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In a development that is limited in scope but still welcomed by hospitals, the proposed 2016 Physician Fee Schedule proposes a number of new exceptions to the physician self-referral or Stark law and other refinements that should lessen the burden of technical Stark violations leading to self-disclosure. The proposed rule would create new exceptions under the Stark law for hospital payments to physicians to recruit mid-level practitioners and timeshare arrangements with physicians. The rule clarifies that certain Stark exceptions requiring the terms of the financial arrangement to be set out in writing need not be documented in a formal contract and permits further flexibility in cases of temporary noncompliance with signature requirements. The Centers for Medicare & Medicaid Services (CMS) released the proposed rule on July 8, which was published in the Federal Register on July 15 (80 Fed. Reg. 41,685), and has invited public comment. CMS’ large backlog of Stark self-disclosures, many for technical violations of Stark that do not pose a substantial risk of overutilization of Medicare services, has apparently convinced CMS that this enforcement burden should be reduced.

The Stark law prohibits, unless an exception applies, (1) a physician from making a referral to an entity to furnish any one of 11 designated health services (DHS) payable by Medicare, if the physician or his immediate family member has a financial relationship with the entity, and (2) the entity from presenting a claim for reimbursement for such a DHS. Because Stark establishes a “bright line” rule with strict liability, referrals between parties with a financial relationship that do not fall within an exception violate the law even in the absence of bad intent by the parties. In addition to a host of statutory exceptions, the Secretary has the authority to promulgate additional exceptions by rule. Many of the changes to these regulatory exceptions proposed by CMS in the 2016 Physician Fee Schedule will be discussed below. The Voluntary Self-Referral Disclosure Protocol was developed and released by CMS in 2010 per the Patient Protection and Affordable Care Act to provide a mechanism for providers to self-disclose actual or potential violations of the Stark law.

New Hospital Recruitment Exception

Recognizing changes to health care delivery and payment systems, as well as shortages of primary care physicians particularly in rural areas, CMS proposes a new Stark exception to be codified at 42 CFR § 411.357(x) to allow payments by a hospital (or a federally qualified health center or rural health clinic) to a physician who will employ a physician assistant, nurse practitioner, clinical nurse specialist or certified nurse-midwife (Nonphysician Practitioner) to provide primary care services to patients of the physician’s practice. 80 Fed. Reg. at 41957. The amount of the payments may not exceed the lower of either (1) 50 percent of all compensation and benefits paid by physician to the Nonphysician Practitioner, or (2) an amount equaling the actual compensation and benefits paid to the practitioner by the physician less the sum of all receipts attributable to the Nonphysician Practitioner’s services for the same period. Both of these tests must be calculated for a period not to exceed the first two consecutive years of employment. The Nonphysician Practitioner must not have practiced in the hospital’s geographic service area or been employed or engaged to provide patient care elsewhere by a physician organization which has a medical practice site in the hospital’s service area. Among other additional requirements, the Nonphysician Practitioner’s total compensation paid by the physician may not exceed the fair market value of the patient services furnished by the practitioner to the practice’s patients. CMS also proposed to revise the existing Stark exception for physician recruitment by redefining the geographic area from which federally qualified health centers and rural health clinics may recruit physicians.

New Exception for Timeshare Arrangements

The current Stark exception for office lease arrangements does not permit “timeshare” leasing arrangements in which a physician 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 use of the property at specified times, without conveying dominion or control over the premises as in a true lease. In the 2016 Physician Fee Schedule, CMS proposes a new exception for timeshare arrangements that meet the following 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 licensor is a hospital or physician organization; (3) the licensed premises, equipment, personnel, etc., are used predominantly for evaluation and management services for patients; (4) the licensed equipment is located 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 by the physician at the time, and does not include advanced imaging, radiation therapy, or clinical or pathology lab equipment; (5) the arrangement is not conditioned on the licensee’s referral of patients; (6) the compensation is set in advance, consistent with fair market value and not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties; (7) the arrangement would be commercially reasonable even in the absence of referrals between the parties; and (8) the arrangement does not violate the Anti-Kickback Statute or any other federal or state law governing billing or claims submission.

Writing and Signature Requirements

Many Stark exceptions for various types of compensation arrangements, such as leases of space or equipment and personal service arrangements, require the terms to be set out in writing and signed by the parties. The proposed rule clarifies that while the terms must be sufficiently documented, these exceptions do not require that the arrangement 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.”

Several compensation arrangement exceptions require the parties’ signatures. Currently, a regulatory exception permits the DHS entity to submit a claim and be paid if the signature requirement is temporarily not met, if the arrangement otherwise fully complies with the applicable exception. If an absent required signature is inadvertent, the parties must currently obtain the signatures within 90 days from the date the compensation arrangement became noncompliant. If the parties are aware of the lack of signature, the parties have only 30 days to correct the situation. By the proposed rule, CMS would give the parties 90 days regardless of whether or not their failure to obtain the signatures was inadvertent.

Term Requirements and Holdover Leases

Because the exceptions for office space and equipment rental require an agreement with a term of at least one year, many have assumed that a written, formal agreement with a one-year term is required. In the proposed rule, CMS clarifies that an arrangement for the lease of office space or equipment or for personal services, which can be documented to have lasted in fact for at least one year (or which was terminated during the first year and the parties did not enter into a new arrangement for the same space, equipment or service) satisfies the requirement of a one-year term.

The current Stark exceptions for office space and equipment leases and personal service arrangements permit holdovers for up to six months immediately following the expiration of the lease term, on a month-to-month basis, if the holdover is on the same terms and conditions as the original arrangement. 42 CFR § 411.357(a), (b), (d). CMS has determined that longer holdovers on the same terms do not pose a risk of program or patient abuse. Accordingly, CMS now proposes to permit holdovers for an unlimited period if the arrangements meet the requirements of the applicable exception at the time the arrangement expired and continue to meet applicable requirements and the holdover is on the same terms and conditions as the prior arrangement.

Definition of Remuneration

In United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d Cir. 2009), the Third Circuit Court of Appeals held that Stark was violated when an anesthesia group provided pain management services at an outpatient pain clinic operated by Carlisle Hospital, the physicians submitted claims to Medicare for their services provided at the clinic, and the hospital billed Medicare for the facility and technical component of these visits. The Third Circuit held that the hospital’s provision to physicians of free office space, equipment and staff on an exclusive basis constituted remuneration and thus implicated Stark, but the arrangement did not meet the Stark exception for personal service arrangements.

Although CMS has not proposed any regulatory revisions on this issue, it notes in the preamble to the proposed rule that despite the Carlisle HMA decision, split bill arrangements, in which the hospital and physician each bill the appropriate payor only for the resources and services the party provides, do not constitute remuneration under the Stark law. On the other hand, if the physicians had billed a non-Medicare payor globally for both services they performed and hospital resources, that would constitute remuneration from the hospital to the physician and implicate Stark law.

Definition of Stand in the Shoes

The FY 2009 IPPS final rule amended the Stark regulations to treat a physician with an ownership or investment interest in a physician organization as standing in the shoes of the physician organization, and thus having a direct compensation relationship with the entity furnishing DHS, unless the physician’s ownership or investment interest is only titular. Other physicians in the group are permitted, but not required, to stand in the shoes of the physician organization. In the proposed rule, CMS proposes to revise this rule to clarify that while only physicians who stand in the shoes of their physician organization are considered parties to the arrangement for signature purposes, all physicians in the physician organization are considered parties to the arrangement for all other purposes, including whether the compensation with the hospital takes into account the volume or value of referrals or other business generated by the physicians. In at least this one proposed change, CMS appears to tighten rather than loosen the requirements of the Stark law by its proposed changes.

CMS will be accepting comments concerning the proposed rule through September 8, 2015. If finalized, many of these provisions will help reduce the burden that Stark imposes on North Carolina hospitals and physicians by removing a number of common, technical violations from the duty to self-report.

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