CMS Proposes New Stark Law Regulations and Seeks Provider Comment

08.03.2015

In July 2015, the Centers for Medicare and Medicaid Services (CMS) released the Medicare Physician Fee Schedule for 2016, which includes proposed revisions to the regulations interpreting the Stark Law.  If finalized, these proposed changes will affect existing provider contracts and other financial arrangements with physicians.  Comments about the new regulations can be submitted to CMS through September 8, 2015.  The proposed regulations appear to relax some of the more technical requirements of the Stark Law and update the 25-year-old statute to address the changing healthcare environment.

Background

The Stark Law is a strict liability statute.  The stakes are high and the consequences devastating for providers deemed to have violated its provisions.  For example, the Fourth Circuit Court of Appeals recently upheld a $237 million judgment against a hospital in South Carolina found to have violated Stark’s physician compensation rules.  In his concurring opinion, Circuit Court Judge James Andrew Wynn, Jr. lamented the difficulties providers face in understanding and complying with the statute, noting that the consequence of Stark’s “ impenetrably complex set of laws and regulations” in the Tuomey case will be  “a likely death sentence for a community hospital in an already medically underserved area.”  U.S. ex rel. Drakeford v. Tuomey Healthcare Systems Inc., 2015 WL 4036166 at * 19 (4th Cir. July 2, 2015).

Further complicating compliance is the fact that the Affordable Care Act, now in its fifth year, emphasizes a healthcare delivery system centered on value-based purchasing and clinical and financial integration, while Stark’s prohibitions were designed for a fee-for-service system.

The New Regulations

The proposed regulations include two new exceptions to the prohibition on self-referrals and a variety of provisions which attempt to clarify existing regulations.

New Exceptions

One proposed regulation will allow providers to enter recruitment agreements with non-physician practitioners, as long as certain requirements are met. This exception is designed to address the growing demand for primary care services in underserved areas as more people become insured through the Affordable Care Act.  Another new exception legitimizes physician-hospital “timeshare” arrangements to allow the shared use of office space, equipment, personnel, and other supplies for medical services that benefit underserved or rural areas.

Clarifications

Perhaps in an effort to reduce the number of self-disclosure submissions it receives, CMS has suggested the following clarifications to the Stark Law’s writing requirements:

1. Providers can satisfy the “in writing” condition for physician arrangements through a collection of documents rather than single, formal contract.

2. The writing need not contain an explicit “term” provision if the arrangement lasts at least a year and is otherwise compliant with the regulations.

3. Holdover agreements—e.g. expired leases and personal service agreements—can continue on same terms beyond the currently allowable six months.

4. Parties have 90 days to obtain signatures on their written agreements, regardless of whether failure to do so was advertent or inadvertent (prior regulations established a shorter window for intentional noncompliance).

5. The “stand in the shoes” signature requirement is satisfied when the document is signed by the physician organization itself, or by any physician who stands in the shoes of physician organization.  The employees and independent contractors of physician organization are parties to the organization’s arrangements only if they voluntarily stand in the shoes of the organization.

The proposed regulations also clarify the definition of several terms used throughout the Stark Law and regulations.

1. The definition of “remuneration” was revised to specifically exclude items, devices or supplies used solely for one or more of the following reasons:   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.

2. The definition of “geographic area” was revised to capture the areas where patients of  federally qualified health centers (FQHCs) or rural health clinics (RHCs)  actually live.

3. The regulations were revised to uniformly use “takes into account” instead of “based on” or “without regard to” when discussing volume and value with respect to referral arrangements.

Finally, the proposed regulations:

1. Clarify that physician retention payments are to be calculated based on the physician’s annual income calculated over the past 24 months.

2. Specify how physician owned hospitals can meet applicable disclosure requirements.

3. Stipulate that a determination of bona fide investment levels should consider ownership/investment interests of both referring and non-referring physicians.

Conclusion

CMS’ relaxation of some technical Stark requirements may indicate an understanding that even well-meaning providers can inadvertently step over the line and into strict liability fines and may be an attempt to allow those providers a little leeway.  But even as the new regulations clarify some issues, they create confusion in others.  To the extent providers have an opportunity to comment on the proposed regulations, it may be possible to alert CMS to some of the practical problems created by the Stark Law before the proposed regulations take effect.

Emily M. Scott is a partner in Hirschler Fleischer’s Richmond office. Her practice focuses primarily on assisting healthcare providers with contract matters, business torts, employment disputes, and hospital staffing issues, including credentialing, peer review and bylaw compliance.  She can be reached at 804.771.9593  or escott@hf-law.com.