Update (Feb. 22, 2021):
As discussed below, the final rules discussed in the alert below were given a Jan. 19, 2021,
effective date, but some ambiguity existed with respect to their effective
status. Since publication, according to an industry publication, CMS has
now
clarified its view that the regulations finalized in the final rule are effective. McGuireWoods will continue to review further guidance from the new
administration to understand if the policies in this final review are
otherwise modified or retracted.
As discussed in a
previous McGuireWoods alert, the U.S. Department of Health and Human Services (HHS) published final
rules that significantly amend the regulations to the Physician
Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and
the Civil Monetary Penalties (CMP) Law. This client alert, the final in McGuireWoods’ summary series on these final rules,
focuses on new exceptions, guidance and other policies to aid in
Stark Law compliance.
The Stark Law final rule discussed in this alert was originally given a
Jan. 19, 2021, effective date. Since publication, however, the
Government Accountability Office concluded
that the final rules did not incorporate a required 60-day delay in their
effective date. Meanwhile, on Jan. 20, 2021, the
Biden administration paused final rules
from the Trump administration from taking effect. McGuireWoods will review
further guidance from the new administration to understand if the policies
in this final review are modified, retracted or corrected with a new
effective date, although such a statement has not been made to date.
The Stark Law policy changes in the final rule include (1) a new exception
for limited monetary compensation; (2) changes to the group practice
definition, particularly on physician profit-sharing; (3) definitional
clarification for interpreting the regulations and application of the
exceptions; and (4) other clarifications to ease compliance. By
implementing these changes, the Centers for Medicare & Medicaid
Services (CMS) expressly noted its intent is to interpret the Stark Law
“prohibitions narrowly and the exceptions broadly.” Therefore, the final
rule permits more flexibility for compensation arrangements that could, in
the absence of these changes, be deemed a prohibited financial relationship
between a physician referrer and a provider of designated health services
(DHS) that did not squarely meet an exception to the Stark Law. In
finalizing this rule, CMS provided additional clarification and bright-line
rules based in part on knowledge gained from receiving more than 1,200
Self-Referral Disclosure Protocol voluntary filings.
Notably, the final rule largely adopts the policies in its proposed rule,
discussed in a
Nov. 7, 2019, McGuireWoods alert, with certain key changes to the proposals discussed below. This alert
outlines CMS’ changes to modernize its Stark Law regulations and provides
eight key takeaways for healthcare providers.
- CMS finalized a new exception for limited monetary physician
compensation, capped at $5,000 per year. CMS added a new limited monetary compensation exception, which would
allow physicians to be paid up to $5,000 per calendar year (adjusted for
inflation), in the aggregate, for items or services provided by the
physician (directly or through employees, a wholly owned entity or through locum tenens
physicians) without a signed writing or
compensation set in advance. This $5,000 limit was increased from CMS’
initial proposal of $3,500, following industry comment. CMS, however, still
requires that the compensation (a) not take into account the volume or
value of referrals or other business generated, (b) not exceed fair market
value, (c) be commercially reasonable and (d) if conditioned on the
physician’s referrals to a particular provider, satisfy the special rules
on compensation discussed further below. The final rule also limits the use
of this exception to protect percentage-based and per-click equipment and
space leasing arrangements.
CMS noted as a basis for this new exception that, through the Self-Referral
Disclosure Protocol, it regularly encountered arrangements it deemed
non-abusive but which failed to meet the requirements for a Stark Law
exception (e.g., where a hospital paid a physician a fair market value
amount and had a legitimate need for physician services, yet failed to
satisfy an exception because the arrangement was not in writing).
Importantly, the $5,000 limit does not include amounts paid for items or
services if that compensation is itself protected under a different
exception. However, if an entity has multiple undocumented, unsigned
agreements under which it provides compensation to a physician, CMS will
treat these as a single compensation arrangement, the aggregate of which
cannot exceed the limit under this exception during a calendar year. CMS
also clarified this exception might allow a grace period at the outset of a
financial arrangement before the elements of another exception are met,
specifically adding language to the personal services arrangements and fair
market value exceptions indicating they can be used in conjunction with
this exception.
- Changes to the group practice definition may necessitate certain
revisions to compensation plans before 2022. The nuanced, technical definition of “group practice” is a critical
concept under the Stark Law. Congress created certain exceptions for
referrals within group practices, including the in-office ancillary
services exception, understanding that internal DHS referrals are
commonplace and foster continuity of care and patient convenience.
Therefore, even minor changes to the group practice definition can have
significant impacts necessitating changes to, among other things, the way
in which physicians in a group practice are compensated.
Here, most significantly, CMS finalized a deemed-compliant methodology for
distribution of profits related to participation in a value-based
enterprise or VBE (that is, a practice may distribute to a physician
profits derived from such physician’s participation in a VBE). CMS also
finalized several clarifying revisions to the group practice profit-sharing
rules (including that practices may not separately pool different
categories of DHS revenue for distribution to different groups of
physicians). In addition, CMS removed the reference to Medicaid from the
definition of “overall profits,” which historically created certain
compliance ambiguity. To allow group practices time to revise their
compensation plans consistent with these regulatory changes, CMS delayed
the effectiveness of these changes to Jan. 1, 2022.
McGuireWoods anticipates providing additional specific guidance on these
group practice rule changes later this year before the official effective
date.
- CMS clarified key terms to alleviate the compliance burden. In the final rule, CMS clarified key terms frequently cited in the Stark
Law by detangling the following three distinct elements so as to “reduce
the burden” of providers’ compliance with the Stark Law:
- “Commercially Reasonable” Element. For the first time,
CMS defined “commercially reasonable,” adopting a meaning “that the
particular arrangement furthers a legitimate business purpose of the
parties to the arrangement and is sensible, considering the characteristics
of the parties, including their size, type, scope, and specialty.” CMS
chose this definition instead of two alternative proposed definitions. In
defining this term, CMS codified a favorable response to recent court
decisions that a “commercially reasonable” arrangement does not need to be
profitable (e.g., certain hospital call coverages are necessary to keep the
hospital open but payment for coverage may exceed the patient fees
generated). CMS reiterated in the final rule that papering an arrangement
as commercially reasonable does not alone satisfy this element, and
instead, determinations will be made on a case-by-case, facts and
circumstances basis primarily asking whether the arrangement “makes sense
as a means to accomplish the parties’ goals.”
- “Volume or Value” and “Other Business Generated” Bright-Line Standards. CMS finalized special rules for the “volume or value” and “other business
generated” standards to create more bright-line, objective tests. These
special rules effectively ask if the compensation paid to or received from
a physician increases or decreases as the value of the referrals or other
business generated increases or decreases. CMS explained that, effectively,
if the amount of a physician’s referrals to an entity is a variable in the
mathematical formula used to calculate the physician’s compensation, such
compensation would be considered to take into account the volume or value
of referrals or business generated.
- “Fair Market Value” and “General Market Value” Definitions. CMS finalized three separate definitions for “fair market value” that
will apply separately to equipment rentals, to office space rentals and to
all other arrangements generally. The definitions did not substantially
alter the statutory definition; however, the proposed definitions
specifically included a reference to “general market value” regarding
assets, compensation and rental of equipment or office space, noting that
it would be the amount “as the result of bona fide bargaining
between well-informed” parties not “in a position to generate business for
each other.” CMS did not finalize a proposal that these definitions would
refer to arrangements “with like parties and under like circumstances, of
like assets,” responding to commenters who expressed concerns with this
language’s applicability to unique arrangements.
- CMS made additional clarifications to ease Stark Law compliance burdens.
- Definitional Changes.
- DHS. For inpatient hospital services, CMS finalized changes to
the definition of DHS to carve out inpatient services that do not increase
Medicare’s payment under a prospective payment system (PPS), such as an
X-ray that is ordered after the PPS rate has been established by the
relevant payment rules for inpatient hospitals, inpatient rehabilitation
facilities, inpatient psychiatric facilities and long-term care hospitals.
However, the finalized carve-out does not apply to hospital services
furnished in the outpatient setting.
- Remuneration. CMS finalized its proposed changes clarifying
the “used solely” requirement for items that are excluded from the
definition of remuneration. Specifically, the furnishing of surgical items,
devices and supplies that might have alternative purposes will not be
considered remuneration if such items are in fact used for one of six
explicitly designated statutory purposes. Notwithstanding this change, CMS
continued to emphasize that items like sterile gloves, essential to the
specimen collection process, are fungible and therefore cannot qualify for
this remuneration carve-out.
- Isolated Financial Transaction. CMS finalized changes to the
definition of “isolated financial transaction” to specify that it includes
arrangements beyond a one-time sale of a property or a practice. The final
rule limits use of this change for forgiveness for an amount or owed as
part of settlement of a bona fide dispute under certain conditions. CMS
continued to limit the use of the definition (and by extension, the
exception) that the forgiveness must be fair market value, the amount must
not be determined in a way that takes into account the volume or value of
referrals generated, and that the forgiveness cannot be used for multiple
services provided over an extended period, even if there is only one
payment for all of those services.
- Writing and Signature Requirements. CMS codified its
policy that electronic signatures could fulfill signature requirements. In
addition, CMS finalized its proposal to give a 90-day grace period to
satisfy the writing requirement (consistent with the prior grace period
granted for obtaining signatures). Importantly, however, this grace period
is not available for amending compensation in existing arrangements. In
addition, CMS stressed and reiterated that this grace period for
documenting an arrangement does not alleviate the need that compensation be
set in advance.
- Non-exclusive Rental Arrangements. Under current
exceptions, a lessee must have exclusive use of the office or equipment
being rented. CMS finalized its clarification giving greater freedom by
allowing multiple lessees to rent the same space as long as the lessor does
not have access to the space.
- Expanding Relevance of Two Existing Exceptions. CMS
liberalized two existing exceptions that past rulemaking had significantly
limited. First, CMS expanded the reach of the payments by a physician
exception allowing its use even if another regulatory exception could
apply. (Statutory exceptions still cannot.) Second, CMS finalized changing
the fair market value exception for use with short-term equipment and
office space rentals less than one year in length. CMS did decline to
finalize its proposed significant rewrite for remuneration unrelated to DHS
from hospitals, but indicated that it may consider a regulatory change here
again in the future.
- Physician Recruitment. CMS modified the signature
requirement for physician recruitment arrangements so a physician practice
has to sign the writing only if it is receiving a financial benefit from
the arrangement, but not if the practice merely passes the compensation
through to the recruited physician.
- Remuneration for Non-physician Practitioner (NPP) Patient Care Services. CMS revised the exception allowing a hospital, a federally qualified
health center or a rural health clinic to assist a physician in hiring an
NPP, previously discussed in a
Sept. 1, 2015, client alert. CMS clarified numerous service area questions, including that a nurse who
had not previously been an NPP (and thus has not provided “NPP patient care
services”) could remain in his or her community and a physician or
physician practice can receive this support to compensate such individual
after he or she becomes a nurse practitioner. CMS also revised the
exception to require that the arrangement between the NPP and
physician/physician practice begin on or after the commencement of
the assistance arrangement.
- Ownership or Investment Interests. CMS finalized,
without modification, its proposal regarding the definition of ownership or
investment interests. CMS affirmed that a titular ownership or investment
would not be considered ownership because a physician would not be entitled
to receive the financial benefits of ownership or investment such as profit
distributions, dividends or sale proceeds. This may be beneficial for some
corporate practice-of-medicine arrangements, although in many cases, the
in-office ancillary services exception already protects physician ownership
in a practice. In addition, CMS finalized changes to remove employee stock
ownership plans, or ESOPs, from its meaning of ownership so ownership and
investment interests do not include interests in an entity arising from
participation in an ESOP.
- Decoupling the AKS From the Stark Law. CMS removed the
requirement that providers comply with the AKS to meet most exceptions
where this language existed. Although the practical effect may be small,
this removed ambiguity to meet a strict liability statute by also having to
meet an intent-based criminal statute with narrower safe harbors. CMS noted
the AKS separately remains a “backstop” for problematic arrangements that
would no longer be restricted under the Stark Law, despite this change.
Note, CMS did not make this change with respect to the AKS element within
the fair market value exception despite proposing to do so, believing this
to be a substitute safeguard for requirements included in other exceptions
but omitted from the fair market value exception.
- CMS finalized its proposal to expand the directed referral requirement
in Stark Law exceptions. Prior to the final rule, Stark Law regulations contained a special rule
that allowed a physician’s compensation under an employment arrangement,
personal service arrangement or managed care contract to be
conditioned on referrals to a particular provider, if certain conditions
were met. One of the conditions provides that the referral could not be
required if (a) the patient expresses a preference for a different
provider, (b) the patient's insurer determines the provider, or (c) the
referral is not in the patient's best medical interests. CMS finalized its
proposal to utilize this special rule on directed referrals with Stark Law
exceptions for academic medical centers, physician incentive plans, group
practice arrangements with a hospital, fair market value compensation, and
indirect compensation arrangements.
Notably, CMS added a condition to referral requirements that “neither the
existence of the compensation arrangement nor the amount of the
compensation is contingent on the number or value of the physician’s
referrals to the particular provider, practitioner, or supplier.” CMS
explained that, as an example, if an employer increases a physician’s
compensation in a renewal term only if the physician met his or her
targeted numbers for referrals for DHS, the compensation arrangement would
not comply with this new condition in the special
rule; however, if an employer increases a physician’s compensation in a
renewal term only if the physician referred a certain percentage of his or
her patients to a particular provider, the compensation arrangement
would meet the new requirement in the special
rule. In other words, requiring a percentage or ratio of a physician’s
referrals to a particular DHS entity is allowed.
- CMS finalized its proposal to delete its “period of disallowance” rule
and provide greater flexibility in curing noncompliance and reconciling
compensation. For purposes of the DHS referral prohibition, CMS developed a “period of
disallowance” concept to identify the time period when a physician would be
prohibited from making referrals. CMS has now deleted its existing language
for this concept. Instead, CMS provided a general principle that the period
of disallowance “should begin on the date when a financial relationship
fails to satisfy all requirements of any applicable exception and end on
the date that the financial relationship ends or is brought back into
compliance” by satisfying all requirements of an applicable exception. This
period of disallowance will be determined on a case-by-case basis in light
of the relevant facts and circumstances.
Further, CMS finalized guidance to permit curing potential noncompliant
compensation arrangements related to administrative errors, operational
errors or payment discrepancies during the course of an arrangement to
avoid triggering a period of disallowance. However, CMS noted that
retroactively curing previous noncompliance by recovering or repaying
problematic compensation after an arrangement ends is still prohibited.
Therefore, if a provider reconciles compensation to satisfy this new
regulatory language, it must be done within 90 calendar days of termination
or expiration of an arrangement.
- CMS finalized a new exception and modifications to the electronic
health record (EHR) exception to extend protections for cybersecurity
technology. As discussed in a
Jan. 12, 2021, McGuireWoods alert, CMS joined the Office of the Inspector General (OIG) in finalizing a new
exception and modifications of an existing exception to protect
cybersecurity technology. The cybersecurity technology donation exception
does not require the donation recipient to cover any of the costs of the
technology, and CMS did not finalize a proposal that a risk assessment be
conducted to determine if the technology was reasonably necessary. In
addition, CMS finalized the following changes to the existing EHR
exception: (a) the addition of cybersecurity technology and services, (b)
modernization updates regarding interoperability provisions, (c) changes to
cost-sharing requirements to allow payments at reasonable intervals, (d)
removal of the replacement technology donation prohibition and (e) removal
of sunset provisions.
- CMS adopted value-based exceptions. As discussed in a
Jan. 20, 2021, McGuireWoods alert, CMS, in an effort to foster a greater emphasis on value-based care,
finalized three new Stark Law compensation exceptions, in conjunction with
OIG’s proposed safe harbors to the AKS. Specifically, the Stark Law now
will allow remuneration exchanged between or among participants in certain
value-based arrangements (e.g., care coordination arrangements designed to
improve quality, health outcomes and efficiency). CMS structured the
requirements for these value-based exceptions around whether the
value-based arrangement (a) has full financial risk, (b) has meaningful
downside financial risk or (c) is another value-based arrangement, with the
most significant regulatory burden for this third exception falling on
those without financial risk. In adding these exceptions, CMS finalized a
new value-based enterprise definition that would allow multiple entities to
collaborate to achieve value-based purposes
In implementing this final rule, CMS sought to balance a need for
innovation with the potential for improper inducements prohibited by the
Stark Law, by removing certain burdens while clarifying the law and adding
new exceptions. As noted, CMS expressed a desire to allow providers to
consider the Stark Law’s prohibition narrowly, while considering its
exceptions broadly, which may open additional avenues to argue that an
arrangement is compliant. The industry appears receptive to these changes
to a strict liability statute that otherwise prohibits a physician
referring DHS when a financial relationship does not meet an exception.
Contact a McGuireWoods attorney or one of the authors of this alert for
more information regarding these final rules. Given the significance of
these changes, McGuireWoods has been providing additional analysis and
summaries.
To review additional guidance on the final rules, see the following
McGuireWoods legal alerts:
