Major changes to Stark law are ahead, including new exceptions for timeshare arrangements and employment of NPPs.

The Centers for Medicare & Medicaid Services (CMS) released a proposed rule on July 8 for the 2016 Physician Fee Schedule. This annual compilation of revisions to the Medicare Physician Fee Schedule and other Part B payment rules often contains significant policy changes, and this year appears to be no different. Chief among CMS’s programmatic alterations are considerable amendments and new exceptions to the Stark law that recognize the changing face of medicine and promote additional integration between physicians and the entities to which they refer.

Generally, the Stark law prohibits physicians who have financial relationships with entities from referring to those entities for the provision of designated health services (DHS) unless the arrangement meets an exception.  These exceptions have been substantially expanded over the last two decades as the Medicare program (and the healthcare industry as a whole) has evolved. In its proposed changes to the regulations implementing the law, CMS seeks to further this evolution with the following changes to the physician self-referral law:

• Recruitment/Retention of Physicians (42 C.F.R. §§ 411.357(e), (t), and new (x))—CMS proposes a new exception for “assistance to physicians to employ non-physician practitioners” (NPPs), as well as clarifications for Federally Qualified Health Center (FQHC) and Rural Health Clinic (RHC) service areas. CMS would permit remuneration to physicians and physician organizations from hospitals, FQHCs, and RHCs to employ NPPs, which are specifically defined as “physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives.” However, these physician extenders could only be used to provide primary care services, such as general family medicine, internal medicine, pediatrics, geriatrics, and obstetrics and gynecology services. Finally, hospitals would only be permitted to provide assistance for the first two consecutive years of the NPP’s employment by a physician and the amount of assistance would be capped. Interestingly, CMS seeks to expand the definition of “referral” for the purposes of this exception to include those referrals made by NPPs, a significant departure from the historic requirements that only referrals from physicians for DHS would implicate the Stark law. . To prevent “gaming” the system, a hospital may not provide assistance for those NPPs who have practiced or been employed by a physician’s office in the hospital’s geographic area for the last three years.

• “Takes Into Account” Standardization (42 C.F.R. §§ 411.357(e), (m), (r), and (s))—To avoid confusion or the suggestion that there are differing standards regarding when “volume or value” of referred DHS are taken into account in a compensation arrangement, CMS proposes revising certain exceptions that say “based on” or “without regard to,” to “takes into account” to ensure consistency in interpreting the volume or value standard.

• Revisions to “In Writing” Requirements (42 C.F.R. §§ 411.357(a), (b), (d), (e), (h), (l), (p), (r), (t), (v), and (w))—CMS clarifies that exceptions that require writings do not require a formal agreement or a single document. Instead, “a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the leasing exceptions and other exceptions that require that an arrangement be set out in writing.” This is a significant and very welcomed development.

• Revisions to Term Requirements in Comp Arrangements (42 C.F.R. §§ 411.357(a), (b), and (d))—CMS also clarifies that exceptions requiring a term of at least one year may be met so long as the “arrangement clearly establishes a business relationship that will last for at least 1 year.” A formal agreement that sets forth the term of the agreement is not necessary for Stark law compliance purposes.

• Revisions to Holdover Policy (42 C.F.R. §§ 411.357(a), (b), and (d))—Currently, certain arrangements that have expired and would otherwise fail to meet the written agreement requirement are excepted for a period of up to six months in what CMS terms “holdover” arrangements. CMS proposes to extend the holdover period—perhaps even indefinitely—provided the holdover continues on the same terms and conditions as the original arrangement and continues to meet fair market value (FMV) requirements. For instance, if office space rental rates rose precipitously, hospitals with medical office buildings could no longer rely on the holdover provisions, even if the parties  were acting on the same terms and conditions as they had originally agreed, because the arrangement would no longer meet FMV.

• Definition Changes (Remuneration, Stand in the Shoes, Locum Tenens)—CMS clarifies that excepted items, devices, or supplies that are “used solely” for one of six statutorily allowed purposes are still excluded from “remuneration” if they are used for more than one of those statutorily allowed purposes. In addition, CMS confronts the Third Circuit decision of United States ex rel. Kosenske v. Carlisle HMA, which suggested that remuneration to a physician could occur through the use of a hospital’s exam rooms, supplies, and nursing personnel when treating hospital patients, even when both parties separately billed the appropriate payors. CMS clarifies that split billing does not generate remuneration but that global billing for both the professional and technical components does create a financial arrangement because a benefit is conferred on the party that receives payment for those services. For “stand in the shoes” purposes, CMS reaffirms its position that employees and independent contractors are not parties to physician organization’s arrangements unless they voluntarily stand in the shoes consistent with existing regulations. Nevertheless, CMS warns that it will take into account referrals from all physicians who are part of a group, regardless of whether they stand in the shoes, because this would otherwise allow DHS entities to establish compensation methodologies that take into account the volume or value of DHS referrals from non-owner physicians in a physician group. Finally, CMS proposes to remove the term “stand in the shoes” from the definition of locum tenens physicians.

• Ownership of Publicly Traded Securities (42 C.F.R. § 411.356(a))—CMS proposes to expand the exception for publicly traded securities to all securities that traded on an electronic stock market in which stock quotes are published daily and trades are standardized and publicly transparent, such as the New York Stock Exchange, the American Stock Exchange, NASDAQ, and over-the-counter quotation systems. Decentralized dealer networks or systems that trade unlisted stocks are not eligible for protection.

• Timeshare Arrangements (42 C.F.R. § 411.357(y) (new))—Recognizing the confusion surrounding application of the office lease, payment by physician, and FMV exceptions to turnkey timeshare arrangements, CMS offers a new exception for timeshare leasing. Specifically, this exception would protect instances when a hospital or physician organization leases on a timeshare basis to a physician and would permit predominantly  evaluation and management services, as well as certain CLIA-waived tests. For instance, advanced imaging equipment, clinical or pathology lab equipment, and similar DHS equipment is not permitted to be used in such an arrangement; CMS cites its concern with independent diagnostic testing facilities or clinical laboratories that offer such a turnkey operation to physicians to lock up referrals.

• Physician-Owned Hospitals (42 C.F.R. § 411.362(b))—CMS seeks to provide further instruction regarding the types of communications for which a physician-owned hospital must disclose its ownership interests to patients. In particular, social media sites would not be considered “public websites” of a hospital that requires ownership disclosure. Nor would communications for recruiting hospital staff, public service announcements, and non-marketing community outreach be considered “public advertising.”  CMS also clarifies the manner in which physician-owned hospitals are to determine the percentage of ownership held by physicians as of March 2010, a clarification that may require some physician-owned hospitals to make adjustments to physician investment levels.

• Alternative Payment Models—With the rise of coordinated care efforts, such as Accountable Care Organizations (ACOs), the Stark law may at times seem out of place with the federal government’s current goals. Recognizing this fact, CMS is soliciting comments on the Stark law’s affect on healthcare delivery and payment reforms. Specifically, it is interested in perceived barriers to clinical and financial integration caused by the law and the “volume or value” and “other business generated” standards that pervade the Stark law. CMS poses several questions for which it seeks feedback:

  • Does the physician self-referral law generally and, in particular, the “volume or value” and “other business generated” standards set out in the regulations, pose barriers to or limitations on achieving clinical and financial integration?

  • Which exceptions to the physician self-referral law apply to financial relationships created or necessitated by alternative payment models? Are they adequate to protect such financial relationships?

  • Is there a need for new exceptions to the physician self-referral law to support alternative payment models? If so, what types of financial relationships should be excepted?

  • Which aspects of alternative payment models are particularly vulnerable to fraudulent activity?

  • Is there need for new exceptions to the physician self-referral law to support shared savings or “gainsharing” arrangements?

  • Should certain entities, such as those considered to provide high-value care to beneficiaries, be permitted to compensate physicians in ways that other entities may not?

  • Could existing exceptions, such as the exception at §411.357(n) for risk-sharing arrangements, be expanded to protect certain physician compensation, for example, compensation paid to a physician who participates in an alternative care delivery and payment model sponsored by a non-federal payor?

  • Have litigation and judicial rulings on issues such as compensation methodologies, fair market value, or commercial reasonableness generated a need for additional guidance from CMS on the interpretation of the physician self-referral law or the application of its exceptions?

  • Is there a need for revision to or clarification of the rules regarding indirect compensation arrangements or the exception at §411.357(p) for indirect compensation arrangements?

  • Given the changing incentives for healthcare providers under delivery system reform, should certain compensation be deemed not to take into account the volume or value of referrals or other business generated by a physician?

We encourage providers that may be affected by these proposed changes to make their views known through the CMS comment process. The agency has solicited comments on a number of areas, particularly as they relate to alternative delivery models, and ACOs and other entities engaging in coordinated care activities should take this opportunity to provide input.