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Chocolate, Beaches, Sunsets, Wine, and the Stark Law: One of These Things is Not Like the Others!

Health Law Update Sarah E. Coyne, Leah M. McNeely

Hello to our provider friends out there in the health care industry! Today is your lucky day, because you get to read about one of your favorite topics: The Stark Law (also known as the Physician Self-Referral Law)! And if just the joy of thinking about this strict liability law was not enough, we have TWO added bonuses for you in this update: (1) there are proposed Stark Law regulations that are actually GOOD NEWS for providers (YES, YOU READ THAT CORRECTLY—should we have warned you to sit down?); and (2) we have included a plain-language guide spelling out the basics of this heavily nuanced law, and have given practical advice on how to keep out of the (boiling) hot water.

Remember, the very bottom line of the Stark Law is that hospitals (and other entities) providing "designated health services" (DHS) may not bill or get paid by Medicare if the DHS were referred by a physician who has a financial relationship with the hospital, unless the arrangement fits squarely into a Stark Law exception. The super fun thing about the Stark Law is that intent does not matter, and both hospitals and the referring physicians are on the hook regardless of their hopes, dreams, and wishes. Moreover, there is no "de minimus" exception—so regulated providers have to track and count their pennies. Providers get in just as much trouble for little nuisance value arrangements (such as perks and gifts) as they do for high value arrangements (such as leases and service agreements). The only relief is to structure everything—absolutely everything—between hospitals and physicians to fit into an exception.

Cross your fingers for the proposed regulations to be finalized soon and in their current form!

Thankfully, the recently proposed rule creates some new and potentially very helpful exceptions, including:

Proposed Exception for Assistance to Physicians to Employ Nonphysician Practitioners

Paying physicians or groups strikes fear into the heart of any hospital that has struggled through the Stark Law. Fortunately, CMS is proposing a new exception to permit hospitals, federally qualified health centers (FQHCs), and rural health clinics (RHCs) to provide financial assistance to physicians or physician groups in order for the physicians to employ nonphysician practitioners (NPPs). The term "nonphysician practitioners" is proposed to include only physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives. This is a welcome development, given that NPPs are critical to the care provided in FQHCs and RHCs.

In order to meet the proposed exception:

  • The NPP must be a bona fide employee of the physician or physician group.
  • The physician/group must employ the NPP specifically for primary care services (i.e., general family practice, general internal medicine, pediatrics, geriatrics, and/or obstetrics and gynecology.
  • The hospital/FQHC/RHC may provide financial assistance for the first two consecutive years (or a shorter amount of time) of the NPP's employment.
  • There is a cap on the total amount of assistance.
  • Several other picky requirements (we are talking about the Stark Law after all!).

Proposed Exception for Timeshare Arrangements

Pack your suitcase and head to Aruba! Oh wait, it is not that kind of timeshare. CMS is proposing a new exception for timeshare arrangements by hospitals or physician organizations that meet certain criteria. For example, the licensed premises and supplies would need to be used predominantly to furnish evaluation and management services to patients of the licensee, and cannot include advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests). This exception is not applicable to independent diagnostic testing facilities and clinical laboratories.

Conforming Terminology: "Takes Into Account"

Words matter when you are parsing through a Stark Law exception! Accordingly, CMS is clarifying a few semantic matters. Apparently some detail-oriented and creative folks (dare we say attorneys?) have focused on the fact that some Stark Law exceptions state that compensation paid may not "take into account" the volume or value of a physician's referrals, while others state that compensation cannot be "based on" the volume or value of referrals, and still others require that compensation be offered "without regard to" the volume or value of referrals. CMS wants all these lawyers to stop being cute by distinguishing between these phrases (please note that your authors are VERY cute—you can see this by our photos) and thus CMS is choosing one term to use in all such exceptions. The votes are in and CMS will be using "takes into account" for all of the exceptions. The two losing phrases can be seen wandering all by themselves in the desert, wondering where they went wrong.

Writing Requirement Clarification

One of the authors' favorite aspects of the proposed rule is the clarification on what it means for an arrangement to be documented "in writing." For years we have wondered: "What if you spell out the terms in chocolate sauce on a large bowl of ice cream?" Note: This specific scenario is not addressed by the proposed rule. However, CMS explains in the proposed rule that the writing requirement is satisfied if the arrangement is "sufficiently documented to permit the government to verify compliance with the applicable exception." Although a single written document would be ideal, a collection of documents could satisfy this requirement. This is a wonderful clarification because of the way the world really works—many important things are documented on the back of your child's report card or in an email exchange.

Term Provision Clarification

We are sure none of you out there have ever encountered the situation where someone forgot to include something in a contract, despite a clear chain of emails indicating a meeting of the minds. Well, if it is the term of at least one year at issue, you are A-OK if this rule is finalized. CMS clarifies that a formal contract or other document with an express "term" provision is generally not required. The exceptions that cover office space rental, equipment rental, and personal service arrangements require that the compensation arrangement be for a term of at least one year. A collection of documents showing the course of conduct between the parties can instead establish that the arrangement met the term requirement.

Holdover Arrangement Revisions

The exceptions for office space rental, equipment rental, and personal services arrangements allow arrangements that have expired to continue as a "holdover" arrangement for up to six months. CMS proposes to extend the holdover period to a period greater than six months, possibly indefinitely, so long as the arrangement continues on the same terms and conditions after its stated expiration, and so long as the holdover arrangement continues to satisfy all of the elements of the applicable exception.

Temporary Noncompliance With Signature Requirement

Assuming your organization is the one in a billion that never has and never will fail to get a signature on all physician contracts before the money starts to flow, you can skip this section. For everyone else, remember that failing to get a signature on a physician/hospital contract that implicates the Stark Law is okay, so long as it is signed within 30 days (if "not inadvertent") or within 90 days (if "inadvertent"), and so long as a few other requirements are met. CMS is now proposing to allow 90 days to obtain missing signatures under this special rule, regardless of whether the failure to obtain the signatures was inadvertent.

CMS is Seeking Feedback on Application of the Stark Law in Alternative Delivery and Payment Systems

It is your turn to tell the government what you think about the Stark Law! CMS acknowledges that there have been significant changes in health care delivery and payment systems since the Stark Law's enactment. Given this, CMS is soliciting comments regarding perceived barriers to achieving clinical and financial integration posed by the Stark Law. CMS has proposed multiple questions for discussion, including whether there is a need for new Stark exceptions to support alternative payment models, and whether existing exceptions can be expanded to protect arrangements involving physicians who participate in alternative care delivery and payment models.

Practical Stark Law Tips for Your Workforce: Reminders for the Unwary:

All the proposed changes described above are intended to make this law more workable, especially in today's changing health care environment. But remember two things: (1) these rules are just proposed; and (2) even if the rule is finalized, the essential framework of the rule will remain in place. With that in mind, you may want to include the following tips in your workforce compliance training:

  • Make sure all arrangements between physicians and hospitals (or other entities providing designated health services) are identified and, where necessary, appropriately documented.
  • Make sure that physician compensation is WITHIN FAIR MARKET VALUE RANGE—this is true for employed physicians too. Overpaying physicians exposes the physicians themselves to liability, not just the hospital or other DHS entity.
  • Similarly, all physician compensation has to be COMMERCIALLY REASONABLE, meaning it would still happen in the absence of referrals.
  • Make sure that you have a tracking mechanism to catch contracts between physicians and hospitals (or other DHS entities) before they expire, if they do not have an auto-renewal clause.
  • Do not recycle prior physician agreements without thinking through whether the agreement accurately reflects (1) the particular arrangement at issue; and (2) the current version of the Stark Law and regulations.
  • Be careful when physicians ask for "perks"—start thinking of the Stark Law right away!
  • Watch out for long-term contracts—they need to stay current with fair market value over time.

For more information about these or other changes proposed in the rule, or for assistance with any of your other Stark Law needs, please contact Sarah Coyne at (608) 283-2435/sarah.coyne@quarles.com, Leah McNeely at (608) 283-2412/leah.mcneely@quarles.com, or your Quarles & Brady attorney.