As the health care payment and delivery system continues to evolve, Hall Render attorneys are committed to providing practical counsel and insight to health care providers. Below is a compilation of key developments from 2015 that will continue to impact the health care industry in 2016. As the new year begins, our attorneys will continue to monitor, analyze and interpret future developments as they arise.

1) Affordable Care Act Survives – King v. Burwell Decision

Among the top health law developments in 2015 was the survival of the Affordable Care Act (“ACA”) in spite of a major legal challenge in King v. Burwell (U.S. No. 14-114 (June 25, 2015) (“King“)).

In a 5-to-4 decision written by Chief Justice John Roberts, the Supreme Court held that individuals eligible for tax credits to subsidize the purchase of health insurance in the health care marketplaces created by the ACA may receive such tax credits whether they purchase their policies in a State Exchange or a Federal Exchange (i.e., a health exchange established by the Secretary of the Department of Health and Human Services (“HHS”) on behalf of a state). The decision turned on whether the statutory phrase “exchange established by the State” could encompass a Federal Exchange insofar as the ACA provided for tax credits for applicable taxpayers enrolled in an insurance plan through an exchange established by the state. Rejecting the “plain meaning” canon of statutory construction in favor of an interpretation that considered the statute as a whole as well as congressional intent, the Court ruled that “exchange established by the State” was intended to encompass the Federal Exchanges as well.

Many believe the Court’s decision prevented destabilization of the individual insurance markets that would have occurred if, absent the availability of subsidies for individuals living in Federal Exchange states, these individuals had dropped their insurance. The loss of healthy, younger insured persons necessary to subsidize heavy users of health insurance would have led to a sicker insurance pool, escalating premiums, further decrease in enrollment and an exit of insurers from the marketplace due to unsustainable losses. The King decision is widely viewed as a major victory for the Obama Administration as the ACA is considered one of its signature pieces of legislation.

2) Final Regulations for Internal Revenue Code §501(r)

Code Section 501(r) was added to the Internal Revenue Code by the Patient Protection and Affordable Care Act of 2010 To implement Code Section 501(r), on December 31, 2014, the Treasury Department and the Internal Revenue Service (“IRS”) published in the Federal Register final regulations. Under the final regulations, hospital organizations are required to conduct a community health needs assessment (“CHNA”) and adopt an implementation strategy to meet the community health needs identified through the CHNA at least once every three years, establish a written financial assistance policy (“FAP”) and a written policy related to care for emergency medical conditions, limit their charges to individuals eligible for financial assistance and make reasonable efforts to determine whether an individual is eligible for assistance under a FAP before engaging in extraordinary collection actions.

The final regulations apply to tax years that begin after December 29, 2015. Thus, hospital organizations with a calendar year end should have been in full compliance by January 1, 2016. Meanwhile, hospital organizations with a fiscal year end have until the start of their next fiscal year to comply. For tax years beginning before the deadline, the IRS has indicated that hospital organizations may rely on a reasonable, good faith interpretation of Code Section 501(r), which would include compliance with the previously issued proposed regulations or with the final regulations.

The final regulations provide substantive guidance for hospital organizations by adopting and amending two sets of previously issued proposed regulations that address each component of Code Section 501(r). The final regulations include a variety of detailed requirements that necessitate an evaluation and update of a hospital organization’s policies and procedures. Equally important is an evaluation and adjustment of a hospital organization’s operations, especially with respect to attempts to collect unpaid bills from patients who might be eligible for financial assistance in light of the restrictions on billing and collections activities.

3) Medicare Delivery and Payment Reform: Burwell’s Decree/RIP SGR/MACRA, MIPS and APMs

On January 26, 2015, HHS Secretary Sylvia Burwell announced an ambitious timeline for transitioning away from the fee-for-service payment system to one based on value. The goals the Secretary articulated are as follows:

  1. 30 percent of all Medicare provider payments will be in alternative payment models (“APMs”) that are tied to how well providers care for their patients, instead of how much care they provide, by 2016.
  2. 50 percent of all Medicare payments will be in APMs by 2018.
  3. 85 percent of all Medicare provider payments will be tied to quality and value by 2016 and 90 percent by 2018.

In a steady march toward achieving these goals, on April 16, 2015, President Obama signed into law the “Medicare Access and CHIP Reauthorization Act of 2015” (H.R. 2) (“MACRA”). MACRA repealed the vexatious sustainable growth rate formula (“SGR”), which had been used to determine Medicare physician payment rates since 1997. The SGR was intended to be a method for limiting growth in physician services’ spending through a formula that automatically reduced physician reimbursement when spending exceeded a specific targeted growth rate. However, legislators did not have the intestinal fortitude to repeatedly cut physician pay by the amounts called for and risk a mass exodus of Medicare physician providers and a physician shortage crisis. To avoid the cuts, some of which would have been crushing to physicians (e.g., 21 percent!), Congress passed 17 bills known as “patches” or “doc fixes” to prevent the cuts from going into effect over a period of 11 years. In the end, the SGR simply was unworkable.

In addition to repealing the SGR, MACRA established a new two-track physician payment system that is designed to encourage doctors to shift more of their patients into risk-based payment models. Physicians will receive automatic pay increases from 2015 through 2019. Thereafter, doctors who qualify for the alternative payment track will receive higher reimbursement rates starting in 2019. The two tracks are MIPS and APMs:

  1. The Merit-Based Incentive Payment System (“MIPS”) replaces and combines parts of the Physician Quality Reporting System, the Value-Based Payment Modifier and the Meaningful Use of Electronic Health Record Incentives into a unified program with four weighted performance categories: quality, resource use, clinical practice improvement activities and meaningful use of certified EHR. On the basis of the physician’s composite performance on the categories compared with a “performance threshold,” the physician will receive a payment adjustment (up, down or none).
  2. The Alternative Payment Models (“APMs”) (e.g., accountable care organizations, patient-centered medical homes and bundled payment models) Under the APM program, from 2019-2024, providers “qualifying” for the APM track will receive a five percent annual lump sum incentive bonus on Medicare Physician Fee Schedule payments and will not be subject to MIPS adjustments. Beginning in 2026, some participating providers will receive higher annual payments.

This change in the reimbursement system for physicians is momentous. Physicians may be happy to say goodbye to the SGR formula, but they will also have to adjust to the accelerated move away from fee-for-service payment and the practice changes that will entail.

The MACRA can be found here.

4) More Payment Reform and MACRA: Gainsharing Changes

In addition to permanently repealing and replacing the SGR and fundamentally changing the physician reimbursement system, MACRA contains other noteworthy provisions. Among them is the provision eliminating the statutory barrier to “gainsharing programs,” creating potential opportunities for providers to share savings realized through efficiency. Gainsharing programs foster collaboration between hospitals and physicians for the purpose of improving patient quality of care and reducing unnecessary and wasteful spending in hospital services. Savings realized from the efficiency measures implemented under these programs are shared by the hospital and the participating physicians.

Until the adoption of MACRA, the future of gainsharing programs was uncertain. The Civil Monetary Penalties Law (“CMP”) prohibits hospitals and critical access hospitals from “knowingly making a payment, directly or indirectly, to a physician as an inducement to reduce or limit services” for Medicare/Medicaid beneficiaries. Penalties under the CMP are steep at $2,000 per violation and as a consequence have had a chilling effect on otherwise compliantly structured gainsharing programs. MACRA amended the CMP by adding the clause “medically necessary” after “reduce or limit.” Now, the CMP will explicitly state that penalties will inure only when payments are made to induce physicians to reduce or limit medically necessary services. This clears the way for gainsharing programs that reduce unnecessary costs without compromising patient care. For further details, click here.

5) More Payment Reform: Bundled Payment Program for Lower Extremity Joint Replacement Procedures

In yet another significant development in connection with payment reform, on November 16, 2015, CMS released a final payment rule (“Final Rule”) that creates mandatory bundled payments for lower extremity joint replacement including all hip and knee replacement surgery performed at most acute care hospitals in 67 geographic areas across the country.

Under a model known as Comprehensive Care for Joint Replacement (“CJR”), a hospital caring for a lower extremity joint replacement patient will be held accountable for the costs and quality of care from the time of the inpatient surgical admission through 90 days after discharge diagnosis from the acute care hospitalization (“episode of care”). An episode of care will be triggered by a discharge diagnosis of MS-DRG 469 or 470 and include most Medicare Part A and Part B items and services spending that occurs within the episode of care. The CJR incentivizes increased coordination of care among hospitals, physicians and post-acute care providers.

The CJR Final Rule is effective January 15, 2016, but the first CJR performance year begins April 1, 2016 and ends on December 31, 2016. The remaining four performance years apply to calendar years through 2020.

On the same date that CMS issued the Final Rule, CMS and OIG issued notice of waivers of anti-kickback, physician self-referral and civil monetary penalty laws for certain beneficiary incentives and financial arrangements under the CJR model. In certain cases, CMS will also waive the three-day rule for qualifying discharges to skilled nursing facilities (“SNFs”)1, the “incident to” supervision requirement for in-home post-discharge care and limitations to telehealth payments related to geographic and originating site requirements.

Under the CJR retrospective bundled payment methodology, CMS will continue paying hospitals and other providers and suppliers for services provided to beneficiaries during a CJR episode of care according to the usual Medicare fee-for-service methodology. Here’s what changes: at the end of each “performance year,” actual spending for an episode of care is compared to a Medicare target episode price for the responsible hospital. Depending on the hospital’s quality and spending performance, the hospital may receive an additional “reconciliation” payment from Medicare or be required to repay Medicare an “alignment” payment representing a portion of the episode spending.

Hospitals will not be required to make any repayments to Medicare in the first year of the program; however, beginning on January 1, 2017, CMS will link each hospital’s level of incentive or penalty not only to episode spending but also to a composite quality score based on the Hospital Consumer Assessment of Healthcare Providers and Systems survey, elective hip/knee arthroplasty complications within 90 days and a patient-reported outcome measure submitted voluntarily by beneficiaries.

Only hospitals will be directly subject to the requirements of the CJR program. However, if hospitals choose to enter into CJR collaboration arrangements with other providers and suppliers, the hospitals will be responsible for ensuring such other providers and suppliers collaborating with the hospital comply with the terms and conditions of the CJR program.

CMS believes the CJR encourages hospitals, physicians and post-acute care providers to work together to improve the quality and coordination of care for patients undergoing joint replacement. For further details, click here, here and here.

6) 60-Day Repayment Rule Final Rule Delayed by One Year

On February 17, 2015, CMS published in the Federal Register a notice announcing the extension by one year of the timeline for publication of a final rule setting forth policies and procedures for reporting and returning overpayments to the Medicare program (“60-Day Repayment Rule”). CMS published a proposed rule in February 2012, and stakeholders looked forward to the final rule so they would have clear direction on important matters such as when a provider would be deemed to have “identified” an overpayment and the length of the “lookback” period for purposes of reporting and repaying older claims.

CMS stated it could not issue the final rule on time because there were “significant policy and operational issues that needed to be resolved” to address all issues raised by commenters and to ensure appropriate coordination between HHS, OIG and the DOJ. However, notwithstanding the delay, CMS specifically stated that it expects stakeholders to comply with the 60-Day Repayment Rule as set forth in the ACA or risk liability under the FCA and CMP as well as exclusion from federal health care programs. The final rule is now due to be published on February 16, 2016, now just around the corner.

7) Significant 2015 Stark Settlements

In April, a Texas hospital settled with the DOJ for $21.75 million to resolve Stark Law allegations made by three previously employed cardiologists. The settlement followed the trial court’s rejection of the hospital’s motion to dismiss the case. In its motion, the hospital argued that the relators had not sufficiently alleged that the cardiologists were receiving compensation that exceeded fair market value since the cardiologists were actually paid less than the national median. The court dismissed these arguments, noting that even though the cardiologists were making less than the national median salary for their profession, the allegations that they began making substantially more money once they entered employment were sufficient to allow an inference that they were receiving improper remuneration. The court noted that the inference was particularly strong given that it would make little apparent economic sense for the hospital to employ the cardiologists at a loss unless it were doing so to induce referrals.

In September, a Georgia health system agreed to pay $25 million, plus additional contingent payments of up to $10 million, for a maximum settlement amount of $35 million to resolve Stark Law allegations made by the DOJ. The physician medical director involved in the challenged compensation arrangement also agreed to settle with the government for $425,000. The underlying civil complaint focused on the three tenets of defensibility: fair market value, commercial reasonableness and not taking into account designated health service referrals. Most notably, the government alleged that the health system was “top heavy” with medical directors, the related duties were duplicative and the compensation paid exceeded fair market value. As a part of the settlement, the health system entered into a five-year Corporate Integrity Agreement. Health care providers should take note of the settlement by the medical director, as it is indicative of a growing trend of Stark compliance actions targeting physicians.

In September, a Florida health system entered into a Stark Law settlement with the DOJ for $118 million – the largest Stark settlement related to an investigation without litigation. The settlement exceeded the $69.5 million settlement that another Florida health care organization entered into just a week prior. Allegations in both Stark cases focused once again on fair market value, commercial reasonableness and not taking into account designated health service referrals. Among other allegations, the underlying civil complaints construed that the existence of substantial practice losses and the internal referral tracking processes were problematic because they took into account referrals and were not commercially reasonable.

In October, a South Carolina health system entered into a $72.4 million post-judgment settlement. The Fourth Circuit had previously upheld a $237.5 million Stark Law judgment involving the health system earlier in July of 2015. As a continuing common trend in Stark cases, this Stark Law case focused on physician compensation arrangements and government allegations related to three tenets of defensibility discussed above. Under the terms of the settlement agreement, the health system also will be sold to another South Carolina health system. The health system was required to retain an independent review organization to monitor any arrangements it makes with physicians for the term of its five-year Corporate Integrity Agreement.

8) OIG Fraud Alert – Physician Compensation Arrangements

On June 9, 2015, OIG released a fraud alert warning the industry that physicians can face significant liability for entering into compensation arrangements that violate the Federal Anti-Kickback Statute (“AKS”). This is an important warning to physicians who have lived in the shadow of OIG’s historic focus on health care entities such as hospitals, laboratories and durable medical equipment companies. In turning its attention to physicians, OIG makes it clear that physicians will face personal liability under the various fraud and abuse laws, including the AKS, when their compensation arrangements do not reflect fair market value for services actually performed. This fraud alert follows on the heels of 12 settlement agreements OIG reached with individual physicians who were parties to compensation arrangements that allegedly violated the AKS. The questionable arrangements involved medical directorships and office staff arrangements. The compensation paid under the medical director services agreements purportedly violated the AKS for various reasons, including: an agreement took into account the volume or value of the physicians’ referrals; an agreement was not set at fair market value; and the physician(s) did not actually provide the services described in an agreement. In some cases, health care entities with which the physicians were affiliated underwrote the salaries of the physicians’ front office staff. Those arrangements constituted improper remuneration in OIG’s view because they relieved the physicians of their financial burdens. In addition to violating the AKS, OIG found that the physicians were subject to liability under the Civil Monetary Penalties Law because they were an “integral part of the [improper] scheme.” For more information, click here.

9) Clinical Diagnostic Lab Test/Clinical Lab Fee Schedule Overhaul

On October 1, 2015, CMS published a proposed rule that would overhaul the clinical diagnostic lab test (“CDLT”) payment system by linking the clinical lab fee schedule (“CLFS”) to private payor payment rates (“Proposed Rule”). Under the Proposed Rule, each applicable laboratory would be required to report to CMS information on the payment rates paid by private payors (“Private Payor Rates”) for each CDLT the lab furnishes, as well as the corresponding volume of each CDLT furnished during an applicable period. Based on all the data collected, the Medicare payment amount for CDLTs would be adjusted every three years to reflect the weighted median of Private Payor Rates determined for each CDLT. The new payment system would become effective for CDLTs furnished on or after January 1, 2017. Different reporting and payment requirements would apply to advanced diagnostic lab tests (“ADLTs”).

The proposed changes in the lab payment system, as well as proposed changes in the coding and coverage requirements for CDLTs, are mandated by the Protecting Access to Medicare Act of 2014 (“PAMA”). Medicare’s current laboratory payment system has been in place for over 30 years and was ripe for a major overhaul given the health care reform-related focus on decreasing costs and improving quality and efficiency. The update is anticipated to save the CMS Part B program an astonishing $5.14 billion in payments over 10 years, an overall 6.4 percent reduction in revenue for labs paid under the current CLFS.

The Proposed Rule applies to an applicable laboratory (“AL”), which is defined as a laboratory that receives more than 50 percent of its Medicare revenues from the CLFS or the physician fee schedule during a data collection period (“DCP”). Labs with Medicare revenues under $50,000 in a DCP are exempt from the definition of an AL and, therefore, have no reporting obligations for that DCP. An AL can be a laboratory itself or may be an entity such as a health system that includes a laboratory as a component. CMS proposes to define the AL at the Taxpayer Identification Number level for purposes of compiling and reporting applicable pricing data. Of note, CMS proposed that the determination of whether an entity is an AL would be made across the entire entity including all component National Provider Identifier (“NPI”) entities and not just those NPI entities that are labs. CMS believes PAMA intends to limit reporting primarily to independent labs and physician offices and, therefore, does not include other entities such as hospitals or other health care providers that do not receive the majority of their revenues from the Physician Fee Schedule or CLFS.

The Proposed Rule introduces market-based pricing to the CLFS. Previously, CMS set its own rates without referencing Private Payor Rates. Those rates only changed periodically to make adjustments for inflation and other statutory adjustments. Because large labs often discount their rates to private payors and these lower rates will show up in the data submission, market-based rate-setting may result in lower CLFS payments. In turn, because private payors look at the CLFS as a starting point for negotiations with labs, the lower CLFS could result in a further decrease in lab payments. For more information, click here.

To review the Proposed Rule, click here.

10) Two-Midnight Rule Makes “Health Law Year in Review” Three Years in a Row!

On October 30, 2015, CMS updated its two-midnight admissions policy (“two-midnight rule”) in the CY 2016 hospital outpatient prospective payment system and ambulatory surgical center final rule (“2016 Final Rule”). In the 2016 Final Rule, CMS modified its two-midnight rule-related “Rare and Unusual Exceptions Policy” to permit Medicare Part A payment on a case-by-case basis for hospitalizations that do not meet the two-midnight requirement. The documentation in the medical record must support the medical necessity of the inpatient admission and is subject to medical review. CMS reiterated that it would be unlikely for a beneficiary to need inpatient hospital admission for a minor surgical procedure or other treatment expected to keep a patient in the hospital for treatment lasting a few hours. Documents submitted under the new two-midnight exception policy will be subject to review by a Quality Improvement Organization. The new exceptions policy recognizes the importance of physician judgment and clinical decision-making.

Under the two-midnight rule, effective for hospital admissions beginning on or after October 1, 2013, CMS previously provided payment guidance specifying that, generally, a hospital inpatient admission is reasonable and necessary if a physician orders the admission based on the expectation that the Medicare beneficiary’s length of stay will exceed two midnights (or if the beneficiary requires a procedure specified by Medicare as inpatient only or the procedure is listed as a national exception). Otherwise, generally, hospitalizations under two midnights are outpatient cases not reimbursable as inpatient stays. The two-midnight rule raised many questions regarding the practical application of the rule and continues to be tweaked as reflected by this latest change.

11) Bipartisan Budget Act of 2015 Eliminates OPPS Payment for New Off-Campus Hospital Departments

On November 2, 2015, President Obama signed into law the Bipartisan Budget Act of 2015 (“Budget Act”). Effective January 1, 2017, Section 603 of the Budget Act excludes from Medicare’s outpatient prospective payment system (“OPPS”) new hospital services furnished at an off-campus3 hospital outpatient department (“HOPD”). The Budget Act effectively adopts site-neutral payment principles recommended by the Medicare Policy Advisory Commission4 and, more recently, by the GAO, whose December 2015 report5 concludes that given the trend toward hospital-physician consolidation, Congress should equalize payment rates for similar services provided in different settings to ensure Medicare is not paying too much for health care.

The Budget Act exclusion does not apply to on-campus departments, critical access hospitals or provider-based RHCs or to items/services furnished by a dedicated emergency department. The Budget Act also grandfathered any off-campus HOPDs that billed Medicare under the OPPS prior to November 2, 2015, the date of the Budget Act’s enactment. However, if a hospital first bills for services at an off-campus HOPD on or after November 2, 2015, it will be paid under the OPPS only through December 31, 2016. Beginning January 1, 2017, services at those locations will be paid under other applicable payment systems that are not defined but are likely to include the Medicare Physician Fee Schedule (“PFS”) and the Ambulatory Surgical Center Payment System, which generally reimburse at a lower rate than the OPPS.

A strict reading of the Budget Act suggests that off-campus facilities under development but not yet billing for services on November 2, 2015 would not qualify for grandfathered status. In the past, CMS extended grandfathered status to providers under development at the time a law changed, but CMS’s flexibility to do so here is likely limited given the statutory amendment. To date, efforts by the American Hospital Association to include “under development” language in a statutory amendment have not been successful.

There are numerous open questions related to the Budget Act changes that we expect CMS to address through rulemaking. Enrollment mechanics, claims submission and coverage for services not currently covered under a payment system other than OPPS are of concern. In addition, CMS needs to address the impact of a denial of provider-based status on a hospital department’s grandfathered status.

For further details, click here. To see Section 603 of the Budget Act, click here.

12) Yates Memo Strikes Fear into the Heart of Health Care Executives: Individuals Will Be Held Accountable for Corporate Wrongdoing

On September 9, 2015, Department of Justice Deputy Attorney General Sally Quillian Yates issued a memorandum addressing individual accountability for corporate wrongdoing (“Yates Memo”). The Yates Memo sends an important new warning to individuals and executive leaders of all industries, including health care, that the DOJ is focused on holding individuals accountable for corporate misconduct. The Yates Memo can be found here.

The DOJ believes that individual accountability serves to: 1) deter future illegal activity; 2) incentivize changes in corporate behavior; 3) ensure the proper parties are held responsible for their actions; and 4) promote the public’s confidence in the federal justice system.

The Yates Memo outlines six key factors related to individual accountability:

  • Organizations must provide the DOJ with complete facts about individual wrongdoers or the organizations will not have their cooperation considered as a mitigating factor. The timeliness, diligence, thoroughness and speed of the organization’s internal investigation will determine the extent of cooperation credit.
  • Criminal and civil investigations will focus on individual misconduct from the beginning to the close of the investigation.
  • The DOJ’s Civil and Criminal Division attorneys will increase early and ongoing communications between parallel proceedings to secure the full range of government remedies including the prosecution of culpable individuals.
  • The DOJ plans to avoid resolving matters in a way that will prevent or dismiss charges or claims against culpable individual officers or employees.
  • Corporate cases should not be resolved without a clear plan to resolve related individual cases before the statute of limitations expires or pursuant to a tolling agreement or court order.
  • Pursuit of civil actions against culpable individuals should not be governed solely by the individual’s ability to pay a judgment.

Now, more than ever, health care entities must have a robust corporate compliance program that reflects current law. Members of the boards of directors, officers and employees must understand that the government will pierce the corporate veil to hold individuals accountable for corporate malfeasance.

13) U.S. Finally Implements ICD-10

In another noteworthy health law development, after years of delay, CMS finalized a rule making October 1, 2015 the new compliance date for health care providers, health plans and health care clearinghouses to transition to ICD-10, the tenth revision of the International Classification of Diseases. This means that effective October 1, 2015, CMS and other payors only accept, recognize and process ICD-10 codes. Claims billed with ICD-9 codes will be rejected. However, to ease the transition, for twelve months, CMS is not denying claims if providers use the wrong code so long as they submit a valid ICD-10 code from the right family.

Why the transition to ICD-10? The CDC and HHS believe the former ICD-9 codes, used since 1979, were no longer sufficiently “robust” to serve the health care needs of the future. The ICD-9 codes provided only limited data about patients’ medical conditions and hospital inpatient procedures, and the coding structure was too limited. ICD-10 enhances the quality of data for tracking public health conditions, conducting epidemiological research, measuring outcomes and quality of care, making clinical decisions, identifying fraud and abuse, designing payment systems and processing of claims.6

Of course, the expansion of diagnosis codes from 14,025 to 69,823 made for some highly specific and sometimes amusing codes including: Y92.253 (Hurt at the Opera); Y93.D1 (Accident While Knitting or Crocheting); W56.22 (Struck by Orca, Initial Encounter); and V97.33 (Sucked into Jet Engine).7

Although the change to ICD-10 imposes certain implementation and error costs, over time, providers’ revenues should rise as greater specificity in coding yields more accurate payment and fewer rejected claims. There is very little chatter on the ICD-10 implementation, suggesting CMS and the various professional practice societies provided adequate resources and technical support to providers during the transition.

14) CMS Issues Another Set of Stark Regulations Clarifications and Revisions

On October 30, 2015, CMS issued another set of revisions and clarifications to the Stark Regulations (“Stark Final Rule”). Below is a brief summary of some of the changes set forth in the Stark Final Rule, providing some additional flexibility for some hospital-physician arrangements.

  1. Definition of Remuneration. The Stark Law definition of “remuneration” excludes the provision of “items, devices, or supplies that are used solely to collect, transport, process or store specimens for the entity providing the items, devices, or supplies, or to order or communicate the results of tests or procedures for such entity.” CMS clarified that the item, device or supply must be used solely for one or more of the listed purposes and for no other purposes not listed in the statute.
  2. Writing Requirement. CMS clarified that with regard to compensation exceptions requiring a writing, the arrangement need not necessarily be documented in a single, formal contract. Rather, a collection of contemporaneous documents (e.g., hard copy communications between the parties, fee schedules and time sheets documenting services performed) may constitute satisfactory documentation of the writing. Signatures on a writing documenting the arrangement are still required. CMS will permit providers to rely on this guidance for arrangements that predated the Stark Final Rule.
  3. Term Requirement. A formal contract with an explicit “term” provision is generally not required to satisfy a Stark Law exception requirement that the arrangement have a term of at least one year, so long as the arrangement as a matter of fact lasts for a year or more.
  4. Temporary Noncompliance with Signature Requirements. Parties now have 90 days to obtain all required signatures on a writing whether a missing signature was advertent or inadvertent.
  5. New Timeshare Arrangement Stark Exception. CMS finalized a new timeshare arrangement exception that provides cover for timeshare leases between a physician and a hospital or physician organization. Among other requirements, the timeshare arrangement must be in writing and specify the premises, equipment, personnel, items, supplies and services covered by the arrangement, and the leased premises must be used primarily for evaluation and management of the physician’s patients. Equipment used on the premises cannot be advanced imaging, radiation therapy or clinical/pathology lab equipment. Time-based rental fees are permitted. This new exception is excellent news for rural practitioners as time share leases are common in rural areas and often cannot meet another exception.
  6. New NPP Recruitment Exception. In recognition of changes in the delivery of primary care, CMS added a new exception to permit hospitals, federally qualified health centers and rural health clinics to provide financial assistance to physicians to help them recruit and employ non-physician practitioners (“NPPs”). To meet the exception, substantially all of the services that the NPP furnishes to the physician’s practice must be primary care or mental health care services. The assistance is capped at 50 percent of the amount the physician spends on the NPP during the first two years of the compensation relationship between the physician and the NPP.
  7. Holdover Provisions Now Indefinite. The six-month “holdover” provisions of the Rental of Office Space, Rental of Equipment and Personal Services Arrangement Stark exceptions permitting parties to continue operating under these exceptions up to six months post contract expiration have been amended to permit indefinite holdovers. The holdover must continue on the same terms and conditions as the original arrangement. Providers should be aware that an indefinite holdover could jeopardize their compliance with the fair market value (rent or compensation) requirement if market conditions change during the holdover period.

For more information on the Stark revisions, click here.