Amidst the cavalcade of regulatory and policy changes from federal and state governments intended to help health care providers confront the COVID-19 pandemic, on April 21, 2020 the Centers for Medicare & Medicaid Services (CMS) published “Explanatory Guidance” (Guidance) of the applicability of the blanket waivers of the federal Physician Self-Referral Law (PSR Law) CMS previously issued on March 30, 2020. See our analysis of the PSR Law blanket waivers here.

The Guidance “relates to the scope and application of the blanket waivers to certain financial relationships” and responds to questions CMS has received from health care organizations. In pertinent part the Guidance addresses the following through the lens of the blanket waivers: (i) the amendment of compensation arrangements, (ii) the applicability to indirect compensation arrangements, (iii) loans between entities and physicians (or their family members) and repayment of such loans, and (iv) restructured recruiting agreements with income guarantees. CMS begins the Guidance with a reminder that the waivers are available only for arrangements that continue to comply with all non-waived requirements of an applicable exception.

Amendment of Compensation Arrangements

According to CMS, parties have inquired whether the terms of an existing compensation arrangement can be amended during the emergency period and again at the conclusion of the emergency to return to the original terms of the arrangement. CMS states in the guidance:

“if parties amend the remuneration terms of an existing compensation arrangement during the emergency period, the amended arrangement must satisfy all non-waived requirements of an applicable exception. Following the expiration of the emergency period, the remuneration terms of the compensation arrangement may again be modified to return to the original terms of the arrangement or to effectuate additional necessary modifications to the arrangement…”

CMS also indicates that modifications of an existing compensation arrangement could also qualify for a waiver via analysis as an additional compensation arrangement between the parties (e.g., in lieu of reducing rental payments, a hospital leasing space to a physician group may be able to provide financial support to the group to help with operating costs and ensure continued access to care under a separate waiver).

Indirect Compensation Arrangements

CMS next directs that “the blanket waivers do not apply to indirect compensation arrangements” as that term is defined under the PSR Law regulations, but “as a practical matter” waivers for indirect compensation arrangements “may not be necessary in most instances.”  This is because, CMS explains, the PSR Law’s “stand in the shoes” regulatory provisions mean that most physicians are either required to stand in the shoes of their group, or have the option to, and therefore may be able to utilize a waiver for a direct compensation arrangement entered into by the group.

Loan Repayments

CMS notes that two of the blanket waivers concern loans with interest rates below fair market value (FMV) or on terms unavailable from a lender not in position to make referrals or otherwise generate business for the party making the loan. CMS states that “Nothing in either of the exceptions identified in the inquiries requires cash payments to satisfy a borrower’s debt to a lender… [but] the aggregate value of in-kind payments must be consistent with the amount of the loan balance being reduced through the inkind payments” and the arrangement must also be commercially reasonable. CMS notes that in-kind payments may implicate the federal Anti-Kickback Statute.

CMS also states – in response to concerns about whether repayments after the emergency ends of loans covered by a blanket waiver will result in non-compliance with the PSR Law – that “the completion of obligations under an arrangement after its expiration or termination is common and need not result in noncompliance with the physician self-referral law.” Accordingly, repayment terms entered into pursuant to a waiver can extend beyond the termination of the waiver without violating the PSR Law.

Income Guarantees in Recruitment Agreements

Finally, CMS addresses the impact of the waivers on recruitment agreements in response to inquiries from hospitals as to whether income guarantees in recruitment agreements can be extended to address medical practice interruptions caused by COVID-19. CMS reiterates that its 2007 Advisory Opinion still stands, which states that “parties to a recruitment arrangement should not be able to amend their arrangement after it has commenced to provide for additional (or potentially additional) compensation to the recruited physician” because the physician has already relocated the practice and therefore any additional compensation could take into account referrals.

However, CMS indicates that blanket waivers may be available for a hospital to assist a physician whose practice is interrupted due to COVID-19 in order to ensure continued access to care, including the waivers for office space rental charges below FMV, and for loans to a physician with an interest rate below FMV or on terms not available from a lender other than one who is a recipient of referrals or other business generated by the physician.