CMS made impactful changes to the Federal physician self-referral law’s (i.e., Stark Law’s) regulations in its Final Rule that were effective January 19, 2021 (with the exception of the changes to 42 C.F.R. § 411.352(i) that are effective January 1, 2022). Although lengthy (190 pages/3-column format), the Final Rule is worth the read with multiple clarifications and revisions to the dense regulations.
In connection with the first part of our key takeaways, each reader will find gems in the Final Rule that are impactful, but we note particularly the following key changes, clarification, and discussion:
1. Revisions to the Fair Market Value and General Market Value Definitions (§ 411.351)
The fair market value (FMV) definition was refined, breaking out the general definition, the definition related to rental of equipment, and the definition related to the rental of office space. The general market value definition was separated from the FMV definition, addressing asset purchases, compensation for services and rental of equipment or office space.
- CMS eliminated the connection between (1) the fair market value (FMV) requirement and (2) the volume or value and the other business generated standards in the Final Rule.
- The meaning of “general market value” is based solely on consideration of the economics of the subject transaction and should not include any consideration of other business the parties may have with one another. One example provided by CMS was a potential medical director arrangement, and parties “must not consider that the physician could also refer patient to the entity when not acting as its medical director.” (Id. at 77,554) Another was the value of a physician’s services by a hospital versus a private equity investor or other physician practice, noting that the “hospital may not value a physician’s services at a higher rate…because the hospital could bill for designated health services referred by the physician under the OPPS.” (Id. at 77,555)
- FMV of a transaction, particularly compensation for physician services, may not always align with published valuation surveys. Extenuating circumstances may dictate that parties to an arm’s length transaction veer from values identified in salary surveys that are not specific to the actual parties to the subject transaction.
- CMS also refused to make a safe harbor or rebuttable presumption based on a range of values in salary surveys (e.g., salary at or below the 75th percentile is always appropriate and above the 75th percentile is suspect). (Id. at 77,558)
- Each compensation arrangement is different and must be evaluated based on its unique factors. CMS stated, however, that an independent valuation is not required for all compensation arrangements.
2. Revisions to the Group Practices Provisions (§ 411.352(i)) (effective 1/1/2022)
CMS revised the group practice provisions related to overall profits, and has granted practices a year to comply.
- CMS clarified that “overall profits” means the profits derived from all the designated health services of the group or any component of the group that consists of at least 5 physicians. Group practices may not distribute profits from designated health services on a service-by-service basis. However, a group practice does not need to treat all components of at least five (5) physicians the same with respect to the distribution of overall profits. (Id. at 77,563, 77,565)
- New subsection (3) of § 411.352(i) provides that notwithstanding § 411.352(g), which prohibits directly or indirectly compensating a physician who is a member of the group practice based on the volume or value of his/ her referrals, profits from designated health services that are directly attributable to a physician’s participating in a value-based enterprise, as defined in 411.351, may be distributed to the participating provider.
- CMS is removing the reference to Medicaid from the definition of “overall profits,” noting that it was a vestige of a proposed rule, and changing “revenue” to “overall profits” in one of the deeming provisions.
3. Removal of the Period of Disallowance Provisions (§ 411.353)/New Special Rule for Reconciling Compensation Arrangements (§ 411.353(h))
The period of disallowance provisions are removed from the regulations, and there is a new special rule for reconciling compensation arrangements, allowing parties to identify administrative and operational errors that result in payment discrepancies in an ongoing compensation arrangement and fix them.
- Further, CMS added a reconciliation period of 90 consecutive calendar days after the expiration or termination of the compensation arrangement to fix those payment discrepancies (i.e., pay them as required).
- If payment discrepancies are not reconciled within 90 days of the termination/expiration of a compensation arrangement, the parties may not “unring the bell” on any noncompliance resulting from the payment discrepancies. (Id. at 77,586)
This ability to fix ongoing arrangements encourages active compliance programs – specifically, auditing and monitoring – and is incredibly helpful to DHS entities who can fix Stark Law issues by reconciliation (e.g., repayment by physicians or offsetting future payments).
4. Additional Revisions to the Special Rules on Compensation (§ 411.354)
- Under section 411.353(g), the physician self-referral law regulations previously included a special rule on compensation to allow parties 90 days to comply with the signature requirements under the various exceptions. CMS moved that special rule to the other special rules under section 411.354(d)(4) and is now allowing parties 90 days to also comply with the writing requirement.
- For modified compensation the change must be set in advance in writing. CMS noted, however, that there is no signature requirement under section 411.354(d)(1)(ii), so the writing that documents the modified compensation need not be signed by the parties. (Id. at 77,594)
- Section 411.354(d)(1)(ii) also does not require that the modified compensation remain in place for at least a year from the date of amendment, and there is no prohibition on the number of times the parties may modify the compensation, provided the conditions of that subsection are met. (Id. at 77,595)
5. Revised Patient Choice and Directed Referrals Provision (§ 411.354(d)(4))
CMS has included an affirmative requirement under many of the exceptions that the compensation arrangement meet the conditions of the special rule at § 411.354(d)(4) in the following exceptions: § 411.357(c) for bona fide employment relationships, § 411.357(d)(1) for personal service arrangements, § 411.357(d)(2) for physician incentive plans, § 411.357(e) for academic medical centers, § 411.357(h) for group practice arrangements with a hospital, § 411.357(l) for fair market value compensation, § 411.357(p) for indirect compensation arrangements, and § 411.357(z) for limited remuneration to a physician. The requirement states that if a physician’s compensation is conditioned on the physician’s referrals to a particular provider, practitioner or supplier, all of the following conditions must be met:
- The compensation or a formula for determining the compensation, is set in advance for the duration of the arrangement. Any changes to the compensation (or the formula for determining the compensation) must be made prospectively;
- The compensation is consistent with the fair market value of the physician’s services.
- The compensation arrangement otherwise satisfies the requirements of an applicable exception at § 411.355 or § 411.357;
- The compensation arrangement complies with both of the following conditions:
- The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.
- The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s best medical interests in the physician’s judgment.
- The required referrals relate solely to the physician’s services covered by the scope of the employment, personal service arrangement, or managed care contract, and the referral requirement is reasonably necessary to effectuate the legitimate business purposes of the compensation arrangement. In no event may the physician be required to make referrals that relate to services that are not provided by the physician under the scope of his or her employment, personal service arrangement, or managed care contract; AND
- Regardless of whether the physician’s compensation takes into account the volume or value of referrals by the physician as set forth at paragraph (d)(5)(i) of this section, neither the existence of the compensation arrangement nor the amount of the compensation is contingent on the number or value of the physician’s referrals to the particular provider, practitioner, or supplier. The requirement to make referrals to a particular provider, practitioner, or supplier may require that the physician refer an established percentage or ratio of the physician’s referrals to a particular provider, practitioner, or supplier.
6. Clarification of Rental of Office Space Exception (§ 411.357(a)) & Rental of Equipment Exception (§ 411.357(b))
CMS clarified that the exclusive use provision in the rental exceptions relates only to the lessor who may not use the office space or equipment. As such, a lessor may have multiple lessees using the rented space or equipment at the same time, and those lessees can sublease, as long as the other requirements of the exception are met.
7. Revisions to the Fair Market Value Exception (§ 411.357(l))
CMS revised the fair market value exception to permit parties to protect arrangements for the rental or lease of office space (adding the prohibition on percentage and per-click leases). The FMV exception does not have a one-year term requirement, so short-term arrangements are permissible; however, parties will be allowed only one lease arrangement during the course of a year. Parties can have indefinite renewals under the same terms. (Id. at 77,605)
8. Revisions to the Electronic Health Records (EHR) Exception (§ 411.357(w))
- CMS revised the requirement regarding interoperability to clarify that software is deemed interoperable if, on the date it is donated, it is certified by a certifying body authorized by the Office of the National Coordinator for Health Information Technology (ONC). (Note: CMS does not require ONC certification, only that the software be interoperable, but CMS included this deeming provision.) The definition of “interoperable” was revised to align with the statutory definition of “interoperability” in the Cures Act.
- CMS removed the information blocking subsection of the exception because that standard is otherwise covered by ONC rules.
- CMS also made the EHR exception permanent because of the continuing need with new entrants, aging EHR technology at existing practices and emerging and improved technology. (Id. at 77,613)
- CMS retained the 15% contribution requirement, but noted that EHR donations could fit under the new value-based exceptions, which do not have a contribution requirement. Contribution is also required for updates to previously donated EHR items or services, but CMS is no longer requiring that the contribution be made before the receipt of items and services as long as payments are made at reasonable intervals. However, with regard to an initial donation or a replacement of existing items or services, a physician must pay 15% of the donor’s costs prior to receipt of the items and services. (Id. at 77,618, 77,619)
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In evaluating your financial arrangements, we recommend that you also consider the changes to the Federal anti-kickback statute safe harbors that were also effective on January 19, 2021. See 85 Fed. Reg. 77,684 (OIG Final Rule Dec. 2, 2020). Be sure not to miss our additional comments from Part 1.
Foley is here to help you address the short- and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to Jana Kolarik, your Foley relationship partner, or to our Health Care Practice Group with any questions.