CMS Proposal Creates Self-Referral Exceptions

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By James Swann

July 9 — The 2016 proposed physician fee schedule rule would create new exceptions under the physician self-referral law, also known as the Stark law, in addition to easing compliance burdens.

For example, the Centers for Medicare & Medicaid Services proposed rule (CMS-1631-P, RIN 0938-AS40), released July 8, would cover hospital, federally qualified health center (FQHC) and rural health clinic (RHC) payments made to physicians to help subsidize the employment of nonphysician practitioners. The rule was published in the July 15 Federal Register, with comments due Sept. 8 (80 Fed. Reg. 41,685).

Additionally, the proposed rule would clarify the requirement that arrangements seeking a Stark law exception be set out in writing, noting that the arrangements don't need to be documented through a formal contract and can instead qualify for the exception through a collection of multiple documents “evidencing the course of conduct between the parties.”

Easing Technical Burdens

Danielle Sloane, an attorney with Bass, Berry & Sims PLC, Nashville, Tenn., told Bloomberg BNA July 9 that the proposed Stark provisions are a very good step for the health-care industry.

“CMS is saying ‘we recognize some of the technical burdens of the Stark law, and we'll clean it up,'” Sloane said.

Sloane said the CMS has a large backlog of Stark law self-disclosures, which has given the agency insight into typical arrangements, most of which present no risk.

“The proposed rule doesn't alleviate the need to comply with Stark, but it does alleviate the need to self-disclose for technical violations,” Sloane said. “This is a huge step toward easing Stark enforcement.”

Linda A. Baumann, an attorney with Arent Fox LLP in Washington, told Bloomberg BNA July 13 that the Stark provisions also represent a chance for the health-care industry to help shape the regulations.

“The provisions include multiple specific opportunities to provide comment, and the CMS seems to be very open and amenable to accepting them,” Baumann said.

Baumann said she hoped health-care providers would take advantage of the chance to comment on the provisions, noting that the volume of comments can help make a difference.

Beyond the expanded opportunities to comment, Baumann said the Stark provisions may represent an attempt by the CMS to reform the Stark law before Congress takes action.

“The Stark law has nothing to do with quality of care, and maybe it's gone too far,” Baumann said.

The Stark law prohibits Medicare self-referrals, which occur when a provider refers Medicare patients to entities with which the provider or his or her immediate family members have a financial relationship.

The proposed physician payment rule would begin implementing a new performance-based Medicare reimbursement system for doctors and other providers.

Writing Requirement

Kevin G. McAnaney, of the Law Office of Kevin G. McAnaney in New York, agreed that the new written requirements describing why an arrangement merits a Stark exception address a significant portion of Stark violations caused by simple mistakes.

“Confirmation that the writing can be satisfied by multiple documents, the 90-day grace period to get signatures and the extended holdover safe harbor will go far to eliminate the most senseless and irritating Stark violations,” McAnaney told Bloomberg BNA July 9.

According to an agency fact sheet, the CMS proposes to allow a 90-day grace period to obtain missing signatures from an arrangement without regard to whether the failure to obtain the signatures was inadvertent. Under current regulations, parties have up to 90 days to sign a compensation arrangement if the failure was inadvertent, but only 30 days if it was deliberate.

The holdover provision would permit an arrangement that satisfies the requirements of a Stark exception to continue indefinitely after expiration, assuming it still meets the conditions of the exception. Currently, holdover arrangements can continue for six months after the arrangement's expiration.

“The notice signals that CMS understands that the key Stark requirements are the financial terms of the arrangement and not the ticky-tacky writing requirements, which simply confirm the financial terms are met,” McAnaney said.

Payments Exception 

As for the new hospital subsidy exception, the CMS said it was necessary due to shortages of primary-care physicians, especially in rural areas, coupled with more people receiving insurance through the Affordable Care Act.

“We believe that employing a nonphysician practitioner (rather than merely contracting on an independent basis with a nonphysician practitioner) indicates a commitment by the physician to increase the availability of patient care services to his or her patients on an ongoing basis and, as such, is an important safeguard against program and patient abuse,” the proposed rule said.

To guard against any abuse, the proposed rule said any arrangement covered by the exception couldn't be “conditioned on the physician's or the nonphysician practitioner's referral of patients to the hospital providing the remuneration.”

The hospital payments exception would only apply in cases where the nonphysician practitioner was a bona fide employee of the physician receiving payment from the hospital, and where the purpose of the nonphysician practitioner was to provide primary care services to the physician's patients.

The proposed rule defined nonphysician practitioners to include only physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives.

Subsidy Limits

Hospitals would only be able to make payments earmarked for nonphysician practitioner employment for the first two years of employment, and the amount of the payment would be capped at either 50 percent of the salary, signing bonus and benefits of the nonphysician practitioner or a figure reached by subtracting the value of services performed by the nonphysician practitioner from his or her overall salary, signing bonus and benefits, whichever amount was lowest.

In addition, the proposed rule laid out two alternatives for establishing a minimum level of primary care service provided by the nonphysician practitioner.

Under one alternative, 90 percent of a nonphysician practitioner's patient services would have to be primary care, while in the other alternative at least 75 percent of a nonphysician practitioner's patient services would have to be primary care.

The CMS also asked for comments on whether the payments exception should be extended to include payments to physicians to help them employ nonphysician practitioners as independent contractors.

Timeshare Arrangements

The second new Stark exception concerns timeshare arrangements, in which a hospital provides a physician with a fully furnished office.

Under the new exception, timeshare arrangements would be afforded a safe harbor if they met certain conditions, including:

• the arrangement is in writing, is signed by all interested parties and covers all equipment and office space used;

• the arrangement is between a hospital or physician organization and a physician;

• the office space is used by the physician primarily to perform patient evaluation and management services;

• any equipment covered by the arrangement is located in the office space;

• the timeshare arrangement is not contingent on referrals;

• the arrangement's compensation is set in advance; and

• the arrangement would be commercially reasonable even if no referrals were conducted.


“We believe that timeshare arrangements that include the use of office space can be structured in a way that does not post a risk of program or patient abuse,” the proposed rule said.

Hospital Recruiting 

The proposed rule would also revise a Stark exception allowing rural hospitals, FQHCs and RHCs to pay physicians recruiting bonuses by defining their geographic area.

The proposed rule included two potential approaches to defining geographic area “in recognition that rural hospitals, FQHCs, and RHCs often serve patients who are dispersed in wider geographic areas and may need to recruit physicians into more remote areas in order to achieve their goals of providing needed services to the communities they serve.”

Under one approach, the geographic area would be defined as the “lowest number of contiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients.”

The second approach would define the geographic areas as the lowest number of contiguous or non contiguous ZIP codes.

The proposed rule also included a request for comments on a series of questions pertaining to the role of the Stark law as the health-care system transitions to a value-based payment methodology.

For instance, the CMS asked whether the Stark law is an obstacle to clinical and financial integration, and whether there's a need for new exceptions to fit with alternative payment methods.

To contact the reporter on this story: James Swann in Washington at

To contact the editor responsible for this story: Brian Broderick at

The 2016 proposed physician fee schedule rule is at

A CMS fact sheet is at