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Summary of CMS Advisory Opinion 2008-02 

June 16, 2008
Written by Joseph Kahn, Reviewed by Claire Turcotte*

The Centers for Medicare and Medicaid Services (CMS) has issued its second advisory opinion of the year, CMS-AO-2008-02, in which CMS addresses whether certain physician ownership in a diagnostic center complies with the rural provider exception set forth in Section 1877(d)(2) of the Social Security Act (commonly referred to as the Stark Law). After reviewing the facts involved in the arrangement, CMS concludes that it does satisfy the rural provider exception, but also cautions that meeting the elements of the exception is an ongoing requirement.

The requestors of the opinion are physicians who are, or intend to become, owners of a diagnostic center (Center) which provides various services, including physician consultations and ancillary services such as clinical laboratory and diagnostic radiology services. Many of the physician owners of the Center have made, and will continue to make, referrals of Medicare patients to the Center for such services.

The requestors certified that all designated health services (DHS) performed at the Center since its inception have been, and will continue to be, furnished outside a Metropolitan Statistical Area (MSA). Additionally, the requestors certified that, on an annual basis, at least 75% of the DHS provided at the Center have been, and will continue to be, furnished to individuals residing outside of a MSA.

In the opinion, CMS cites the requirements of the rural provider exception of the Stark Law. Specifically, (i) the DHS must be furnished in a rural area (defined to mean an area that is not an urban area, which includes areas outside a MSA), and (ii) substantially all (defined to mean not less than 75%) of the DHS must be furnished to individuals residing in a rural area.

After noting that the rural provider exception applies only to ownership or investment interests in DHS entities (and not to compensation arrangements with such entities), CMS completes its analysis by finding that the requestors' ownership in the Center satisfies the rural provider exception of the Stark Law. In an important reminder, however, CMS cautions that the two primary elements of the exception are ongoing requirements. As a result, if the Center ever fails in the future to maintain compliance with either or both requirements, the rural provider exception would no longer apply.

*The Practice Group Leadership would like to thank Advisory Opinions Task Force members Joseph Kahn, Esquire (Nexsen Pruet PLLC, Greensboro, NC) and Claire Turcotte, Esquire (Bricker & Eckler LLP, Cincinnati-Dayton, OH) for drafting and reviewing, respectively, this summary.

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