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Physicians Providing In-Office Ancillary Services Must Meet New Disclosure Obligations That Are Likely To Be Effective January 1, 2011
August 13, 2010

The recently passed Affordable Care Act of 2010 ("ACA") mandates that referring physicians or medical groups that provide MRI, CT, PET (or any other designated health services specified by CMS) under the Stark law’s In-Office Ancillary Services ("IOAS") exception inform patients in writing at the time of their referral that the same services may be obtained from other "suppliers," and identify a list of such suppliers who are located in the area in which the patient resides. ACA, however, left open a number of issues regarding these new disclosure requirements, which CMS proposed to clarify in its 2011 Medicare Physician Fee Schedule Proposed Rule (the "Proposed Rule"), published on July 13, 2010. The clarifications proposed by CMS are largely beneficial to physicians and physician groups (compared to the statutory wording in ACA), and are discussed in greater detail below.

Likely January 1, 2011 Effective Date

While ACA was passed on March 23, 2010, it provides that the new IOAS disclosure requirements will apply to "services furnished on or after January 1, 2010." This creates the odd potential for retroactive application of new disclosure requirements to services provided by physicians before March 23, 2010.  Fortunately, CMS is proposing that the new disclosure requirements apply only to specified imaging services furnished by physicians on or after the effective date of the final regulations, which CMS has proposed to be January 1, 2011.

Disclosure Requirements

As noted above, ACA requires physicians who provide specified imaging services (or other specified designated services) to provide an appropriate written disclosure to patients "at the time of the referral," and list alternative "suppliers" (as that term is defined in the Medicare law) who furnish the same services and who are located in the area in which the patient resides. However, ACA leaves unanswered a number of questions, such as the scope of applicable services, form of written disclosure, nature and number of suppliers to be listed and the definition of the patient’s area of residence. CMS has proposed to clarify these issues under the Proposed Rule.

Scope of Services and Form of Disclosure

With respect to the scope of applicable services, CMS proposes to limit the new disclosure requirements to the imaging services identified in ACA, as well as such other radiology or imaging services included in the designated health services category specified by CMS (e.g. x-ray). With respect to the form of the disclosure, CMS proposes that the disclosure be written in a manner sufficient to be reasonably understood by all patients, and indicate to the patient that the applicable services may be obtained from a person other than the referring physician (or his or her group practice). CMS further proposes to prohibit including anything in the written disclosure which may indicate to the patient that he or she must receive the services from an alternative supplier listed in the disclosure if the patient chooses not to receive such service from the referring physician (or his or her group practice).

The Nature and Number of Suppliers and The Patient’s Area of Residence

Under the Proposed Rule, CMS proposes to limit the list of alternative suppliers to "suppliers" as defined in the Medicare law, which would exclude hospitals from being listed as an alternative supplier. However, CMS has requested comments from the public regarding whether the inclusion of other types of providers, such as hospitals, would benefit patients choosing an alternative entity for services.

ACA is also silent regarding the number of alternative suppliers which must be listed by physicians in the disclosure statement, and does not define the patient’s "area" of residence. On a hopeful note, CMS has indicated that it believes that requiring an original written notice of alternative suppliers based upon the patient’s residence is impractical and will present a significant administrative burden on physicians practicing in a solo or group practice. Accordingly, CMS proposes limiting the disclosure statement’s alternative list of suppliers to at least 10 alternative suppliers that are located within a 25-mile radius of the referring physician’s office (not the patient’s residence).

For those physicians or group practices with fewer than 10 alternative suppliers within a 25-mile radius, CMS proposes that the written disclosure list all of the alternative suppliers located within such 25-mile radius. In those cases in which there are no alternative suppliers located within the 25-mile radius, CMS proposes that the referring physician not be required to provide the patient with a list of alternative suppliers, although the physician must still disclose to the patient that he or she may receive the services from another supplier.

Additional Supplier Information and Documentation

Under the Proposed Rule, CMS also proposes that the disclosure statement include the name, address and telephone number of each alternative supplier, as well as the distance between each alternative supplier and the referring physician’s office at the time of the referral. In order to document compliance, CMS proposes to require a record of the patient’s signature on the written disclosure statement be maintained in the patient’s medical record.

Existing State Disclosure Requirements

Referring physicians who provide services under the IOAS exception should also be mindful that, in addition to the new disclosure requirements imposed by ACA, they may already be subject to existing written disclosure requirements under state law. For example, under Sections 650.01(f) and 654.2 of the California Business and Professions Code ("Sections 650.01(f) and 654.2"), California physicians who refer patients to organizations in which they have a financial interest must disclose their financial interest to the patient in writing at the time of referral.

Section 654.2's disclosure obligation, can be satisfied either through posting a conspicuous disclosure statement at a common or registration area or by providing the patient with an individual written disclosure statement. If the final rule under ACA is similar to the Proposed Rule, posting a conspicuous sign will not satisfy a referring physician’s disclosure obligations, since a copy of a written disclosure statement with the patient’s signature would be required to be maintained in the patient’s medical record.

Those wishing to provide CMS with comment on the Proposed Rule must do so no later than August 24, 2010.

If you have any questions regarding ACA's new disclosure requirements or how they may affect your business arrangements, please feel free to contact David Henninger, Charles Oppenheim, David Hatch or Karl Schmitz at (310) 551-8111 in the Los Angeles office; Mark Johnson at (619) 744-7301 in the San Diego office; Stephen Phillips at (415) 875-8508 in the San Francisco office; or Robert Roth at (202) 587-2590 in the Washington, D.C. office.

For media inquiries, please contact Barrett McBride at bmcbride@health-law.com or 916.456.5855.