Ramifications of Obama’s Proposed Budget on Medical Practices

You may believe you are on top of all the most recent changes in healthcare if you are prepared for the changes to HIPAA, healthcare reform, meaningful use, and even the financial effects of the sequester. However, there are still more potential changes in the law that could soon affect physician practices, of which everyone should be aware.

Last week President Obama’s proposed 2014 federal budget was released. Somewhat unexpectedly, the budget proposes changes to the law that will affect the day-to-day operations of many practices providing in-office ancillary services. At a time when physicians are doing all they can to make ends meet while providing quality medical care, any restriction on the use of ancillary services in-office may have an immediate and substantive effect not only on patient care, but also on practice revenues.

Currently, physicians can provide a variety of ancillary services to their practice patients; commonly, X-rays, CAT scans, MRI testing, outpatient drugs, laboratory services, and/or physical therapy services. Referrals of Medicare or Medicaid patients for these ancillary services must comply with the federal Stark Law. To comply with Stark, physicians generally must structure their practice and the provision of ancillary services to meet Stark’s “In-Office Ancillary Services” exception. While the particular details of this exception are beyond the scope of this blog, it requires physicians to meet a laundry list of contractual and operational requirements specifically designed to minimize inappropriate referrals purely for the physician’s financial gain, and thereby decreasing the cost of such services to the federal government (i.e., the fewer services provided, the fewer tests billed and reimbursed). Many states have enacted laws similar to Stark for the referral of non-federal healthcare patients as well.

In keeping with the desire to minimize federal healthcare expenditures, the 2014 budget proposes to drastically minimize use of the In-Office Ancillary Services exception by further restricting most of the common in-office ancillary services and procedures. If adopted, physicians would no longer be able to provide radiation therapy, non-radiation therapy, or advanced imaging services simply by structuring such services to comply with Stark. In order to provide in-office ancillary services, physicians would also be required to meet clearly defined “accountability standards” to be determined by the Secretary of the Health and Human Services in the future. Additionally, the budget seeks to decrease payment to physicians for drugs administered in-office and payable by Medicare Part B by 3 percent. The government estimates that these proposals together will save 10.6 billion dollars over the next ten years.

Whether such changes in reality will lead to even a fraction of the estimated savings remains to be seen (and likely will be the subject of heated debate). However, there is no doubt such changes will have a significant effect on many physician practice’s day-to-day operations. Moreover, it is difficult to imagine “accountability standards” that are even more stringent than the already existing Stark requirements, and any additional administrative burdens certainly will affect both the time and finances of already strained practices.

All we can do at this point is await the final outcome and hope that those that represent physician interests can help avoid a result that is harmful to physician practices. The business of practicing medicine is becoming a challenge in this country, and this is yet another potential change that could require every physician to reevaluate the legal structure of their medical practice and to find alternative revenue sources. If you believe these proposed regulations might affect your practice, talk with legal counsel now so you can be prepared should the proposals become reality.