A provision to California's workers' comp reform law that would add outpatient surgery to the list of baby Stark services may have far-reaching implications on physician ownership of surgical facilities. As you know, the legislation's major thrust was to cap worker's comp facility fees at 120 percent of what Medicare pays for the same procedures performed in a hospital outpatient department. A much less discussed but perhaps more worrisome part of the overhaul is a provision that would prohibit physicians from doing workers' comp cases at ASCs in which they have an ownership interest. If other states take notice, this could set a bad precedent.

On the federal level, the Stark law prohibits physicians from referring patients for certain designated health services that are reimbursed by Medicare to an entity in which the referring physicians have a financial relationship. Stark doesn't generally apply to ASCs because surgical procedures are not included in "designated health services."

But California, like most other states, has had on the books for some time what is affectionately known as a state baby Stark, adopted to prevent arrangements that would otherwise violate the federal Stark law, but in which the physicians avoided Stark violations by referring only non-Medicare patients.

California actually has two baby Stark laws: a general one and one that applies only to services reimbursed under the state workers' comp program. Before last month's law change, the California workers' comp baby Stark applied to the services most states included in their baby Starks - such as clinical lab, physician therapy and diagnostic imaging - but not to outpatient surgery services. The old law prohibited physicians from making referrals for these services if the physician or an immediate family member had a financial relationship with the entity to which the physician was referring, effectively eliminating physician ownership in the aforementioned services if the physician wanted to serve workers' comp patients.

The quick fix
With California's workers' comp program in crisis, the state legislature set out to repair it. As part of the new law, ASCs' fee reimbursement for outpatient surgery is capped at 120 percent of the fees paid by Medicare for the same procedures performed in a hospital outpatient department. The law also mandates a program for adopting a medical treatment utilization schedule. As if these measures weren't enough, the law added outpatient surgery to the list of healthcare services to which a physician cannot make referrals if he has a financial interest with the entity. The good news is that there is a significant exception: The prohibition doesn't apply if the referring physician obtains a service pre-authorization from the insurer or the self-insured employer after disclosing the financial interest.

Potential impact
While there's no reason to believe payers won't authorize outpatient surgery services, it hasn't been clearly established that workers' comp payers will pre-authorize services once informed of a physician's ownership in an ASC. If payers shy away from giving approval, this law will then be tantamount to a prohibition on ASC ownership by physicians - and if that's the case, the reasoning may then become that physician ownership may as well be banned outright. If California's workers' comp program begins to mend in the next couple years, states with similar problems may follow suit, using California's law as a template. The final law wasn't nearly as bad as the ASC industry had initially feared, but we must remain vigilant. California has often been an incubator for national legal trends, and the industry must monitor any developments there to prevent the line of the law from moving any closer to prohibition on physician ownership of ASCs.