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PG Bulletin


October 11, 2019

CMS Proposed Rule Adds Exceptions to Stark Law and Provides Additional Guidance and Clarification

Taylor Chenery (Bass Berry & Sims PLC)
Lauren Gaffney (Bass Berry & Sims PLC)
Rose Willis (Dickinson Wright PLLC)

This Bulletin is brought to you by AHLA’s Fraud and Abuse Practice Group.

On October 9, 2019, in conjunction with the Department of Health and Human Services’ (HHS) “Regulatory Sprint to Coordinated Care” initiative, the Centers for Medicare & Medicaid Services (CMS) released a Notice of Proposed Rulemaking (Proposed Rule) relating to the federal physician self-referral statute (42 USC 1395nn) and its associated regulations (42 CFR 411.350 et. seq.) (collectively, the Stark Law).

This Bulletin summarizes the highlights of the Proposed Rule.

Value-Based Changes

Many of the proposals in the Proposed Rule are intended to address the health care industry’s ongoing shift toward a value-based payment and delivery model, as an alternative to the traditional fee-for-service model. The Proposed Rule includes specific definitions for terms such as: value-based activity, value-based arrangement, value-based enterprise, value-based purpose, VBE participant, and target patient population. 

The Proposed Rule also includes three new exceptions to the Stark Law focused on the value-based model. Two of those exceptions require that the designated health services (DHS) entity or provider assume financial risk for the services provided to a target patient population. Generally, the requirements to satisfy one of those proposed exceptions change and increase as the level of financial risk assumed decreases.

.  The value-based proposed exceptions include:   

  • Full Financial Risk: exception applies to a value-based arrangement where a value-based enterprise has assumed full financial risk from a payer for the cost of all covered patient care and services for a defined population for the duration of the arrangement
    • Full financial risk can take the form of capitation payments, global budget payments, or other payment models
  • Meaningful Downside Financial Risk to a Physician: exception applies to value-based arrangement under which a physician accepts meaningful downside financial risk for failure to achieve the value-based purposes of the value-based enterprise during the entire term of the arrangement
    • Risk threshold is that physician is responsible to pay the entity no less than 25% of the value of the remuneration the physician receives under the arrangement
    • Includes additional requirements relating to a physician referring to a particular provider, practitioner, or supplier and to price transparency
  • Value-Based Arrangements: exception applies broadly to any value-based arrangement where additional requirements are satisfied:
    • Value-based arrangement is set forth in writing, signed by the parties, and includes description of certain details of the arrangement
    • Any performance or quality standards against which recipient of remuneration will be measured are objective and measurable

The proposed exceptions apply only to compensation arrangements—including indirect compensation arrangements—and do not apply to other types of financial arrangements. 

CMS states that it is considering additional requirements for the proposed exceptions related to price transparency and seeks comment on such requirements.  

Additional Guidance and Changes in Terminology

CMS also responded to feedback from commenters by providing requested guidance on terminology and concepts critical to the Stark law, such as commercial reasonableness, fair market value, and compensation that “takes into account” the volume or value of referrals and is “set in advance.”

  • Although commercial reasonableness is a core requirement of many Stark Law exceptions, the only guidance CMS previously provided on the term was in the 1998 proposed regulations (63 Fed. Reg. 1700). The Proposed Rule seeks to change that by providing two alternate definitions for “commercially reasonable” and making clear that the determination of commercial reasonableness is not one of valuation or profitability. CMS is seeking comment on both definitions.
  • The Proposed Rule also provides guidance on the “volume or value standard” and the “other business generated” standard found in many compensation exceptions. CMS proposed a total of four separate special rules—two for the volume or value standard and two for the other business generated standard. Responding to questions about Tuomey, CMS also reaffirmed its position from the Stark Law Phase II regulations that, with respect to employed physicians, a productivity bonus does not take into account the volume or value of the physician’s referrals solely because corresponding hospital services (that is, DHS) are billed each time the employed physician personally performs a service.
  • The Proposed Rule also seeks to modify the current definition of “fair market value” to provide a definition of general application, a definition applicable to the rental of equipment, and a definition applicable to the rental of office space. CMS also proposes changes to the definition of “general market value.” CMS asserts that the concept of fair market value relates to the value of an asset or service to hypothetical parties in a hypothetical transaction, while general market value relates to the value of an asset or service to the actual parties to a transaction that is set to occur within a specified timeframe.
  • CMS also proposes various clarifications to the regulations defining “group practice,” including adding a deeming provision related to the distribution of profits from DHS that are directly attributable to a physician’s participation in a value-based enterprise.

Changes to the Scope and Application of the Law

CMS re-examined the regulations to determine if the previously stated intent to interpret Stark prohibitions narrowly and exceptions broadly has remained true. Given that intent, CMS seeks to add, delete, and revise a number of exceptions. Among them, CMS proposes to:

  • Provide flexibility for non-abusive arrangements by proposing two new exceptions:
    • An exception for limited remuneration from an entity to a physician for items or services actually provided by the physician and not to exceed $3,500 per year.
    • An exception to protect arrangements involving the donation of certain cybersecurity technology and related services.
  • Remove compliance with the Anti-Kickback Statute and other laws as a requirement from certain Stark Law exceptions. 

  • Revise the definition of “designated health services” to clarify that a service provided by a hospital to an inpatient does not constitute a DHS if the furnishing of the service does not affect the amount of Medicare payment to the hospital under the Acute Care Hospital Inpatient Prospective Payment System (IPPS).

  • Revise the definition of “physician” to cross-reference Section 1861(r) of the Act for purposes of consistency. A physician will still be considered the same as his or her professional corporation.

  • Revise the definition of “referral” to state that a referral is not an “item or service” for which a payment may be made for purposes of the Stark law exceptions.

  • Revise the definition of “remuneration” to allow for the possibility that surgical devices may be “single use” devices “used solely” for one or more of the statutory purposes.

  • Establish an independent definition of “isolated financial transaction” and clarify that the Isolated Transactions exception is not available to retroactively cure noncompliance with the physician self-referral law.

  • Delete the rules on the period of disallowance in their entirety in order to avoid prescribing the particular steps to bring a period of noncompliance to close, in favor of a case by case analysis.

  • Revise definition of “ownership or investment interest” to exclude titular ownership or investment interests that do not receive the financial benefits of ownership or investment.

  • Exclude from the definition of “ownership or investment interest” an interest in an entity that arises through participation in an ESOP qualified under IRC section 401(a).

  • Create a special rule for noncompliance with the writing or signature requirement of an applicable compensation arrangement exception, which would require compliance with a number of factors. CMS also clarified that with respect to the “set in advance” requirement, records of a consistent rate of payment over the course of an arrangement, from the first payment to the last, typically support the inference that the rate of compensation was set in advance.

  • With respect to “exclusive use” under the rental of office space or equipment exceptions, clarify that the lessor (or any person or entity related to the lessor) is the only party that must be excluded from using the space or equipment.

  • Modify the signature requirement of the physician recruitment exception to require the physician practice to sign the writing documenting the recruitment arrangement only if the remuneration is provided indirectly to the physician through payments made to the physician practice and the physician practice does not pass directly through to the physician all of the remuneration from the hospital.

  • A number of clarifications and revisions to the exception for remuneration unrelated to the provision of DHS to help distinguish between remuneration that is related to the provision of DHS and remuneration that is unrelated to the provision of DHS. 

  • Clarify that the exception for payments by physicians will not be available to protect compensation arrangements specifically addressed by one of the prior statutory exceptions. 

  • Make the exception for fair market value compensation arrangements available to protect arrangements for the rental or lease of office space and incorporate within the exception a prohibition on percentage-based compensation and per-unit of service compensation formulas. 

  • Update provisions in the electronic health record (EHR) exception that are consistent with updates made to the Anti-Kickback Statute safe harbor, pertaining to interoperability and data lock-in, clarify that donations of certain cybersecurity software and services are permitted under the EHR exception, remove the sunset provision, and modify the definitions of “electronic health record” and “interoperable” to ensure consistency with the 21st Century Cures Act. CMS also proposes permitting certain donations of replacement EHR technology and is considering alternatives to the 15% physician contribution requirement.

  • With respect to the Exception for Assistance to Compensate a Nonphysician Practitioner (NPP), define “NPP patient care services” to mean direct patient care services furnished by an NPP that address the medical needs of specific patients or any task performed by an NPP that promotes the care of patients of the physician or physician organization with which the NPP has a compensation arrangement.

Once finalized, the breadth of the changes to the Stark Law will impact every corner of the health care market. Comments on the Proposed Rule must be submitted to CMS by December 31, 2019.

AHLA thanks Joseph Kahn (Hall Render Killian Heath & Lyman PC) for serving as editor of this Bulletin.

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