On July 15, 2015, the Centers for Medicare and Medicaid Services (CMS) published the calendar year (CY) 2016 Physician Fee Schedule Proposed Rule. In addition to updating several traditional Part B payment policies, the proposed rule contains significant changes to the physician self-referral regulations (Stark regulations) and the Medicare “incident to” coverage rule. The comment deadline is September 8, 2015.

Proposed Changes to the Stark Regulations

CMS cited several justifications for its changes to the Stark regulations, including the need to accommodate delivery and payment system reform and reduce burden on providers. Accordingly, the proposed rule provides for two new exceptions and many changes and clarifications to existing exceptions and definitions. Additionally, CMS solicited comments regarding the impact of the Stark regulations on healthcare delivery and payment reform. The proposed refinements come on the heels of a dissenting opinion by a judge in the U.S. Court of Appeals for the Fourth Circuit’s judgment in the Tuomey case, highlighting the complexity and importance of the Stark regulatory scheme for providers.

Timeshare Arrangements. The proposed rule would add a new exception for time share leasing arrangements between hospitals or physician organizations (as “licensors”) and physicians (as “licensees”) for the use of space, equipment located in the office suite, personnel, and items or services used predominately for evaluation and management services (E&M services). Advanced imaging equipment, radiation therapy equipment, and laboratory equipment (other than that used for CLIA-waived tests) are expressly excluded from the new exception. Qualifying arrangements must meet additional safeguards common to most Stark exceptions, including that the license fee be set in advance, consistent with fair market value, and not take into account the volume or value of referrals or other business generated between the parties.

CMS had previously declined to expand the “fair market value” and “payments by a physician” exceptions to apply to leases, but the proposed rule distinguishes timeshare licenses, which confer a privilege to act on another’s property, from leases, which transfer dominion and control and a possessory interest in property. The agency has solicited feedback on the new exception with respect to the location of equipment, types of appropriate licensors, and the measure of the use of the space for E&M services.

Assistance to Employ a Nonphysician Practitioner. CMS has changed course on financial support available for employment of nonphysician practitioners (NPPs) (defined to include physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives), proposing a new exception for payments made by a hospital, federally qualified health center (FQHC), or rural health clinic (RHC) to a physician to assist the physician in employing an NPP furnishing primary care services. The exception closely tracks the structure and requirements of the existing exception for physician recruitment, which CMS declined to extend to NPPs in previous rulemaking. CMS proposes two alternative tests for establishing the minimum amount of primary care services required under the exception, requiring that at least 90 percent or “substantially all,” defined as at least 75 percent, of patient care services provided by the NPP must be primary care services. The proposed exception limits financial support to two years from the date of employment and caps the amount of assistance provided.

CMS has also provided clarification and policy guidance on several exceptions pertaining to writing and term requirements, and the changes are designed to lessen the burdens of Stark compliance. The agency notes the proposals are promoted in part by its review of disclosures made under the Stark self-disclosure protocol.

Writing Requirement. CMS clarified there is no substantive difference among the writing requirements of the various compensation exceptions, despite the use of different terminology (e.g., written agreement versus written arrangement) and notes there is no requirement that an arrangement be documented in a single formal contract. Rather, depending on the facts and circumstances, a collection of documents may satisfy the writing requirement. Temporary Noncompliance With Signature Requirements. The agency proposed changing the special rule for arrangements involving temporary noncompliance with signature requirements to extend the deadline for obtaining required signatures from 30 days to 90 days. The proposed changes would also permit the parties to use the special rule whether or not the signature noncompliance was inadvertent. Term of at Least One Year. CMS clarifies that the written agreement for the rental of office space, rental of equipment, and personal services exceptions does not need to explicitly provide for a one-year term as long as the arrangement is in place for at least one year. The proposed rule would change references in applicable exceptions for consistency to reflect this interpretation. Holdovers. In light of several self-disclosures related to arrangements that exceeded the current six-month holdover period permitted in several exceptions, CMS has proposed two alternative changes to the holdover provisions. The agency is considering whether to allow indefinite holdovers or holdovers for a defined period greater than six months (e.g., one year, two years, or three years). Holdover arrangements would still need to meet all other requirements of the applicable exception. CMS notes the proposed rule safeguards against rental charges that become inconsistent with fair market value over time by requiring continued satisfaction with the fair market value requirement at the time the agreement expires and on an ongoing basis during the holdover period.

Technical Clarifications and Policy Guidance. Also proposed are a number of technical clarifications and changes to the Stark regulations that would improve clarity and ensure proper application of CMS policies:

Revise the physician recruitment exception to add a new definition of the geographic area served by a FQHC or RHC. Amend certain exceptions to standardize references pertaining to the volume or value of referrals to clarify that there is only one standard. Revise the requirement for retention payments to conform to the policy expressed in the Phase III rulemaking (i.e., consider the physician’s income averaged over the entire previous 24-month period). Revise the exception for ownership of publicly traded securities to update obsolete references to systems for trading securities. Clarify that the referrals of all physicians who are part of a physician organization (including physician owners, physicians who voluntarily stand in the shoes of the organization, and other nonowner physicians) are considered in determining whether compensation takes into account the volume or value of referrals or other business generated between the parties to an arrangement when determining whether an arrangement constitutes an indirect compensation arrangement. Remove the reference to “stand in the shoes” in the definition of locum tenens physician. Clarify that the exception to the definition of remuneration for certain items, devices, or supplies applies if the items, devices, or supplies are used solely for one or more of the six enumerated purposes.

In its discussion of remuneration, CMS addressed confusion arising from the decision of the U.S. Court of Appeals for the Third Circuit in United States ex rel. Kosenske v. Carlisle HMA, which found a physician group received remuneration from a hospital consisting of numerous benefits, including the exclusive right to provide all anesthesia and pain management services, as well as the receipt of office space, medical equipment, and personnel. Though CMS did not propose a specific rule change, it noted that a physician’s use of a hospital’s resources such as exam rooms, nursing personnel, and supplies in split billing arrangements does not constitute remuneration.

Physician-Owned Hospitals. The proposed rule addresses requirements for physician-owned hospitals introduced by the Affordable Care Act, which restricted “grandfathered” hospitals from expanding or increasing the percentage of physician ownership after March 23, 2010.

Public Website and Public Advertising Disclosure. CMS proposes to amend the regulation to provide more certainty regarding requirements for physician-owned hospitals to disclose on their websites and in any public advertising that the hospital has physician owners or investors. The proposed rule generally limits the required disclosures. For example, CMS clarified that social media does not qualify as a public website triggering disclosure obligations. Bona Fide Investment Level. The proposed rule would require the calculation of bona fide physician investment level to include direct and indirect ownership and investment interests held by a physician regardless of whether the physician refers patients to the hospital. This proposal is a reversal of the position CMS articulated in the CY 2011 OPPS/ASC final rule, which included only physicians making referrals to the hospital in the calculation. CMS recognizes that some physician-owned hospitals may have relied on its prior position and proposes to delay the effective date of the new regulation to provide time for these hospitals to come into compliance with the new policy.

Revisions to the Medicare “Incident to” Regulation

CMS also proposed changes to the “incident to” regulation that governs Medicare payment for services performed by qualified auxiliary personnel under the supervision of a physician or NPP. Specifically, CMS has proposed changes to the regulation to clarify that the physician or NPP billing for the incident to services must also be the physician or NPP who supervises the auxiliary personnel performing the services. CMS also proposed to remove the last sentence of the regulation, which currently provides that the physician or NPP “supervising the auxiliary personnel need not be the same physician [or NPP] upon whose professional service the incident to service is based.” The deletion of this language leads to confusion about whether the ordering physician or NPP must also be the supervising physician or NPP to bill for the incident to services. However, we are aware of communications from CMS after the proposed rule was published indicating that the revisions were intended to clarify that the ordering and supervising physician/NPP do not need to be the same person. Stakeholders are encouraged to submit comments on this issue to ensure that the regulations accurately capture CMS’s intended policy.