Wednesday, July 15, 2015

CMS Issues Proposed Stark Law Modifications Including Clarifications, Among Others, Regarding Timeshare Arrangements and Physician Extender Recruitment

By: Kristen A. Larremore
Partner at Waller Lansden Dortch & Davis, LLP

On July 8, the Centers for Medicare & Medicaid Services (“CMS”) published the draft update to the Medicare Physician Fee Schedule for 2016 in a proposed rule that included, among other things, Stark law (“Stark”) regulatory updates to account for advancements in patient care and payment methodologies as well as health care reform changes generally (the “Proposed Rule”). Stark generally prohibits physicians from making referrals for services covered by government programs to entities in which they have financial interests unless they meet certain exceptions. The Proposed Rule appears to be generally designed to ease the burden of technical compliance with Stark and thereby an attempt to reduce the number of self-disclosures that are required to be reported to CMS.

New Stark Exceptions

In addition to a number of other technical documentation changes discussed below, the Proposed Rule features two new exceptions to Stark, including allowing payments to physicians to assist with the recruitment and employment of non-physician practitioners. The proposed exception, designed to address shortages of primary-care physicians, applies to hospitals, Federally Qualified Health Centers (FQHCs), and Rural Health Clinics (RHCs). The second new exception will explicitly permit, and provide a separate exception from the Rental of Office Space Exception, for timeshare arrangements established for the use of office space, equipment, personnel, supplies and other services. Such timeshare arrangements generally are common in the health care sphere, and particularly in rural areas. It appears that CMS is attempting to clarify and refine the requirements for such arrangements through the Proposed Rule’s new exception specifically addressing such arrangements.

Technical Documentation Requirements

The Proposed Rule also addresses certain technical documentation requirements currently existing under Stark, and relaxes a number of those requirements in various ways. For example,

• CMS proposes clarification that there is no requirement that a lease or personal services arrangement be documented in a single, formal contract and that a collection of documents may satisfy the “writing requirement” arising under several currently existing Stark exceptions.

• The Proposed Rule indicates that the “one-year term requirement” for certain arrangements under certain existing Stark exceptions will not require an explicit “term” provision to satisfy the requirement as long as the arrangement, as a matter of fact, lasts for at least one year.

• CMS also provides clarification that expired leasing and personal service agreements may continue after the termination date, as long as they do so on the same terms.

• CMS proposes an amendment to the existing rule regarding temporary noncompliance with “signature requirements” to permit up to 90 days to obtain all required signatures, regardless of whether the late signature is advertent or inadvertent.

• A number of Stark exceptions currently permit a “holdover” arrangement for up to six months. CMS proposes an amendment to these holdover provisions to permit either indefinite holdovers or holdover extensions for longer, defined time periods, provided that certain safeguards are met.

Other Proposals

Additionally, the Proposed Rule includes a proposed modification related to physician-owned hospitals. While the Affordable Care Act has already included a limitation on the maximum percentage ownership that physicians may hold in a physician-owned hospital, the proposed regulatory changes clarify that the maximum percentage must be calculated by including all physician owners, regardless of whether they refer to the hospital or not. This change could require certain physician-owned hospitals to reduce some of its physician ownership in order to comply.

Clarification is also provided in the Proposed Rule to address and clarify that compensation paid to a physician organization must take into account referrals of any physician in the organization, not just those who “stand in the shoes” of the organization (a concept relevant to determining compliance with certain existing Stark exceptions). Typically only physician owners and physicians who volunteer to stand in the shoes are deemed to be parties to an arrangement, but the Proposed Rule would deem all physicians to be parties to the arrangement, including employee, non-owner physicians and independent contractors.

Several other proposals address changes related to retention of payments in underserved areas, the geographic area served by FQHCs and RHCs, and expansion of the definition of remuneration, among other clarifications.

A copy of the full text of the Proposed Rule as published in the Federal Register is available at:

The clarifications and modifications to Stark under the Proposed Rule are currently only CMS recommendations, and comments on the Proposed Rule will be accepted by CMS until September 8, 2015, with the final rule to be issued by November 1st.

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