CMS further delayed implementation of a controversial portion of the Phase I final rule etermining when compensation will be deemed “set in advance” until January 7, 2004. This and previous delays came in response to provider concerns that the provision would require renegotiation of thousands of contracts involving academic medical centers, physician practices, hospitals and other organizations with their affiliated providers.

The delayed portion of the final rule provides that compensation methods using formulas that take into account fluctuating or indeterminant measures – such as percentages of collections – are not set in advance as required for exceptions under the Stark law and final rule. In addition to the burden associated with negotiating new contracts, those challenging the provision noted that it would make illegal arrangements that are allowed in other settings and organizations relying on other Stark law exceptions that do not incorporate the set-in-advance requirement. Other settings include hospital employment and academic medical center contexts, where organizations typically rely on different Stark law exceptions that include a requirement that compensation must be set in advance.

In particular, the Stark law’s in-office ancillary services exception does not impose a set-in-advance requirement.