United States: CMS Proposes Exceptions, Revisions And Requests Comments To Ease Stark Law Compliance

Last Updated: September 8 2015
Article by Timothy J. Fry and Gretchen Heinze Townshend

The Centers for Medicare & Medicaid Services (CMS) recently proposed regulatory changes to the Stark Law that may ease certain compliance challenges. The Physician Self-Referral Law, located at 42 U.S.C. § 1395nn, and its regulations at 42 C.F.R. § 411.350 et seq. (commonly known as the Stark Law) prohibit a physician from referring a patient for Medicare- and Medicaid-designated health services (DHS) to an entity where the physician or his or her family has a financial relationship, absent an exception. As CMS reviewed recent cases and self-disclosures involving Stark Law violations, CMS decided changes were needed to clarify and ease provider compliance. A summary of these changes, which are included in the 2016 Physician Fee Schedule Proposed Rule, follows.

  1. New Exception: Non-Physician Recruitment. Currently an exception allows institutional providers − such as hospitals, federally qualified health centers (FQHCs) and rural health clinics (RHCs) − to provide recruitment incentives for a physician to relocate his or her practice to a geographic area served by such institutional provider. CMS proposes to add a similar exception allowing institutional providers to assist physician practices in the recruitment of non-physician practitioners (such as physician assistants and nurse practitioners) to furnish primarily primary care. CMS is seeking comments on whether this exception should require an objective need for primary care in the service area, limits on how many times an institutional provider may use this exception with a single physician, and whether there should be other safeguards in place.

    Under CMS’s proposal, among other proposed requirements, the physician practice will need to employ the non-physician practitioner as a bona fide employee (i.e., not as an independent contractor) for fair market value compensation. The physician practice will not be able to place certain practice restrictions on the non-physician practitioner within the institutional provider’s service area that unreasonably restricts the ability to provide patient case services. CMS also proposes certain restrictions on where the non-physician worked in the preceding three years to avoid institutional provider and physician efforts to “game” this exception by using it as a means to subsidize physician practices. CMS further proposes to allow this compensation be used to recruit only physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives (i.e., no certified registered nurse anesthetists). Finally, CMS intends to cap payments to avoid windfalls to the physician practice at either 50 percent of actual salary, bonus and benefits or such costs subtracted by receipts attributable to the physician and limit duration of such payments to two years.
  2. New Exception: Timeshare Arrangement. Recognizing that physicians in rural areas or those starting new practice locations often seek timeshare arrangements for staff and space until established, CMS proposes a new exception for timeshare arrangements. Unlike the rental of office space exception, CMS does not intend to require a one-year agreement or exclusive use of the space. Instead, CMS proposes to allow timeshares where a hospital or a physician organization is the owner of the facility, provided the facility is not an independent diagnostic treatment facility or a clinical laboratory. CMS proposes to require, among other things: (a) that the space be used predominately to furnish evaluation and management (EM) services (i.e., not primarily for DHS); (b) that equipment be located in the office suite where the EM services take place; (c) that any DHS be incidental to and provided at the same time as the EM services; and (d) that the space not be used for certain advanced imaging services, radiation therapy or clinical or pathology lab services. For the first time, however, if the rules are finalized, nonexclusive arrangements for equipment, space and personnel will be allowed through a timeshare arrangement.
  3. Revisions to Holdover Provisions. Under the personal services arrangement and lease exceptions, CMS currently allows a holdover period (i.e., allowing the exception to continue after the written arrangement expires) on the same terms and conditions for six additional months. CMS is reconsidering this time limit, due to the multitude of unintentional Stark Law violations occurring when arrangements continued following the expiration date. CMS is considering an indefinite holdover period or, at a minimum, extending the holdover period beyond six months. Under either of these approaches, CMS expects the holdover to be on the same terms and conditions as the original agreement (if renegotiated, a new term of at least one year would be required). CMS believes this change will not pose program abuse risk as fair market value payments are required at all times during the holdover period. This means that if a holdover payment grossly exceeded or was grossly under fair market value (perhaps after a particularly long holdover such that fair market value has changed), the compensation would fail to meet the exception. Finally, the holdover period would need to be in writing but, as explained in item 4 below, would not need to be a formal contract; written documentation of factual circumstances showing that the agreement continued (e.g., cashed checks or an email indicating continuation of services) would be sufficient. This is a significant change and, if finalized, may provide significant relief to healthcare providers under the Stark Law.
  4. Revisions to Arrangements Being in Writing. CMS is proposing revisions to the requirement that arrangements be in writing. CMS stated in the proposed rule that providers incorrectly believe they need formal contracts to meet various exceptions, including rental of office space and rental of equipment leases. The exception language in the Stark Law regulations currently requires “agreements” in writing, which CMS proposes to revise to “arrangements” in writing. If the proposal is adopted, pursuant to a factual analysis, providers will be able to show that the arrangement’s terms are fair market value, set in advance and written, but will not need to have a formal contract (i.e., email correspondence may suffice if contemporary and providing sufficient detail). This clarification may give providers comfort that certain physician arrangements meet the Stark Law even if no formal contact in place. Commentary in a final rule may also help clarify the compliance of past arrangements that do not have written contracts.
  5. Revisions to Physician-Owned Hospital Notices/Advertisements. The Affordable Care Act (ACA) mandated that physician-owned hospitals (POHs) disclose their physician ownership on public websites and in public advertising. CMS acknowledges that some POHs may be violating these requirements unintentionally since CMS has provided limited guidance. CMS is proposing certain internet categories that will not be subject to mandatory disclosure, including social media, electronic patient payment portals, electronic patient care portals and electronic health information exchanges. Further, CMS is defining public advertising as any communication paid for by the POH and primarily intended to persuade individuals to seek care at the hospital. This means human resource recruitment, public service announcements and community outreach activities are not advertisements. For public advertisements, CMS proposes that the statement put a reasonable person on notice that the hospital may be a POH, which includes (i) a statement that the POH was founded by, managed by or operated by physicians, or is part of a health network that includes POHs; or (ii) physician ownership that is clearly stated in the hospital’s name (e.g., Doctor’s Hospital at Main Street). For instances where a hospital finds that one of its advertisements does not include this disclosure, CMS proposes that the noncompliance period extend for the period of the advertisement’s predetermined initial circulation (e.g., a monthly magazine would have a one-month initial circulation), and not the length of the time the ad actually sits available for the public’s consumption (e.g., a magazine sitting in a waiting room for months). The clarification helps POHs identify their liability as noncompliant notices would mean a POH’s physician owner could not refer to the POH during this period for DHS without violating the Stark Law.
  6. Revisions to Physician-Owned Hospital Bona Fide Investment Levels. The ACA also added a requirement that POHs could not increase their percentage of physician ownership from a baseline target date amount. CMS had previously stated the baseline and investment-level amounts were based on the percentage owned by referring physicians, not all physicians. CMS recognizes it may be difficult to calculate or determine if a physician was referring patients to the POH on the baseline date and this interpretation may not apply for certain POHs opened within eight months of the ACA’s enactment. CMS now proposes to eliminate the distinction on whether the physicians are referring or non-referring physicians. Recognizing some POHs may have increased their ownership among non-referring physicians since the baseline period, CMS proposes to phase in this change to allow ownership transfers.
  7. Revision to Temporary Noncompliance. CMS previously allowed an exception for a period of temporary noncompliance due to a missing signature. This period was set at 90 days for inadvertently unsigned arrangements and 30 days where the parties knew the agreement was unsigned. CMS is now proposing to standardize this as 90 days regardless of whether the parties knew about the missing signature or not. CMS proposes to keep in place the requirement that this exception be used only once every three years for a physician and that the arrangement meet all other requirements including being set out in writing during this period (i.e., drafted but not signed). This change should simplify compliance for providers.
  8. Revision to Geographic Area for Recruitment Exceptions. CMS previously used its discretion to expand the statutory physician-hospital recruitment exception for FQHCs and RHCs to also make such payments. In doing so, CMS borrowed the geographic service area definition of hospitals for FQHCs and RHCs in the exception’s requirements. The problem, however, is this definition involves inpatients but FQHCs and RHCs serve only outpatients. To rectify this situation, CMS is proposing two alternative approaches to define the FQHC and RHC geographic service area. First, CMS proposes to define the service area as the lowest number of contiguous zip codes where an FQHC or RHC draws at least 90 percent of its patients based on encounters. If this approach is adopted, noncontiguous zip codes may be added, if necessary, to reach this 90 percent number. An alternative approach would be to simply take the lowest number of zip codes, whether contiguous or not, that on an encounter basis constitute 90 percent of the facility’s patients. If this approach is adopted, a facility would add zip codes, in the order of highest to lowest percentage of patients.
  9. Revision to Retention Payments. CMS previously added an opportunity for hospitals, RHCs and FQHCs to make a retention payment to a physician who had a certified bona fide opportunity of employment to move 25 miles away. The policy behind these retention payments was to avoid a situation where physicians received recruitment incentives to relocate to an underserved area and then moved away when those payments ended, necessitating that the institutional provider make more recruitment outlays. CMS intended that these payments could continue indefinitely (provided they met the exception), but the regulatory text suggested that there would be a two-year payment limit. CMS is proposing to revise the regulatory text to be consistent with its intended policy and its preamble language that payments be based on a two-year average, but that they can continue beyond this period.
  10. Revision to Publicly Traded Exception. In the regulations, there is an exception for a physician owning publicly traded securities, including those on the National Association of Security Dealers (NASD) exchange. The NASD no longer exists. CMS is proposing to substitute electronic stock markets and over-the-counter (OTC) securities markets for NASD to modernize these rules, provided certain markers are present to reflect the original purpose to include NASD.
  11. Revision to Volume or Value Standards. CMS sought to draft exceptions that prohibit rewarding for referrals with language consistently referencing the volume or value of referrals or other business-generated standard. CMS noted in its proposed rule that in exceptions such as physician recruitment, medical staff benefits, obstetric malpractice subsidies and professional courtesy, CMS used inconsistent terminology. Since CMS meant for all exceptions to use the same terms, it is proposing to update the language without changing the substance.
  12. Revisions to Certain Definitions. CMS also proposes certain changes to regulatory definitions to improve clarity and ensure the proper application of the Stark Law. For example, the regulatory definition of “remuneration” suggests only one of six potential uses of an item, device or supply would not be remuneration. CMS always intended this to mean any of those six, including all six, would be excluded from the meaning of remuneration. Furthermore, in response to the Kosenske decision in the 3rd Circuit, CMS clarified that remuneration is not supposed to include a physician’s use of a hospital space to provide professional services to a patient where that hospital bills for facility fees separately. A globally billed service may constitute Stark Law remuneration, however. CMS also proposed changes to the “stand in the shoes” standard so that all physicians of a group count in the volume or value standard, even though only owners and voluntary members actually stand in the shoes. This change is likely to receive numerous comments and is subject to further change. Finally, CMS proposes minor changes to the locum tenens physician definition.
  13. Solicitation of Comments on Alternative Payment Methods. CMS closed its proposed changes to the Stark Law with a request for comments on the Stark Law’s impact on alternative payment methods and gainsharing. As CMS noted, the shift to value-based purchasing and bundle payments implicates the Stark Law’s requirement that payment between DHS entities and referring physicians be segregated. Outside of narrow waivers granted in the Medicare Shared Savings Program and Center for Medicare and Medicaid Innovation waivers, the Stark Law prohibits certain relationships that may help foster clinical and financial integration. In this year’s Medicare Access and Chip Reauthorization Act of 2015, Congress required two reports examining these issues. To aid its efforts, CMS is asking the public to comment on ways the Stark Law hinders such gainsharing, quality and value-based purchasing schemes.

On the whole, these revisions suggest CMS wants to ease the burden of Stark Law compliance on providers. CMS noted throughout its proposed rule that it has received self-disclosures and other reports of violations that it does not believe pose fraud or abuse risks to Medicare or that do not represent actual violations of the Stark Law. Many of these proposals will be welcome by the provider community and may reduce the number of Stark Law procedural violations. That said, providers will continue to be challenged by these laws. They now face new guidance to digest, and may want to request additional changes from CMS either in response to these proposals or in advisory opinions. Such requests may find a positive response as CMS appears willing in this proposed rule to clarify the Stark Law to focus on fraud and abuse concerns while reducing provider burdens.

The public may comment on these proposals until September 8, 2015. The authors of this Legal Alert will be happy to speak with any provider seeking to submit such a comment letter.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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