CMS Issues Explanatory Guidance on Stark Law Blanket Waivers During COVID-19 Pandemic

April 30, 2020

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On April 21, 2020, the Centers for Medicare & Medicaid Services (CMS) issued guidance on the scope and application of the blanket waivers to the Physician Self-Referral Law (Stark Law) issued by the Department of Health and Human Services (HHS) on March 30, 2020, for use during the 2019 novel coronavirus (COVID-19) public health emergency. As discussed in an April 3, 2020, McGuireWoods client alert, the blanket waivers temporarily protect those financial relationships and referrals (and the claims submitted as a result thereof) specifically enumerated by HHS as pertaining to at least one outlined COVID-19 purpose. These blanket waivers were given a retroactive effective date of March 1, 2020, and thus protect those referrals and financial relationships from that date until the public health emergency ends.

To take advantage of the blanket waivers: (i) the provider must be acting in good faith to provide care in response to the COVID-19 pandemic; (ii) the financial relationship or referral must be one protected by one of CMS’ 18 permitted relationships; and (iii) the government must not determine that the resulting financial relationship creates other fraud and abuse concerns.

CMS’ waiver guidance provides informative clarification on many broad issues related to the blanket waivers’ intersection with existing Stark Law exceptions. Here are six key clarifications set forth in the blanket waiver guidance:

1. Compliance With Non-Waived Requirements of an Applicable Exception. CMS clarified that the blanket waivers waive only specific, enumerated elements of Stark Law exceptions, but the financial relationships or referrals, as applicable, must still satisfy all non-waived requirements of an applicable exception. For example, the blanket waivers allow an entity to exceed the annual nonmonetary compensation limit, but the other requirements of the nonmonetary compensation exception, such as the prohibition on physician solicitation of the compensation, still apply. The failure to satisfy one or more of the other non-waived requirements of an applicable exception would still trigger the Stark Law’s referral and billing prohibitions.

2. Amendment of Compensation Arrangements. CMS’ guidance reiterated permissible modifications to compensation arrangements during and after the public health emergency. CMS reminded parties that its previous preamble guidance allows amendments to remuneration terms of a compensation arrangement, even within the first year after an amendment, provided that, each time the remuneration terms are amended:

  1. all requirements of an applicable exception are satisfied,
  2. the amended remuneration is determined prior to its effectiveness,
  3. the formula for the amended remuneration does not take into account the volume or value referrals or other business generated by the referring physician, and
  4. the overall arrangement remains in place for at least one year following the amendment.

Parties seeking to utilize the blanket waivers in existing compensation arrangements during the COVID-19 pandemic must still satisfy all non-waived requirements of an applicable exception. Following the expiration of the public health emergency, the arrangement should then be modified to ensure it complies with an applicable Stark Law exception without use of the waivers. This clarification should give providers comfort to utilize the waivers to revise compensation, for example, knowing that the arrangement can be revised again at the end of the public health emergency.

Alternatively, CMS suggested that, rather than amending an arrangement, the parties could instead utilize one of the blanket waivers through a new arrangement. For example, if a hospital leasing office space to a physician is considered financial support to the physician due to the COVID-19 pandemic, instead of reducing office rent below fair market value (FMV) through a waiver, the hospital could leave the lease alone and instead enter into a separate compensation arrangement, such as a loan, to provide further support that would enable the physician to cover the rental payments.

3. Application to Indirect Compensation Arrangements. CMS confirmed a point made in a prior McGuireWoods alert that the blanket waivers apply only to direct compensation arrangements. The waivers explicitly do not apply to an indirect compensation arrangement between an entity and a physician or the immediate family member of the physician, as defined at 42 CFR § 411.354(c)(2). CMS noted, however, that parties with indirect compensation arrangements may request an individual Stark Law waiver.

Alternatively, CMS reiterated that in many cases, particularly those with physician organizations, a waiver for an indirect compensation arrangement would likely be unnecessary. The Stark Law regulations require an owner of a physician organization to “stand in the shoes” of his or her organization, such that the arrangement applies directly to such physician. Further, for employees of a physician organization, the physician has the option to also “stand in the shoes” of the physician organization. Therefore, for physician practices, at a minimum, the parties can utilize a blanket waiver by having all physician owners and employees “stand in the shoes” of the organization and treating the arrangement as a direct relationship.

4. Repayment Options for Loans Between a DHS Entity and a Physician. CMS’ blanket waivers Nos. 10 and 11 permit loans with interest rates below FMV or on terms that are unavailable from a third-party lender during the COVID-19 pandemic. After inquiries requesting the ability to pay loans back in kind, or via non-cash repayment, CMS clarified that neither the Stark Law exceptions nor the blanket waivers require cash payment to satisfy a loan. As a result, parties may repay a loan in kind through the provision of professional services. That said, like in other clarifications and as required by the blanket waivers, the other elements of the exception need to be maintained — here, most critically, that repayment by services would need to be FMV in-kind payments. It will also need to be commercially reasonable and may also implicate the federal anti-kickback statute (AKS). Notably, the Office of Inspector General (OIG) also issued a policy statement adopting certain blanket waivers (discussed in an April 7, 2020, McGuireWoods client alert), which likewise protects remuneration under the AKS protected by the blanket waivers, like the loans noted above, which should provide some additional comfort.

5. Repayment of Owed Amounts Post-COVID-19. CMS also clarified that loans granted pursuant to the waivers could be repaid after the public health emergency. This would be true with respect to payments below FMV for office space, equipment, items or services provided during the public health emergency where payment obligations (but not the application of the below-FMV rates) extend beyond the emergency. CMS assured parties that completing the terms of the arrangements after the emergency would not necessarily result in noncompliance under the Stark Law. To be compliant with the Stark Law, post-arrangement repayments may occur so long as appropriate repayment terms are set out at the start of the arrangement. For example, assume an arrangement provides for a physician to provide services to a hospital through Dec. 31, 2020, and provides for compensation to the physician by the hospital upon the presentation of a final invoice. In this situation, even if the hospital is presented with a final invoice on Jan. 15, 2021, for the services provided through Dec. 31, 2020, the fact that the hospital does not complete its repayment obligation until after Dec. 31, 2020, does not result in noncompliance under the Stark Law. CMS’ guidance reiterated that such repayment scenarios are permissible under Stark Law even outside the public health emergency.

While CMS provided flexibility on repayment of loans, CMS made it clear that any disbursement of loan proceeds or other remuneration after the termination of the blanket waivers must satisfy all requirements of an applicable exception, without the support of the waiver; i.e., one could not build a financial arrangement where the non-FMV remuneration would continue after the public health emergency.

6. Restructuring of Existing Recruitment Arrangements With Income Guarantees. CMS negatively responded to inquiries asking whether the blanket waivers address the extension or other restructuring of existing physician recruitment arrangements, but suggested an alternative approach. Specifically, CMS pointed to its 2007 advisory opinion, CMS-AO-2007-01, to explain that hospitals could not extend an income guarantee under an existing physician recruitment arrangement. CMS rationalized that a Stark Law-compliant recruitment arrangement should not be amended after the recruited physician has already relocated.

However, CMS made it clear that hospitals (or other entities) had alternative avenues under the blanket waivers to assist a recruited physician experiencing financial difficulties due to the public health emergency. For example, a hospital could utilize blanket waiver No. 5 to reduce rental charges below FMV or blanket waiver No. 10 to give a loan to the recruited physician with an interest rate below FMV or on terms that are unavailable from a lender. In both cases, the other requirements of the blanket waiver or the applicable exception would need to be maintained, but it may allow a hospital to continue support to recently recruited physicians without violating the recruitment arrangement exception.

Please contact the authors for additional information on the Stark Law blanket waivers and their availability to providers who may need assistance during the public health emergency.

McGuireWoods has published additional thought leadership on how companies across various industries can address crucial coronavirus-related business and legal issues. The firms COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.

Amber Walsh
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