CMS publishes new exceptions and several clarifications to Stark Law


On November 16, 2015, the Centers for Medicare and Medicaid Services (CMS) published in the Federal Register a final rule (Final Rule) affecting regulations under the Stark Law. The Final Rule was published as part of revisions to the Medicare Physician Fee Schedule for 2016.

The Stark Law prohibits physician referrals for certain designated health services provided by an entity with which the referring physician or a member of the physician’s immediate family has a financial relationship. Such referrals are permissible only when the financial relationship strictly complies with an exception to the law. The Final Rule is designed to expand access to care and to facilitate compliance with the Stark Law and the law’s exceptions. To meet these objectives, the Final Rule adopts two new exceptions to the Stark Law, revises the exception for physician-owned hospitals, and clarifies several terms and requirements in the Stark Law’s regulations.

Recognizing the value of nonphysician practitioners (NPPs) in the delivery of health care, CMS adopted a new exception for financial assistance designed to facilitate the recruitment of NPPs. The new exception will permit hospitals, rural health clinics (RHCs), and federally qualified health centers (FQHCs) to provide financial assistance to physicians who will directly contract with or employ certain NPPs for the provision of primary care or mental health services in the geographic area served by the hospital, RHC, or FQHC. NPPs covered by the new exception include nurse practitioners, clinical nurse specialists, certified nurse midwives, physician assistants, clinical psychologists, and clinical social workers. For the exception to apply, at least 75 percent of the NPP’s services furnished to the physician’s patients must be primary care or mental health services.

The exception is designed for the initial recruitment of NPPs. Moreover, the exception will not apply to the long-term subsidization of a physician’s arrangement with an NPP. Thus, the exception will apply only if the NPP did not practice in the relevant geographic area or was not affiliated with a physician or physician organization located in the geographic area in the year prior to the commencement of the arrangement. Furthermore, assistance from the hospital, RHC, or FQHC may be for a maximum of two years and can be offered to the same physician only once every three years.

To qualify for the exception, financial assistance furnished by a hospital, RHC, or FQHC to a physician who contracts with or employs a NPP must meet several requirements, including the requirement that compensation paid by the physician to the NPP must not exceed the fair market value of the NPP’s services. Furthermore, the financial assistance paid by the hospital, RHC, or FQHC to the physician cannot exceed 50 percent of the compensation, signing bonus, and benefits paid by the physician to the NPP. Records of the amount paid by the physician to the NPP and of the remuneration furnished by the hospital, RHC, or FQHC to the physician must be maintained for six years.

Seeking to promote access to care, especially in rural areas, CMS adopted a new exception for timeshare arrangements. Timeshare arrangements are “arrangements for the use of another person or entity’s premises, equipment, personnel, items, supplies, or services by physicians who, for various legitimate reasons, do not require or are not interested in a traditional office space lease arrangement.” Under the new exception, a physician may enter into a timeshare arrangement with a hospital or physician organization that is not affiliated with the physician.

Many elements of the new exception for timeshare arrangements are similar to the requirements for leases with physicians. Additional requirements not found in the exception for leases will apply to the new timeshare exception. For example, the equipment covered by the timeshare may not be “advanced imaging equipment, radiation therapy equipment, or clinical or pathology equipment (other than equipment used to perform CLIA-waived laboratory tests).”

In addition to the two new exceptions, CMS adopted revisions to the physician-owned hospital exception. After the enactment of the Affordable Care Act (ACA), only certain physician-owned hospitals could qualify for an exception to the Stark Law. Specifically, only hospitals that had physician owners prior to enactment of the ACA and that had a provider agreement on December 31, 2010, could qualify for the exception for physician-owned hospitals. The exception contains several requirements, including a limit on the percentage of physician investment and certain disclosure requirements.

A physician-owned hospital must disclose that it has physician investors in public advertising and on public websites. To clarify the disclosure requirement, CMS published a non-exhaustive list of websites that do not require a statement regarding the physician owners. The list includes electronic patient care portals, health information exchanges, and social media, such as a hospital’s social media page. The Final Rule also clarifies the definition of “public advertising.” Such advertising includes communications paid for by a physician-owned hospital that are designed to encourage patients to seek care at the hospital. Under the revised definition, various public communications, such as public service announcements, would not need to disclose information concerning physician investors.

In the Final Rule, CMS clarified that all physician investors with direct or indirect interests in a hospital must be factored into the determination of whether or not the percentage of physician investors satisfies the exception’s limit. In the past, CMS commentary indicated that only physicians who referred to the hospital were included in the calculation. Under the revisions adopted in the Final Rule, however, all physicians, including non-referring physicians, must be included in the calculation.

After reviewing submissions to the Self- Referral Disclosure Protocol and comments from the industry, CMS sought to clarify several regulatory requirements in order to facilitate compliance with the Stark Law. Four clarifications announced in the Final Rule will help providers avoid common technical violations of the law.

Several exceptions require that an arrangement be set forth in writing. In the Final Rule, CMS clarified that the terms of such arrangements do not have to be in a single contract. “[T]here is no requirement under the physician self-referral law that an arrangement be documented in a single formal contract. Depending on the facts and circumstances of the arrangement and the available documentation, a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the leasing exceptions and other exceptions that require that an arrangement be set out in writing.” For example, board minutes, check requests, and time sheets may qualify as such contemporaneous documents.

Similarly, CMS announced that a written agreement specifying the exact term of an arrangement is not required to satisfy exceptions that require a term of at least one year. “An arrangement that lasts as a matter of fact for at least one year satisfies this requirement. Parties must have contemporaneous writings establishing that the arrangement lasted for at least one 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.”

CMS relaxed technical requirements found in the exceptions for personal services and leases. Historically, such arrangements could hold over for six months after the contracts expired as long as the arrangements continued on the same terms. CMS expanded the holdover provision to an indefinite period as long as the arrangement continued to comply with the applicable exception, including requirements for fair market value compensation.

Finally, CMS relaxed technical requirements for signatures. When an exception requires that an arrangement be set in writing and signed by the parties, the parties will have ninety days after commencement of the arrangement to obtain the required signatures.

Hospitals and physicians should review the clarifications discussed in the Final Rule to ensure that their financial relationships continue to meet exceptions to the Stark Law. The revisions to the exception for physician-owned hospitals will take effect on January 1, 2017. All other changes identified in the Final Rule will take effect on January 1, 2016.