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CMS Proposes New Rule To Reduce Stark Law Burdens And Confusion

Recently, the Fourth Circuit Court of Appeals decided against the Tuomey Healthcare System in a case that has resulted in approximately a quarter of a billion dollars in penalties for violations of the Stark Law.  The decision has sent shock waves through the hospital sector and in the wake of the case, the Centers for Medicare & Medicaid Services (CMS) published a Proposed Rule relaxing aspects of the Stark law.  Specifically, the proposed rule eases some of the strict liability features of the law and CMS’ burden in dealing with the interpretation of key terms, requirements and other issues.  After reviewing an enormous amount of self-disclosures, CMS realized that a large part of their docket involved arrangements that may technically violate the statute but do not actually pose significant risks of abuse.  Therefore, it appears that CMS seeks to reduce the number of self-disclosures reported.  However, the proposed update is also intended to account for recent changes relating to health care reform and advancements in patient care and payment methodologies.  CMS wanted to ensure that Stark does not inhibit Affordable Care Act (ACA) reforms.

The proposed rule would give additional guidance and clarify terminology related to financial relationships.  One key point is that CMS believes that a single document may not tell the whole story and therefore, a collection of documents should be taken into consideration.  The proposed rule also notes that the term of a lease or personal service arrangement does not need to be in writing if the arrangement lasts at least one year and is otherwise compliant.  Additionally, the proposed rule included new Stark exceptions allowing payments to physicians for employing non-physician practitioners in order to ease shortages of primary-care physicians, among other things.  Another new exception would allow timesharing arrangements for the use of office space, equipment, personnel, supplies and other services that benefit rural or underserved areas.  CMS also clarified that compensation paid to a physician organization may take into account referrals of any physician in the organization, not just those who “stand in the shoes” of the organization.  The proposed rule also clarified that a financial relationship does not necessarily exist when a doctor provides services to patients in a hospital if the hospital and physician bill independently for their services.  CMS has opened the door for comment in a number of other specific issues, including:

  • Clarification of the definition of remuneration;
  • Allowing 90 days to obtain required signatures to an agreement;
  • Substitution of the term “arrangement” for “agreement” or “contract” in several Stark Law exceptions;
  • No explicit “term” provision requirement if arrangement lasts for at least one (1) year;
  • Modifications to the qualifications for a security to be considered “publicly traded”;
  • New exception for timeshare arrangements where the hospital or physician is the “licensor”;
  • Per unit-of-service and percentage compensation methodologies for timeshare arrangements;
  • Elimination of time limitations on holdover arrangements if certain safeguards are met;
  • Amendment of the phrase “without regard to the volume or value of referrals” with “does not take into account the volume or value of referrals”;
  • Revisions of the incident to service requirements for which physicians can bill;
  • Exceptions for physician remuneration to assist in recruitment of a non-physician practitioner; and
  • Elimination of Stark barriers in achieving clinical and financial integration under the ACA.

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The provider community will definitely welcome most of these proposed changes.  With the opening of the door, it is likely that CMS will receive a flood of comments and suggestions that will go further beyond the changes proposed by CMS.  CMS will accept comments from the public until September 8th 2015.  In the meantime, providers have the opportunity to review existing arrangements, both in terms of the current rules as well as in regards to the proposed changes.  It is advisable that providers use experts under direction of legal counsel to assess arrangements.  However, the reviewers should be independent of those individuals involved in the development of the arrangements.  Also, care should be taken when using a law firm to conduct the review since their results may be viewed as a legal opinion.  This is something to keep in mind especially since the Tuomey decision has served as a warning where conflicting legal opinions exist.

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