In the Medicare Fee Schedule Final Rule with Comment Period for calendar year 2016, the Centers for Medicare & Medicaid Services (CMS) adopted two new exceptions to the Stark physician self-referral law affecting hospitals, effective January 1, 2016, and made certain other significant changes. 80 Fed. Reg. 70885, 71300 (Nov. 16, 2015). A proposed rule including many of these revisions was first published in the Federal Register on July 15, 2015, and was the subject of an article in our September 2015 issue of Corridors. This article will summarize the changes to the Stark law in the final rule and delineate some of CMS’s changes from the proposed rule. Most should be welcomed as lessening the risk for North Carolina hospitals and physicians of committing minor, technical violations of the Stark law.

New Exception for Hospital Recruitment of Nonphysician Practitioners Includes Mental Health Practitioners

Changes from Proposed Rule. The final rule changed the proposed recruitment exception permitting hospitals, federally qualified health centers and rural health clinics to provide remuneration to a physician for the recruitment of non-physician practitioners (NPPs), to be codified at 42 CFR § 411.357(x). In recognition of the widespread shortage of mental health professionals, CMS in the final rule broadened the services to include not only primary care but also mental health services. The final rule expands the definition of NPP for the new exception to include clinical social workers and clinical psychologists, besides the physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives covered by the proposed rule. Other changes include that the NPP need not be employed by the physician but may be an independent contractor. For an independent contractor under this exception, the contractual relationship for services must be directly between the physician (or physician organization) and the NPP. Without physician involvement, Stark is not implicated; CMS noted that a hospital’s recruitment payments made directly to an NPP triggers the Stark law only if the NPP serves as a conduit for physician referrals or is an immediate family member of a referring physician.

Requirements of Final Rule on Recruitment of NPPs

The exception for assistance to a physician to compensate (as an employee or contractor) an NPP to furnish patient care services requires that (1) the arrangement is set out in writing and signed by the hospital, the physician and the NPP; (2) the arrangement is not conditioned on the physician’s or NPP’s referrals to the hospital; (3) the remuneration from the hospital does not exceed 50 percent of the actual compensation, signing bonus and benefits paid by the physician to the NPP during a period not to exceed the first two consecutive years of the compensation arrangement and is not determined in a manner that considers the volume or value of any referrals by the physician or the NPP (or any physician or NPP in the physician group practice) or other business generated by the parties; (4) the compensation, signing bonus and benefits paid by the physician do not exceed fair market value for the patient care services furnished by the NPP to the practice; (5) the NPP has not, within one year of commencing the compensation arrangement with the physician, practiced in the geographic area served by the hospital or been employed or engaged to provide patient care services by a physician or physician group with a medical practice site in the hospital’s geographic area, whether or not the NPP provided services in that geographic area; (6) substantially all (i.e., 75 percent) of the services provided by the NPP to the physician’s patients are primary care or mental health care services; (7) the physician does not impose practice restrictions that unreasonably restrict the NPP’s ability to provide patient care services in the hospital’s geographic area; and (8) the arrangement does not violate the Anti-Kickback Statute or other federal or state law governing billing or claims submission. This exception may be used by a hospital only once every three years regarding the same referring physician, unless the NPP is replacing an NPP who terminated his or her employment or contract to provide patient care services with the physician, and the remuneration is provided within two consecutive years measured from the commencement of the arrangement with the NPP being replaced. See 42 CFR §411.357(y).

New Exception for Timeshare Arrangements

The current Stark exception for office lease arrangements does not permit timeshare leasing arrangements in which a physician does not receive a possessory interest in property as in a true lease but pays the lessor for the periodic right to use office space exclusively on a turnkey basis, including support personnel, waiting area, furnishings, equipment, and supplies. Such arrangements are common in rural areas where a hospital or physician practice makes space and staff available to a visiting physician. This is often structured as the owner’s grant of a license or privilege to the visiting physician for the property at specified times, without conveying dominion or control over the premises as in a true lease. The final rule made several relatively minor changes from the proposed rule. It creates a new exception codified at 42 CFR § 411.357(y) permitting timeshare arrangements that meet these criteria: (1) the arrangement is set out in writing, signed by the parties, and specifies the premises, equipment, personnel, supplies, and services covered; (2) the arrangement is between a physician or physician group as licensee and either a hospital or another physician organization (of which the licensee physician is not an employee, owner or member) as licensor; (3) the licensed premises, equipment, personnel, items, supplies, and services provided are used predominantly for evaluation and management services for patients and on the same schedule; (4) the licensed equipment is in the office suite where the evaluation and management services are furnished, is not used to furnish DHS other than those incidental to the evaluation and management services furnished, and does not include advanced imaging, radiation therapy or clinical or pathology lab equipment; (5) the arrangement is not conditioned on the physician licensee’s referral of patients; (6) the compensation is set in advance, consistent with fair market value and neither (a) determined in a manner that considers the volume or value of referrals or other business generated between the parties, nor (b) based on a percentage of revenue or per-unit of service, other than time-based, that reflects the services provided to patients referred by the licensee physician; (7) the arrangement would be commercially reasonable even absent referrals between the parties; (8) the arrangement does not violate the Anti-Kickback Statute or any other federal or state law governing billing or claims submission; and (9) the arrangement does not convey a possessory leasehold interest in the office space that is the subject of the arrangement.

Summary of Other Changes to Stark Rule

The final rule adopted, among others, these additional changes to the Stark rule:

Writing and Signature Requirements. The final rule clarifies that while the terms of compensation arrangements such as leases and personal service arrangements must be sufficiently documented, these exceptions do not require them to be documented by a single, formal contract or any other particular kind of writing. Therefore CMS has replaced the terms agreement and contract in those exceptions with arrangement. See 42 CFR §§ 411.354(d), 411.357(a), (b), (d).

For compensation arrangement exceptions that require the parties’ signatures, the final rule gives the parties 90 days from the date the compensation arrangement became noncompliant, whether or not their failure to obtain the signatures was inadvertent. See 42 CFR § 411.353(g).

Term Requirements and Holdover Leases. The final rule provides that an arrangement for the lease of office space or equipment or for personal services, which can be documented to have lasted for at least one year (or which was terminated during the first year and the parties did not enter a new arrangement for the same space, equipment or service), satisfies the requirement of a one-year term. See 42 CFR §§ 411.357(a), (b), (d). The parties need not have an agreement with a term of at least one year.

The final rule provides that holdover leases for an unlimited period comply with the Stark rule if the arrangements meet the applicable exception when the arrangement expired and continue to meet requirements, and the holdover is on the same terms and conditions as the prior arrangement. See 42 CFR §§ 411.354(d), 411.357(a), (b), (d).

Definition of Stand in the Shoes. CMS has revised 42 CFR § 411.354(c)(3)(i) to clarify that while only physicians who “stand in the shoes” of their physician organization are parties to the arrangement for signature, all physicians in the physician organization are parties to the arrangement for all other purposes, including whether the compensation with the hospital considers the volume or value of referrals or other business generated by the physicians.

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