Proposed 2016 Medicare Physician Fee Schedule Includes Changes to Stark Regulations

Proposed 2016 Medicare Physician Fee Schedule Includes Changes to Stark Regulations

The Centers for Medicare & Medicaid Services (“CMS”) recently released the proposed 2016 Medicare Physician Fee Schedule (the “Proposed Rule”), which included proposed revisions to the regulations under the federal physician self-referral law (commonly referred to as the “Stark Law”), as well as the solicitation of comments on other potential revisions to these regulations.  The Proposed Rule, if implemented, will affect the implementation of health care delivery and payment reform initiatives. 

The Proposed Rule provides guidance as to potential changes in the Stark Law regulations and provides healthcare entities and physicians with an important opportunity to comment on these prospective changes before they become effective. Set forth below is a summary of the proposed Stark Law regulatory changes.  Comments to the Proposed Rule must be received by CMS no later than 5:00 PM on September 8, 2015.  Saul Ewing can assist  in preparing comments to CMS with respect to the Proposed Rule.  

As a general matter, the Stark Law prohibits physicians who have financial relationships with entities from referring patients to those entities for the provision of certain “designated health services” (“DHS”) unless the arrangement meets a statutory or regulatory exception.  The nature and scope of these exceptions have been substantially broadened over the last two (2) decades as the Medicare program has evolved.  In the Proposed Rule, CMS seeks to further this evolution with the following changes:

Recruitment/Retention of Non-Physician Practitioners

CMS proposes a new exception for “assistance to physicians to employ non-physician practitioners” (“NPPs”), as well as clarifications for Federally Qualified Health Center (“FQHC”) and Rural Health Clinic (“RHC”) service areas in existing exceptions.  The proposed new exception was prompted by the shortage of available primary care services.  If this exception were made final, CMS would permit remuneration to physicians and physician organizations from hospitals, FQHCs, and RHCs (collectively, “Selected Health Facilities”) to employ NPPs, which are defined as “physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives.” However, NPPs eligible for this proposed exception would be limited to those that provide primary care services, e.g., general family medicine, internal medicine, pediatrics, geriatrics, and OB/GYN services. Such financial assistance can be provided for no more than two (2) consecutive years and would be capped at the lower of (1) 50 percent of the actual salary, signing bonus, and benefits paid by the physician to the NPP, or (2) an amount calculated by subtracting the receipts attributable to services furnished by the NPP from the actual salary, signing bonus and benefits paid to the NPP by the physician.  CMS also proposes to expand the definition of “referral” to include those referrals made by NPPs for purposes of this exception. Lastly, in order to “prevent gaming” by cycling NPPs through multiple physician practices in a Selected Health Facility’s service area, a Selected Health Facility would be prohibited from providing financial assistance for NPPs who have practiced in the Select Health Facility’s geographic area for the last three (3) years or who were employed or engaged within the last three (3) years by a physician with an office in the geographic service area regardless of whether the NPP worked in that office.

Those interested in this proposed new exception should consider submitting comments to CMS, and may want to consider addressing the following specifics under this proposed exception: (i) the definition of an NPP; (ii) the scope of “primary care services;” and/or (iii) the reasonableness of the cap on financial support that can be provided.

“Takes Into Account” Standardization

Historically, CMS has been criticized by healthcare industry representatives with respect to whether there are differing standards regarding when “volume or value” of referred DHS are taken into account in a compensation arrangement due to differences in language in the various exceptions.  In the Proposed Rule, CMS proposes revising certain exceptions that use “based on” or “without regard to,” to now use the language “takes into account” to ensure consistency in interpreting the volume or value standard for DHS referred by a physician who has a compensation arrangement with a DHS entity.

Given CMS efforts in standardizing the above language, to the extent that DHS entities or physicians believe there are other inconsistencies in the existing Stark Law regulations that CMS has not addressed in the Proposed Rule, it appears that this is an opportunity to address such matters.

Revisions to “In Writing” Requirements

CMS clarifies that Stark exceptions that require writings for compliance do not require a formal agreement or a single document. Instead, “a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the leasing exceptions and other exceptions that require that an arrangement be set out in writing.” CMS proposes to remove the term, “agreement” from each of the compensation exceptions to formalize this interpretation.  This is a significant relaxation of current Stark Law requirements for compensation arrangements. and makes compliance with such exception less burdensome to entities that provide DHS and physicians. Those who agree with the proposed revisions to the “in writing” requirements should consider expressing support to CMS through the comment process, as well as advocating for similar modifications to the Anti-Kickback Statute safe harbor regulations.

Revisions to Term Requirements in Certain Compensation Arrangements

CMS also clarifies that Stark Law exceptions requiring a term of at least one (1) year may be satisfied so long as the parties have contemporaneous documentation establishing that the arrangement lasted for at least one (1) year. Alternatively, the parties must be able to demonstrate that the arrangement was terminated during the first year and that the parties did not enter into a new arrangement for the same space, equipment or services during the first year of the arrangement. In other words, a written contract with a formalized “term” is not necessary to satisfy these compensation arrangement exceptions.  CMS proposes revising certain language in the regulations to formalize this interpretation.  This proposed change also represents a significant lessening of Stark Law Compliance Guidance .

Revisions to Holdover Policy

Generally speaking, the Stark regulatory “holdover” provisions have developed over time in response to concerns expressed by providers regarding the expiration, termination and renewal of arrangements. Under existing regulations, certain arrangements that have expired and would otherwise fail to meet the written agreement requirement are not subject to Stark Law liability for a period of up to six (6) months in what CMS terms “holdover” arrangements. CMS proposes to extend the holdover period to permit indefinite holdovers, or alternatively to extend the holdover period to a time period greater than six (6) months, under certain conditions. Specifically, the holdover must continue on the same terms and conditions as the original arrangement and continues to meet the requirements of the original exception, including those related to fair market value (“FMV”), compensation that does not take into account the volume or value of referrals  or other business generated between the parties, and reasonableness of the arrangement.  In providing further refinement to these holdover provisions, CMS seeks to prevent the frequent renegotiation of short term arrangements while, at the same time, making the exceptions less burdensome for providers.

CMS has invited comments with respect to what additional safeguards, if any, are necessary to ensure that holdovers lasting longer than six (6) months do not pose a risk of program or patient abuse.  Interested parties should take this opportunity to provide feedback on this important issue.

Changes to Certain Key Definitions

“Used Solely”

Under the Stark Law, certain “remuneration” is specifically deemed not to create a compensation arrangement.  This exclusion is for items, devices or supplies “used solely” for certain purposes.  In the Proposed Rule, CMS proposes to revise the definition of “used solely” to clarify that an item, device or supply cannot be used for any purpose other than the purposes listed in Section 1877(h)(c)(ii) of the Social Security Act, but that such item, device or supply may be used for more than one of these purposes. These six (6) purposes are as follows; to (1) collect, (2) transport, (3) process or (4) store specimens for the entity providing the items, devices, or supplies, or to (5) order or (6) communicate the results of tests or procedures for such entity.  Thus, if an item, device or supply cannot be used for any purpose other than the six (6) purposes listed in the statute, and it is not used for any other purpose not listed in the statute, then provision of the item, device or supply is not considered remuneration between the parties.  Likewise, the item can be used for two or more of the six purposes and shall not create a financial relationship, so long as there is no other non-statutory purpose.

Physicians and DHS entities should carefully examine whether any existing relationship or activity creates a “compensation arrangement” or “remuneration” under these proposed changes to the Stark Law regulations.

“Remuneration” and the Kosenske Case

In the Proposed Rule CMS states its disagreement with the Third Circuit decision of United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d. Cir. 2009)In Kosenske, the Third Circuit Court held that that prohibited remuneration from a hospital to a physician under the Stark Law could occur through the use of a hospital’s exam rooms, supplies, and nursing personnel when treating hospital patients, even when both parties separately billed the appropriate payers. In the Proposed Rule, CMS clarifies, without proposing any regulatory changes, that separate billing does not generate prohibited remuneration but that “global” billing for both the professional and technical components does create remuneration governed by the Stark Law because a benefit is conferred on the party that receives payment for those services.

Hospitals should examine CMS’ position on Kosenske and assess whether any of its arrangements with physicians give rise to prohibited remuneration under such interpretations.

Stand in the Shoes

For “stand in the shoes” purposes, CMS reaffirms its position that employees and independent contractors are not parties to physician organization’s arrangements unless they voluntarily “stand in the shoes” of their physician organization by satisfying the signature requirements of an applicable exception when the authorized signatory of the physician organization has signed the writing evidencing the arrangement.   Nevertheless, CMS warns that it will consider referrals from all physicians who are part of a group, for purposes of evaluating whether a compensation arrangement takes into account the volume or value of referrals or other business generated between the parties.  Otherwise, DHS entities would be permitted to establish compensation methodologies that take into account the volume or value of referrals or other business generated by the non-owner physicians in a physician organization when entering into a compensation arrangement with such physician organization. 

Finally, to eliminate unnecessary verbiage and to avoid any potential ambiguity, CMS proposes to remove the phrase “stand in the shoes” from the definition of a locum tenens physician in the regulation, as the “stand in the shoes” provisions specific to compensation arrangements are separate and distinct from the definition of a locum tenens physician.

Ownership of Publicly Traded Securities

In order to reflect the realities of modern securities markets, CMS proposes to expand the exception for publicly traded securities to all securities that are traded on an electronic stock market in which stock quotes are published daily and trades are standardized and publicly transparent, such as the New York Stock Exchange, the American Stock Exchange, NASDAQ, and over-the-counter quotation systems. For purposes of clarification and modernizing the regulation, CMS proposes that decentralized dealer networks and systems that trade unlisted stocks should not be eligible for protection under this exception.  CMS is seeking comments regarding whether fewer, different or additional restrictions on electronic stock markets or OTC quotation systems are necessary. 

Timeshare Arrangements

In the Proposed Rule, CMS acknowledges the need to distinguish a timeshare arrangement from a traditional medical office lease, and proposes a new exception that would protect timeshare arrangements that meet certain criteria. In the commentary, CMS distinguishes between leases, which transfer dominion and control of the property from the lessor to the lessee, and licenses in which dominion and control remain with the licensor.  Specifically, this exception would protect instances when a hospital or physician organization licensor permits the use of space, equipment, personnel, items, supplies, and services of the licensor to a physician licensee. Advanced imaging equipment, clinical or pathology lab equipment, and similar DHS equipment are not permitted to be included in a timeshare arrangement under the Proposed Rule.  CMS states that the timeshare exception would apply only to arrangements where the licensor is a hospital or a physician organization.  CMS states that permitting independent diagnostic testing facilities and clinical laboratories to offer timeshare arrangements would pose a heightened risk of Medicare program or patient abuse, as they may serve to lock in referral streams from the physician licensee as a result of the physician’s proximity to the DHS furnished by such entities.  The proposed exception would also require that substantially all of the services furnished to patients on the licensed premises are not DHS, and that only DHS that is incidental to the patient’s evaluation and management visit and furnished contemporaneously with that visit are permissible.

This is a potentially helpful new exception for physicians and DHS entities.  Those affected are encouraged to provide comments to CMS regarding this proposed exception, including such issues as: (i) the scope of the new exception; (ii) whether “predominant use” is the appropriate measure for use of the licensed premises; (iii) the requirement that the equipment be located in the office suite; and/or (iv) acceptable compensation methodologies for license fees.

Temporary Noncompliance with Signature Requirements

The current regulations permit an entity to submit a claim or bill and receive payment for DHS if an arrangement temporarily does not satisfy the applicable exception’s signature requirements but otherwise fully complies with the exception. Under the current regulations, if the failure to comply with the signature requirement is inadvertent, the parties must obtain the required signature(s) within ninety (90) days. If the failure is not inadvertent, then the parties must obtain the required signatures in thirty (30) days.  Under the Proposed Rule, the parties will have ninety (90) days to obtain signature(s) irrespective of whether or not the failure to obtain the signature(s) was inadvertent.  CMS acknowledges, in the commentary to the Proposed Rule, that it is not uncommon for parties who are aware of a missing signature to take up to ninety (90) days to obtain all signatures, and that allowing for ninety (90) days does not pose a risk for program or patient abuse.  This proposed change will likely be welcomed by providers.

Physician-Owned Hospitals

CMS seeks to provide further guidance regarding Web-based disclosures and the types of communications required of physician-owned hospitals in disclosing physician ownership interests to patients. For purposes of this clarification, CMS is proposing to list examples of the types of websites that do not constitute a public website for the hospital.  For example, social media sites would not be considered “public websites” of a physician-owned hospital that requires ownership disclosure. Nor would communications for recruiting hospital staff, public service announcements, and non-marketing community outreach be considered “public advertising.”  CMS also clarifies the manner in which physician-owned hospitals are to determine the percentage of ownership held by physicians as of March 23, 2010, the date that the Affordable Care Act was signed into law.

CMS is seeking comments on whether its proposed examples of websites that do not constitute a “public web site of the Hospital” are appropriate.

Solicitation of Comments: Perceived Need for Regulatory Revision or Policy Clarification Regarding Permissible Physician Compensation

In this Section of the Preamble, CMS discussed the Medicare program’s efforts over the past two decades to transition from traditional fee-for-service to value-based payment models.  These efforts have included the testing of numerous health care delivery and payment models, including the Pioneer Accountable Care Organization model and the Bundled Payments for Care Improvements Initiative, among others. CMS’ stated goals in these integration initiatives are referred to as the “three part aim”: (1) improving the experience of care, (2) improving the health of populations, and (3) reducing per capita costs of health care. CMS references the OIG’s statutory charge to study and prepare a report with options for amending existing fraud and abuse laws and regulations to permit gainsharing arrangements (the “Gainsharing Report”). The Gainsharing Report is due to be issued no later than April 15, 2016.  In addition, CMS makes reference to OIG’s report on fraud related to alternative payment models under the Medicare program (the “APM Report”), which is due to be issued no later than April 15, 2017.

To inform the APM Report and Gainsharing Report, as well as to aid CMS in determining whether additional rulemaking or guidance is desirable or necessary, CMS is soliciting comments regarding the impact of the Stark Law on health care delivery and payment reform.  CMS is interested in comments regarding perceived barriers to achieve clinical and financial integration posed by the Stark law generally and, in particular, the “volume or value” and “other business generated” standards set out in the regulations. The questions which CMS poses for discussion are listed below:

  • Does the physician self-referral law generally and, in particular, the “volume or value” and “other business generated” standards set out in the regulations, pose barriers to or limitations on achieving clinical and financial integration?
  • Which exceptions to the physician self-referral law apply to financial relationships created or necessitated by alternative payment models? Are they adequate to protect such financial relationships?
  • Is there a need for new exceptions to the physician self-referral law to support alternative payment models? If so, what types of financial relationships should be excepted?
  • Which aspects of alternative payment models are particularly vulnerable to fraudulent activity?
  • Is there need for new exceptions to the physician self-referral law to support shared savings or “gainsharing” arrangements?
  • Should certain entities, such as those considered to provide high-value care to beneficiaries, be permitted to compensate physicians in ways that other entities may not?
  • Could existing exceptions, such as the exception for risk-sharing arrangements, be expanded to protect certain physician compensation, for example, compensation paid to a physician who participates in an alternative care delivery and payment model sponsored by a non-federal payor?
  • Have litigation and judicial rulings on issues such as compensation methodologies, fair market value, or commercial reasonableness generated a need for additional guidance from CMS on the interpretation of the physician self-referral law or the application of its exceptions?
  • Is there a need for revision to or clarification of the rules regarding indirect compensation arrangements or the exception for indirect compensation arrangements?
  • Given the changing incentives for healthcare providers under delivery system reform, should certain compensation be deemed not to take into account the volume or value of referrals or other business generated by a physician?

All providers that are affected by the Stark Law should respond to CMS regarding the Proposed Rule and reply to the specific questions raised by CMS. Saul Ewing can help interested parties frame responses to ensure that CMS appreciates the perspective of interested parties who are actively engaged in the health care delivery system.  

This summary does not reflect all information in the Proposed Rule, which is available at

Members of Saul Ewing’s Health Care Practice have significant experience with the Stark Law and its impact on DHS providers and various physician specialties and subspecialties.  For more information on the Proposed Rule and health law issues generally, please contact the authors or the attorney at the Firm with whom you are regularly in contact.