November 20, 2020 was a big day for False Claims Act lawyers. Just in time for Thanksgiving weekend, we received three gifts: 

(1) A draft of the Centers for Medicare & Medicaid Services’ (CMS) final Rule regarding the Physician Self-Referral Law (Stark Law), which prohibits health care providers from referring to themselves without disclosure; 

(2) A press release and fact sheet explaining how the new Rule affects the Stark Law; and 

(3) A draft of the final revisions to safe harbors under the Anti-Kickback Statute, which prohibits health care providers from paying others for referrals. 

In all, we were gifted with 1,627 pages to read and digest along with our turkey. This blog takes a look at the two Stark-related publications. A second installment will address the Anti-Kickback Statute.

Background: The Stark Law 

The Stark Law, which was passed in 1989, generally prohibits doctors from making referrals for certain healthcare services to entities with which the doctor or a family member has a financial relationship. 

For example, unless an exception applies, a general practitioner cannot refer patients to a specialist practice owned by his wife. Similarly, unless an exception applies, an orthopedist who owns an X-ray company cannot send her patients to her own X-ray facility.

The Stark Law is a “strict liability” statute, which means you don’t have to “intend” to violate it. If a doctor engages in prohibited self-dealing, they have violated the statute. Moreover, if the Stark Law is violated, both sides of the transaction are tainted.

In other words, in the second example above, the X-ray company also cannot bill government health care programs for X-rays that were the result of an improper referral. 

To determine whether an arrangement is covered by the Stark Law, ask these three questions – all are required for there to be a Stark violation:

  • Does the arrangement involve a referral of a Medicare or Medicaid patient by a physician or his/her immediate family member? 
    • The Stark Law does not apply to commercial insurance payors or private payors   
  • Is the referral for a “designated health service”?
    • Not every type of health service is covered by the Stark Law. The ones that are covered include common ancillary services like clinical laboratory services, outpatient prescription drug services, physical therapy, imaging services (x-ray, MRI, etc.), as well as durable medical equipment, home health services, radiation therapy, and more.
  • Is there a financial relationship between the referring physician (or family member) and the entity receiving the referral?

Importantly, even if every answer is “yes,” the Stark Law includes about twenty exceptions. If a health care provider falls into an exception, the conduct is not prohibited. However, the exception requirements must be exactly met.

As discussed below, the new final Rule that rolled out at Thanksgiving 2020 includes some new definitions, as well as some new exceptions. 

The New Stark Law Rule

Many Stark Law exceptions permit referrals to be made between parties with certain financial relationships as long as the relationships are “commercially reasonable.” The new Rule defines commercially reasonable as a “particular arrangement [that] furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty.” 

For example, an arrangement can qualify as commercially reasonable even if one does not turn a profit. Response to comment indicates that commercial reasonableness is determined by objective standards.

“Fair market value” is another term common to many exceptions. Fair market value is established by comparing the arrangement to prices for the same services in the community which have been agreed upon by both parties in an arm’s length transaction. In the new Rule, CMS clarifies fair market value to mean “the value in an arms-length transaction, consistent with the general market value of the subject transaction.” 

Regarding equipment rental, for example, “fair market value means the value in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), consistent with the general market value of the subject transaction.” 

And regarding rental of office space, “fair market value means the value in an arm’s length transaction of rental property for general commercial purposes (not taking into account its intended use), without adjustment to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee, and consistent with the general market value of the subject transaction.”

The new Rule also addresses the definition of “remuneration,” enlarging the exception for “furnishing of items, devices, or supplies” to include furnishing surgical items, devices, or supplies.

CMS also revised the meaning of “designated health service.” Under the new Rule, inpatient hospital services are not deemed designated health services if that service does not increase the Medicare payment amount to the hospital.

Value-Based Arrangement Exceptionsdoctor handshake

The new Stark Law Rule also contains new exceptions that apply to compensation arrangements called “value-based arrangements.” A value-based arrangement is “an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are: (1) a value-based enterprise [“VBE”] and one or more of its VBE participants; or (2) VBE participants in the same value-based enterprise.” 

According to CMS, these new Stark Law exceptions were created to allow providers “to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the Stark Law.” 

As with any exception, the provider, entity, and parties to an arrangement must satisfy the requirements of each exception strictly – and many of the new exceptions include significant requirements, new or revised definitions, and include protections against overutilization and other harms.

There are at least six new definitions related to value-based exceptions, which also apply to indirect compensation arrangements. Those indirect compensation arrangements include a value-based arrangement when a physician or physician organization is a direct party. The final rules do not require that an activity actually achieve a value-based purpose, only that it be “reasonably designed” to do so. 

In other words, as CMS noted, the parties must have a good-faith belief that the value-based activity will achieve, or lead to the achievement of, at least one value-based purpose of the VBE. After all, parties may undertake activities in good faith that do not ultimately add value. As usual, contemporaneous documentation is a best practice. Members of a value-based arrangement are also required to monitor whether they have provided value-based activities required by their arrangement and whether it makes sense to continue the same activities. 

CMS added three new Stark value-based exceptions: the full financial risk exception, the meaningful downside financial risk exception, and the value-based arrangements exception. The first two require parties to take downside risk to qualify for the exception, while the third does not. 

In general, CMS takes the position that as financial risk to the participants increases, the incentives to order unnecessary services or steer patients to high-cost sites of services diminish. As a result, CMS imposes more requirements on value-based arrangements that entail less risk. 

CMS also provided new special rules on compensation arrangements. Under the new rules, for compensation arrangements that are required to be in writing, the writing requirement may be satisfied with a collection of documents (including contemporaneous documents) if such documents evidence the course of conduct of the parties. 

Regarding temporary noncompliance, parties may obtain required writings within 90 calendar days after the compensation agreement becomes non-compliant with an exception. The 90-day grace period for satisfying signature requirements is also contained in the Rule.

Finally, CMS also created a new exception to protect arrangements involving donations of certain cybersecurity technology and to protect limited remunerations to a physician, so long as it does not exceed $5,000 per calendar year for the provision of certain limited services. 

Have You Witnessed a Stark Law Violation? Contact Us Today. 

If you’ve kept up so far, congratulations! Next installment, we will talk about the new Rule for the Anti-Kickback Statute and how the AKS differs from Stark. 

And as always, if you suspect you are witness to a violation of the Anti-Kickback Statute or Stark Law, we urge you to call Bracker & Marcus LLC for a free consultation.