On November 16, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published the Calendar Year 2016 Physician Fee Schedule final rule with comment period, which includes a final rule (the “Final Rule”) that amends certain Stark Law regulations. The Final Rule is generally effective on January 1, 2016 and finalizes various provisions of the July 15, 2015 proposed rule (the “Proposed Rule”). Key features of the Final Rule include:

• The promulgation of two new exceptions under the Stark Law – one for “timeshare” arrangements and another permitting financial assistance for physicians’ recruitment of non-physician practitioners (“NPPs”)

• The finalization of provisions that clarify CMS’s interpretation of certain “technical” requirements of exceptions under the Stark Law.

As an update to our July 22, 2015 Health Care Insight regarding the Proposed Rule, available here, below are the top 10 Stark Law takeaways from the Final Rule.² These takeaways capture general guidance from a December 16, 2015 webinar produced by the American Health Lawyers Association. The webinar featured speakers from CMS who discussed the Final Rule.³

1. Clarification of Writing Requirements. Under the Final Rule, CMS finalized the Proposed Rule’s clarification of the “in writing” component of the exceptions for the rental of office space, the rental of equipment and personal service arrangements.⁴ CMS clarified that these and certain other compensation arrangements may be documented in a collection of writings, rather than in a single, formal contract.⁵ Such a collection of writings could include call coverage schedules to demonstrate dates of services provided, time sheets to document services performed and accounts payable or receivable records to document payment rates. To reinforce this clarification, CMS finalized its proposal to substitute the word “arrangement” for the words “agreement” and “contract” in the vast majority of exceptions that require writings.⁶ In spite of this flexibility, and to ensure meeting of “set in advance” requirements, providers should continue to document compensation arrangements in formal contracts and rely upon the “collection of writings” clarification only as necessary to avoid self-disclosure of potential Stark Law violations.

2. Clarification of Term Requirement. CMS also finalized its proposal to clarify that an explicit “term” provision within a formal contract or other document is generally not necessary to satisfy the one-year requirement under the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements.⁷ The Final Rule modified these exceptions to remove the word “term” and, instead, to state that the actual duration of an arrangement must be at least one year.⁸ Though a formal “term” provision is not required, it remains a best practice for providers to specify a term of not less than one year in contracts for personal services and in space and equipment leases.

3. Broadening of Holdover Allowances. CMS finalized its proposed amendment of the six-month holdover provisions within the Stark Law exceptions for the rental of office space, rental of equipment and personal service arrangements to permit holdovers for indefinite periods of time, provided that certain safeguards are met.⁹ A holdover arrangement must satisfy all elements of an applicable exception when the arrangement expires and continue to satisfy the elements of the applicable exception during the holdover period.¹⁰ Significantly, arrangements that are in a valid six-month holdover as of January 1, 2016 (i.e., certain arrangements that expired on or after July 1, 2015) will qualify for indefinite holdover when the Final Rule becomes effective, so long as they continue to meet an applicable exception.

Though it broadened holdover allowances generally, CMS declined to add an indefinite holdover provision to the Stark Law exception for fair market value arrangements. Unlike other compensation arrangement exceptions, the fair market value exception does not include a one-year term requirement.¹¹ CMS reasoned that the exception need not be amended, because it already permits renewal of an arrangement that continues on the same terms and conditions as the original arrangement. As clarified in the Final Rule, such a renewal need not be in writing, but the parties must have written documentation establishing that the renewed arrangement continued on the same terms and conditions.¹²

4. Updates Regarding “Remuneration,” “Geographic Area” and “Takes Into Account.” As anticipated, CMS finalized its proposals regarding the new or revised definitions of “remuneration,” “geographic area” and “takes into account” under the Stark Law.

• In light of the decision of the Third Circuit Court of Appeals in United States ex rel. Kosenski v. Carlisle, CMS finalized its proposal to amend the definition of “remuneration” and clarify how “split-bill” arrangements fit within such definition.¹³ According to the Final Rule, remuneration does not include the provision of certain items, devices or supplies by an entity providing designated health services (“DHS”) to a referral-source provider.¹⁴ Such items, devices or supplies must be used solely to collect, transport, process or store specimens for the entity providing the items, devices or supplies, or to order or communicate the results of tests or procedures for such entity. Furthermore, there is no remuneration under the Stark Law resulting from a physician’s treatment of hospital patients at a hospital when both the physician and the hospital bill separately for their services in a split-bill arrangement. CMS reasons that there is no remuneration in this case, since there is no financial benefit provided to either party.

• CMS also finalized the definition of “geographic area” for areas served by federally qualified health centers (“FQHCs”) or rural health clinics (“RHCs”) for application in physician recruitment arrangements.15 The Final Rule defines “geographic area” as the lowest number of contiguous or noncontiguous zip codes from which an FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis. The prior definition of “geographic area served by a hospital” did not clearly identify the geographic area into which an FQHC or RHC may recruit a physician, a concept that is critical for compliance with the exception’s requirements.¹⁶

• Per the Final Rule, the Stark Law now exclusively uses the phrase “takes into account” throughout all of the regulatory exceptions that prohibit arrangements from taking into account the volume or value of a physician’s referrals to a DHS entity. Though this change is not substantive, it fosters consistency throughout the Stark Law by eliminating non-uniform phrases.¹⁷

5. New Exception for Certain Timeshares. The new timeshare arrangement exception under the Final Rule permits arrangements for the non-exclusive use of premises, equipment, personnel, items, supplies and services.¹⁸ The elements of this new timeshare arrangement exception as set forth in the Final Rule are:

•  The arrangement is set out in writing, signed by the parties, and specifies the premises, equipment, personnel, items, supplies and services covered by the arrangement;

• The arrangement is between a physician (or the physician organization “in whose shoes” the physician stands) and either a hospital or a physician organization of which the physician is not an owner, employer or contractor;

• The premises, equipment, personnel, items, supplies and services covered by the arrangement are used predominantly for the provision of evaluation and management (“E&M”) services to patients and on the same schedule;

• The equipment covered by the arrangement is located in the same building where the E&M services are furnished, is not used to furnish DHS other than those incidental to the E&M services furnished at the time of the patient’s E&M visit, and is not advanced imaging equipment, radiation therapy equipment or clinical pathology laboratory equipment (other than for equipment used for CLIA-waived laboratory tests);

• The arrangement is not conditioned on the referral of patients by the physician who is a party to the arrangement to the hospital or physician organization of which the physician is not an owner, employee or contractor;

• The compensation over the term of the arrangement is set in advance, consistent with fair market value and not determined in a manner that takes into account (directly or indirectly) the volume or value of referrals or other business generated between the parties; or using a formula based on a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services provided while using the premises, equipment, personnel, items, supplies or services covered by the arrangement; or using a formula based on a per-unit of service fees that are not time-based, to the extent that such fees reflect services provided to patients referred by the grantor to the user; 

• The arrangement would be commercially reasonable even if no referrals were made between the parties;

• The arrangement does not violate the anti-kickback statute or any Federal or State law or regulation governing billing or claims submission; and

• The arrangement does not convey a possessory leasehold interest in the office space that is the subject of the arrangement.

Notably, though the Proposed Rule required that all timeshare equipment should be located in the same office suite where a physician performs E&M services, the Final Rule states that such equipment need only be located within the same building where the E&M services are furnished.

6. Expansion of Temporary Noncompliance with Signature Requirements Exception. Under the Final Rule, CMS finalized its proposal to adopt a uniform 90-day grace period for noncompliance with the signature requirement in many common Stark Law exceptions.20 Previously, the Stark Law included a 30-day grace period for advertently missing signatures and a 90-day grace period for inadvertently missing signatures. CMS emphasized that this expansion relates only to temporary noncompliance with signature requirements and does not address other requirements of applicable exceptions.²¹ With the caveat that state law principles do not determine parties’ compliance with the Stark Law, parties may look to state law and other bodies of relevant law (such as laws regarding electronic signatures) to inform their determination of whether a writing is “signed” for Stark Law purposes. CMS continues to prohibit use of the temporary noncompliance with signature requirements exception more than once every three years with respect to a particular physician.²²

7. Clarified “Stand in the Shoes” Signature Requirement. Consistent with the Proposed Rule, CMS clarified that physicians standing in the shoes of a physician organization are parties to arrangements entered into by such physician organization, even though the physicians may not provide individual signatures to enter into the arrangements.²³ Independent contractors and employees of a physician organization, on the other hand, are not parties to a physician organization’s arrangements unless these persons voluntarily stand in the shoes of such physician organization.²⁴

Of particular importance is CMS’s additional clarification that, if a DHS entity and a physician organization use the exception for temporary noncompliance with a signature requirement to bring an arrangement into compliance with the Stark Law, such exception cannot be used again for three years with respect to any of the physicians standing in the shoes of the physician organization.²⁵ Therefore, medical director arrangements and other personal service arrangements between a DHS entity and an individual physician who stands in the shoes of a physician organization may best be structured with the physician in his or her individual capacity. This structure would preserve the availability of the temporary noncompliance exception for other physicians within the physician organization.

8. New Recruitment Exception for Non-Physician Practitioners. The Final Rule modified the Proposed Rule’s new recruitment exception for NPPs, permitting FQHCs, RHCs and hospitals to assist physicians in recruiting NPPs to underserved geographic areas.²⁶ Notably, the Final Rule expanded the exception to include NPPs who provide mental health services.²⁷ The Final Rule also permits an institution’s financial assistance to benefit a physician either employing or directly contracting with an NPP on a full-time or part-time basis.

To meet the exception, a physician must engage an NPP who has not practiced in the geographic area served by the supporting institution for a period of one year. This one-year time period marks a departure from the three-year time period set forth in the Proposed Rule. Recruitment assistance may only be provided for the first two consecutive years of an NPP’s engagement. Remuneration provided by the supporting institution to the physician is capped at the lower of (i) 50 percent of the actual salary, signing bonus and benefits paid by the physician to the NPP, or (ii) the amount calculated by subtracting all receipts for services furnished by the NPP for the physician from the NPP’s salary plus benefits.

A physician or physician group may use the new exception only once every three years. This limitation is waived if the recruited NPP is replacing another recruited NPP who left the physician or physician group within one year of the commencement of his or her employment or contractual arrangement with such physician or physician group. The two-year recruitment assistance limitation, discussed above, would continue to apply in this case and would span from the beginning of the original NPP’s employment or contractual arrangement with the physician or physician group.²⁸

9. Clarification of Retention Payment Regulations. CMS originally created a Stark Law exception for retention payments to assist rural hospitals in retaining qualified physicians. The exception allows hospitals to make retention payments directly to a physician on the hospital’s medical staff to prevent the physician from relocating his or her medical practice. Under the Proposed Rule, CMS anticipated modifying the regulations regarding this exception to mirror the language of the Stark Law Phase III preamble, which allowed for two methodologies to calculate retention payments. The Final Rule settled on one such methodology that limits retention payments to an amount equal to 25 percent of a physician’s current annual income, averaged over the previous 24 months.²⁹ The most recent version of this regulation prior to the Final Rule permitted entities to make retention payments that consider only part of the prior 24-month period instead of the entire period as intended by CMS.

10. More Specific Ownership and Advertising Requirements for Physician-Owned Hospitals. The Final Rule confirmed all parts of the Proposed Rule designed to facilitate compliance with the Affordable Care Act’s requirement that physician ownership and investment interests in hospitals are disclosed to the public within any public advertising.³⁰ The Final Rule defines “public advertising” as hospital-provided public communications that are primarily intended to attract patients.³¹ CMS clarified that any language that would put a reasonable person on notice that a hospital is physician-owned would be deemed a sufficient statement of physician ownership or investment for satisfaction of the disclosure requirement. Notably, social media websites, electronic patient portals and electronic health information exchanges do not constitute public websites for physician-owned hospitals. CMS has delayed the effective date of this revision for one year, to January 1, 2017.

<sup>1. The authors thank Sumaya Noush for her contributions to this Health Care Insight.
2. The top 10 takeaways are presented in the same order as in the prior Health Care Insight.
3. Pursuant to a disclaimer at the beginning of the webinar, the speakers presented their personal views regarding the Final Rule.
4. 42 C.F.R. § 411.357 (a), (b), and (d).
5. Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2016, 80 Fed. Reg. 71314 (Nov. 16, 2015) (hereinafter “Final Rule”).
6. Notably, CMS did not revise the term “written agreement” in the Stark Law exceptions for electronic prescribing and electronic health records donation to ensure continuity with the related safe harbors under the anti-kickback statute. CMS also did not revise the term “written agreement” in the Stark Law exception for certain group practice arrangements with a hospital due to the infrequent use of this exception.
7. 42 C.F.R. § 411.357 (a), (b), and (d).
8. See Final Rule, 71317.
9. 42 C.F.R. § 411.357(a), (b), and (d).
10. See Final Rule, 71318.
11. See Final Rule, 71319.
12. See Final Rule, 71320.
13. United States ex rel. Kosenski v. Carlisle HM A, 554 F.3d 88 (2009); see Final Rule, 71321.
14. 42 C.F.R. § 411.351.
15. 42 C.F.R. § 411.357(e).
16. See Final Rule, 71312.
17. See Final Rule, 71313.
18. See Final Rule, 71325.
19. 42 C.F.R. § 411.357(y). As the preamble commentary suggests, a license grants permission to use property and differs from a lease in that ownership and control of the property remains with the licensor. A lease transfers control of property from a lessor to a lessee and gives the lessee an exclusive right to use the leased property, along with a possessory interest.
20. See Final Rule, 71333.
21. 42 C.F.R. § 411.355(g).
22. See Final Rule, 71333.
23. 42 C.F.R. § 411.354(c).
24. See Final Rule, 71322.
25. See Final Rule, 71333.
26. 42 C.F.R. § 411.357(x).
27. See Final Rule, 71369.
28. See Final Rule, 71310.
29. 42 C.F.R. § 411.357(t)(2).
30. See Final Rule, 71334.
31. 42 C.F.R. § 411.362(b)(3)(ii)(C).</sup>