Top Ten Stark Law Takeaways from the Calendar Year 2016 Physician Fee Schedule Proposed Rule

On July 15, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published the Calendar Year 2016 Physician Fee Schedule Proposed Rule (“Proposed Rule”).  The Proposed Rule includes several clarifications and proposed modifications to the Stark Law regulations (“Stark Regulations”), including the creation of two new exceptions.  The Proposed Rule appears to reflect two key themes:

  • CMS is seeking to ease the burden of certain Stark Law requirements, thereby reducing the need for providers to self-disclose certain “technical” violations of the Stark Law.
     
  • CMS has proposed changes to the Stark Regulations and seeks comments regarding whether additional guidance and rule-making is needed to promote health reform initiatives, including alternate payment models and value-based purchasing.

Though the Proposed Rule will not be finalized until late fall 2015, there are several areas in which CMS clarified its position on existing regulations, and providers may rely on those clarifications as they review past and present conduct.  Below are the top ten Stark Law takeaways from the Proposed Rule.

  1. Clarification of Writing Requirements.  Interpreting the “in writing” component of the current exceptions for the rental of office space, the rental of equipment and personal service arrangements, CMS clarified that these and other compensation arrangements may be documented in a collection of writings rather than as a single, formal contract.  This clarification stems from CMS’s review of self-disclosures where providers have successfully met the “in writing” requirement by combining disparate, contemporaneous documents to evidence a particular course of conduct.  CMS notes that, in most instances, 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.  Nevertheless, providers may satisfy the “in writing” requirement in several compensation exceptions by having a collection of documents demonstrating the terms of the arrangement.  To create uniformity among various compensation exceptions, CMS proposed to substitute the term “arrangement” for “agreement” in these and other exceptions that require writings, including the physician recruitment and fair market value compensation exceptions.    
  1. Clarification of Term Requirement.  CMS also clarified that an explicit “term” provision within a formal contract or other document is generally not necessary to satisfy the one-year requirement under the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements.  According to CMS, the one-year term requirement is satisfied when an arrangement lasts for one year as a matter of fact.  To this end, parties must have contemporaneous writings establishing that an 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 remainder of the first year.  While this clarification provides relief for providers who did not have an explicit one-year term provision in original documentation where the arrangement nonetheless has lasted for more than one year, it is still best practice to include a specific term of not less than one year in personal service agreements and space and equipment leases.
  1. Broadening of Holdover Allowances and the Fair Market Value Exception.  CMS proposed to amend the six-month holdover provisions within the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements, to permit either indefinite holdovers or, in the alternative, to extend permitted holdovers to a definite period that is greater than six months (e.g., one year, two years or three years), provided that additional safeguards are met.  As it considers how to modify the holdover provision, CMS intends to safeguard against two potential sources of program or patient abuse: (a) frequent renegotiation of short-term arrangements based on a physician’s referrals, and (b) compensation or rental charges that become inconsistent with fair market value over time.  To prevent frequent renegotiation of short-term arrangements, the holdover must continue on the same term and conditions as the original arrangement.  If the parties change the original terms and conditions of the arrangement, CMS would consider this a new arrangement that would need to satisfy an applicable exception.  To ensure the compensation is consistent with or does not exceed fair market value, as applicable, the proposed holdover provisions require that the holdover arrangement satisfy all the elements of the applicable exception when the arrangement expires, and that it continue to satisfy the elements of the applicable exception on an ongoing basis during the holdover as well.

    In conjunction with its proposed amendment of the holdover provisions, CMS has proposed amending the exception for fair market value compensation arrangements.  The current exception allows arrangements for less than one year to be renewed any number of times, provided that the terms of the arrangement and the compensation for the same items or services do not change.  CMS now proposes to amend the exception to permit arrangements of any timeframe, including those for more than one year, to be renewed any number of times, provided that the terms of the arrangement and the compensation for the same items or services do not change.  CMS is actively seeking comments as to whether the proposed revision of the fair market value compensation exception would be necessary if the proposed revisions to allow indefinite holdovers are finalized as presented in the Proposed Rule.
  1. Updates Regarding “Remuneration,” “Geographic Area” and “Takes Into Account.”   CMS has proposed several new or revised definitions to provide additional clarity and certainty to parties in interpreting several Stark Law exceptions.  Specifically, CMS proposed to (a) revise the definition of “remuneration,” (b) add a new definition of “geographic area,” and (c) modify the usage of “takes into account.”  The specific proposals are as follows:
  • CMS proposed to revise the definition of “remuneration” to make it clear that the provision of items, devices or supplies is not considered “remuneration” if it is used solely for one or more of six delineated purposes: to collect, transport, process or store specimens for the entity providing the items, devices or supplies, or to order or communicate the results of tests or procedures for such entity.  CMS also took the opportunity to clarify its position as it relates to the Third Circuit Court of Appeal’s decision in United States ex rel. Kosenske v. Carlisle  HMA, 554 F.3d 88 (3d Cir. 2009).  In that case, the Third Circuit Court of Appeals held that a physician’s use of a hospital’s resources (e.g., examination rooms, nursing personnel and supplies) when treating hospital patients constitutes remuneration under the Stark Law, when the hospital bills the technical component for services it provides and the physician separately bills his or her professional fees.  Contrary to the court’s decision, CMS does not believe that such an arrangement involves remuneration between the hospital and the physician as the parties do not provide items, services or other benefits to one another.  Rather, each party is providing services or items to the patient.
     
  • CMS proposed adding a new definition of “geographic area” for areas served by federally qualified health centers (“FQHCs”) or rural health clinics (“RHCs”) to ensure that the definition captures the areas where patients of such providers actually reside and to provide certainty to FQHCs and RHCs that their physician recruitment arrangements satisfy the recruitment exception. 
     
  • For the sake of consistency, CMS proposed to amend several compensation exceptions to use the phrase “takes into account” to describe the volume or value standard for referrals where other non-uniform phrases such as “based on” currently appear in the regulations.  This proposal would, for example, modify the physician recruitment exception where payments to a recruited physician are excluded if a hospital does not determine the amount of compensation “based on” the volume or value of referrals. 
  1. New Exception for Certain Timeshares.  CMS proposed a new Stark Law exception for timeshare arrangements for the use of office space, staff and equipment where the arrangements are structured as a license (rather than a lease).  These arrangements typically have had difficulty meeting the exclusivity requirement under the existing office space lease exception because a license generally does not provide for exclusive use of the premises and it may have a term of less than one year.  Notably, the proposed exception may only be used for timeshare arrangements 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.  Further, the proposed exception would require that the licensed premises, equipment, personnel, items, supplies and services be used by the physician to furnish predominantly evaluation and management (“E&M”) services to patients of the licensee.  CMS also proposed to limit the type and location of the licensed equipment to only that which is used to furnish designated health services ("DHS") that is incidental to the patient’s E&M visit and furnished contemporaneously with that visit.
  1. Expansion of Temporary Noncompliance with Signature Requirements ExceptionCMS has proposed to expand the rule regarding temporary noncompliance with signature requirements to allow up to 90 days for the obtaining of all required signatures, regardless of whether a late signature is advertent or inadvertent.  Under the current rule, if the failure to comply with the signature requirement is not inadvertent, the parties must obtain the required signature(s) within 30 days.  CMS’s proposal clearly signals its intent to reduce so-called “technical” violations of the Stark Law.
  1. Clarified “Stand in the Shoes” Signature Requirement.  When applying the “stand in the shoes” rule regarding when a physician is treated as “standing in the shoes” of his or her physician organization, CMS has clarified that the signature requirement is met when an arrangement is signed by the physician organization or any physician who stands in the shoes of such organization.  Employees and independent contractors of a physician organization are not parties to such organization’s arrangements unless they voluntarily stand in the shoes of the organization. 
  1. New Recruitment Exception for Non-Physician Practitioners.  As a result of primary care workforce shortages and the increasing need for access to primary care services, CMS proposed a limited exception for hospitals, FQHCs and RHCs to provide remuneration to physicians to assist with the recruitment and subsequent employment of non-physician practitioners (i.e., physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives) for fair market value compensation.  As proposed, the exception would apply only where the involved non-physician practitioner is a bona fide employee of the physician receiving the remuneration, and the purpose of such non-physician practitioner’s employment is to provide primary care services to the physician’s patients (i.e., general family practice, general internal medicine, pediatrics, geriatrics, and obstetrics and gynecology services).  The amount of remuneration to the physician would be capped utilizing a formula based on the fair market value compensation of the non-physician practitioner (notably, the proposed exception does not require that such compensation be “set in advance”).  The allowance would be available to a qualifying physician for a period not longer than the first two consecutive years of the non-physician practitioner’s employment.  As an additional safeguard, arrangements covered by the exception could not be conditioned on the physician’s or the non-physician practitioner’s referral of patients to the entity providing the remuneration.  In order to address the practice of non-physician practitioners, CMS proposed modifying the definition of “referral” for this exception only to include (a) requests by non-physician practitioners that include the provision of any DHS; (b) the establishment of any plan of care by a non-physician practitioner that includes the provision of such DHS; and (c) the certifying or recertifying of the need for such DHS, not including any DHS personally performed or provided by the non-physician practitioner.  Although this new exception is not yet final, providers may consider its potential utility when planning recruitment and staffing initiatives for Calendar Year 2016.
  1. Clarification of Retention Payment RegulationsCMS proposed modifying the regulations regarding retention payments for physicians practicing in underserved areas to mirror the language of the Phase III preamble, which reflects CMS’s intent to promulgate a specific methodology for calculating the upper limit of retention payments.  The current regulations state that such retention payments may not exceed the lower of (a) an amount equal to 25% of the physician’s current income (measured over no more than a 24-month period) using a reasonable and consistent methodology that is calculated uniformly, or (b) the reasonable costs the hospital would otherwise have to expend to recruit a new physician.  The proposed language would provide that retention payments may not exceed the lower of (a) an amount equal to 25% of the physician’s current annual income (averaged over the previous 24 months) using a reasonable and consistent methodology that is calculated uniformly, or (b) 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.  This proposed language comports with that of the Phase III preamble, and would cause entities to consider a full 24-month period rather than a portion of same when calculating retention payments. 
  1. More Specific Ownership and Advertising Requirements for Physician-Owned Hospitals.  CMS proposed specific guidance on how physician-owned hospitals may meet the physician ownership disclosure requirement on any public website and in any public advertising for the hospital.  Further, CMS proposed modifying its existing regulations to specify that, for purposes of determining the baseline bona fide investment level and the bona fide investment level thereafter, the ownership or investment interests by both referring and non-referring physicians are included.

The full text of the Proposed Rule is available here.  CMS will accept comments on the Proposed Rule until 5:00 p.m. on September 8, 2015.  If you have any questions about the implications of the Proposed Rule, or if you are considering submitting comments to CMS regarding the Proposed Rule, please contact any member of Drinker Biddle’s Health Care team. 

Source: Health Care Insight