Physicians News Health news for doctors and patients.
By Michael R. Burke, Esq.
The recent decision of the Pennsylvania Supreme Court in the recent case of Eighty-Four Mining Co. v. Three Rivers Rehabilitation, Inc. has again focused attention on the prohibition on self-referrals contained in the Pennsylvania Workers’ Compensation Act (Act).
Since 1993, the Act has prohibited a provider from referring a workers’ compensation patient for laboratory, physical therapy, rehabilitation, chiropractic, radiation oncology, psychometric, home infusion therapy or diagnostic imaging goods or services to an entity if the provider has a financial interest with the person or in the entity that receives the referral. The Department of Labor and Industry issued final regulations in 1995 related to the Act, which included exceptions to these self-referral prohibitions.
The regulatory exceptions provide that all referrals permitted under all present and future safe harbor regulations issued under the federal Anti-Kickback Statute and all present and future exceptions (statutory or regulatory) to the Stark II Legislation are incorporated by reference as exceptions to the self-referral prohibition contained in the Act.
The Three Rivers case dealt with a situation where services were provided by a physician to a workers’ compensation patient in 1994 (after the Act became effective but before the regulations described above were issued). In this case, a physician who is a board certified physiatrist treated a patient who is an employee of Eighty-Four Mining Company. The physician examined the patient and then developed a treatment plan of physical therapy for him. The physical therapy services were provided by a physiotherapist employed by the physician’s professional corporation, Three Rivers Rehabilitation, Inc. The patient received approximately three weeks of physical therapy, then returned to work. Eighty-Four Mining Company refused to pay the bills for the physical therapy treatment, claiming that the physician had initiated an illegal self-referral by referring the services to his own professional corporation.
The physician who treated the patient was the sole owner of his professional corporation. He was also an employee of the professional corporation. As the only physician-employee of the corporation, he supervised all patients treated by the corporation for physical therapy, including those under his care and those referred to Three Rivers by other physicians. All services were provided at the physician’s one office location, and Three Rivers’ billing department handled all of the billing for the corporation, which was performed in the name of the corporation.
When payment was denied, Three Rivers filed an application for fee review under the Act and after several hearings and various appeals the case was presented to the Pennsylvania Supreme Court for a decision on whether the physician had initiated a self-referral prohibited by the Act.
The problem that faced Three Rivers in this case was that the services in question were provided by Three Rivers after the self-referral prohibition became effective but prior to the time that the regulations setting forth exceptions to this prohibition became effective. However, on August 28, 1993, the Department published a notice in the Pennsylvania Bulletin in order to give instructions on the Department’s interpretations of the self-referral prohibition and other portions of the Act (the Notice).
In this Notice, the Department stated that the Department would recognize as exceptions to the Act’s self-referral prohibition all present and future safe harbor regulations under the federal Anti-Kickback Statute and all present and future statutory and regulatory exceptions to the Stark II Legislation. The Department incorporated by reference these federal laws as exceptions to the Act’s self-referral prohibition.
In this case, the Pennsylvania Supreme Court found that Three Rivers squarely fit into the in-office ancillary services exception to the Stark II Legislation (which applies to both ownership interests and compensation arrangements that a physician has with an entity), which the Department incorporated by reference in its Notice dealing with the self-referral prohibition contained in the Act.
The physician prescribed physical therapy and a Three Rivers physiotherapist provided that therapy in the same building in which the physician provided physician services unrelated to physical therapy. Three Rivers, which the physician owned, handled all billing for the services provided by Three Rivers and its employees. Based on the facts, the Pennsylvania Supreme Court believed that the Stark II in-office ancillary services exception was met.
Neither the hearing officer or the Commonwealth Court in the lower level decisions relied on the in-office ancillary services exception in reaching their decisions. In fact, in its decision, the Commonwealth Court stated (without explanation) that, even if the 1995 regulations were to apply retroactively, none of the exceptions to the Act’s self-referral prohibition would apply. The Pennsylvania Supreme Court did not agree with this assertion.
While the 1993 Notice published by the Department was not a regulation, it very clearly expressed that the Notice was an instructive guide as to the interpretation of the self-referral prohibition contained in the Act. The 1995 final regulations are almost identical to the exception contained in the Notice. Three Rivers was aware of the exceptions provided in the Notice and relied on them when providing physical therapy services within its practice. The Pennsylvania Supreme Court held that Three Rivers reasonably expected that the exceptions contained in the Notice would govern its services, at least until the Department adopted final rules.
The 1993 Notice served as a temporary, but appropriate, interpretation of the Act and the Department’s future intentions in this area. Interested parties relied on this Notice for a period of two years until the Department promulgated final regulations. As such, the Pennsylvania Supreme Court held that all physical therapy services prescribed by a physician and furnished by in-office physiotherapists from August 31, 1993 until November 11, 1995, which fell under the exceptions provided in the Department’s 1993 Notice, were excluded from the ban on self-referrals contained in the Act.
While it was not explicit in the decision, it is also important to note that the Pennsylvania Supreme Court in Three Rivers relied only on a Stark II exception in ruling that the referrals were not barred by the prohibitions contained in the Act. The regulatory language technically provides that referrals permitted under present and future safe harbor regulations to the federal Anti-Kickback Statute “and” all present and future exceptions to the Stark II Legislation would not be prohibited by the self-referral prohibition. Based on the Pennsylvania Supreme Court’s ruling in Three Rivers, it appears that one must only meet either a safe harbor regulation or a Stark II exception to satisfy the exception to the Act’s prohibition on self-referrals, but not both.
The Three Rivers case was a very important case for physicians treating workers’ compensation patients in the Commonwealth of Pennsylvania. Many insurance companies had begun to deny claims for appropriate ancillary services based on the holding of the Commonwealth Court in the Three Rivers case.
Since the Commonwealth Court stated that no Stark II exceptions would appear to apply to the arrangements detailed in Three Rivers, insurance companies began to take advantage of this ruling and question claims that in many instances were legitimate and not violative of the Act’s self-referral prohibition (because the in-office ancillary services exception to Stark II would have applied).
Hopefully, the Three Rivers case will clarify the Act’s self-referral prohibition and result in fewer law-abiding arrangements being questioned under the Act.
Michael R. Burke, Esq., is an associate health care attorney with Kalogredis, Tsoules & Sweeney, Ltd., in Wayne, Pa.
