CLIENT ADVISORY: CMS’s Final Rule Creates Two New Exceptions to the Stark Law

On Oct. 30, 2015, the Centers for Medicare & Medicaid Services (CMS) added two new exceptions to the Federal physician self-referral law (the “Stark Law”), adopting most of its proposed July 2015 rules following the comment period. The two new exceptions address recruitment support for physicians to hire non-physician practitioners (NPPs) to provide primary or mental health care and physician timeshare lease arrangements with hospitals. The full text of the rule was published in the Federal Register on Nov. 16, 2015.[1]

Recruiting Assistance for Non-physician Practitioners

Under this exception to the Stark Law, hospitals, Federally Qualified Health Centers (FQHCs), and Rural Health Clinics (RHCs) may provide payments to physicians to assist in recruiting and employing primary care Non-Physician Practitioners (NPPs).[2] According to CMS, Federal expansion of health care coverage increased the need for more primary and mental health providers, particularly in rural and underserved areas, necessitating an exception to incentivize recruitment efforts.

CMS defines covered NPPs as clinical social workers, clinical psychologists, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives. Recognizing the shortage of mental health professionals in many areas, CMS included clinical social workers and clinical psychologists. However, it chose not to extend the exception to non-primary care NPPs such as physical therapists, CRNAs, and registered dieticians or nutritional professionals.

The assistance exception includes specific requirements to limit possible abusive arrangements, specifically:

  • NPP must be a bona fide employee or contractor directly supervised by the physician for the employing physician or group to receive assistance;
  • NPP cannot have practiced in the assisting facility’s geographic service area or for the assisted physician or group;
  • Assistance period is no longer than the first two years of the arrangement with the NPP;
  • Substantially all (i.e., at least 75 percent) of the patient care services furnished by the NPP must be for primary care or mental health services. CMS identified primary care services for NPPs as the areas of general family practice, general internal medicine, pediatrics, geriatrics, and obstetrics and gynecology;
  • Payment to the physician is capped at 50 percent of the aggregate compensation and benefits (health insurance, paid leave, and other routine non-cash benefits) paid to the NPP over the first two years of the arrangement. Furthermore, the physician or group can use this exception once every three years; and
  • The hospital, FQHC, or RHC may also only use this exception once every three years with respect to the same referring physician, except where a new NPP replaces an NPP who terminated his or her employment or contractual arrangement within one year of its commencement.

As with other Stark Law exceptions, the assistance exception still requires:

  • The arrangement must be in writing, signed by the hospital, the physician and the NPP;
  • It cannot be conditioned on the physician’s or NPP’s referrals to the hospital;
  • The physician cannot impose practice restrictions on the NPP that unreasonably restrict the NPP’s ability to provide patient care services in the geographic area (however, non-compete provisions that comply with state law have been considered reasonable under other Stark exceptions); and
  • The assisting facility and the physician must maintain records of the payments by the hospital to the physician and by the physician to the NPP for at least six years.

The assistance exception only applies to payments to the employing physician and not directly to the non-physician practitioner whose direct compensation is not subject to Stark’s restrictions (although it may be subject to other Federal laws such as the anti-kickback statute). It does not preclude reimbursing an NPP for relocation expenses, so long as that amount is included in the aggregate calculation of compensation. It cannot include the cost of purchasing shares in the practice. Importantly, the assistance exception "is not intended to provide a physician with the means to increase profit from the services of an NPP in his or her practice at the expense of a hospital, FQHC or RHC." CMS has stated it will continue to monitor the exception for potential abuse.

Timeshare Arrangements

CMS’s final rule also adds the timeshare exception to permit the common practice of timeshare arrangements between hospitals or physicians for the use of office space, equipment, personnel, items, supplies, and other services that are used to furnish evaluation and management services.[3] It applies to timeshare arrangements between a physician who may “stand in the shoes” of another group physician and a hospital, or a physician and another physician group (of which the physician is not an employee, contractor, or owner), notwithstanding which party is providing or using the space. While this exception could be useful in a variety of circumstances such as nursing homes, imaging centers and labs, its availability is limited to hospitals or other physician groups.

CMS defines timeshare arrangements as part-time arrangements not protected by the established space and equipment lease exceptions, particularly those that do not transfer exclusive dominion and control. Unlike leases, these arrangements typically provide a physician with the non-exclusive use of office space during scheduled time periods. The space may be fully furnished with basic medical office equipment, furniture, supplies and support personnel so that the physician is able to use the space, on a turn-key basis, to see patients during scheduled times. This exception expressly excludes imaging equipment, radiation therapy equipment, and clinical or pathology laboratory equipment.

Under the Final Rule, remuneration for the use of premises, equipment, personnel, items, supplies, or services is permitted if the following conditions are met:

  • The arrangement is set out in writing, signed by the parties, and specifies the premises, equipment, personnel, items, supplies, and services are covered by the arrangement;
  • It is not conditioned on the referral of patients, would be commercially reasonable even if no referrals were made, and does not violate the anti-kickback statute or any Federal or State law or regulation;
  • It is between a physician (or physician group) and (i) a hospital or (ii) another physician group;
  • All subject premises, equipment, personnel, items, supplies, and services are used predominantly for the provision of evaluation and management (E/M) services to patients, and on identical schedules;
  • The equipment is located in the same building where E/M services are furnished, is not used to furnish non-incidental designated health services, and does not include advanced imaging, radiation therapy, or clinical or pathology laboratory equipment (other than for CLIA waived tests);
  • The compensation 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 a formula based on a percentage of the revenue attributable to use of the space or equipment; and
  • The arrangement does not convey a possessory leasehold interest in the office space that is the subject of the arrangement.

CMS developed both exceptions based on prior comments and data collected from its administration of the Stark Physician Self-Referral Disclosure Protocol (“SRDP”). In both cases, CMS did not restrict use of the exception to rural areas.

Should you or your organization have any questions regarding the new Stark Law exceptions or any other Stark Law issue, please contact Peter Mellette (Peter@mellettepc.com), Harrison Gibbs (Harrison@mellettepc.com), Nathan Mortier (Nathan@mellettepc.com), or Elizabeth Dahl (Elizabeth@mellettepc.com), or call Mellette PC at (757) 259-9200.

This Client Advisory is for general educational purposes only. It is not intended to provide legal advice specific to any situation you may have. Individuals desiring legal advice should consult legal counsel for up to date and fact specific advice.

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[1] 80 F.R. 70886, November 16, 2015.

[2] 42 C.F.R. 411.357(x).

[3] 42 C.F.R. 411.357(y).

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