Proposed Stark Law Changes—Welcomed Relaxation of Current Regulations

Vol. 12 No. 2

AuthorAuthorAuthorMany attorneys whose practices are dedicated to healthcare transactional and regulatory compliance matters will welcome certain proposed revisions to the Physician Self-Referral Law1 (Stark Law) that the Centers for Medicare & Medicaid Services (CMS) issued on July 8, 2015 (Proposed Rule),2 as a part of the proposed 2016 Physician Fee Schedule. The Proposed Rule is designed to reduce some of the strict compliance requirements under current Stark Law exceptions, clarify certain applications of the Stark Law, and issue new exceptions.3

Section 1877 of the Social Security Act, the statutory provision of the Stark Law, generally:

“(1) prohibits a physician from making referrals for certain designated health services (DHS) payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship (ownership or compensation), unless an exception applies; and (2) prohibits the entity from filing claims with Medicare (or billing another individual, entity, or third party payer) for those referred services.”4

Following the passage of the Stark Law, CMS implemented a series of rulemakings. Over time, the regulatory provisions of the Stark Law have increasingly become challenging for healthcare providers and suppliers to balance with providing patient care and services. This has led to an environment where healthcare providers face innumerous potential “technical” violations of the Stark Law rules, despite best efforts to ensure compliance.

Under the Proposed Rule, CMS likely realized, through dialogue with industry stakeholders and the significant number5 of self-disclosures (Self-Disclosure(s)) made under the Self-Referral Disclosure Protocol,6 that CMS needed to clarify and revise some of the Stark Law regulations before Congress was forced to intervene and significantly amend the Stark Law.7 CMS developed the Proposed Rule’s clarifications and new exceptions — as discussed more fully below — in part to alleviate many future Self-Disclosures, since CMS realized that many current arrangements that were subject to Self-Disclosures to CMS (due to strict interpretations of current regulations, and often without determining whether the arrangements were defensible) may not be: (i) actual technical violations of the Stark Law; or (ii) of a nature that poses risk to the program or patient abuse; and thus, should not be in violation of the Stark Law.8 In fact, many Self-Disclosures could be readily defensible to avoid Self-Disclosure.9 Further, CMS recognizes that healthcare is trending towards delivery of services through integrated delivery models,10 and the Stark Law can sometimes cause unintended hurdles that impede CMS’ and Congress’ regulatory goals.11

Thus, CMS proposes the following:   

I. New Nonphysician Practitioner Recruitment and Retention Exception12

CMS candidly recognizes the dichotomy between the Patient Protection and Affordable Care Act’s goals of enabling greater access to primary care services, and the need to increase the number of nonphysician practitioners in the healthcare delivery system to meet greater demand.13 This is problematic under the Stark Law, as the Stark Law’s current exceptions only allow for certain financial relationships providing recruitment support with physicians/physician groups which are used to recruit physicians, but not for recruiting nonphysician practitioners into a physician practice.

As a result, CMS is proposing to establish a new Stark Law exception permitting payments from hospitals, federally qualified health centers (FQHCs), and rural health clinics (RHCs) to physicians/physician groups to assist them in “employing a nonphysician practitioner in the geographic area served by the hospital, FQHC, or RHC providing the remuneration.”14 The proposed exception15 will only apply to recruiting physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives (collectively, Nonphysician Practitioner(s)).16 The proposed exception will not permit payments to physicians to employ a certified registered nurse anesthetist (CRNA).17 CRNAs were omitted from the exception as they: 1) do not provide primary care services; and 2) assist with surgical services. Indeed, because the proposed exception is being issued to increase the availability of primary care services, the Nonphysician Practitioners may only provide general internal medicine, general family practice, geriatrics, pediatrics, and obstetrics and gynecology services.18 The newly proposed exception prohibits the physician from employing the Nonphysician Practitioner to provide specialty care services, such as cardiology or surgical services.19

In order to protect against potential program and patient abuse, CMS proposes certain criteria, requirements, and limitations for the new Nonphysician Practitioner exception:

  • The proposed exception only permits “bona fide employee[s] of the physician receiving the remuneration”20 as it “indicates a commitment by the physician to increase the availability of patient care services to his or her patients on an ongoing basis.”21 CMS is seeking comments regarding whether this exception should also extend to independent contractors, and what requirements should govern such arrangements.22
  • The financial assistance will be limited to the “first 2 consecutive years” of the Nonphysician Practitioner’s employment, and will be limited to the lower of: “(1) 50 percent of the actual salary, signing bonus, and benefits paid by the physician to the nonphysician practitioner; or (2) an amount calculated by subtracting the receipts attributable to services furnished by the nonphysician practitioner from the actual salary, signing bonus, and benefits paid to the nonphysician practitioner by the physician.”23
  • The proposed exception details that, like most Stark Law exceptions, the arrangement must “be set out in writing and signed by the hospital providing the remuneration, the physician receiving the remuneration, and the nonphysician practitioner.”24
  • As with most other Stark Law exceptions, the proposed exception details that the arrangement must not be “conditioned on the physician’s or the nonphysician practitioner’s referral of patients” and may not be “determined (directly or indirectly) in a manner that takes into account the volume or value of any actual or anticipated referrals by the physician or the nonphysician practitioner.”25
  • CMS is concerned that some providers may engage in “gaming by ‘rotating’ or ‘cycling’ nonphysician practitioners through multiple physician practices located in the geographic area,” and thus, CMS proposes to limit the proposed exception’s applicability by preventing the hospital, FQHC, or RHC from providing financial assistance to a physician if: “(1) the nonphysician practitioner has practiced in the geographic area served by the hospital, FQHC, or RHC within the 3 years prior to becoming employed by the physician; or (2) the nonphysician practitioner was employed or otherwise engaged by a physician with a medical office in the geographic area served by the hospital, FQHC, or RHC within the 3 years prior to becoming employed by the physician, even if the nonphysician practitioner did not provide patient care services in that office.”26
  • Records detailing the remuneration provided by the hospital, FQHC, and RHC to the physician, and by the physician to the Nonphysician Practitioner, must be “maintained for a period of at least 6 years and be made available to the Secretary upon request.”27
  • Finally, the proposed new exception contains a new definition of “referral,” specific to the new exception28 only, which is closely modeled on the general definition of referral under 42 C.F.R. 411.351. The new proposed exception-specific definition defines the term referral as it relates to Nonphysician Practitioners to include “a request by a nonphysician practitioner that includes the provision of any DHS for which payment may be made under Medicare, the establishment of any plan of care by a nonphysician practitioner that includes the provision of such DHS, or the certifying or recertifying of the need for such DHS, but not including any DHS personally performed or provided by the nonphysician practitioner.”29 From a practical standpoint, this new definition of “referral” does not alter the Stark Law’s applicability, which is triggered by physician referrals to a DHS entity. It also does not change the fact that referrals by Nonphysician Practitioners can be imputed to a physician if such physician “controls referrals made by another person or entity.”30

II. Proposed Definitions for the Geographic Area Served by FQHC and RHCs31

CMS recognizes that the existing Stark Law physician recruitment exception is applicable to FQHCs and RHCs, but that the regulations lack guidance with regard to how these entities determine the “geographic area into which such an entity may recruit a physician.”32 Thus, in order to correct the regulations’ previous omissions, CMS proposes two (2) potential approaches to define geographic area served by a FQHC or RHC:

  1. The first proposed approach would “indicate that the geographic area served by a FQHC or RHC is the area composed of the lowest number of contiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis.”33
  2. The second proposed approach would define such as “the area composed of the lowest number of contiguous or noncontiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis.”34

Given that the Proposed Rule is being used to reconcile prior inconsistencies, CMS is specifically looking for feedback on each of these proposed approaches, especially from FQHCs and RHCs.35

III. “Takes Into Account”36

In the Proposed Rule, CMS recognizes that numerous Stark Law exceptions contain different verbiage when referencing the “volume or value” standard of a physician’s referrals. For instance, select exceptions refer to “based on”37 or “without regard to,”38 which, according to CMS, may lead reasonable individuals to believe that there are differing meanings that apply to different exceptions/Stark Law scenarios. Thus, CMS proposes to standardize the various terms (e.g., “based on” or “without regard to”) used for the principle of “takes into account” referrals to clarify that there are not different volume or value of referral standards in the Stark exceptions.39

IV. Clarification of CMS’ Policy Regarding Retention Payments in Underserved Areas40

CMS recognizes that in the course of implementing its various regulations, there was inadvertent confusion regarding the permissibility of certain retention payments made to a physician with a practice located in an underserved area pursuant to 42 C.F.R 411.357(t). Thus, to correct any potential regulatory language to the contrary, CMS is utilizing this Proposed Rule as an opportunity to clarify that it remains CMS’ policy, which CMS originally articulated in the preamble of 72 Fed. Reg. 51066, that a retention payment based on a physician certification may “not exceed the lower of the following: (1) An amount equal to 25 percent of the physician’s current annual income (averaged over the previous 24 months) using a reasonable and consistent methodology that is calculated uniformly; or (2) the reasonable costs the hospital would otherwise have to expend to recruit a new physician to the geographic area served by the hospital in order to join the medical staff of the hospital to replace the retained physician.”41 Thus, CMS will modify the regulations at 42 C.F.R. 411.357(t)(2)(iv)(A) to incorporate its intent articulated in the Phase III commentary.42

V. Clarifications/Revisions to the In Writing Requirements43

CMS confirms that there is no formal requirement under the Stark Law that mandates that “an arrangement be documented in a single formal contract.”44 Rather, “a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement.”45 This is an extremely welcome confirmation of a “defensive Stark” position that numerous healthcare attorneys have advocated over the years. CMS cautions that a writing is still required (for instance, to ensure that “compensation . . . is set in advance, the rate of compensation must be documented in writing before the services are performed”), but CMS expressly clarifies that the regulations do not require a specific contract.46 Thus, in order to clarify that no single formal contract is required, CMS proposes to replace numerous references to “contract” or “agreement” in applicable exceptions with “arrangement.” This is one of the numerous provisions in the Proposed Rule where CMS indicates a more flexible approach to the Stark Law’s technical requirements.

VI. Clarification of the One-Year Term Requirement47

CMS further clarifies that exceptions requiring a contract term of at least one (1) year can be satisfied “as long as the arrangement clearly establishes a business relationship that will last for at least 1 year.”48 The parties to an arrangement can satisfy the Stark Law exceptions by demonstrating with available documentation, including “contemporaneous documents evidencing the course of conduct between the parties . . . that the arrangement in fact lasted for the required period of time.”49 Thus, parties to an arrangement do not need to rely on one (1) single document to establish the applicable term length; instead, the parties can look to “contemporaneous writings establishing that the arrangement lasted for at least 1 year, or 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 . . . as applicable.”50

Again, this is another “defensive Stark” position that has been advocated by some healthcare attorneys versed in the Stark Law. It is a very welcome confirmation of this position and, as indicated above, it appears that CMS has been receiving inappropriate Self-Disclosures under the Medicare self-referral disclosure protocol. There has been an increasing, and regrettable, trend in the current Stark Law enforcement environment for reflexive self-disclosure of potential technical Stark Law issues, without what appears to be a full evaluation as to whether the relationships are defensible in good faith under current law. This is reflected by the Proposed Rule’s myriad “clarifications,” where CMS states (in a round-about manner), that it is receiving disclosures for “technical” issues and that a “clarification” of existing law would obviate the need for the disclosures.51 In the Proposed Rule, CMS recognizes that it has received too many disclosures of the type that are not clearly violative/are defensible under the current Stark Law regulations.52

It will be interesting to see if the number of Self-Disclosures decline considerably following CMS’ clarifications in the Proposed Rule. Although healthcare law practitioners will need to wait for certain aspects of the Proposed Rule to be finalized (e.g., new exceptions), analytically CMS’s clarifications and their effect on Stark Law interpretations are effective immediately, since CMS is clarifying without need for further rulemaking.

VII. Extension of Holdover Arrangements53

Under current Stark Law regulations, holdover arrangements are limited to six (6) months on the same terms and conditions of the original arrangement; however, CMS is utilizing an opportunity in the Proposed Rule to provide greater flexibility — and thus, avoid potential Self-Disclosures — by extending indefinitely (or for another definite period of time) the holdover arrangements permitted by 42 C.F.R 411.357(a), (b), and (d), provided that the holdover continues on the same terms and conditions and it continues to meet fair market value requirements.54 CMS notes, for example, that “if office space rental payments are fair market value when the lease arrangement expires, but the rental amount falls below fair market value at some point during the holdover, the lease arrangement would fail to satisfy the requirements of the applicable exception at § 411.357(a) as soon as the fair market value requirement is no longer satisfied, and DHS referrals by the physicians to the entity that is [a] party to the arrangement would no longer be permissible.”55 This is another welcomed revision evidencing CMS’ willingness to recognize legitimate “defensive Stark” positions.

VIII. Remuneration Definition Changes56

The Stark Law defines “remuneration” as “any remuneration, directly or indirectly, overtly or covertly, in cash or in kind,” unless statutorily excepted.57 Qualifying for an exception means that there is no “remuneration” and thus no “financial relationship,” which is one of the triggering elements of the Stark Law’s application.

CMS proposes to clarify the Stark Law definition of “remuneration” to reflect that if one of the six statutory exceptions to remuneration listed at 42 U.S.C. 1395nn(h)(1)(C) applies, then the term “used solely” in such provision does not mean that the exception does not apply if the item, device, or supply is used for more than one of the six statutorily allowed purposes.58 So, if there are two purposes for the item, device, or supply that fall within the six listed purposes, CMS takes the position that the carve-out to the definition of remuneration does apply. However, CMS clarifies that such “item, device, or supply cannot be used for any purpose other than the 6 purposes listed in the statute. Thus, if an item is used for two or more purposes listed in the statute, and it is not used for any other purpose (that is, any purpose not listed in the statute), then provision of the item does not constitute remuneration between the parties.”59

Further, CMS addresses the Third Circuit Court of Appeals decision in United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d Cir. 2009), which held that “a physician’s use of a hospital’s resources (for example, examination rooms, nursing personnel, and supplies) when treating hospital patients constitutes remuneration under the physician self-referral law, even when the hospital bills the appropriate payor for the resources and services it provides (including the examination room and other facility services, nursing and other personnel, and supplies) and the physician bills the payor for his or her professional fees only.”60 CMS is utilizing the Proposed Rule to appropriately clarify that it does not deem such an arrangement to be remuneration as there is no remuneration between the parties.61

However, CMS clarifies that “if a physician or a DHS entity bills a non-Medicare payor (that is, a commercial payor or self-pay patient) globally for both the physician’s services and the hospital’s resources and services, a benefit is conferred on the party receiving [global] payment. Specifically, the party that bills globally receives payment for items or services provided by the other party. Such a global billing arrangement involves remuneration between the parties that implicates the physician self-referral law.”62 For an extreme example, if a hospital were to provide space, personnel, and supplies (e.g., a time share space), and a physician utilizes that space and bills globally for the same as a physician office (as opposed to provider-based billing by the hospital), then CMS’ payment to the physician is de facto paying for the space/personnel/supplies provided by the hospital. Thus, the hospital has provided remuneration to the physician, and that remuneration must meet an applicable exception (e.g., the newly proposed Time Share exception, discussed below).

IX. Stand in the Shoes Definitional Change63

For purposes of the Stark Law, “stand in the shoes” is particularly important for determining when an arrangement is to be analyzed as a “direct” or “indirect” compensation arrangement. CMS clarifies that employees or independent contractors do not “stand in the shoes” of their physician organization’s arrangements for the purposes of Stark Law signature requirements “unless they voluntarily stand in the shoes of the physician organization as permitted under [42 C.F.R.] 411.354(c)(1)(iii) or [42 C.F.R. 411.354](c)(2)(iv)(B).”64 Importantly, this provision does not change the clarified general rule that CMS will consider all referrals from all physicians in a physician organization to determine whether a compensation arrangement takes into account the volume or value of referrals. Only the signature requirements change, to clarify that physician employees and independent contractors do not have to be direct signatories to contractual arrangements for certain Stark Law purposes.65

X. Locum Tenens66

CMS proposes to remove the phrase “stands in the shoes” from the definition of “locum tenens physician.”67 CMS believes that the definition of locum tenens is clear without the use of “stand in the shoes” and that the “stand in the shoes concept” of “indirect” and “direct” compensation arrangements are separate and distinct from the definition of “locum tenens physician.”68 Thus, to avoid the confusion of concepts, CMS proposes to delete the reference to “stand in the shoes” in the locums tenens definition.

XI. Ownership of Publicly Traded Securities69

CMS proposes to expand the exception for ownership of publicly traded securities to include protection for “trading on an electronic stock market or [over-the-counter (OTC)] quotation system in which quotations are published on a daily basis and trades are standardized and publicly transparent.”70 Trades made through “a physical exchange” (such as the New York Stock Exchange or the American Stock Exchange) are considered “standardized and transparent.”71 However, CMS does not propose to include “any electronic stock markets or OTC quotation systems that trade unlisted stocks or that involve decentralized dealer networks.”72

XII. New Timeshare Exception73

CMS proposes a new exception for timeshare leasing “that would protect timeshare arrangements that meet certain criteria,” including, but not limited to, that “the arrangement is between a hospital or physician organization (licensor) and a physician (licensee) for the use of the licensor’s premises, equipment, personnel, items, supplies, or services . . . used predominantly to furnish evaluation and management services.”74 CMS notes, however, that any equipment covered by the timeshare arrangement must be “located in the office suite where the physician performs evaluation and management services” and used “only to furnish DHS that is incidental to the physician’s evaluation and management services and furnished at the time of such evaluation and management services.”75 Further, CMS expressly states that the equipment may not include “advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests),” as CMS notes that “timeshare arrangements offered by independent diagnostic testing facilities and clinical laboratories, in particular, pose a heightened risk of program or patient abuse as they may serve to lock in referral streams from the physician licensee as a result of the physician’s proximity to the DHS furnished by such entities.”76 Thus, this proposed exception would not apply to independent diagnostic testing facilities or clinical laboratories and will only apply “to timeshare arrangements where the licensor is a hospital or physician organization.”77

Notably, CMS identifies that a license to use the property differs from a traditional lease contemplated under the current Stark Law rental of office space exception. Specifically, CMS states that “a license to use the property of another person differs from a lease in that ownership and control of the property remains with the licensor [and that] a lease transfers dominion and control of the property from a lessor to the lessee, but a license is a mere privilege to act on another’s property and does not confer a possessory interest in the property.”78 Thus, it is apparent that CMS believes that certain timeshare arrangements may not meet the current rental or office use exceptions, since some (but not all) “licenses/timeshares” may not provide for exclusive use, as is necessary under current Stark Law exceptions. This is another applauded revision evidencing CMS’ willingness to enact exceptions to protect necessary arrangements.

XIII. Temporary Noncompliance with Signature Requirements79

Currently, if parties to an arrangement inadvertently fail to obtain a fully-executed agreement, the parties must obtain the required signatures within ninety (90) days; if the failure to obtain the signatures is not inadvertent, the parties must obtain the signatures within thirty (30) days.80 Under the Proposed Rule, parties would have “90 days to obtain the required signatures, regardless of whether or not the failure to obtain the signature(s) was inadvertent.”81 In order to ensure compliance with other aspects of the current rule, for instance, “an entity may make use of the proposed regulation only once every 3 years with respect to the same referring physician.”82 Again, this provision indicates a blessing of “defensive Stark” analyses which have been promulgated by healthcare attorneys, and CMS’s recognition that there have been Self-Disclosures when the same are not necessarily required.

XIV. Physician-Owned Hospitals83

    a. Website Requirements. Physician-owned hospitals must “disclose the fact that the hospital is partially owned or invested in by physicians on any public web site for the hospital and in any public advertising for the hospital.”84 Following Self-Disclosures and industry stakeholders’ inquiries, CMS is utilizing the Proposed Rule to clarify that social media web sites will not be considered public websites for the hospital.85 CMS articulates that it does not believe that “a hospital’s communications (such as maintaining an individual page on a Web site, posting a video, or posting messages) via a social media Web site should be construed as a Web site that is ‘for the hospital,’ given that the Web site is operated and maintained by a social networking service and that a multitude of users typically can become members of such a service.”86 Further, CMS proposes to exclude from the definition of “public advertising for the hospital” “communication[s] made for the primary purpose of recruiting hospital staff (or other similar human resources activities), public service announcements issued by the hospital, and community outreach issued by the hospital.”87 CMS also proposes to exclude “electronic patient payment portals, electronic patient care portals, [and] electronic health information exchanges, as these are not available to the general public.”88 CMS additionally indicates that it is defining “public advertising for the hospital,” for the Stark Law, as “any public communication paid for by the hospital that is primarily intended to persuade individuals to seek care at the hospital.”89 The ultimate decision regarding whether a communication will be considered public advertising for the hospital, however, will be determined on the facts and circumstances.90

    b. Bona Fide Investments in Hospitals.91 In prior guidance,92 CMS articulated that bona fide investment levels in physician owned hospitals “should be calculated without regard to any ownership or investment interests held by physicians who do not make any referrals to the hospital, including physicians who are no longer practicing medicine.”93 However, CMS has indicated in the Proposed Rule that it plans to reconsider its previous guidance to now “require that the baseline bona fide investment level and the bona fide investment level include direct and indirect ownership and investment interests held by a physician if he or she satisfies the definition of ‘physician’ . . . regardless of whether the physician refers patients to the hospital.”94 This modification would require inclusion of direct and indirect ownership interests of physicians regardless of whether the physician is considered a “referring physician” and irrespective of whether the physician is retired.95

    In connection with the proposed revisions, CMS proposes to “define ‘ownership or investment interest’ at § 411.362(a) as a direct or indirect ownership or investment interest in a hospital.”96 Under the proposed revisions:

    • Direct Ownership or Investment Interest in a Hospital Exists: if “the ownership or investment interest in the hospital is held without any intervening persons or entities between the hospital and the owner or investor . . . .” 97
    • Indirect Ownership or Investment Interest in a Hospital Exists: if “(1) Between the owner or investor and the hospital there exists an unbroken chain of any number (but no fewer than one) of persons or entities having ownership or investment interests; and (2) the hospital has actual knowledge of, or acts in reckless disregard or deliberate ignorance of, the fact that the owner or investor has some ownership or investment interest (through any number of intermediary ownership or investment interests) in the hospital.”98 CMS is also proposing that an indirect ownership or investment interest in a hospital exists “even though the hospital does not know, or acts in reckless disregard or deliberate ignorance of, the precise composition of the unbroken chain or the specific terms of the ownership or investment interests that form the links in the chain.”99

    Given the fact that CMS is reconsidering its previous guidance (and given the fact that physician-owned hospitals relied on such guidance), CMS will delay the effective date of the new regulation to enable the physician-owned hospitals an opportunity to comply with the new policy.

    Discussion

    Although CMS is maintaining protections to prevent program and patient abuse, CMS is loosening the requirements for certain Stark Law exceptions, which is exciting news for those individuals and entities navigating the balance between providing proper patient care and inadvertently running afoul of the Stark Law’s technical strict liability standard.100 CMS’ Proposed Rule makes it clear that CMS is aware of the significant number of unnecessary Self-Disclosures that have resulted from the current Stark Law regulations. Thus, CMS is attempting to loosen the regulatory constraints by trying to incorporate practical solutions to situations that have unnecessarily resulted in Self-Disclosures. Further, numerous arrangements that could be construed to violate current regulations, and have resulted in Self-Disclosures, are technically of a variety that could be considered defensible given the specific facts and circumstances, and given the fact that many alleged violations are technical in nature and do not rise to a level to jeopardize program or patient abuse.

    CMS’ Proposed Rule also proposes to update current regulations to reflect the changing nature of healthcare. For instance, the new Nonphysician Practitioner recruitment and retention exception will have significant practical implications for those hospitals, FQHCs, and RHCs that are finding it challenging to keep up with healthcare delivery changes following the Patient Protection and Affordable Care Act and the attendant shortage of primary care service providers. Given that the new Nonphysician Practitioner exception is structured very similarly to the physician recruitment exception, CMS will be comfortable that the requisite safeguards are in place to curb program and patient abuse while allowing hospitals, FQHCs, and RHCs to provide physicians with remuneration to enable such physicians to recruit Nonphysician Practitioners.

    Moreover, given the need for hospitals to enable physicians to perform services in timeshare arrangements, the proposed new timeshare exception is good news. First, the new exception would enable providers to utilize space on short-term bases on a non-exclusive basis, provided other criteria are met. Such an arrangement will enable healthcare providers to utilize short-term, non-exclusive office space, equipment, personnel, and supplies, which they have not historically been able to utilize given current regulatory constraints. Additionally, CMS’ proposed modification to holdover arrangements allows providers, who are focused on patient care issues (and not contractual lease terms) to avoid a Self-Disclosure as a result of a lease expiring, provided the lease remains fair market value and other conditions are satisfied. This seemingly “minor” modification will have vast implications in practice, as it will alleviate many perceived technical violations that could potentially result in Self-Disclosure (absent healthcare regulatory counsel taking good-faith “defensive Stark” positions).

    Many Stark Law practitioners, however, will still believe that the Proposed Rule does not go far enough. It is this perception in the health law and provider/supplier community that has led to proposals like the proposed H.R.776: Stark Administrative Simplification Act of 2015, which would correct the disproportionate penalties that can be incurred under the Stark Law for “technical” violations. There is a school of thought by many Stark Law practitioners that the Proposed Rule is an attempt by CMS to potentially prevent Congress from stepping in from perceived Stark Law overreaching. This can be best summed up by the dissent in the recent Tuomey case:101
    “But I write separately to emphasize the troubling picture this case paints: An impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically underserved area.”

    Conclusion

    The Proposed Rule’s changes and clarifications, as a whole, are beneficial for healthcare providers. Although the Stark Law is very rigorous and complex, these proposed modifications are a step in the right direction to enable healthcare providers to focus more on patient care issues, and less on technical Stark Law provisions that do little to prevent fraud and abuse.

    It remains to be seen what will be finalized and adopted from the Proposed Rule. The ABA Health Law Section will provide you with updated and insightful information as it becomes available.

    ***

    Adrienne Dresevic, Esq., is a Founding Shareholder of The Health Law Partners, P.C., a nationally recognized healthcare law firm with offices in Michigan and New York. Practicing in all areas of healthcare law, she devotes a substantial portion of her practice to providing clients with counsel and analysis regarding compliance, Stark Law, Anti-Kickback Statute, and compliance related issues. Ms. Dresevic serves on the American Bar Association Health Law Section’s Council, which serves as the voice of the national health law bar within the ABA. Ms. Dresevic also serves as the ABA Health Law Section’s Co-Chair of the Physicians Legal Issues Conference Committee, Vice Chair of the Programs Committee (Executive Leadership), and Vice Chair of the Sponsorship Committee. She is licensed to practice law in Michigan and New York, and can be contacted at adresevic@thehlp.com.

    Clinton Mikel, Esq., is a Partner with The Health Law Partners, P.C., a nationally recognized law firm focusing on healthcare legal issues. Mr. Mikel practices out of his firm’s Michigan office, but is also licensed in California and New York.  He is the Chair of the American Bar Association Health Law Section’s eHealth, Privacy & Security Interest Group. He also serves as the Chair of the American Bar Association Health Law Section’s Stark and Anti-Kickback Statute Toolkit Committee. Mr. Mikel practices in almost all areas of healthcare law, but devotes a substantial portion of his practice to compliance with federal and state healthcare regulations and transactional matters. He focuses his practice on state and federal telehealth/telemedicine issues, HIPAA and state privacy laws, federal and state information breaches, including strategic investigations and disclosures, self-referral laws, including Stark, anti-kickback laws, and information technology issues. Mr. Mikel is a prolific speaker, writer and commentator in the healthcare industry, and is regularly sought out for his expertise. He can be contacted at cmikel@thehlp.com.

    Aaron J. Beresh is an attorney with The Health Law Partners, P.C., a nationally recognized healthcare law firm with offices in Michigan and New York. Mr. Beresh practices in all areas of healthcare law, and devotes a substantial portion of his practice to transactional matters for healthcare providers and suppliers, including physician-hospital transactions. Mr. Beresh is licensed to practice law in Michigan and can be contacted at aberesh@thehlp.com.

    1

    42 U.S.C. § 1395nn.

    2

    Proposed Rule, 80 Fed. Reg. 41685 (2015), available at: http://www.gpo.gov/fdsys/pkg/FR-2015-07-15/pdf/2015-16875.pdf.

    3

    CMS states that the purpose of the Proposed Rule is to “update the physician self-referral regulations to accommodate delivery and payment reform, to reduce burden, and to facilitate compliance . . . [and] expand[] access to needed health care services.” Proposed Rule, 80 Fed. Reg. at 41909-41910 (2015).

    4

    Id. At 41909.

    5

    CMS does not routinely publish the number of self-referral disclosure protocol disclosures that it receives. The last published figures were in 2012. Nevertheless, anecdotal evidence (and this Proposed Rule) suggest that the number is extremely high.

    6

    “Section 6409 of the Patient Protection and Affordable Care Act required the Secretary, in cooperation with the Inspector General of the Department of Health and Human Services, to establish a Medicare self-referral disclosure protocol (SRDP) that sets forth a process to enable providers of services and suppliers to self-disclose actual or potential violations of the Physician self-referral law.” Id.

    7

    Numerous individuals and entities have lobbied Congress to amend the Stark Law to alleviate perceived technical violations. See, for instance, H.R.776 : Stark Administrative Simplification Act of 2015 (http://thomas.loc.gov/cgi-bin/bdquery/D?d114:5:./temp/~bdYafr), which would correct the disproportionate penalties a hospital can incur under the Stark Law for having an unwritten, unsigned or lapsed agreement that is otherwise compliant with federal fraud and abuse law. Importantly, the measure would limit the penalty to $5,000 if one of these violations is disclosed within one year of the date of noncompliance. A violation disclosed more than one year from the date of noncompliance would be limited to a penalty of $10,000. The bipartisan proposal would also create a streamlined process for disclosure and resolution at CMS within 90 days.

    8

    “We have learned from stakeholder inquiries, review of relevant literature, and self-disclosures submitted to the SRDP that additional clarification of certain provisions of the physician self-referral law would be helpful.” Id. at 41910. Throughout the Proposed Rule, CMS references that it has received valuable feedback via information submitted through the SRDP that indicates that some of the self-disclosures being submitted are not actual technical violations of the Stark Law (i.e., could be defensible) and could be based on the current regulations not being explicitly clear. Additionally, the self-disclosures to-date, and the changes in current healthcare environment, have partially been the impetus to cause certain regulations to change. Thus, CMS utilized the Proposed Rule to make certain clarifications and relaxations to those regulations that it thought would reduce self-disclosures that were of an overly-cautious nature based on current Stark Law regulations.

    9

    Many healthcare providers are under the impression that self-disclosing actual or potential violations of the Stark Law through the SRDP will automatically reduce amounts owing for violating the Stark Law. However, Section 6409(b) of the Patient Protection and Affordable Care Act gives the Secretary of the Department of Health and Human Services authority (but not the obligation) to reduce the amounts owing for violations of the Stark Law. Thus, self-disclosures will not automatically be the best course of action for all healthcare providers.

    10

    “Significant changes in our health care delivery and payment systems, as well as alarming trends in the primary care workforce shortage projections, have occurred since the publication of Phase III.” Id. at 41910.

    11

    For example, and as discussed more-fully herein, under the Stark Law and current regulations, it is impermissible for hospitals, FQHCs, and RHCs to provide remuneration to a physician to assist with the recruitment and employment of a nonphysician practitioner. CMS recognizes that one of the goals of the Patient Protection and Affordable Care Act was to expand access to healthcare coverage and address the need for primary care providers (especially in remote areas). Thus, hospitals, FQHCs, and RHCs would need the ability to assist physicians in recruiting nonphysician practitioners who could provide primary care services; however, under current regulations, such actions would be violative of the Stark Law. Thus, the Proposed Rule aims to provide a new exception to enable providers to further the intent of the Patient Protection and Affordable Care Act’s goals without violating the Stark Law.

    12

    Id. at 41910-41913.

    13

    “Significant changes in our health care delivery and payment systems, as well as alarming trends in the primary care workforce shortage projections, have occurred since the publication of Phase III. A primary care workforce shortage has been a concern for years. The Affordable Care Act expanded access to health care coverage to those previously uninsured. As a result, the need for primary care providers (including nonphysician practitioners) has increased, particularly in remote and underserved areas.” (citations omitted). Id. at 41910.

    14

    Id.

    15

    The proposed exception is designed similarly to the physician recruitment exception (42 C.F.R. 411.357(x)) and contains similar requirements.

    16

    Proposed Rule at 41911.

    17

    Id.

    18

    Id.

    19

    Id.

    20

    Id.

    21

    Id.

    22

    Id.

    23

    The two (2) year limitation is designed to curb the potential for ongoing payments from the hospital, FQHC, and RHC to the physician for past or future referrals. Proposed Rule, 80 Fed. Reg. at 41911-41912 (2015).

    24

    Id. at 41912.

    25

    Id.

    26

    Id. at 41912-41913.

    27

    Id. at 41912.

    28

    Id. at 41912; proposed new exception-specific definition of referral to be at 42 C.F.R. 411.357(x)(3).

    29

    Proposed Rule, at 41912.

    30

    42 C.F.R. 411.351.

    31

    Proposed Rule, at 41913.

    32

    Id.

    33

    Id.

    34

    Id.

    35

    Id.

    36

    Id. at 41914.

    37

    The physician recruitment exception found at 42 C.F.R 411.357(e)(1)(iii) references “based on”: “The hospital does not determine (directly or indirectly) the amount of the remuneration to the physician based on the volume or value of any actual or anticipated referrals by the physician or other business generated between the parties.” (emphasis added). The obstetrical malpractice insurance subsidies exception found at 42 C.F.R 411.357(r)(2)(iv) references “based on”: “The hospital, federally qualified health center, or rural health clinic does not determine (directly or indirectly) the amount of the payment based on the volume or value of any actual or anticipated referrals by the physician or any other business generated between the parties.” (emphasis added).

    38

    The physician recruitment exception found at 42 C.F.R 411.357(e)(1)(iii) references “based on”: “The hospital does not determine (directly or indirectly) the amount of the remuneration to the physician based on the volume or value of any actual or anticipated referrals by the physician or other business generated between the parties.” (emphasis added). The obstetrical malpractice insurance subsidies exception found at 42 C.F.R 411.357(r)(2)(iv) references “based on”: “The hospital, federally qualified health center, or rural health clinic does not determine (directly or indirectly) the amount of the payment based on the volume or value of any actual or anticipated referrals by the physician or any other business generated between the parties.” (emphasis added).

    39

    Proposed Rule, at 41914.

    40

    Id. at 41914-41915.

    41

    Id. at 41915.

    42

    Id.; 72 Fed. Reg. 51066 (2007).

    43

    Proposed Rule, at 41915-41916.

    44

    Proposed Rule, at 41915 (emphasis added).

    45

    Id. at 41915-41916.

    46

    Id. at 41916.

    47

    Id. at 41916-41917.

    48

    Id. at 41916.

    49

    Id. at 41917 (emphasis added).

    50

    Id. at 41916.

    51

    E.g., Proposed Rule:
    “Since the SRDP was established, we have received numerous submissions to the SRDP disclosing actual or potential violations relating to the writing requirements of various compensation exceptions (for example, failure to set an arrangement out in writing, failure to obtain the signatures of the parties in a timely fashion, or failure to renew an arrangement that expired on its own terms after at least 1 year). This proposed rule would clarify the writing requirements of various compensation exceptions by making the terminology in the compensation exceptions more consistent and by providing policy guidance on the writing and 1-year minimum term.” Id. at 41915 (emphasis added).There are further examples of this type in the Proposed Rule. Nevertheless, this is illustrative of the issue at play. Per CMS guidance, the SRDP is only for submitting actual violations of the Stark Law. In fact, by submitting to the SRDP, SRDP guidance makes it clear that the provider/supplier is acknowledging and admitting to the Stark Law violation. CMS directs that issues regarding applicability/potential violations are to be addressed, if at all, through its FAQ process or Stark Law Advisory Opinion process.

    52

    Id.

    53

    Id. at 41917-41918.

    54

    Id. at 41917.

    55

    Id.

    56

    Id. at 41918.

    57

    42 U.S.C. 1395nn(h)(1)(B) and (C).

    58

    Proposed Rule, at 41918.

    59

    Id.

    60

    Id.

    61

    Id.

    62

    Id.

    63

    Id. at 41919-41920.

    64

    Id. at 41919.

    65

    “For purposes other than satisfying the signature requirements of the exceptions, we remain concerned about the referrals of all physicians who are part of a physician organization that has a compensation arrangement with a DHS entity when we analyze 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. If we did not consider the referrals of all the physicians in the physician organization, and instead only considered the referrals of those physicians who stand in the shoes of the physician organization, DHS entities would be permitted to establish compensation methodologies that take into account the volume or value [of] referrals or other business generated by non—owner physicians in a physician organization when entering into a compensation arrangement with the physician organization.  Therefore, our proposal would amend § 411.354(c)(3)(i) to clarify that, for all purposes other than the signature requirements, all physicians in a physician organization are considered parties to the compensation arrangement between the physician organization and the DHS entity.” Id.

    66

    Id. at 41919-41920.

    67

    Id. at 41919.

    68

    Id. at 41919.

    69

    Id.

    70

    Id.

    71

    Id.

    72

    Id.

    73

    Id. at 41920-41922.

    74

    Id. at 41920-41922.

    75

    Id. at 41922.

    76

    Id.

    77

    Id.

    78

    Id. at 41921.

    79

    Id. at 41922-41923.

    80

    Id. at 41923.

    81Id.
    82Id.
    83

    Id. at 41923-41926.

    84

    Id. at 41923.

    85

    Id. at 41924.

    86

    Id.

    87

    Id.

    88

    Id.

    89

    Id.

    90Id.
    91

    Id. at 41925-41926.

    92

    CY 2011 OPPS/ASC final rule with comment period (75 Fed. Reg. 72251).

    93

    Proposed Rule, at 41925.

    94

    Id. at 41926.

    95

    Id. at 41924.

    96

    Id. at 41926.

    97

    Id.

    98

    Id.

    99

    Id.

    100

    42 U.S.C. § 1395nn.

    101

    U.S. ex rel. Drakeford v. Tuomey Healthcare System, Inc., 4th Cir., No. 13-2219 (July 2, 2015).

     

     

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