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CMS Releases Several Stark Law Waivers for Use during the COVID-19 National Emergency

On March 30, 2020, the Centers for Medicare & Medicaid Services (CMS) issued blanket waivers to the Stark Law that permit certain arrangements between physicians and health care providers implemented in response to COVID-19 that would otherwise violate the Stark Law.  The waivers are part of continued efforts by the Department of Health and Human Services (HHS) to increase flexibility and reduce regulatory burden on health care providers during the COVID-19 national emergency and were announced on the same day that the HHS Office of Inspector General (OIG) issued a message announcing that it will work to minimize burdens on providers and encouraging health care organizations that need extensions on OIG deadlines to reach out to their OIG contact.

The waivers, which are numerous and fairly broad, offer health care entities significant flexibility to combat COVID-19 in ways that may have otherwise violated the Stark Law, such as the ability to pay physicians hazard pay and provide personal protective equipment to physicians at a price that is below fair market value (FMV).  Importantly, the waivers only apply to remuneration and referrals related to COVID-19 purposes.  But CMS broadly defines “COVID-19 Purposes” as:

  • Diagnosis or medically necessary treatment of COVID-19 for any individual, whether or not the individual is diagnosed with a confirmed case of COVID-19;
  • Securing the services of physicians and other health care professionals to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID-19, in response to the COVID-19 outbreak in the United States;
  • Ensuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
  • Expanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
  • Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the United States; or
  • Addressing medical practice or business interruption due to the COVID-19 outbreak in the United States in order to maintain the availability of medical care and related services for patients and the community. 

Under this very broad definition, the waivers could apply to remuneration offered or provided to physicians or other health care providers not directly involved in treating or diagnosing COVID-19.  For example, health care systems could use the waivers to provide free telehealth equipment to a physician practice so that physicians can offer telehealth visits to patients who are observing social distancing even if the services are unrelated to COVID-19 (e.g., behavioral health or dermatology services).

The waivers have a retroactive effective date of March 1, 2020, and are effective until the termination of the COVID-19 national emergency declared by President Trump.  There could very well be a need for these waivers to continue after the end of the national emergency in order for hospitals and health care systems to recover from the emergency situation, but CMS issued the waivers under its statutory authority to waive requirements during national emergencies, which, by statute, does not allow the waivers to continue once the national emergency ends. 

Below is an overview of the waivers with examples of ways that health care entities may rely on the waivers to address the nationwide COVID-19 outbreak without violating the Stark Law.

Waivers Related to Payments Above or Below Fair Market Value

A common requirement found in most of the Stark Law exceptions is that the remuneration be consistent with FMV, but CMS issued multiple waivers related to rental charges and remuneration between entities and physicians that are above or below FMV.  These waivers are possibly the most useful as demonstrated by the numerous examples CMS provides of how entities could utilize the waivers. 

Physician Compensation.  CMS issued a waiver allowing an entity to compensate a physician for professional services above or below the FMV for the services.  CMS provides an example of a hospital paying physicians above their previously contracted rate for furnishing professional services for COVID-19 patients in particularly hazardous or challenging environments (i.e., hazard pay).

Rent Paid to a Physician.  CMS is also waiving rental charges paid by an entity to a physician (or an immediate family member of a physician) that are below FMV for the entity’s lease of office space or equipment from the physician or family member.  For example, to accommodate patient surge, a hospital could rent office space or equipment from an independent physician practice at below FMV or at no charge.

Rent Paid by a Physician.  Similarly, CMS issued a waiver for rental charges paid by a physician to an entity that are below FMV for the physician’s lease of office space or equipment.  Under this waiver, a hospital could provide use of medical office space on its campus for below FMV or at no charge to allow physicians to provide services to patient who come to the hospital but do not need inpatient care.

Payment for Items or Services Purchased from a Physician.  Under this waiver, an entity can pay a physician (or a physician’s immediate family member) below FMV for items or services purchased from the physician or family member.  An example provided by CMS includes a hospital’s employed physicians using medical office space and supplies of independent physicians in order to treat patients who are not suspected of exposure to COVID-19 away from their usual medical office space on the campus of the hospital in order to isolate patients suspected of COVID-19 exposure.

Payment for Items or Services Purchased by a Physician.  CMS is also allowing health care entities to charge physicians below FMV for the use of the entities’ premises or for items or services purchased by the physician from the entity.  For example, a hospital could sell personal protective equipment to a physician at below FMV.  Similarly, a health care provider could give free telehealth equipment to a physician practice to facilitate telehealth visits for patients who are observing social distancing or in isolation or quarantine.

Waivers Related to Medical Staff Incidental Benefits and Non-Monetary Compensation

The Stark Law has two similar, longstanding exceptions for modest benefits or gifts provided to physicians – the exceptions for medical staff incidental benefits and for nonmonetary compensation.  Both exceptions place limits on the monetary amount of the benefits or gifts, and these limits are adjusted annually for inflation.  CMS issued two waivers that allow hospitals or other health care entities to provide gifts or benefits that exceed those limits.

Medical Staff Incidental Benefits Waiver.  The exception for medical staff incidental benefits allows hospitals to give members of its medical staff benefits, such as free parking, internet access, or meals, provided that the benefits are offered to all medical staff members, reasonably related to the hospital’s medical services, and the monetary amount of the benefits do not exceed a limit, among other requirements.  For 2020, the limit is $36 per occurrence.  CMS is waiving medical staff incidental benefits that exceed that limit.  So, for example, a hospital can provide meals, changes of clothing, or onsite child care with a value greater than $36 per instance to medical staff physicians who spend long hours at the hospital during the COVID-19 outbreak in the United States.

Nonmonetary Compensation Waiver.  The exception for nonmonetary compensation allows health care entities to give physicians modest gifts and benefits provided that they are not in the form of cash and do not exceed an annual limit.  For 2020, the limit is $423 in the aggregate per year.  CMS is waiving this limit so that entities can provide nonmonetary compensation to a physician in excess of the $423 per year limit, such as continuing medical education related to the COVID-19 outbreak in the United States, supplies, food, or other grocery items, isolation-related needs (for example, hotel rooms and meals), child care, or transportation.

Waivers Related to Loans

Under the waivers, CMS will allow loans between physicians and health care entities with an interest rate below FMV or on terms that unavailable from a lender that is not the position to generate or receive referrals or other health care business. 

CMS provides the example of a hospital that lends money to a physician practice that provides exclusive anesthesia services at the hospital to offset lost income resulting from the cancellation of elective surgeries to ensure capacity for COVID-19 needs.  In another example, CMS states that a hospital could cover a physician’s 15 percent contribution for electronic health records (EHR) items and services that is normally required under the Stark Law exception for EHR items or services in order to continue the physician’s access to patient records and ongoing EHR technology support services. Although it is a less likely scenario, a physician could also lend money to a hospital to assist with operating expenses of the hospital, including staff overtime compensation, related to the COVID-19 outbreak in the United States.

Waivers Related to Physician-Owned Hospitals

The Affordable Care Act introduced a number of limitations on physician-owned hospitals, including changes to the whole hospital exception such that a hospital relying on the exception may not increase the number of operating rooms, procedure rooms, and beds after March 23, 2010 without going through an application and approval process.  In addition, a hospital relying on this exception may not have been converted from an ambulatory surgical center to a hospital on or after March 23, 2010.  Under two waivers, CMS is waiving these two limitations if certain conditions are met.

Relying on these waivers, a physician-owned hospital could temporarily convert observation beds to inpatient beds or otherwise increase its inpatient bed count to accommodate patient surge during the COVID-19 outbreak in the United States.  A physician-owned ambulatory surgical center could potentially enroll as a Medicare-participating hospital in order to provide medically necessary care to patients during the COVID-19 outbreak in the United States.

Waiver Related to Physician Ownership in Home Health Agencies

The Stark Law exception for rural providers permits physician ownership or investment interests in a rural provider, which is defined as an entity that furnishes at least 75 percent of its designated health services to residents in a rural area, among other requirements.  CMS issued a waiver specific to home health agencies that allows a physician to refer Medicare beneficiaries to a home health agency that does not qualify as a rural provider and in which the physician (or an immediate family member of the physician) has an ownership or investment interest.

For example, a physician may refer a Medicare beneficiary to a home health agency owned by his or her family member because there are no other home health agencies with capacity to provide medically necessary home health services to the beneficiary during the COVID-19 outbreak in the United States.  CMS does not provide an explanation for why it is limiting this waiver to home health agencies, but it may be expecting an increase in the demand of home health services as many Americans are under stay-at-home orders and COVID-19 patients are at home in quarantine.

Waivers Related to Group Practices and In-Office Ancillary Services

The Stark Law has a fairly complex exception called the in-office ancillary services exception that allows physicians in qualifying group practices to refer DHS within the group.  The exception imposes a number of supervision, billing, and location requirements.  Under the waivers, CMS is loosening some of the location requirements, including waiving the requirement that the services be furnished in either the same building where the group practice provides professional services or in a centralized building used to provide off-site DHS.  The in-office ancillary services exception also includes a special rule under which physicians whose medical practice consists of treating patients in their private homes satisfies the “same building” requirement if the physician provides the services in the patient’s private home, an assisted living facility, or an independent living facility. Under one of the waivers, CMS is allowing the special rule to apply even if the referring physician’s principal medical practice does not consist of treating patients in their private homes, although this waiver seems unnecessary since CMS is waiving the whole “same building” requirement.

These waivers will allow group practices to furnish MRIs, CT scans, or clinical laboratory services from locations like mobile vans in parking lots that the group practice rents on a part-time basis to beneficiaries who would normally receive the services at a hospital, but who are avoiding the hospital due to concerns about the spread of COVID-19.

Waiver for Referrals to Family Members for Beneficiaries in Rural Areas

CMS also issued a waiver that allows a physician to refer to an entity with which his or her immediate family member has a financial relationship if the patient who is referred resides in a rural area.  For example, a physician could refer a beneficiary who resides in a rural area for physical therapy furnished by a medical practice owned by his or her spouse.  While there may be limited situations where physicians are able to use this waiver, this waiver is very broad and would allow some physicians to engage in some of the exact type of conduct that the Stark Law was designed to prohibit.  

Waiver of the Writing and Signature Requirements

Many Stark Law exceptions require that compensation arrangements be set forth in writing and signed by the parties, but CMS has been relaxing those requirements for the past several years.  In the same vein, CMS issued a waiver for compensation arrangements that do not satisfy the writing or signature requirement(s) of an applicable exception if the arrangements otherwise satisfy all of the requirements of an applicable exception.

This waiver is especially useful in emergency situations where a hospital may engage a physician to provide services, and the physician begins providing services before the arrangement is documented and signed by the parties.  CMS also provides the following examples of arrangements that could rely on this waiver:

  • a physician with in-office surgical capability delivers masks and gloves to the hospital before the purchase arrangement is documented and signed by the parties;
  • a physician establishes an office in a medical office building owned by the hospital and begins treating patients who present at the hospital for health care services but do not need hospital-level care before the lease arrangement is documented and signed by the parties; or
  • the daughter of a physician begins working as the hospital’s paid COVID-19 outbreak coordinator before the arrangement is documented and signed by the parties.

Best Practices for Health Care Providers

Although the waivers do not require providers to submit specific documentation or provide notice to CMS, entities relying on the waivers should contemporaneously document reliance on the waivers and the underlying COVID-19 Purpose for the arrangement.  Entities using the waivers are required to make records relating to the use of the waivers available to HHS upon request.

As described earlier, the waivers terminate immediately once the COVID-19 national emergency is over.  So entities relying on the waivers should ensure that any arrangements (e.g. professional services contracts for compensation above FMV) can be easily terminated on short notice. 

CMS also indicated that it may revise the waivers or issue additional waivers, as needed.  So the health care industry should keep an eye out for more announcements from CMS.  We will continue to monitor future developments and provide updates.

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Theresa advises clients on all aspects of the pharmaceutical supply chain, including counseling industry stakeholders on a range of business, legal, transactional, and compliance matters. She provides clients with strategic counseling and creative business modeling that considers legal restrictions and regulatory risk in light of innovation and business goals.
Rachel Yount is a Mintz attorney who focuses her practice on health care industry transactions. Her clients include hospitals, health systems and plans, physician organizations, and pharmacy benefit managers.