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Could Stark Be Mellowing with Age? CMS Increases Flexibility and Reduces Technical Burdens

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November 6, 2015

In its Final Rule revising the Medicare Physician Fee Schedule ("MPFS"), released October 30, 2015 ("Final Rule"), the Centers for Medicare and Medicaid Services ("CMS") finalized significant changes to its regulations implementing the federal physician self-referral law (collectively referred to as the "Stark Law"). The Stark Law-related changes promulgated in the Final Rule seem driven by three overarching goals: (i) increasing flexibility and easing technical burdens, (ii) reducing ambiguity and (iii) promoting access to care. CMS adds flexibility to technical requirements, such as debunking the myth that one formal agreement is required to qualify for many exceptions. In addition, CMS finalizes exceptions to allow for turn-key time share arrangements and recruitment of non-physician practitioners. And, among other things, CMS clarifies ambiguities in the whole hospital exception related to website and advertising requirements and who qualifies as a physician owner.

Certain commentary in the Final Rule clarifies current CMS policy and, therefore, already applies. The new exceptions and changes to regulatory text take effect on January 1, 2016, with the exception of changes to ownership or investment calculations for physician-owned hospitals, which take effect as of January 1, 2017. Comments are due on December 29, 2015.

Increasing Flexibility; Easing Technical Burdens

Many well-intentioned providers find themselves snagged by the Stark Law's technicalities. CMS became acutely aware of this through its experience administering the Medicare Self-Referral Disclosure Protocol ("SRDP"), which offers providers the opportunity to disclose and resolve violations of the Stark Law at a reduced penalty. Since CMS established the SRDP in 2010, disclosures have flooded the agency to the point that the processing backlog spans years. Changes finalized in the Final Rule indicate that CMS is seeking to ease the compliance and paperwork burdens on providers and the agency by reducing the number of technical violations leading to self-disclosures. 

These changes will undoubtedly decrease the number of self-disclosures, as CMS has offered reassurance that certain issues previously thought to be technical violations are not, in fact, technical violations. However, an effective formal written agreement, signed by both parties prior to commencing a financial relationship with a referring physician, remains the best way to evidence that an arrangement complies with each requirement of an applicable Stark Law exception. Each mechanism that follows should be a safety net, not an ideal.

Writing requirement. CMS clarified that the "in writing" requirement found in many of the Stark Law's exceptions can be met through a collection of documents, even in the absence of a formal contract. By shifting the focus from "agreement" to "arrangement," CMS indicated that the relevant inquiry "is whether the available contemporaneous documents (that is, documents that are contemporaneous with the arrangement) would permit a reasonable person to verify compliance with the applicable exception at the time that a referral is made." Examples of individual documents that may collectively be used to satisfy an exception include: board meeting minutes, documents authorizing payments for specified services, written communication (including electronic) between the parties, fee schedules, check requests or invoices, time sheets, call coverage schedules, accounts payable or receivable records, and checks. 

Signature grace period. The Final Rule removes the distinction between inadvertent and advertent failures to obtain signatures by uniformly allowing for a 90-day grace period to obtain missing signatures. All other requirements of the exception upon which a provider is relying must be satisfied (including the writing requirement). At most, an entity may make use of this grace period for the same referring physician only once every three years. Despite inquiries regarding what constitutes a signature to satisfy the signature requirement (e.g., email signatures?), CMS declined to offer specific guidance, explaining that the answer may vary based on an individual’s intent and other facts and circumstances.

One-year term. CMS clarified that an explicit term provision in an agreement is not necessary to satisfy the one-year requirement of exceptions such as the rental of office space, rental of equipment, and personal service arrangements, provided the arrangement actually lasts at least one year and is otherwise compliant. Contemporaneous documentation must support that the arrangement continued for at least one year on consistent terms and conditions.

Indefinite holdover. The changes in the Final Rule allow expired leasing and personal services arrangements to continue indefinitely on the same terms and conditions as the immediately preceding arrangement, as long as the arrangement is otherwise compliant. The parties must maintain contemporaneous documents establishing that the holdover continued on the same terms and conditions; a requirement intended to safeguard against frequent renegotiation of short-term arrangements based on a physician's referrals. Continuing on the same terms and conditions includes charging any holdover premiums in the original agreement, because not charging a holdover premium may amount to forgiveness of a debt. Significantly, the arrangement must continue to satisfy the fair market value ("FMV") requirement during a holdover, which could be challenging when taking holdover premiums into consideration. Beyond tracking holdover premiums, this also means the parties watch for compensation or rental charges that become inconsistent with FMV over time, as the parties bear the risk of fluctuations that may cause an arrangement to no longer meet the FMV requirement. Notably, if an arrangement does not qualify for the six-month holdover under currently-effective regulations on January 1, 2016 (i.e., the holdover has already stretched beyond six months), the parties cannot rely on the indefinite holdover provision.

The million-dollar question: What happens to the hundreds of SRDP submissions currently awaiting review? Since many of the policy changes in the Final Rule are "clarifications" of existing rules, the interpretations seemingly could apply retroactively. Any provider that has a self-disclosure pending with CMS is surely asking whether they should amend or completely withdraw their pending submission based on these clarifications of existing CMS policy. The agency has not yet indicated how it will handle those disclosures but, given the backlog, one must think that regulators at CMS would welcome withdrawals.

Improving Access to Care

The Final Rule also adds an (x) and a (y) to the veritable alphabet of Stark Law exceptions. The former allows for assistance to physicians to recruit and compensate a nonphysician practitioner ("NPP"); the latter permits non-exclusive timeshare arrangements for the use of office space, equipment, personnel, items, supplies, and other services. Both of these exceptions are intended to increase access to care. 

NPP recruitment. Similar to the recruitment exception for physicians, 42 CFR 411.357(x) permits payments by hospitals, Federally Qualified Health Centers ("FQHC") and Rural Health Clinics ("RHC") to a physician who compensates a newly-recruited NPP to move to and provide primary care services or mental healthcare services to patients of the physician's practice. The exception is intended to bolster the availability of primary care and mental healthcare services in the geographic area served by the entity providing the assistance to the physician. 

The NPP may be compensated by the physician either as an employee or an independent contractor. NPPs are defined as: physician assistants, nurse practitioners, certified nurse specialists, certified nurse midwives, clinical social workers, and clinical psychologists. To rely on the exception, several conditions must be satisfied. In brief, these include:

    • The arrangement must be set out in writing and signed by the hospital, the physician, and the NPP.
    • The NPP must provide services in the geographic area served by the hospital providing the remuneration.
    • The arrangement may not be conditioned on the physician's or the NPP's referral of patients to the hospital providing the remuneration.
    • "Substantially all" (at least 75%) of the patient care services furnished by the NPP must be primary care services or mental healthcare services.
    • The amount of assistance provided to a physician by a hospital may not exceed 50% of the actual aggregate compensation, signing bonus, and benefits paid to the NPP (but salary, signing bonus, and benefits need not be set in advance). The remuneration also cannot take into account, directly or indirectly, the volume or value of any actual or anticipated referrals.
    • The compensation, signing bonus, and benefits paid to the NPP must not exceed FMV.
    • The assistance may apply only to the first two consecutive years of an NPP’s arrangement with the local physician.
    • To "prevent gaming," the exception may not be used for an NPP who, within the past year, has practiced in the hospital’s geographic area. Similarly, there is a three-year limitation on the frequency of a hospital’s use of the exception for a particular physician.

Timeshares. Expanding on the exception for the rental of office space,1 the exception codified at 42 CFR § 411.357(y) permits timeshare arrangements for the non-exclusive use of office space, equipment,2 personnel, items, supplies, and other services (collectively, the "items and services"). In contrast to arrangements under the office lease exception, however, CMS takes a licensing approach with these timeshare arrangements, meaning control of the items and services cannot be transferred. Rather, an arrangement confers a privilege to use the items and services during specified time periods. This alternative to the office lease exception (which continues to exist independently) is intended to improve access to needed care by facilitating part-time or periodic access to physicians in communities that might not otherwise support the full-time services of a physician.

A timeshare arrangement must be between a physician (including a physician standing in the shoes of a physician organization) and either a hospital or an otherwise unaffiliated physician organization. Notably, the timeshare arrangement does not protect indirect relationships — those must still satisfy the indirect compensation exception. Other key conditions of the timeshare exception, include:

    • The arrangement must be set out in writing, signed by the parties, and must specify the items and services it covers. It may not be conditioned on the referral of patients. 
    • Compensation must be set in advance, consistent with FMV, 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. Compensation must not be based on per-unit of service fees.
    • The items and services must be used predominately to furnish evaluation and management ("E/M") services to patients.
    • Any equipment covered by the arrangement must be located in the same building as the office suite where E/M services are furnished, and must be used only to furnish designated health services ("DHS") that is incidental to and furnished at the time of such E/M services.
    • All locations under the timeshare arrangement must be used on identical schedules.

Significantly, CMS expressly prohibited compensation formulas based on: (i) a percentage of the revenue attributable to the services provided while using the timeshare, or (ii) per-unit of service fees, to the extent that such fees reflect services provided to patients referred by the grantor of the timeshare. The agency explained in detail its conclusion that timeshare arrangements "based on percentage compensation or per-unit of service compensation formulas present a risk of program or patient abuse because they may incentivize overutilization and patient steering."


Reducing Ambiguity

Consistent terminology. Several other changes and CMS commentary improve consistency throughout the regulations and ease interpretability overall. For example, CMS amended several exceptions to the Stark Law to consistently use the phrase "takes into account" when discussing the volume or value of referrals (instead of "based on," for example), emphasizing that a uniform standard applies across compensation exceptions.

Remuneration. Shedding light on split billing arrangements, CMS clarified that a financial relationship does not exist when a physician provides services to hospital patients in a hospital if both the hospital and physician bill independently for their services—because there is no remuneration between the DHS entity and the physician. In contrast, if one of the parties billed globally (for both the physician's services and the hospital's resources and services), a benefit would be conferred on the party receiving the payment. Despite requests from commenters, CMS declined to make corresponding changes to the regulatory text of the definition to memorialize these policies because such a change was not addressed in its proposed rule. CMS also declined to comment on whether "exclusive" split billing arrangements constitute remuneration, leaving some uncertainty on this point. Therefore, best practice remains structuring such exclusive arrangements to comply with the personal services or fair market value exceptions.

Whole hospital. Through the Final Rule, CMS communicated more specific ownership and advertising requirements for physician-owned hospitals. 

Ownership. The Stark Law exception for physician ownership in hospitals and rural providers was amended pursuant to section 6001(a) of the Patient Protection and Affordable Care Act ("ACA"). Among other restrictions, physician ownership in a hospital, grandfathered under the ACA, may not exceed the percentage of the total value of physician ownership or investment in the hospital as of March 23, 2010 (the "baseline bona fide investment level"). The Final Rule addresses how to calculate the baseline level, in an attempt to better align the regulations with the statute.

The modified methodology includes all physicians in the baseline and future calculations of a hospital's physician ownership, rather than only those physicians who refer patients to the hospital.3 As a result of the policy change, the current physician ownership levels at some hospitals may exceed the baseline level. Among other complications, the change could cause financial hardship for certain physicians who need to sell their ownership interests at FMV so that the hospital is compliant. Recognizing these challenges, CMS has allowed a one-year grace period, delaying the effective date until January 1, 2017.

Websites and advertising. Physician-owned hospitals must disclose on any public website and in any public advertising that it is owned or invested in by physicians.4 This requirement has been the source of much uncertainty and many missteps among providers — so much so that CMS published special instructions for SRDP submissions arising solely from a violation of the website and advertising disclosure requirements.5

Due to the ever-evolving nature of the Internet, CMS declined to clearly define a "public website for the hospital." However, it did state that social media websites and communications are not the types of websites that require a disclosure. CMS also excluded electronic payment portals, electronic patient care portals, and electronic health information exchanges, reasoning that users of such websites are typically existing patients of the hospital who should already be aware of its physician ownership.

Narrowing the definition of "public advertising" by adding "for the hospital," CMS indicated that the advertising subject to the disclosure requirements includes "any public communication paid for by the hospital that is primarily intended to persuade individuals to seek care at the hospital."

CMS also clarified its interpretation of the period of noncompliance for materials that might remain available to the public for an extended period of time. Specifically, the period of noncompliance (if not cut short by the hospital's amendment of the advertisement) is the duration of an advertisement's predetermined initial circulation. So, for an issue of a monthly magazine, the period would likely be the applicable month of circulation.


Looking Ahead

Ironically, the clarifications of the Final Rule prompt more questions. It remains to be seen how the Final Rule will impact the current backlog of self-disclosure submissions. Will CMS apply the revised interpretations sua sponte, or should entities be prepared to revise past submissions? Might providers be offered some kind of fast-track settlement option as CMS continues to dig out of the paperwork? Physician-owned hospitals face an additional challenge: how to handle necessary ownership shakeups.

Through this season of change, though, we emphasize again that to ensure compliance with the Stark Law, best practices remain unchanged: Document arrangements in signed writings; renew agreements when necessary; and comply with FMV requirements.


42 CFR 411.357(a).
The exception excludes certain equipment, including advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).
The calculations must include direct and indirect "ownership and investment interests" held by each physician who satisfies the definition of "physician" at 42 CFR 411.351, regardless of whether that physician is also a "referring physician."
42 CFR 411.362(b)(3)(ii)(C).
https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Downloads/Disclosures-Noncompliance-Instructions.pdf.


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