CMS Finalizes Stark Law Changes In CY 2016 Medicare Physician Fee Schedule Final Rule

This past July, on the heels of a decision in which a judge for the U.S. Court of Appeals for the Fourth Circuit characterized the federal physician self-referral prohibition commonly known as the "Stark Law" as, "even for well-intentioned health care providers, [...] a booby trap rigged with strict liability and potentially ruinous exposure,"1 the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule that, in many ways, signaled the agency's intent to ease the burden of complying with the law. On October 30, 2015, CMS unveiled its final changes in this iteration of Stark Law rulemaking as part of the CY 2016 Medicare Physician Fee Schedule final rule (the "Final Rule").2

With the stated goal of accommodating delivery and payment system reform, reducing burden, and facilitating compliance, the Final Rule makes several significant changes, including new exceptions for the recruitment of nonphysician practitioners and timeshare arrangements, important clarifications for physician-owned hospitals, and revisions to a handful of procedural requirements that are common to several oft-used Stark Law exceptions. Certain of the commentary in the Final Rule reflects current CMS policy and is, therefore, already in effect. The regulatory changes will become effective January 1, 2016, with the exception of the changes related to determining the level of physician ownership in physician-owned hospitals, which will take effect January 1, 2017.

Healthcare providers and other industry participants should study the Final Rule carefully, considering not only its effects on physician arrangements going forward, but also its implications for existing arrangements, including matters that have been voluntarily disclosed to CMS.

NEW EXCEPTIONS

Nonphysician Practitioner Compensation Assistance

The Final Rule includes a new exception under which hospitals, federally qualified health centers (FQHCs), and rural health clinics (RHCs) may provide remuneration to a physician to aid the physician in employing or contracting with nonphysician providers (NPPs) in the geographic service area of the hospital, FQHC, or RHC. The Stark Law currently contains an exception permitting a hospital, FQHC, or RHC to pay a physician to relocate to the facility's geographic service area. At the time that exception was created, however, CMS declined to extend it to similar payments for NPPs. Since then, demand for primary care services has increased dramatically, and changes in care delivery models have brought more NPPs into roles providing primary care services. In light of this shift, CMS revised its policy.

CMS modeled its proposed rule on the existing physician recruitment exception, and finalized the rule with only minor modifications. The new NPP compensation assistance exception has several limitations and requirements. Only six types of NPPs are included under the exception: physician assistants, nurse practitioners, clinical nurse specialists, certified nurse midwives, and, at the urging of several commenters, clinical social workers and clinical psychologists. Substantially all (i.e., at least 75 percent) of the services the NPP furnishes to the physician's patients must be primary care and mental health services. Moreover, the exception applies only where there is a compensation arrangement directly between the physician and the NPP for employment or for contracted services; an arrangement involving an NPP contracted through a staffing agency does not qualify. The NPP's aggregate salary, signing bonus, and benefits must be consistent with fair market value, and the physician may not impose practice restrictions on the NPP that unreasonably restrict his or her ability to provide patient care services within the geographic area serviced by the hospital, FQHC, or RHC.

In addition to its restrictions on the agreement between the physician and the NPP, the exception imposes several requirements on the remuneration between the hospital, FQHC, or RHC and the physician. To avoid such payments becoming an ongoing or permanent arrangement, the Final Rule expressly limits the remuneration under the exception to 50 percent of the actual aggregate compensation, signing bonus, and benefits paid to the NPP. The rule also dictates that the hospital, FQHC, or RHC may not provide assistance for longer than "the first [two] consecutive years" the NPP is employed by the physician. A hospital, FQHC, or RHC may not provide such assistance to the same physician more than once every three years (subject to a limited exception where the NPP leaves before a full year of employment).

To prevent "gaming" or "cycling" of NPPs through different physician practices in the same geographic area, the exception will not apply if the NPP has practiced in the geographic service area within one year prior to becoming employed by the physician (or the organization in whose shoes the physician stands). Nor may a hospital, FQHC, or RHC provide remuneration if the NPP was employed or otherwise engaged by a physician with a medical office in the geographic service area within one year prior to becoming employed or contracted—even if the NPP did not provide patient care services in that particular office.

The arrangement between the hospital, FQHC, or RHC and physician must meet several familiar Stark Law requirements. The arrangement must be in writing and signed by the hospital (or FQHC or RHC), physician, and NPP, and may not be conditioned on the physician or NPP's referral of patients to the hospital, FQHC, or RHC. The remuneration may not be determined (directly or indirectly) in a manner that takes into account the volume or value of any actual or anticipated referrals to the hospital, FQHC, or RHC, or any other business generated between the parties. CMS notes that the definition of "referral" under the law will apply to NPPs for the purpose of this provision since the existing definition applies only to physicians. Records regarding the arrangement must be maintained for at least six years and must be available to the government on request. Finally, the arrangement must comply with all existing federal and state laws, including the Stark Law and the federal Anti-Kickback Statute.

Timeshare Arrangements

The Final Rule includes a new exception for "timeshare" arrangements in which a visiting physician pays a hospital or physician organization for the right to use office space—including furnishings, equipment, and personnel—on an exclusive, but periodic, basis. These arrangements are common in rural or underserved areas where demand for a given specialty cannot sustain a full-time practice. CMS emphasizes that such an arrangement is distinct from those currently covered by exceptions for leases of office space or equipment or payments made by a physician as compensation for items or services furnished at fair market value. The Final Rule leaves these and other exceptions intact, and parties may continue to choose among applicable exceptions to protect their agreements.

CMS refers to the parties to a timeshare arrangement as "licensor" and "licensee" to highlight the reason this exception differs from that for leases of office space and equipment. CMS clarifies that the parties need not use these terms, but that the essential nature of the property interest conveyed determines whether the parties can satisfy the requirements of the exception. A license is a mere privilege to act on another's property--it does not transfer ownership or control of the property to the licensee. By contrast, a lease transfers dominion and control of the property from the lessor to the lessee, giving the lessee an exclusive "right against the world" (including a right against the lessor) with respect to the leased property. The exception protects only those arrangements that grant a right or permission to use the premises, equipment...