CMS finalizes new and modified Stark Law regulations


On November 20, the Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services (HHS) issued final rules revising regulations under the Medicare physician self-referral law known as the “Stark Law” (the CMS final rule) and the Federal anti-kickback safe harbor and beneficiary inducement civil monetary penalty (CMP) regulations (the OIG final rule). Both final rules were published in the Federal Register on December 2, and contain provisions designed to help transform healthcare by promoting a shift toward value-based care, providing greater flexibility for healthcare providers, and reducing regulatory risks in the delivery of patient care.

This alert provides a general overview of provisions in the CMS final rule, which establishes new Stark Law exceptions for value-based arrangements, permits limited remuneration and cybersecurity donations, and creates a number of important revisions to existing Stark Law exceptions and related regulatory concepts. See our Anti-Kickback Statute Alert for an overview of the OIG final rule’s new and modified safe harbors.

New Compensation-Based Exceptions

  • Value-Based Arrangements Three new exceptions created under 42 CFR 411.357(aa)(1) through (3) will permit remuneration under value-based arrangements that facilitate value-based health care delivery and payment, with separate standards depending on the level of financial risk involved:
    • Full financial risk (the value-based enterprise is at full financial risk)
    • Value-based arrangements with meaningful downside financial risk to the physician
    • Value-based arrangements (no requirement of financial risk)
  • Limited Physician Remuneration This new exception will protect arrangements under which a physician receives limited remuneration for items or services, capped at $5,000 from an entity per calendar year (subject to annual inflation adjustments) if certain conditions are satisfied.
  • Donations of Cybersecurity Technology and Related Services This new exception will protect non-monetary donations of a broad range of “technology” (defined as software or other types of information technology) and services that are necessary and used predominantly to implement, maintain or reestablish cybersecurity.
    • NOTE: CMS explained in its preamble that the technology and services may include non-cybersecurity functions, but that the core functionality must be for cybersecurity, cybersecurity use must predominate, and the technology and services must be necessary for cybersecurity. 

New Value-Related Definitions
The final rule clarifies new definitions under 42 CFR §411.351 for the following terms, which are integral to the new value-based exceptions:

  • Target patient population
  • Value-based activity
  • Value-based arrangement
  • Value-based enterprise (VBE)
  • Value-based purpose
  • VBE participant

Modifications to Existing Stark Law Exceptions
The CMS final rule revises a number of existing exceptions, including for:

  • Office space and equipment leases
  • Personal service arrangements
  • Physician recruitment
  • Isolated transactions
  • Payments by a physician
  • Fair market compensation (of particular note, this exception is expanded to allow its use for office and equipment leases)
  • Risk-sharing arrangements
  • Electronic health records (EHRs), including revisions making this exception permanent (by removing the December 31, 2021 sunset date) and clarifying the inclusion of cybersecurity
  • Assistance to compensate a non-physician practitioner

Revisions to Group Practice Compensation Structures
The CMS final rule revises the special rules set forth in the “group practice” definition under 42 CFR 411.352(i) that allow the sharing of profit and productivity bonuses among physicians in a group practice:

  • This subsection will continue to allow group practices to distribute overall profits to physicians in the group or to physicians in a component with at least five physicians.
  • The definition of “overall profits” is revised to consist of all profits of the entire group (or of a component with at least five physicians, if the group chooses to share profits through a component) derived from Medicare designated health services (DHS).
    • NOTE: CMS stated in the preamble that all DHS profits must be aggregated before distribution, and may not be distributed on a service-by-service basis.
  • CMS states that a group may establish components based on criteria such as similar practice patterns, location, similar years of experience, similar tenure with the group, or other criteria.
  • If a group practice elects to recognize separate components, each with five (5) or more physicians, for determining and distributing overall profits, the overall profits of each component would need to be aggregated before paying shares of the component’s overall profits to the physicians in that component. Overall profit distribution methodologies and eligibility can vary from component to component, but the same methodology must be used in distributing overall profits for the physicians within each component.
  • CMS recognizes that a group or a component of a group with at least five physicians is not required to distribute all of its overall profits, and may establish eligibility standards to determine which physicians are eligible for a profit share, so long as the profit shares are not determined in a manner directly related to the volume or value of the physician’s referrals.   
  • A group practice will be allowed to distribute DHS profits to a physician if the profits are directly attributable to the physician’s participation in a VBE.
    • NOTE: CMS stated in the preamble that this provision will allow the distribution of profits (but not revenues) attributable to such participation.
  • CMS clarified in its commentary that some group practices may qualify as a VBE and may be able to take advantage of the new exceptions for value-based arrangements.
  • CMS recognized that these revisions will require some group practices to revise their compensation methodologies in order to come into compliance with the new requirements.  The effective date of these group practice revisions relating to profits will therefore be delayed until Jan. 1, 2022, so that group practices will have time to implement any necessary changes.

Revisions to Stark Law Concepts
The CMS final rule adds or revises various concepts affecting Stark Law compliance and related determinations, including:

  • New definitions of “commercially reasonable” and “general market value” and revisions to the definition of “fair market value”;
  • When compensation is deemed to take into account the volume or value of referrals or of other business generated between the parties (separate standards are established based on whether compensation is to or from a physician);
  • Conditioning a physician’s remuneration on his or her referrals to a particular provider, practitioner or supplier (a number of exceptions have added an element requiring satisfaction of the revised conditions in order to impose a directed referral requirement);
  • Standards for permissible modification of compensation;  
  • Reconciliation of payment discrepancies within 90 days following the expiration or termination of a compensation arrangement;
  • 90 days to obtain a writing or signature for a compensation arrangement that otherwise complies with an exception;
  • Revision of the definition of “designated health services” to exclude services furnished to inpatients by a hospital if the furnishing of the service does not increase the amount of Medicare’s payment to the hospital under any of the following prospective payment systems: Acute Care Hospital Inpatient, Inpatient Rehabilitation Facility, Inpatient Psychiatric Facility, or Long-Term Care Hospital.
    • NOTE: This revision clarifies that some relationships involving services to hospital inpatients can be structured without implicating the Stark Law if the services will not increase payments to the hospital.

The CMS final rule will take effect on Jan. 19, 2021, except as noted above for changes to group practice profit shares and productivity bonuses, which are delayed until Jan. 1, 2022.

For additional information on the CMS final rule and the OIG final rule’s related provisions, please contact the attorneys below.

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