"Under arrangements" is a term that refers to inpatient and outpatient hospital services billed by the hospital but provided by a third party, often a physician-owned entity (Physician Entity). These types of agreements create intricate relationships between hospitals and physicians, especially in the context of compliance with federal regulations like the Stark Law.
As of October 1, 2009, the definition of an "entity" under the Stark Law was expanded. According to 73 Fed. Reg. at 48751, this revision (42 CFR § 411.351) now includes both the hospital billing for the Designated Health Services (DHS) and the third party performing those services. The new definition states:
"Entity means . . . (i) . . . the person or entity that has performed services that are billed as DHS; or (ii) . . . the person or entity that has presented a claim to Medicare for the DHS, including the person or entity to which the right to payment for the DHS has been reassigned in accordance with §424.80(b)(1) (employer) or (b)(2) (payment under a contractual arrangement)."
This means that both the hospital and the Physician Entity are now considered "entities" under the Stark Law, which has significant implications for referrals and compliance.
Understanding "Under Arrangements" Meaning
In essence, under arrangements agreements allow hospitals to outsource certain medical services to physician-owned entities. While the hospital bills for these services, the actual care is provided by the physician-owned entity, which supplies the necessary staff and equipment. These types of arrangements can be beneficial for both parties, but they also come with strict regulatory oversight.
In-Office Ancillary Services Exception
For services billed directly by the physician or physician group, the in-office ancillary services exception may apply. This exception is designed for services provided in the physician's own practice and applies to both ownership and compensation arrangements. However, if the hospital is billing for the services, the only ownership exception for the Physician Entity would be the rural provider exception.
The rural provider exception is available only in areas that are not classified as a Metropolitan Statistical Area (MSA) or certain urban New England counties. Given the narrow scope of this exception, its applicability is limited in most situations.
Restructuring Problematic "Under Arrangements"
When a Physician Entity performs inpatient or outpatient hospital services, hospitals and physician practices may face compliance issues, especially after the 2009 expansion of Stark Law. There are several options to restructure the relationship and maintain compliance:
- Third-party acquisition: A third party can purchase all of the physician’s ownership interest in the service provider entity.
- Hospital acquisition: The hospital itself can purchase the service provider to maintain full control over compliance.
- Direct employment: The hospital can buy the necessary equipment and employ the staff directly, eliminating the need for a Physician Entity.
- Conversion to a leasing entity: The "under arrangements" entity can be converted to a leasing entity (either leasing staff or equipment, but not both), which does not perform DHS directly.
Depending on the state, certain restructuring efforts may require a certificate of need (CON) for legal operation.
Expanded Examples of Physician Ownership in "Under Arrangements"
To provide further insight into the complexity of these arrangements, let's examine two detailed examples of physician ownership within "under arrangements."
Example 1: Physician Ownership of Hospital Sleep Services Entity
In this example, a hospital offers sleep study services. The hospital provides the space, utilities, and furniture, while a Physician Entity—owned by the physician—provides staff, equipment, and supervision. The physician also serves as the medical director for the sleep study services. Under the contract, the hospital pays the Physician Entity an administrative/medical director fee for supervision, plus a fixed fee per sleep study conducted.
When an unrelated physician refers a patient for a sleep study, the physician evaluates the patient in a clinical setting to determine whether a sleep study is necessary. This evaluation is a requirement for the sleep lab’s accreditation, meaning the physician is acting as a gatekeeper. Under the Stark Law, certifying or recertifying the need for DHS is considered a referral.
In this situation, the Physician Entity is performing the sleep study services (DHS). Since the physician owns the Physician Entity, unless they qualify for the rural ownership exception, this arrangement would violate Stark Law beginning on October 1, 2009, for Medicare and Medicaid patients.
Example 2: Imaging Services Under Arrangements
Another common example of "under arrangements" is in imaging services. In this scenario, a hospital contracts with a physician-owned imaging center to perform services such as MRIs or CT scans. The hospital bills Medicare or Medicaid for the service, but the actual imaging is performed by the physician-owned center.
Just like in the previous sleep study example, the physician is effectively referring patients to a service in which they have an ownership interest. Without qualifying for an exception—such as the rural provider exception—this arrangement could trigger a Stark Law violation.
To avoid such violations, hospitals may choose to purchase the imaging equipment and employ the necessary radiology staff directly, converting the Physician Entity into a leasing entity for equipment or personnel.
Key Takeaways for Private Healthcare Practices
For private healthcare practices considering "under arrangements" or already involved in such agreements, understanding the under arrangement meaning is critical. The expanded definition under Stark Law makes both the hospital and the Physician Entity subject to compliance rules. If the physician has an ownership stake in the entity providing DHS, careful restructuring may be necessary to avoid violations.
Options such as third-party acquisition, hospital purchase of the service provider, or converting the entity to a leasing model should be considered to maintain legal compliance.
Staying informed about these changes and proactively restructuring problematic "under arrangements" can help private healthcare practices mitigate legal risks and continue offering vital services in collaboration with hospitals.
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