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11.19.2015 Legal News

CMS Finalizes Major Changes and Clarification to the Stark Law Regulations


Since the passage of the Physician Self-Referral Act, also known as the “Stark Law,” health care providers have had to learn to work within and adjust to certain statutory and regulatory exceptions in order to grow their businesses and engage in financial opportunities in a lawful manner.  Therefore, it is noteworthy when the Centers for Medicare and Medicaid Services (“CMS”) move to change the established regulatory scheme.  Most recently, CMS included numerous changes to the Stark Law regulations in its 2016 Physician Fee Schedule final rule (the “Final Rule”), published October 30, 2015, including the following: 

New Exceptions

CMS finalized two new exceptions with the Final Rule.  The first new exception would permit hospitals, Federally Qualified Health Centers and Rural Health Centers to pay physicians and physician groups for hiring certain non-physician practitioners for the provision of primary care or mental health services to the physician’s or physician group’s patients.  The exception will cover the recruitment and hiring of primary care allied practitioners such as physician assistants, nurse practitioners, clinical nurse specialists, and certified nurse midwives.  From the mental health side, clinical social workers and clinical psychologists may also be engaged if the requirements of the exception are satisfied. The exception includes restrictions similar to those applicable to the exception permitting physician recruitment payments, but would place a cap on the length of time and amount of the payments available to practices and physicians for hiring these non-physician practitioners.

The second new exception permits “timeshare” arrangements among physicians, physician groups, and hospitals where one party uses space, equipment, personnel, supplies, etc. provided by another party on a minimal or as-needed schedule.  Although not explicitly considered “licenses” in the Final Rule, these “timeshare” arrangements involve periodic permission to use certain space, equipment, etc. without the ability to exercise exclusive control.  According to the Final Rule, if an entity or physician takes control of and exclusively uses the space, equipment, supplies, personnel, etc., a leasing arrangement may result, and the space lease exception must be applied instead.

In this new timeshare exception, CMS has included certain “program integrity” safeguards.  For example, the exception requires that all space, equipment, supplies, etc. be specified in advance, be used on the same schedule, and be “predominantly” used for the provision of evaluation and management services to patients, not designated health services.  Further, the equipment that may fall under the timeshare exception is limited in that advanced diagnostic imaging and clinical laboratory equipment are excluded, the equipment must be in the same building as the office space where services are provided, and use of the equipment must be “tangential” to the evaluation and management services being furnished at that time.  Many of the traditional Stark Law exception elements apply as well, such as the requirements that the arrangement be commercially reasonable and not take into account the volume and value of referrals or other business.

Clarification and Increased Flexibility

  • Writing Requirement.  CMS specifies that where an exception requires that something be memorialized in writing, there can be a group of multiple written documents, rather than a single written agreement.  The Final Rule provides examples of what documents may be used to meet the writing requirement, but stresses that any writing or writings compiled to meet the requirement must be signed.
  • “Takes into Account.” CMS states that the “volume and value of referrals” standard has always been the same standard across all exceptions, regardless whether the exception prohibited actions “based on” the volume or value of referrals, or whether the exception prohibited actions that “take in account” the volume or value of referrals.  In the Final Rule, CMS makes the language uniform, using the phrase, “takes into account,” across all exceptions in the regulations. 
  • Signature Requirements. The Final Rule affords arrangements not in compliance with signature requirements a grace period of 90 days from when the parties enter into the arrangement to obtain signatures.  The grace period will apply to both intentional and inadvertent failures.  This structure replaces the current regulations permitting a 30-day grace period for intentional failures and 90 days for inadvertent failures.
  • Lease and Personal Services Exceptions. With respect to the current lease and personal services exceptions, CMS made the following updates and clarifications:
    • One Year Requirement: The requirement that arrangements last for one year or more is met as long as the business relationship is one that will clearly last for at least one year, based on the terms of the arrangement.  Any arrangement that in fact lasts one year or more will satisfy the requirement, regardless of whether the term is explicitly written.  For arrangements lasting for a year or more, a provider must be able to show, through contemporaneous writings, that the arrangement met or exceeded the one year period.  If the arrangement is terminated prior to one year, a provider must show that the lease was terminated and that the parties did not enter into a similar arrangement within that same one year period.
    • Holdover Arrangements: These Stark Law exceptions have traditionally permitted “holdover arrangements” for a maximum of six months after the expiration of the agreement.  The Final Rule expands that limitation to permit indefinite holdover arrangements as long as (1) the arrangement complied with the applicable exception at the time of the agreement’s expiration; (2) the holdover arrangement is on the same terms as the expired agreement; and (3) the holdover arrangement continues to meet the elements of the exception.
  • Fair Market Value Exception. With the Final Rule, any arrangements falling under the Fair Market Value exception would be allowed to renew indefinitely, regardless of the length of the initial arrangement, as long as the terms of the arrangement and compensation do not change.  Previously, only arrangements shorter than one year were renewable.  The Fair Market Value exception is intended to protect compensation arrangements that do not fall under other compensation arrangement exceptions.
  • Ownership of Publicly Traded Securities Exception. The exception for ownership of publicly traded securities will now include securities that are available to trade on an electronic stock market, like NASDAQ and FINRA’s OTC quotation system, that maintain daily quotations and require that trades be “standardized and publicly transparent.”
  • Stand in the Shoes. CMS clarifies that physicians who “stand in the shoes” of their practice, either voluntarily or through their ownership and investment interests in the practice, are the only physicians of a practice who may be the authorized signatories when meeting certain exceptions’ signature requirements.  CMS removes the reference to “stands in the shoes” in the locum tenens definition because a locum tenens physician is already considered a “member of a group practice,” and therefore will stand in the shoes of the practice.
  • Physician Ownership in Hospitals: Rural Provider or Hospital Ownership Exceptions.  The Affordable Care Act required that certain disclosures be made by a hospital on its “public website” and in “public advertising of the hospital” when physicians maintained direct or indirect ownership interests in that hospital.  The Final Rule helps to define the details of the disclosure requirement by describing the websites that do not qualify as “public websites” and defining “public advertising for the hospital.”  In addition, the Final Rule advises stakeholders on what language would be sufficient notice to the public of the hospital’s physician ownership.

Finally, the Final Rule changes the calculation of the permissible percentage of physician ownership under the rural provider or hospital ownership exceptions, the “baseline bona fide investment level” and the “bona fide investment level,” to include both non-referring and referring physicians, including certain non-practicing physicians.  CMS also includes a definition of “ownership or investment interest” that encompasses both direct and indirect investment interests.  The effective date for these changes is January 1, 2017.

  • Definition of “Remuneration.” The Stark Law regulations originally stated, at 42 C.F.R. 411.351, that it was not “remuneration,” and thus not within the scope of the Stark Law prohibitions, to provide items, devices or supplies used “to collect, transport, process or store specimens for the entity furnishing the items, devices or supplies, or to order or communicate the results of tests or procedures for such entity.”  With the Final Rule, CMS has amended this Section to clarify that there are six qualifying purposes for which the provision of such items and supplies are exempt from the definition of “remuneration,” and if one or more of the six purposes exist, the arrangement would not trigger the Stark Law.  It would continue to be considered “remuneration” to provide such items used for a purpose that is not listed in the regulations.


Most Stark Law changes will go into effect January 1, 2016; however, until December 29, 2015, stakeholders may still comment on the updated list of HCPCS/CPT codes for which the Stark Law will apply at  Further, CMS intends to incorporate stakeholder comments generated from the 2016 Physician Fee Schedule Proposed Rule to report to Congress how more integrated, value-based care systems can implicate the Stark Law and whether further Stark Law-related rulemaking will be required to accommodate payment reform.

It is imperative for all types of health care providers to be aware of and understand the Stark Law and its applicable exceptions, as CMS may amend them from time to time.  If you would like further information on any of the Stark Law changes in the 2016 Physician Fee Schedule Final Rule, please contact any member of the Williams Mullen Health Care Law team.