CMS Finalizes Changes to Stark Law

Monday, January 18, 2016

Last month, we discussed a new exception to the Stark Law that will allow hospitals, federally qualified health centers and rural health clinics to provide payments to physicians for the purpose of recruiting and employing nonphysician practitioners (NPPs).

The Centers for Medicare & Medicaid Services (CMS) finalized this new exception on Oct. 30, 2015 (“Final Rule”). In addition to the exception for assistance provided to employ NPPs, the Final Rule added another exception and clarified certain terminology and technical revisions under the Stark Law. Below is a summary of those changes as established by the Final Rule.

The additional exception established by the Final Rule allows timeshare arrangements for the use of premises, equipment, personnel, items, supplies or services on a limited or as-needed basis. Before the Final Rule, timeshare arrangements had to be analyzed under the current space and equipment lease exceptions to the Stark Law, which only permit a physician’s use of the space or equipment during the specified term of a lease arrangement. Furthermore, unlike the space and equipment lease exceptions, the new exception does not require a minimum one-year term or impose exclusive use and control requirements. By adopting this timeshare exception, CMS establishes a distinction between more traditional office space lease agreements and timeshare arrangements. For this new exception to apply, an arrangement must comply with the following key elements, among others:

  • The arrangement must be between a physician and a hospital or physician organization in which the physician is not an owner, employee or contractor;
  • Either a physician or hospital may be the party using the premises, equipment, personnel, items, supplies or services;
  • The items covered by the arrangement must be used predominantly for the provision of evaluation and management services to patients of the party using the covered items for the services;
  • The equipment covered by the arrangement may not include advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment; and
  • The items covered by the arrangement must be in the same building as the office suite where the evaluation and management services are furnished.

This new exception also includes other requirements more common to Stark Law exceptions such as the requirement that the arrangement must be set out in writing and signed by the parties.

In addition to the NPP exception and the timeshare exception, the Final Rule also adopts the following clarifications and technical revisions related to the interpretation of the Stark Law:

  • The Final Rule updates various exceptions to consistently use the phrase “takes into account” the volume or value of patient referrals, instead of the phrases “based on” or “with regard to” the volume or value of patient referrals. This change is intended to provide for uniform interpretation of the regulations, which has been subject to confusion because of the inconsistent use of the phrases in prior versions of the Stark Law rules.
  • Certain arrangements that must be set out “in writing” need not be documented in a single, formal contract and may instead be expressed in a collection of documents evidencing the course of conduct between the parties.
  • Indefinite “holdover” periods under the office space and equipment lease exceptions and the personal service arrangements exception are permitted if the arrangement otherwise continues on the same terms and conditions as the original arrangement and satisfied all of the elements of the applicable exception when the arrangement expired and continues to satisfy the required elements on an ongoing basis during the holdover.
  • Exceptions that require an arrangement to have a term of at least one year are satisfied if the arrangement lasts for at least one year or the parties terminated the arrangement during the first year and did not enter into a new arrangement for the same services.
  • The period in which signatures must be obtained by all parties of an arrangement is 90 days, eliminating the distinction between the previous 30-day (“deliberate” delays) and the 90-day (“inadvertent” delay) signature gap period.

The Final Rule also sets forth revisions to how ownership percentages for physician-owned hospitals are calculated. The Final Rule became effective on Jan. 1, 2016, except for the changes on calculating ownership percentages for physician-owned hospitals, which become effective on Jan. 1, 2017.

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Cliff Robertson is an Associate and member of Strasburger & Price, LLP’s Health Law Practice Unit in San Antonio. He can be reached at 210-250-6000.