CMS finalizes major updates to the Stark Law
February 17, 2021
By Adrienne Dresevic and Arturo Trafny
On November 20, 2020, the Centers for Medicare and Medicaid Services (CMS) issued a Final Rule updating the Physician Self-Referral (Stark) Law. The Final Rule implemented a number of significant changes to the Stark Law meant to continue the push towards a value-based healthcare system.
The updates to the Stark Law are effective January 19, 2021, except as otherwise specified below. Of note, the Office of Inspector General (OIG) has issued a Final Rule to update the Anti-Kickback Statute (AKS) with many similar provisions.
A brief overview of the Stark Law
The Stark Law prohibits a physician (or his/her immediate family member) who has a financial relationship from referring a Medicare patient to an entity for the furnishing of designated health services (DHS) (e.g., radiology and certain other imaging services, radiation therapy services, physical therapy, etc.). Further, it prohibits the entity from billing Medicare or other payors for such DHS, unless an exception applies.
While radiologists are oftentimes not considered “referring providers” under the Stark Law, they may have financial relationships with referring physicians which trigger the Stark Law. Additionally, many practices around the country comprising referring physicians rely upon the in-office ancillary services exception (IOASE) to the Stark Law in order to furnish in-office ancillary services (e.g., diagnostic imaging services) to patients in the practice’s office. In order to take advantage of the IOASE, practices must first meet the “group practice” definition under the Stark Law. The IOASE protects in-office imaging and other diagnostic testing services if the services are provided by the referring physician or his group, billed by the performing physician/group, and provided either in a centralized building or the same building where the referring physician regularly practices medicine. Notably under the Final Rule, CMS did not revise the IOASE. However, there were clarifications made to the “group practice” definition, as detailed below.
Defining a ‘group practice’
CMS revised the criteria for meeting the definition of “group practice” and several definitions related to group practices (i.e., DHS, physician, referral, remuneration, and transaction). One significant update being CMS’ clarification that a group practice’s “overall profits” means the profits derived from all DHS of the entire group (if there are less than five physicians in the group) or the profits derived from all DHS of any component of the group (if there are at least five physicians in the group). Therefore, group practices must first aggregate their DHS profits before making any profit-based payments. This prohibits a group practice from distributing DHS profits on a split-pool (i.e., service-by-service) basis. CMS argued that split-pooling indicates a practice is not a unified business, a requirement for group practices.
Given CMS’ new clarifications to the “group practice” definitions, practices that rely on the IOASE to provide in-office ancillary services, should review the updates to ensure their internal policies and profit distributions meet the new CMS standards. CMS has afforded such practices one year to come into compliance with the updates, as the group practice updates are effective January 1, 2022.
Three new exceptions for value-based arrangements
While previously existing exceptions may provide protection for certain value-based arrangements (VBAs) under the Stark Law, many VBAs may not meet the fair market value (FMV) standards and other requirements for these exceptions. Accordingly, CMS created three new exceptions to the Stark Law for value-based arrangements. A VBA is an arrangement providing at least one value-based activity (i.e., an action/inaction designed to achieve a value-based purpose (e.g., improved healthcare or reduced costs) meant to meet the needs of a target patient population).
The first exception protects VBAs where the value-based enterprise (VBE) (i.e., the participants collaborating in the VBA) assumes full financial risk for patient care services for the entire duration of the VBA. VBEs relying on this exception must ensure: (1) the VBE assumes full financial risk for the entire duration of the VBE within 12 months of commencing the VBA; (2) remuneration is based on value-based activities undertaken by the recipient; (3) remuneration is not used to reduce/limit any medically necessary items/services to any patient; (4) remuneration is not conditioned on referrals of patients outside the target patient population for the VBA; (5) if remuneration is conditioned on a physician’s referrals, the requirement is set out in writing, signed, and does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; and (6) records are maintained for at least 6 years showing the methodology for determining all remuneration.
The second exception protects VBAs where the participating physician assumes meaningful downside financial risk (i.e., at least 10% of the total value of the VBA’s remuneration) for failure of achieving their value-based purposes. Those relying on this exception must meet the above-cited requirements under the first exception, except the first requirement (i.e., that the VBE assumes full financial risk). In addition to meeting those requirements, the VBE must ensure: (1) the participating physician assumes meaningful downside financial risk for the duration of the VBA; and (2) a description of the financial risk is set out in writing.
The third exception is a catch-all exception for VBAs not meeting the other two exceptions. While applying to a wider array of VBAs, this exception has stricter requirements. For example, the arrangement itself must be set out in writing, be signed by the parties, and include a description of the following: the value-based activities to be undertaken; how the value-based activities will further the VBE’s value-based purposes; the VBE’s target patient population; the type, nature, and methodology used to determine remuneration; and the outcome measures (e.g., performance and quality standards) for which the recipient of any remuneration is assessed. The outcome measures must be objective, and the VBE must monitor progress toward its value-based purposes. The VBE must set its methodology for determining remuneration in advance of engaging in the VBA. Should the VBE wish to revise its outcome measures, they must be set forth in writing and made applicable only prospectively.
Significantly, these exceptions do not include common safeguards included in other exceptions (e.g., FMV limitations and not taking the volume/value of referrals into consideration for compensation). Instead, the VBAs are required to be commercially reasonable. These exceptions are meant to spur the integration of value-driven initiatives throughout the healthcare industry.
Further, CMS expects DHS-furnishing entities (and the physicians with whom they have financial relationships) to explore and participate in these new VBAs. To spur care coordination and management, CMS implemented an exception permitting physicians to share in profits directly attributable to their participation in a VBE. Such profits may be distributed directly to the physician without being considered to directly relate to (or to take into account) the volume or value of the physician’s referrals.
Other Notable Stark Law Updates
Limited remuneration for personally-performed services
CMS added a new exception to protect limited remuneration from an entity to a physician for services personally provided by the physician. The new exception permits remuneration up to $5,000 in the aggregate per calendar year.
Clarification of “commercially reasonable”
CMS has finalized the definition of “commercially reasonable” to mean an arrangement that furthers a legitimate business purpose of the parties and is sensible considering the characteristics of the parties (e.g., size, type, specialty).
Rental of space and equipment exceptions
CMS revised its exceptions for the rental of office space and rental of equipment, which protect compensation arrangements between referring physicians and DHS entities for leased office space/equipment. The revisions were made to clarify that the “exclusive use” requirement applies only to the lessor. CMS clarified that the lessee (and related parties) may use the office space/equipment to the exclusion of the lessor. In other words, only the lessor (and related parties) is excluded from use, not lessee-related parties.
Cybersecurity technology protection
CMS also established new safeguards for donation of certain cybersecurity technology and associated services. CMS expanded the Electronic Health Record (EHR) exception to permit such technology/services to be donated to protect EHR systems. CMS also established a stand-alone exception for cybersecurity technology/services to apply more broadly, which protects donations of cybersecurity technology/services necessary to implement, maintain, or reestablish cybersecurity.
About the authors: Adrienne Dresevic, Esq., is a founding shareholder of The Health Law Partners, P.C., a nationally recognized healthcare law firm with offices in Michigan and New York. Practicing in all areas of healthcare law, she devotes a substantial portion of her practice to providing clients with counsel and analysis regarding compliance, Stark Law, Anti-Kickback Statute, and compliance related issues.
Arturo Trafny, Esq., is an associate attorney at the Health Law Partners, P.C. Mr. Trafny graduated from Chicago-Kent College of Law. Practicing healthcare law, Mr. Trafny concentrates on regulatory and transactional matters.
On November 20, 2020, the Centers for Medicare and Medicaid Services (CMS) issued a Final Rule updating the Physician Self-Referral (Stark) Law. The Final Rule implemented a number of significant changes to the Stark Law meant to continue the push towards a value-based healthcare system.
The updates to the Stark Law are effective January 19, 2021, except as otherwise specified below. Of note, the Office of Inspector General (OIG) has issued a Final Rule to update the Anti-Kickback Statute (AKS) with many similar provisions.
A brief overview of the Stark Law
The Stark Law prohibits a physician (or his/her immediate family member) who has a financial relationship from referring a Medicare patient to an entity for the furnishing of designated health services (DHS) (e.g., radiology and certain other imaging services, radiation therapy services, physical therapy, etc.). Further, it prohibits the entity from billing Medicare or other payors for such DHS, unless an exception applies.
Adrienne Dresevic, Esq.
Defining a ‘group practice’
CMS revised the criteria for meeting the definition of “group practice” and several definitions related to group practices (i.e., DHS, physician, referral, remuneration, and transaction). One significant update being CMS’ clarification that a group practice’s “overall profits” means the profits derived from all DHS of the entire group (if there are less than five physicians in the group) or the profits derived from all DHS of any component of the group (if there are at least five physicians in the group). Therefore, group practices must first aggregate their DHS profits before making any profit-based payments. This prohibits a group practice from distributing DHS profits on a split-pool (i.e., service-by-service) basis. CMS argued that split-pooling indicates a practice is not a unified business, a requirement for group practices.
Given CMS’ new clarifications to the “group practice” definitions, practices that rely on the IOASE to provide in-office ancillary services, should review the updates to ensure their internal policies and profit distributions meet the new CMS standards. CMS has afforded such practices one year to come into compliance with the updates, as the group practice updates are effective January 1, 2022.
Arturo Trafny, Esq.
While previously existing exceptions may provide protection for certain value-based arrangements (VBAs) under the Stark Law, many VBAs may not meet the fair market value (FMV) standards and other requirements for these exceptions. Accordingly, CMS created three new exceptions to the Stark Law for value-based arrangements. A VBA is an arrangement providing at least one value-based activity (i.e., an action/inaction designed to achieve a value-based purpose (e.g., improved healthcare or reduced costs) meant to meet the needs of a target patient population).
The first exception protects VBAs where the value-based enterprise (VBE) (i.e., the participants collaborating in the VBA) assumes full financial risk for patient care services for the entire duration of the VBA. VBEs relying on this exception must ensure: (1) the VBE assumes full financial risk for the entire duration of the VBE within 12 months of commencing the VBA; (2) remuneration is based on value-based activities undertaken by the recipient; (3) remuneration is not used to reduce/limit any medically necessary items/services to any patient; (4) remuneration is not conditioned on referrals of patients outside the target patient population for the VBA; (5) if remuneration is conditioned on a physician’s referrals, the requirement is set out in writing, signed, and does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; and (6) records are maintained for at least 6 years showing the methodology for determining all remuneration.
The second exception protects VBAs where the participating physician assumes meaningful downside financial risk (i.e., at least 10% of the total value of the VBA’s remuneration) for failure of achieving their value-based purposes. Those relying on this exception must meet the above-cited requirements under the first exception, except the first requirement (i.e., that the VBE assumes full financial risk). In addition to meeting those requirements, the VBE must ensure: (1) the participating physician assumes meaningful downside financial risk for the duration of the VBA; and (2) a description of the financial risk is set out in writing.
The third exception is a catch-all exception for VBAs not meeting the other two exceptions. While applying to a wider array of VBAs, this exception has stricter requirements. For example, the arrangement itself must be set out in writing, be signed by the parties, and include a description of the following: the value-based activities to be undertaken; how the value-based activities will further the VBE’s value-based purposes; the VBE’s target patient population; the type, nature, and methodology used to determine remuneration; and the outcome measures (e.g., performance and quality standards) for which the recipient of any remuneration is assessed. The outcome measures must be objective, and the VBE must monitor progress toward its value-based purposes. The VBE must set its methodology for determining remuneration in advance of engaging in the VBA. Should the VBE wish to revise its outcome measures, they must be set forth in writing and made applicable only prospectively.
Significantly, these exceptions do not include common safeguards included in other exceptions (e.g., FMV limitations and not taking the volume/value of referrals into consideration for compensation). Instead, the VBAs are required to be commercially reasonable. These exceptions are meant to spur the integration of value-driven initiatives throughout the healthcare industry.
Further, CMS expects DHS-furnishing entities (and the physicians with whom they have financial relationships) to explore and participate in these new VBAs. To spur care coordination and management, CMS implemented an exception permitting physicians to share in profits directly attributable to their participation in a VBE. Such profits may be distributed directly to the physician without being considered to directly relate to (or to take into account) the volume or value of the physician’s referrals.
Other Notable Stark Law Updates
Limited remuneration for personally-performed services
CMS added a new exception to protect limited remuneration from an entity to a physician for services personally provided by the physician. The new exception permits remuneration up to $5,000 in the aggregate per calendar year.
Clarification of “commercially reasonable”
CMS has finalized the definition of “commercially reasonable” to mean an arrangement that furthers a legitimate business purpose of the parties and is sensible considering the characteristics of the parties (e.g., size, type, specialty).
Rental of space and equipment exceptions
CMS revised its exceptions for the rental of office space and rental of equipment, which protect compensation arrangements between referring physicians and DHS entities for leased office space/equipment. The revisions were made to clarify that the “exclusive use” requirement applies only to the lessor. CMS clarified that the lessee (and related parties) may use the office space/equipment to the exclusion of the lessor. In other words, only the lessor (and related parties) is excluded from use, not lessee-related parties.
Cybersecurity technology protection
CMS also established new safeguards for donation of certain cybersecurity technology and associated services. CMS expanded the Electronic Health Record (EHR) exception to permit such technology/services to be donated to protect EHR systems. CMS also established a stand-alone exception for cybersecurity technology/services to apply more broadly, which protects donations of cybersecurity technology/services necessary to implement, maintain, or reestablish cybersecurity.
About the authors: Adrienne Dresevic, Esq., is a founding shareholder of The Health Law Partners, P.C., a nationally recognized healthcare law firm with offices in Michigan and New York. Practicing in all areas of healthcare law, she devotes a substantial portion of her practice to providing clients with counsel and analysis regarding compliance, Stark Law, Anti-Kickback Statute, and compliance related issues.
Arturo Trafny, Esq., is an associate attorney at the Health Law Partners, P.C. Mr. Trafny graduated from Chicago-Kent College of Law. Practicing healthcare law, Mr. Trafny concentrates on regulatory and transactional matters.