Recent Changes to the Federal Stark Law

Editor’s Note: This article was originally published in the 2016 Winter Issue of Alabama Medicine magazine

Most physicians are aware of the Federal Stark Law and the limitations it places on a physicians’ ability to enter into financial relationships with potential referral sources. Can I refer patients to the physical therapy practice I own? Can I lease space and/or equipment from the hospital? Can I share my front desk personnel with another provider? These are questions we commonly hear from physicians who are navigating the complicated web of health care compliance under the Stark Law. Recent changes to the Stark Law enacted through the 2016 Medicare Physician Fee Schedule Final Rule (“Final Rule”) may provide added flexibility to physicians contemplating some of these types of arrangements.

The issuance of the Final Rule on Nov. 16, 2015, was the first time the industry has seen such broad changes to the physician self-referral law in several years. According to the Centers for Medicare and Medicaid Services (CMS), the changes are designed to “accommodate delivery and payment system reform, to reduce burden, and to facilitate compliance.” The majority of the changes took effect Jan. 1, 2016.

The Stark Law prohibits a physician from referring Medicare or Medicaid patients for certain “designated health services” to entities with which the physician (or an immediate family member of the physician) has a financial relationship, unless an exception applies. Any relationship in which remuneration (i.e., something of value) flows between the parties is considered a financial relationship under the Stark Law.

Designated health services (“DHS”) covered by the Stark Law include the following:

1. clinical laboratory services;
2. physical therapy, occupational therapy, and outpatient speech language pathology services;
3. radiology and certain other imaging services;
4. radiation therapy services and supplies;
5. durable medical equipment and supplies;
6. parenteral and enteral nutrients, equipment and supplies;
7. prosthetics, orthotics and prosthetic devices and supplies;
8. home health services;
9. outpatient prescription drugs; and
10. inpatient and outpatient hospital services.

The majority of the Final Rule changes address the exceptions to the Stark Law — in other words, the instances in which CMS has stated that a financial relationship is permitted between referring parties. While a summary of all the recent changes is beyond the scope of this article, I did want to highlight some of the more significant changes.

In the Final Rule, CMS established two new Stark Law exceptions. The first exception permits hospitals, federally qualified health centers (FQHC), or rural health clinics (RHC), to provide assistance to physicians to recruit and compensate non-physician practitioners (i.e., nurse practitioners, clinical nurse specialists, physician assistants, certified nurse midwives, clinical social workers, and clinical psychologists) under certain conditions. In other words, physicians can now receive recruitment incentives to attract non-physician practitioners to their practice.

In order to take advantage of the exception, among other things, at least 75 percent of the patient care services provided by the recruited non-physician practitioner must be primary care or mental health services. Further, the payment to the physician by the hospital, FQHC, or RHC cannot exceed 50 percent of the aggregate compensation, signing bonus, and benefits paid to the non-physician practitioner and must be consistent with fair market value. This new exception may only be utilized once every three years for a particular physician (unless the non-physician practitioner leaves prior to the expiration of one year) and there is a two-year limit on the assistance provided by the hospital, FQHC, or RHC.

The second new Stark Law exception permits time-share arrangements for the use of office space, equipment, personnel, items, supplies and services. The exception applies to arrangements that grant a right of permission to use the premises, equipment, personnel, items, supplies, or services, but not to arrangements that transfer control over such items. While these types of arrangements have been in place for years and have been analyzed under other Stark Law exceptions, the new exception provides clarification and flexibility. There are some limitations, however, to the use of the new exception. For example, advance imaging equipment (e.g., MRI and CT) and clinical or pathology laboratory equipment may not be used within the shared space. Further, compensation formulas based on revenue percentage or per-unit fees are prohibited.

In the Final Rule, CMS also clarified several existing Stark Law exceptions. While a discussion of all of the clarifications is beyond the scope of this article, I wanted to highlight a few:

• Many Stark Law exceptions contain a requirement that the arrangement be “in writing.” However, sometimes physicians fail to enter into or sign a formal written contract prior to the initiation of the arrangement. In the Final Rule, CMS clarified that the “writing” does not necessarily need to be a single written formal contract, but rather can be a collection of contemporaneous writings that relate to each other and that document the relationship (e.g., e-mails, invoices, check requests, board meeting minutes, time sheets, etc.). A document produced after a referral is made, however, cannot be used to demonstrate compliance with respect to prior referrals. Nonetheless, despite the clarification, a single written contract remains the recommended method of documentation when possible.
• Under the previous provisions, if a signature to an arrangement was missing, the parties had 30 days to obtain the missing signature if the omission was not inadvertent and 90 if the omission was inadvertent. Under the Final Rule, parties now have 90 days to obtain a missing signature regardless of whether the omission was inadvertent.
• For exceptions requiring a one-year arrangement, CMS clarified that the one-year term does not have to be directly expressed in the writing, provided the parties can show factual compliance with the one-year requirement through other documentation.
• Previously, under the exception for leases and personal services agreements, a holdover period at the expiration of the agreement was limited to six months. In other words, if the agreement expired and the parties failed to enter into a new agreement, the old agreement could govern the relationship but only for a period of six months. The Final Rule allows for an indefinite holdover period on the same terms as the original agreement as long as the arrangement remains compliant with the applicable exception. However, amendments during the holdover period are prohibited. In light of this change, it is highly recommended that the parties review holdover agreements periodically to confirm that the arrangement remains compliant (e.g., that the payment remains consistent with fair market value).
• CMS clarified that when parties split-bill for services (e.g., hospital bills technical component and physician bills professional component), this alone does not create a financial relationship triggering the Stark Law between the parties.
• The Final Rule clarifies the definition of remuneration under the Stark Law does not include the provision of items, devices, or supplies that are used solely to collect, transport, process or store specimens or to order or communicate the results of tests or procedures.

Physicians contemplating arrangements that may fall under a Stark Law exception are encouraged to review these latest developments. Depending on the circumstances, some of the most recent changes may provide added flexibility and additional options for physicians.

Contributed by Kelli Fleming, a partner at Burr & Forman, LLP, who works exclusively within the firm’s Health Care Practice Group. Burr & Forman, LLP, is an official Bronze Partner with the Medical Association.