United States: CMS Finalizes Significant Stark Law Rulemaking

In July of this year, the US Department of Health & Human Services (HHS), Centers for Medicare & Medicaid Services (CMS) proposed significant changes to the regulations implementing the federal physician self referral law (Stark Law). (Dentons published an alert on this proposed rulemaking on July 9, 2015.) On October 30, 2015, CMS issued a final rule adopting the vast majority of these proposed changes. The most prominent of these new rules are summarized below. This Final Rule with comment period is expected to be published in the Federal Register on November 16, 2015. Stakeholders have until December 29, 2015 to submit comments.

New exception—assistance to employ non-physician practitioners

The Final Rule creates a new Stark Law exception that, under certain conditions, will permit payments to physicians by hospitals, Federally Qualified Health Centers (FQHCs) or Rural Health Clinics (RHCs) for the purpose of compensating non-physician practitioners. According to CMS, the new exception will address "[s]ignificant changes in our health care delivery and payment systems, as well as alarming trends in the primary care workforce shortage projections." The exception will permit hospitals, FQHCs and RHCs to provide remuneration to a physician or physician group to assist with recruiting, employing and contracting with certain non-physician practitioners (specifically, physician assistants, nurse practitioners, clinical nurse specialists, certified nurse midwives, clinical social workers and clinical psychologists).

In order to qualify for the exception, the arrangement must be for the expansion of access to mental health care services or "primary care services," which CMS defines as services falling in the general family practice, general internal medicine, pediatrics, geriatrics, obstetrics or gynecology categories. In addition, the new exception requires, among other things:

  1. a minimum amount of primary care or mental health care services furnished to patients of the physician's practice by the non-physician practitioners,
  2. caps on the amount and duration of remuneration that may be furnished,
  3. restrictions on providing assistance if the non-physician practitioner has practiced in the geographic service area served by the hospital, FQHC or RHC within one year prior to becoming employed by the physician, and
  4. other safeguards consistent with other Stark Law direct compensation exceptions.

New exception—timeshare arrangements

In the preamble to the Final Rule, CMS notes that it is aware of arrangements that involve the use of premises, equipment, personnel, items, supplies or services by physicians who, for various legitimate reasons, do not require or are not interested in a traditional office space lease arrangement. For example, a hospital or local physician practice may ask a specialist from a neighboring community to provide services in space owned by the hospital or practice on a limited or as-needed basis. The space typically is fully furnished and operational and the physician does not need to make any improvements to the space or to bring any medical or office supplies to begin seeing patients. According to CMS, these so-called "timeshare arrangements" do not "transfer dominion and control over the premises, equipment, personnel, items, supplies, and services of their owner, but rather confer[] a privilege to use (during specified periods of time) the premises, equipment, personnel, items, supplies, and services that are the subject of the arrangement."

Because such arrangements may not qualify for protection under any combination of existing Stark Law exceptions (such as those for space, equipment and personal services)—and because such arrangements often are "necessary to ensure adequate access to needed specialty care (especially in rural and underserved areas)"—CMS finalized its proposal for a new exception to protect such arrangements. Among other things, in order to be protected under the new exception:

  1. the arrangement must be set out in writing, signed by the parties, and specify the premises, equipment, personnel, items, supplies and services covered by the arrangement,
  2. the arrangement must be between (a) a hospital or physician organization (licensor) and (b) a physician or the physician organization in whose shoes the physician stands (licensee) for the use of the licensor's premises, equipment, personnel, items, supplies, or services,
  3. the "licensed premises, equipment, personnel, items, supplies, and services [must be] used predominantly to furnish evaluation and management services to patients of the licensee,"
  4. the arrangement must not be "conditioned on the licensee's referral of patients to the licensor," and
  5. the compensation over the term of the arrangement must be "set in advance, consistent with fair market value, and not determined in a manner that takes into account (directly or indirectly) the volume or value of referrals or other business generated between the parties."

To the extent the arrangement involves the use of equipment, the new exception also requires that the equipment at issue:

  1. be located in the same building where the physician performs evaluation and management (E/M) services,
  2. be used only to furnish designated health services (DHS) that are incidental to the physician's E/M services and furnished at the time of such E/M services, and
  3. not be advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform Clinical Laboratory Improvement Amendments (CLIA)-waived laboratory tests).

The new exception is not intended to affect other arrangements that parties may have in place that are styled as "timeshare" arrangements but otherwise comply with existing Stark Law exceptions (e.g., a timeshare space lease arrangement that provides for exclusive use and has a term of at least one year). As CMS notes, the timeshare exception "establishes another—not a replacement—exception for parties to a timeshare arrangement." Indeed, the new timeshare exception relaxes requirements present in other exceptions, such as the one-year term and exclusive use requirements of the space rental exception. CMS indicates that this added flexibility will "ensure adequate access to needed health care services" that are "structured in a way that does not pose a risk of program or patient abuse."

Finally, and notably, the new exception prohibits certain types of per-unit of service compensation under timeshare arrangements (e.g., percentage of revenue formulas and certain per unit of service fees) but permits others (e.g., flat fees, time-based formulas and "usage" fees that are not tied to patient referrals). CMS does not specify minimum time-based units (e.g., per hour, per day and the like). CMS only briefly addresses the recently issued decision by the US Court of Appeals for the District of Columbia Circuit, Council for Urological Interests v. Burwell. In that case, the majority held that the explanation offered by HHS for prohibiting per-click equipment leases was based on an unreasonable interpretation of the Stark Law. According to CMS, however, the DC Circuit court did not hold that the Stark Law's legislative history "requires us to allow per-click arrangements; to the contrary, the Court upheld our authority to prohibit per-click arrangements where we determine that such a prohibition is necessary to protect against program or patient abuse." According to CMS, it employed "that authority here to ensure that the new exception will not pose a risk of program or patient abuse."

Takes into account

Many Stark Law exceptions have so-called "volume or value" requirements. In some cases, the requirement is that the compensation at issue cannot "take into account" the volume or value of patient referrals. In other cases, the exception provides that the compensation cannot be "based on"—or must be "without regard to"—the volume or value of referrals. In the preamble to the Final Rule, CMS notes that "[d]espite [its] uniform interpretation of the volume or value standard, the phrase 'takes into account' is not used consistently in the exceptions... [raising concern] that the use of different phrases pertaining to the volume or value of referrals...may cause some to conclude incorrectly that there are different volume or value standards in the compensation exceptions." The Final Rule amends the Stark Law regulations to uniformly utilize the "take into account" language.

"Agreement" v. "writing"

In the Final Rule, CMS clarifies that the writing required in many of the Stark Law exceptions can be a collection of documents, as opposed to a single, formal contract. Toward this end, the Final Rule removes the term "agreement" from virtually every exception in which it appears. In making this change, CMS clarifies that parties need not reduce the key terms of an arrangement to a single formal contract to satisfy the writing requirement of the relevant exceptions, and the agency offers a non-exhaustive list of examples of documents that might, individually or in combination evidence the writing requirement, including:

  • board meeting minutes or other documents authorizing payments for specified services;
  • written communication between the parties, including hard copy and electronic communication;
  • fee schedules for specified services;
  • check requests or invoices identifying items or services provided, relevant dates and/or rate of compensation;
  • time sheets documenting services performed;
  • call coverage schedules or similar documents providing dates of services to be provided;
  • accounts payable or receivable records documenting the date and rate of payment and the reason for payment; and
  • checks issued for items, services or rent.

CMS notes, however, that the relevant writing or writings must be contemporaneous to evidence the writing requirement and the signature requirement must be satisfied.

Finally, CMS addresses questions raised by commenters regarding whether, and the extent to which, parties may rely on state law contract principles in determining Stark Law compliance. At bottom, CMS explains that "what determines compliance with the writing requirement of the physician self-referral law is not whether the writings form a valid and enforceable contract under State law, but rather whether the contemporaneous writings would permit a reasonable person to verify that the arrangement complied with an applicable exception at the time a referral is made."

One-year term

Many Stark Law exceptions require that the arrangement at issue have a term of at least one year. According to CMS, some stakeholders have concluded that "a formal written contract or other document with an explicit provision identifying the term of the arrangement" is necessary to satisfy this requirement. In the Final Rule's preamble, CMS states that "[a]n arrangement that lasts as a matter of fact for at least [one] year satisfies this requirement" and a "formal contract or other document with an explicit 'term' provision is generally not necessary to satisfy this element of the exception." However, the parties must at a minimum (1) have contemporaneous writings establishing that the arrangement lasted for at least one year, or (2) be able to demonstrate that the arrangement was terminated during the first year and that the parties did not enter into a new arrangement for the same space, equipment or services during the first year.

Holdover arrangements

Several Stark Law regulatory exceptions permit a "holdover" arrangement for up to six months if the arrangement (1) has a term of at least one year, (2) satisfies the requirements of the exception when it expires and (3) continues on the same terms and conditions after its stated expiration. Under the Final Rule, these exceptions are amended to permit indefinite holdovers as long as:

  • the arrangement complies with the applicable exception when the arrangement expires by its own terms;
  • the holdover is on the same terms and conditions as the immediately preceding arrangement; and
  • the holdover continues to satisfy the requirements of the applicable exception (including that compensation be consistent with fair market value).

Relatedly, the Final Rule revises the Stark Law's fair market value exception to remove the limitation that only arrangements for less than one year may be renewed any number of times. Now, arrangements of any timeframe, including arrangements for more than one year, may be renewed any number of times. This amendment, however, does not change the rules applicable to the amendment of arrangements, or to the frequency with which compensation terms may be changed.

"Stand in the shoes"

In the Final Rule, CMS clarifies that only physicians who stand in the shoes of their physician organization are considered parties to an arrangement for the purposes of the signature requirements of the exceptions. In other words, employees and independent contractors would generally not be parties to a physician organization's arrangements unless they voluntarily stand in the shoes of the physician organization. CMS states that it considers "a physician who is standing in the shoes of his or her physician organization to have satisfied the signature requirement of an applicable exception when the authorized signatory of the physician organization has signed the writing evidencing the arrangement."

For purposes other than satisfying signature requirements, the agency remains concerned "about the referrals of all physicians who are part of a physician organization that has a compensation arrangement with a DHS entity" when analyzing "whether the compensation between the DHS entity and the physician organization takes into account the volume or value of referrals or other business generated between the parties." The Final Rule clarifies that compensation paid to a physician organization cannot take into account the referrals of any physician in the physician organization, not just a physician who stands in the shoes of the physician organization (i.e., referrals of non-physician owners are relevant to determining whether the direct compensation arrangement between a physician-owner and DHS entity qualifies for protection under a Stark Law regulatory exception).

Temporary noncompliance with signature requirements

Under the current Stark Law regulations, if the failure to comply with the signature requirement of an exception is "inadvertent," the parties must obtain the required signature(s) within 90 days; otherwise, the parties must obtain the required signature(s) within 30 days. Recognizing that "it is not uncommon for parties who are aware of a missing signature to take up to 90 days to obtain all required signatures," CMS finalized its proposal to allow parties 90 days to obtain the required signatures, regardless of whether the failure to obtain the signature(s) was inadvertent.

Split billing arrangements—Kosenske

In the preamble, CMS notes that in "split bill" arrangements:

  • a physician makes use of a hospital's resources (e.g., "examination rooms, nursing personnel, and supplies") when treating hospital patients,
  • the hospital bills the appropriate payor for these resources, and
  • the physician bills the payor "for his or her professional fees only."

To address concerns that, under these circumstances, the hospital has provided remuneration to the physician—concerns raised in United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d Cir. 2009) —CMS states that it does "not believe that such an arrangement involves remuneration between the parties, because the physician and the DHS entity do not provide items, services, or other benefits to one another." "Rather," the agency continues, "the physician provides services to the patient and bills the payor for his or her services, and the DHS entity provides its resources and services to the patient and bills the payor for the resources and services." Thus, "[t]here is no remuneration between the parties for purposes of the [Stark Law]."

Stark Law and value-based purchasing

In its proposed rule, CMS solicited comments on a wide range of topics relating to the same basic dilemma: how to implement a 25 year-old law that was built to address abuses arising in a predominantly fee-for-service world when both government and commercial payers are rapidly transitioning to some form of value-based purchasing. In response, stakeholders submitted comments explaining how the Stark Law may prohibit or impede financial relationships necessary to achieve the clinical and financial integration required for successful health care delivery and payment reform. In the Final Rule, CMS noted that it will carefully consider these comments as it prepares its statutorily mandated reports to Congress.

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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