PPACA, the agency is thus far only requiring the disclosure obligation for referrals for MRI, CT, and PET services provided under the in-office ancillary services exception.

In the final rule, CMS stated that the intent of the law is to "provide choice for patients, as well as a degree of protection against conflicts of interest." CMS also addressed numerous comments it received in response to the agency's proposed rule and in doing so provided guidance on a number of issues, including:

Whether the list of suppliers must include hospitals. CMS takes the position that the term "supplier" as used in PPACA and defined in the Social Security Act does not include providers such as hospitals. Therefore, physicians must list, at a minimum, the five alternate suppliers (or if less than five suppliers, all) but are not precluded from also listing hospitals. While not addressed by CMS, a supplier that is owned by a hospital also appears to satisfy the PPACA language as well as that of the final rule. CMS stated that it encourages, but does not require, physicians in rural areas where there are no other suppliers to list a hospital on the disclosure notice.

Whether the physician must document that the notification was provided to the patient. CMS previously proposed to require physicians to obtain the patient's signature and maintain a copy of such in the medical record, but abandoned that proposal concluding it would be too "burdensome." However, CMS stated that "as a matter of prudent business practices, physicians should be able to document or otherwise establish that they have complied with the disclosure requirement. For example, the physician could document in the patient's chart that the notice was given to the patient." CMS also stated that "[p]hysicians must retain adequate assurance that the information was shared with the patient so that this information can be verified." While, CMS is not prescribing exactly how physicians document their compliance with this requirement, it expects physicians to have a reasonable process, policy and evidence to support their compliance with the disclosure requirement.

How often patients should receive the notice. CMS provided that "[p]atients should receive the disclosure each time these services are needed, not just for the initial service." So, unlike for example a HIPAA disclosure, for re-current patients, physicians will need to give written notice each time they order these services.

How often the notification must be updated by the physician. CMS "suggests" that the lists of suppliers should be reviewed annually for accuracy and updated at that time, if necessary. This means that, for example, physicians should check to see if these alternate suppliers are still open and provide these services at least once annually.

How referrals made via phone call should be handled. For referrals made via phone call, the written disclosure must be provided to the patient. CMS stated that "[m]ailing or emailing the disclosure to the patient would be acceptable if verbal notification has also occurred."

Whether CMS would post standard disclosure language. CMS stated that they will not post standard language and believe this will give physicians more flexibility in drafting the notice.

Whether physicians may include certain disclaimers in the notices, e.g., the list is not an endorsement or recommendation of the other suppliers. CMS stated that a physician may include language informing patients that the list of suppliers is not intended as an endorsement or recommendation of those suppliers. CMS also stated that physicians can provide the credentialing status of the listed suppliers.

Whether the new disclosure requirements apply to referrals by radiation oncologists. In brief, CMS acknowledged that those services provided under the Stark Law's radiation oncology consultation exception would not be subject to this new disclosure requirement as such services are not technically "referrals" under the Stark Law.

Thus far, the disclosure requirement is limited to PET, MRI and CT. CMS has the authority to extend this requirement to other service lines, so the imaging industry, as well as others, should monitor CMS rulemaking with respect to the in-office ancillary exception. If physician practices fail to make required written disclosures, claims that result from these referrals will be tainted and cannot be billed or if they are billed must be refunded and may be subject to significant penalties.

Mr. Caron and Mr. Christ are associates in the healthcare and life sciences practice with EpsteinBeckerGreen in the Washington, D.C., office and can be contacted at or 202-861-0900.