Health Law Alert: CMS Issues New Stark Exceptions, Revisions and Clarifications

April 05, 2016

In the calendar year 2016 Physician Fee Schedule Final Rule (“Final Rule”) published in the November 16, 2015 Federal Register, the Centers for Medicare and Medicaid Services (CMS) issued its first changes to the physician self-referral rules (commonly referred to as the “Stark” regulations) since October 2008.

The changes published in the Final Rule include two new Stark exceptions, revisions to some existing Stark provisions and clarifications to the existing policy, all of which are designed to provide needed flexibility to designated health service (DHS) providers structuring relationships with referring physicians.

1. New Exceptions

a. Assistance to Compensate Non-Physician Practitioners

CMS finalized a new, limited exception that allows hospitals, Federally Qualified Health Centers (“FQHC”) and Rural Health Clinics (“RHC”) to provide funds to a physician or physician organization to assist with employment of, or entering into an independent contractor relationship with, a non-physician practitioner in the geographic area served by the hospital, FQHC or RHC.

The regulation defines “non-physician practitioner” to include nurse practitioners, physician assistants, clinical nurse specialists, certified nurse midwives, clinical social workers and clinical psychologists. The financial assistance that is provided may not exceed 50 percent of the actual aggregate compensation, signing bonus and benefits provided to the non-physician practitioner and may not extend beyond the first two consecutive years of the non-physician practitioner’s employment or engagement by the physician or physician organization. “Substantially all” of the patient care services furnished by the recruited non-physician practitioner must be either primary care or mental health services. In the preamble, CMS states that it considers “primary care” services to include general family practice, general internal medicine, pediatrics, geriatrics, and obstetrics and gynecology.

The hospital, FQHC or RHC cannot provide this assistance to the same physician or physician organization more than once in a three-year period unless the recruited non‑physician practitioner does not remain with the physician practice for at least one year. Additionally, assistance is available only for a non-physician practitioner who (1) has not practiced in the geographic area served by the donor within the previous year and (2) has not been employed or otherwise engaged to provide patient care services by a physician or physician organization that has a medical practice in the geographic area served by the donor during the past year. The new exception was effective January 1, 2016.

b. Timeshare Arrangements

Also effective January 1, 2016, the Final Rule creates a new exception for “timeshare arrangements” in which a physician or physician organization is permitted use of space, equipment, personnel, items, supplies or services of a hospital or physician organization of which the referring physician is neither an owner, employee or independent contractor. This new exception is intended to address situations in which a traditional office space lease arrangement granting exclusive rights to the premises is not required or desired by the parties.

As an example, CMS discusses the situation in which a rural community has a need for certain specialty services, but the need is not great enough to support the full-time services of a physician specialist. Under the timeshare arrangement, the specialist may provide services in space owned by a local hospital or physician practice on a limited or as-needed basis, using the hospital’s or physician practice’s equipment, personnel, items, supplies or services.

The new timeshare arrangements exception covers limited circumstances. The premises, equipment, personnel, items, supplies and services covered by the arrangement must be used predominantly for the provision of evaluation and management (E&M) services to patients. Any equipment used under the timeshare arrangement must be located in the same building where the evaluation and management services are furnished and may not be used to furnish designated health services other than those incidental to the E&M services furnished at the time of the patient’s E&M visit.

Furthermore, advanced imaging equipment, radiation therapy equipment, and clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests) cannot be included in the timeshare arrangement. The arrangement cannot convey a possessory leasehold interest in the office space used by the referring physician. Additionally, the exception will not protect a timeshare arrangement in which compensation is determined using percentage-based or “per unit of service” fees that are not time-based.

2. Clarifications of Existing Policy

In addition to the new exceptions described above, CMS included in the Final Rule a series of “clarifications” of existing CMS policy. These clarifications provide greater flexibility by reducing the level of formality required in structuring compensation arrangements and may result in fewer self-disclosures for “technical” Stark violations. By framing these statements as clarifications of existing policy, CMS is allowing physicians and DHS entities to apply the statements retroactively to existing arrangements.

a. The Writing Requirement

Almost all of the Stark exceptions for compensation arrangements include the requirement that the arrangement be “set out in writing.” This requirement may be found in the exceptions for rental of office space, rental of equipment, personal service arrangements, physician recruitment, certain group practice arrangements with hospitals, fair market value compensation arrangements, obstetrical malpractice insurance subsidies, retention payments in underserved areas, electronic prescribing items and services, and electronic health record items and services.

In the Final Rule, CMS states that, while “a single written document memorializing the key facts of an arrangement provides the surest and most straightforward means of establishing compliance with the applicable exception,” it will also accept “a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties.” CMS warned that contemporaneous documents evidencing the course of conduct between parties cannot be used to protect referrals that pre-date the documents. Thus, if a “writing” describing the compensation arrangement is not in place prior to a referral, the DHS entity cannot bill for the service resulting from the referral.

b. The “Term” Requirement

Another common requirement in Stark compensation arrangement exceptions is the requirement that the compensation arrangement have a term of at least one year. In the Final Rule, CMS clarifies that an arrangement that lasts “as a matter of fact” for at least one year satisfies this requirement. In lieu of explicitly stating the term in a formal agreement, parties may have contemporaneous writings establishing that the arrangement lasted for at least one year, or 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.

3. Revisions to Existing Regulatory Exceptions

a. Holdover Provisions

Prior to the Final Rule, the Stark exceptions for rental of office space, rental of equipment and personal services arrangements each permitted the parties to the arrangements to agree to “holdover” provisions of up to six months. The Final Rule revises these exceptions to permit indefinite holdovers, provided that (1) the holdover must continue on the same terms and conditions as the original arrangement and (2) the arrangement must continue to satisfy all of the elements of the applicable exception when the arrangement expires and on an ongoing basis during the holdover.

Thus, for example, if rental payments paid by a physician to a DHS entity fall below fair market value during the holdover period, the arrangement will no longer be protected by the exception. In addition, the Final Rule amends the fair market value compensation exception to permit arrangements of any timeframe, including arrangements for more than one year, to be renewed any number of times.

b. Temporary Noncompliance with Signature Requirements

The Stark regulations include a special rule excusing “temporary noncompliance” with the signature requirements in its compensation exceptions in limited circumstances. This special rule permits a DHS entity to submit a claim or bill and receive payment for DHS if an arrangement temporarily does not comply with the signature requirement but otherwise fully complies with an applicable Stark exception.

Prior to January 1, 2016, if the noncompliance was inadvertent, the parties had 90 days to obtain the required signatures. If the noncompliance was not inadvertent, the parties were required to obtain the required signatures within 30 days. The Final Rule modifies this provision to permit parties to obtain the required signatures within 90 days regardless of whether the failure to obtain the signatures in advance was inadvertent.

4. Other

In addition to the modifications described above, the Final Rule included technical revisions intended to improve the consistency and clarity of the regulatory language. The Final Rule updates the language of the Stark exception for physician ownership of publicly traded securities. It also modifies the regulations for grandfathered physician-owned hospitals qualifying for the Stark exceptions for ownership of a rural provider or whole hospital.