"Under Arrangements" soon to be "Over the Hill"?

(PYA Alert dated July 12, 2007)

CMS Proposed Revisions to Payment Policies for 2008 – Under Arrangements

Recently, hospitals and physicians have sought alternatives to traditional joint ventures as the reimbursement environment continues to contract. One of these alternatives has been the development of the “under arrangement” model. In an under arrangement joint venture, a hospital-based outpatient service might contract with a management company (which may include physician investors) to provide outpatient services to registered hospital outpatients. Using this model, the hospital is able to bill for the services rendered to the patients and be reimbursed via hospital-based third party contracts.

When dealing with under arrangements, it is important to understand that this type of transaction is currently covered by Stark and is mentioned in the Stark II, Phase II regulations published March 26, 2004. “An arrangement between a hospital and a group under which designated health services (“DHS”) are furnished by the group but are billed by the hospital does not constitute a compensation arrangement for the purposes of the prohibition on referrals if the following conditions are met…With respect to DHS covered by the arrangement, substantially all of those services furnished to patients of the hospital are furnished by the group under the arrangement…”1

Recent comments from CMS indicate that regulations pertaining to under arrangements may change. CMS is concerned that under arrangements create a scenario for overutilization of outpatient services that are paid on a per-service basis and that services are provided to Medicare beneficiaries at a higher cost. CMS states that “the use of these arrangements may be little more than a method to share hospital revenues with referring physicians in spite of unnecessary costs to the program and beneficiaries.”2 As a result, CMS is seeking comments pertaining to the best method of prohibiting arrangements in which physicians provide services to DHS entities. In fact, CMS’ proposed revised definition for a DHS entity includes “the person or entity that performs the DHS, as well as the person or entity that submits claims or causes claims to be submitted to Medicare.”3 These proposed changes, if enacted, will have significant implications on current and future under arrangement joint ventures that involve DHS.

If you have questions regarding these proposed regulations or if you would like to discuss this topic in more detail, please contact either David McMillan or Marty Brown at (800) 270-9629.

1 Federal Register. Part III. Department of Health and Human Services. Center for Medicare and Medicaid Services. March 26, 2004. 42 CFR Part §411.357(h).

2 Services Furnished “Under Arrangements.” CMS – 1385-P.

3 ibid

The information provided via PYA Alert, Tax Planning Alert, or Audit and Accounting Alert should not be construed as accounting, auditing, consulting, or legal advice on any specific facts or circumstances. The contents are intended for general information purposes only.  Please contact us at (800) 270-9629 to discuss your specific situation or to discuss any specific questions you may have.

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