For years, healthcare providers have complained that certain aspects of the Stark Law are virtually impossible to implement properly on a consistent basis. Providers have lamented that these Stark provisions do not advance a legitimate compliance purpose and serve only as technical traps for unwary organizations. On November 16, 2015, the Centers for Medicare and Medicaid Services (CMS) partially addressed these concerns. CMS published a final rule (Final Rule)1 setting forth changes to the regulations designed "to accommodate delivery and payment system reform, to reduce burden and to facilitate compliance."2


The Stark Law3 and its implementing regulations prohibit physicians from referring Medicare patients for certain designated health services (DHS) to any entity with which the referring physician (or an immediate family member) has any direct or indirect financial relationship, unless an exception applies. In addition, Stark prohibits entities from billing Medicare for services provided pursuant to a prohibited referral.

New Exceptions

1. Assistance to Physicians Who Employ Nonphysician Practitioners (NPPs)

Due to alarming trends in primary care workforce shortage projections and increased reliance on NPPs to render primary care and mental health treatment, CMS created a new direct compensation exception under Stark to permit remuneration from hospitals, federally-qualified health centers (FQHCs), and rural health clinics (RHCs) to a physician to assist him/her in the bona fide employment of, or contract with, an NPP to provide primary care or mental health services within the geographic area served by the hospital, FQHC, or RHC. NPPs include clinical social workers, clinical psychologists, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives. This exception is designed to provide start-up assistance to physicians for hiring or contracting but not to allow for continuing financial support. With limited exceptions, a hospital, FQHC, or RHC may only assist the same physician with employing or contracting with an NPP once every three years. Additionally, a hospital, FQHC, or RHC may only provide assistance for a particular NPP for two years.

An NPP recruited under this exception must provide "substantially all" (i.e., 75%) of the patient services in the area of primary care or mental health services. The exception caps the amount of remuneration given to a physician at 50% of the NPP's aggregated compensation and benefits paid by the physician during a period not to exceed the first two consecutive years of the arrangement. The physician may not impose practice restrictions on the NPP that unreasonably restrict the NPP's ability to provide patient care in the geographical areas served by the hospital, FQHC or RHC.

2. Timeshare Exception

Consistent with CMS's desire to improve access to care and outcomes for beneficiaries, CMS established a new exception permitting timeshare arrangements for the use of premises, equipment, personnel, items, supplies or services between a physician and a hospital, or a physician and another physician organization, regardless of which party is providing or using the space. CMS requires the "licensed premises, equipment, personnel, items, supplies, and services [to be] used predominantly to furnish evaluation and management (E/M) services to patients" of the physician.

To the extent the arrangement involves the use of equipment, the new exception also requires that the equipment being provided or used: (i) be located in the same building where the physician performs E/M services, (ii) be used only to furnish DHS that are incidental to the physician's E/M services and furnished contemporaneously with such visit, and (iii) not be advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).

Clarifications and Modifications to Existing Stark Exceptions

1. "Signature Requirement"

Many of the Stark exceptions required memorialization of the arrangements in writing, which many had interpreted to require a formal contract. Due to receiving numerous self-disclosures by providers for violating the writing requirements of various Stark exceptions, CMS clarified that there is no requirement that "an arrangement be documented in a single formal contract." In short, CMS stated that a "collection of documents, including contemporaneous documents evidencing a course of conduct between the parties, may satisfy the writing requirement." By way of example, documents may include board meeting minutes, documents evidencing payment, emails, and on-call coverage documents. To satisfy the signature requirement, there must be a signature on "a contemporaneous writing documenting the arrangement." Despite the clarification under the Final Rule, we believe it is still preferable to memorialize arrangements subject to Stark exceptions in writing in a formal contract.

2. Temporary Noncompliance with Signature Requirements

As discussed above, many Stark exceptions require the parties' signatures. CMS eased the signature requirement slightly by allowing up to 90 days for the parties to obtain the signatures regardless of whether failure initially to meet the signature requirement was advertent or inadvertent. However, CMS continues to limit the use of this special rule regarding temporary noncompliance with the signature requirement to once every three years with respect to the same physician.

3. Term Requirement

CMS clarified that for exceptions that require a one-year term (rental of office space, rental of equipment and personal service arrangements) the requirement for a one-year term does not mean that the arrangement must include an explicit provision setting forth at least a one-year term. Rather, the term requirement can be met as long as there is some contemporaneous documentation establishing that the arrangement lasted for at least one year, or that the parties did not terminate the arrangement during the first year and entered into a new arrangement for the same space, equipment or services during that same first year. Similar to our recommendations above, despite CMS's clarification, we recommend that all terms of an arrangement be set forth in a formal written agreement.

4. "Holdover Arrangements"

Similar to other clarifications discussed above, CMS eased the requirement related to the existence of a formal contract in a holdover situation. CMS now will allow indefinite holdovers (under the rental of office space, rental of equipment and personal services arrangement), provided certain typical Stark safeguards are met. This change is likely to protect from potential Stark liability many leases and service contracts that expire without being formally renewed.

5. "Take into Account"

In the Final Rule, CMS noted that it has always had a uniform interpretation of the "volume or value" standard, but that the Stark regulations had used different terminology when setting forth this standard ("takes into account," "based on" and "without regard to"), thereby causing confusion. In order to ensure a uniform interpretation, CMS revised the regulations to consistently use the phrase "take into account" throughout the Stark regulations in connection with the volume or value standard.

6. "Retention Payments in Underserved Areas"

CMS clarified that the exception for retention payments in underserved areas requires consideration of the entire 24-month period of income prior to payment, and not a portion of such time.

7. Physician-Owned Hospitals

CMS provided guidance to physician-owned hospitals on acceptable methods of "public advertising" and changed the methodology to determine bona fide investment levels.

Definition Revisions

1. Remuneration

Stark's definition of "remuneration" excludes items, devices, or supplies "used solely to collect, transport, process, or store specimens for the entity furnishing the items, devices, or supplies, or ordering or communicating the results of tests or procedures of such an entity." The Final Rule clarified that the items may be used for one or more of these purposes. In addition, CMS clarified that no remuneration exists when a physician provides services to hospital patients in the hospital if both the hospital and the physician bill independently for their services.

2. "Stand in the Shoes"

CMS responded to questions arising from the first iterations of the "stand in the shoes rules" by confirming that only physicians who "stand in the shoes" of their physician organizations need to sign all agreements between their organizations and another entity that furnishes DHS. However, with respect to meeting all other requirements (besides the signature requirement), all physicians, not just the owners, would be considered parties to the arrangements—meaning, for instance, that a physician organization may not take into account any referrals of any employed or contracted physician with the physician organization.

3. Geographic Area Served by FQHC and RHC

CMS finalized the definition for the geographic area served by FQHCs or RHCs under the physician recruitment exception. An FQHC's or RHC's "geographic area" is defined as the lowest number of contiguous or noncontiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis.


The changes in the Final Rule are a welcome development for providers as the new exceptions and clarifications provide greater flexibility and enable providers to more easily take advantage of and comply with the exceptions. Providers can now safely seek monetary assistance to recruit and employ or contract with NPPs to fill their gaps in primary care and mental healthcare services, and use space and equipment to render to patients needed services to support their E/M services. The Final Rule is a step in the right direction to allow healthcare providers to focus more on patient care issues and less on technical Stark provisions that do little to prevent fraud and abuse.