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CMS Eases Regulatory Burdens and Creates New Exceptions in “Phase V” of the Stark Regulations

On November 16, 2015, the Centers for Medicare and Medicaid Services (“CMS”) published the most significant changes to the physician self-referral law ("Stark Law" or "Stark") regulations since 2008. Because this rulemaking is the fifth substantive rulemaking under the Stark Law amendments of 1993, it will likely become known as Stark Phase V.  This rule, which is part of a larger package of annual regulatory adjustments to the Medicare Physician Fee Schedule, contains important changes that clarify or ease the burden of existing exceptions, solicits comments on new exceptions in light of health care reform, and introduces two new exceptions.

For a more detailed analysis of the impact of these changes, please see our Client Alert.

1. Easing of Regulatory Burdens

With Phase V, CMS seeks to reduce a number of regulatory compliance burdens that have plagued Stark.

Writing Requirement

CMS concluded that there is substantial uncertainty in the provider community as to what exactly is required by the writing requirement that is found in a number of Stark exceptions. In particular, CMS is often asked whether an agreement must be reduced to a single formal contract. Phase V clarifies that a single formal written contract is not required and that contemporaneous documents evidencing the course of conduct between the parties may be sufficient to satisfy the writing requirement. CMS has revised the wording of various exceptions to clarify this position, by, for example, substituting the word "arrangement" with "agreement."

Length of Term

A number of Stark exceptions require that the duration of the arrangement in question be at least 1 year. CMS concluded that there is confusion as to how to meet this requirement. Phase V clarifies that a formal agreement specifying a 1 year term is not necessary. Rather, an arrangement that lasts as a matter of fact for at least 1 year will be sufficient.

Holdover Arrangements

The rental of office space, rental of equipment, and personal service arrangements exceptions have historically permitted "holdover" arrangements for up to six months after the expiration of an arrangement, provided that certain criteria are met. CMS chose to address the treatment of holdover arrangements in response to numerous submissions under the Self-Referral Disclosure Protocol of rentals and personal service arrangements that failed to satisfy an exception solely because the parties continued the arrangement after the six month holdover period. In Phase V, CMS revises these exceptions and other exceptions to include an indefinite holdover period.

Temporary Non-Compliance with Signatures

Existing Stark regulations include a special provision to permit arrangements involving temporary noncompliance with an exception's signature requirements. The regulations require an analysis of whether the reason for noncompliance is inadvertent: if so, parties have up to 90 days to obtain signatures; if not inadvertent, the parties only have 30 days. Phase V eliminates this distinction and instead applies a blanket 90 day window to obtain the necessary signatures in all cases. CMS also clarifies that it does not expect every document in a collection of documents to bear the signature of one or both parties.

Definition of Remuneration

The Stark Law creates a specific "carve out" from the definition of "remuneration" (i.e., things that are not remuneration) for items, devices, or supplies that are "used solely" to collect, transport, process, or store specimens for the entity providing the items, devices, or supplies, or to order or communicate the results of tests or procedures for such entity. With the disjunctive “or”, there has been confusion, particularly with laboratory and pathology providers and their customers, as to whether the exception applies if an arrangement involves one or more of these specified uses, but no other purpose.  CMS reiterated its existing policy that as long as the arrangement is used for “one or more” of these statutorily exempt purposes, but solely for these purposes, the exception still applies. Phase V also clarifies potential confusion regarding so-called "split bill" arrangements where a physician makes use of a provider’s resources (e.g., exam rooms, supplies) to treat the entity's patients, but bills for his own professional services, with the entity billing its technical fee.  In the commentary to Phase V, CMS clarifies that it does not believe that such an arrangement involves remuneration between the parties because no benefit is given to either party.

Stand-in-the-Shoes (“SITS”)

Phase IV of Stark limited the SITS doctrine so that only physicians with an ownership or investment interest in their physician organization ("PO") (aside from physicians with mere titular ownership or investment interests) were deemed to stand in the shoes of their PO. (Physicians without an ownership interest can voluntarily elect to stand in the shoes of their PO for purposes of determining compliance with the Stark Law.) Stakeholders have inquired to CMS whether, when applying SITS to the Stark exceptions, the only “parties” to consider are the physicians with ownership or investment interests in the POs, and not all physicians. That is, does the referral analysis apply only to the narrow group of physicians to which SITS is deemed to apply?  Phase V clarifies that CMS did not intend for Phase IV to narrow the scope of referrals and other business generated when SITS applies. However CMS does acknowledge that only physicians to which SITS applies are considered parties to the arrangement for the purposes of the signature requirements of the applicable exceptions.

Locum tenens

Phase V revises the definition of “locum tenens” to remove the definition's use of the phrase “stand in the shoes,” in order to eliminate confusion with the entirely distinct stand in the shoes doctrine, discussed above.

2. Solicitation of Comments on Potential New Exceptions to Better Encourage Stakeholder Participation in Health Care Reform Initiatives

In its Final Rule, CMS acknowledged the rapidly changing landscape of health care reimbursement. These changes are due in no small part to alternative payment models ushered in by the federal government, such as the Medicare Shared Savings Program for accountable care organizations (“ACOs”), and other care delivery and payment models sponsored by the Center for Medicare and Medicaid Innovation. These initiatives, and the integration that they require between health care entities, such as hospitals and physicians, trigger concerns that participation in such initiatives could run afoul of existing fraud and abuse laws. To mitigate these fears, and encourage ACO participation in the MSSP, CMS and the Office of Inspector General released a final rule on October 29, 2015, updating the 2011 MSSP waivers in certain circumstances.  These waivers, however, do not apply to the many other CMMI initiatives by CMS. Further, providers may be in a precarious situation when participating in, for example, an ACO run by a private payor. This is because, in CMS’s view, the financial arrangements between the parties that result from participation in these models must satisfy the requirements of an applicable Stark exception to avoid Stark’s referral and billing prohibition for Medicare beneficiaries. Since the waivers do not apply outside of the MSSP, providers are left in an awkward situation where they are participating in a non-federal program while at the same time facing exposure under federal fraud and abuse laws, all without the protections afforded to the similar federal programs.  In the commentary to Phase V, CMS indicates that it continues to analyze these issues. CMS also discusses its future role in issuing two separate reports related to fraud and abuse and gainsharing laws.

3. New Exception for Timeshare Arrangements

Phase V addresses the issue of timeshare arrangements through the creation of a new exception. Under a timeshare arrangement, a hospital or other provider may, for example, request the assistance of a specialist on a limited or as-needed basis. In such cases, the specialist will be provided with such space and equipment to enable the specialist to provide services. Since these arrangements do not provide for exclusive use, in CMS’s view they cannot satisfy the exclusive use requirement of the rental of office space exception. Phase V provides a new exception for such timeshare arrangements. In addition to requirements commonly found in other Stark exceptions (e.g., writing requirement, compensation set in advance, etc), the exception contains some notable limitations. First, it is only available to timeshare arrangements between certain physicians, POs and hospitals. Second, and perhaps most limiting, the timeshare arrangement must be predominantly for the provision of E&M services to patients. Consequently, the exception may not be available to protect arrangements that include a large number of referrals for designated health services.

4. New Exception for Assistance to Compensate Nonphysician Practitioners

CMS uses Phase V to help address the growing shortage of primary care and mental health professionals by creating an exception for compensation paid to nonphysician practitioners. This exception will allow hospitals, federally qualified health care centers (“FQHCs”) and rural health clinics (“RHCs”) to provide remuneration to physicians in order to assist the physicians in compensating NPPs. The exception contains typical requirements found in other exceptions, including  requirements that the arrangement be in a signed writing, and that the compensation be fair market value, and not conditioned on or take into account referrals or other business generated between these parties. Importantly, the exception is limited to situations where “substantially all” of the NPPs services are for primary care services or mental health care services. CMS also places restrictions on the total amount and duration of the remuneration. Finally, the NPP may not have, within one year of the commencement of the compensation arrangement, practiced in the geographic area.

5. Clarification and Language Clean-Up

CMS uses Phase V to address several areas of Stark that require clarification or clean up in the regulatory text. These changes include:

  1. The Term "Takes Into Account". A number of Stark’s statutory exceptions include a requirement that the arrangement not “take into account” the volume or value of the physician’s referrals or other business generated.  However, the phrase “take into account” is not used consistently in the regulatory exceptions, with some exceptions using words such as: “based on” or “without regard to” instead of “takes into account.” CMS stated in Phase V that it reviewed four exceptions with the volume or value standard and revised them so that they contain the same “takes into account” language.  CMS explicitly declined to define “takes into account.”
  2. Retention Payments. Phase V clarifies that the cap placed on payments by a hospital, FQHC or RHC to retain a physician on their medical staff must be based on the physician's annual income averaged over the previous 24 months.
  3. Geographic Area Served by FQHC and RHC. Phase III added FQHCs and RHCs to the list of entities that could pay physicians to induce them to move their practices into their geographic area in order to become a member of their medical staff. Phase V clarifies how the geographical area of FQHCs and RHCs is calculated for purposes of complying with the exception.
  4. Publicly Traded Securities. Phase V adds a new catch all category of securities to the list of securities that are protected under the publicly-traded securities exception.
  5. Physician-Owned Hospitals. The Affordable Care Act placed restrictions on the ability of physician-owned hospitals to take advantage of Stark's rural provider or hospital ownership exceptions by requiring certain public disclosure and public advertising requirements as well as a cap on physician ownership and investment. Phase V clarifies what CMS will consider "public advertising." It also clarifies that the calculation of the cap on ownership and investment interests must include direct and indirect ownership and investment interests held by any individuals satisfying Stark's definition of "physician", regardless of whether or not they refer to the hospital.

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Author

Thomas S. Crane is a nationally recognized attorney who defends health care clients against anti-kickback, Stark Law, false claims, and whistleblower allegations. Tom’s work at Mintz includes litigation, internal investigations, and advising clients on corporate integrity agreements and disclosures.