The Centers for Medicare & Medicaid Services (“CMS”) recently adopted its Final Rule (the “Final Rule”) modifications to the Stark Law aimed at modernizing and clarifying various regulations. Two such changes are universally relevant, but particularly so for those who practice in the health care real estate realm.

For an overview of all changes in the Final Rule, please watch Hall Render’s recent webinar on the subject. The final rules are effective on January 19, 2021.

Missing Signature and Writing Requirement Rules (42 CFR 411.354[e])

The Stark Law previously allowed for arrangements that complied with all other required elements of an applicable exception, but which lacked signatures, to obtain the signatures within 90 calendar days following the effective date of the arrangement (“Late Signature Exception”).

Final Rule:

The Final Rule expands the scope of the Late Signature Exception to include a “grace period” for the required writing along with the missing signatures. Now parties have 90 days from the arrangement’s effective date to compile the collection of documents that evidence the course of conduct between the parties and reduce such collection to a signed writing. Note that the collection may include documents stored electronically, text messages, emails, notes to files, etc. Although the changes expand the scope of the exception, CMS commentary on the Final Rule indicates that in order for the exception to meet the requirement that compensation payable under the arrangement (e.g., the lease) be “set in advance,” the parties may not modify the compensation during the 90 day period when they are compiling sufficient documentation of the arrangement to satisfy the writing requirement. In addition, the parties may not modify any other terms of the arrangement during the 90 day period in order to satisfy the writing and signature requirements as well.

Isolated Transactions (42 CFR 411.357[f])

Previously, the Stark Law permitted isolated financial transactions, which is defined as a one-time transaction involving a single payment between two or more persons or a one-time transaction that involves integrally related installment payments, provided that—

(i) The total aggregate payment is fixed before the first payment is made and does not take into account the volume or value of referrals or other business generated by the physician; and

(ii) The payments are immediately negotiable, guaranteed by a third party, secured by a negotiable promissory note or subject to a similar mechanism to ensure payment even in the event of default by the purchaser or obligated party.

Final Rule:

The Final Rule added the following text to the definition: An isolated financial transaction includes a one-time sale of property or a practice, single instance of forgiveness of an amount owed in settlement of a bona fide dispute or similar one-time transaction, but does not include a single payment for multiple or repeated services (such as payment for services previously provided but not yet compensated). In the Final Rule commentary about payments for repeated services, CMS limits the discussion and examples to personal service arrangements, so it is unclear whether the logic would apply in the office leasing context where rentals are ordinarily payable on a monthly basis. If you question whether a leasing arrangement may qualify for the isolated transaction exception, we recommend consulting with a Hall Render attorney.

The Final Rule also added that an isolated financial transaction that is an instance of forgiveness of an amount owed in settlement of a bona fide dispute cannot be part of the compensation arrangement giving rise to the bona fide dispute. In the Final Rule commentary, CMS clarifies that the forgiveness of the amount owed in settlement of the bona fide dispute is itself a separate arrangement. The compensation arrangement which is the subject of the underlying dispute is not retroactively made compliant merely because a settlement arrangement is achieved via the isolated transaction exception.