With surprisingly little fanfare, the CY 2016 Physician Fee Schedule (the "Proposed Rule") released on July 8, 2015 proposes to add and amend several exceptions to the Physician Self-Referral Statute, commonly known as the Stark Law. The Proposed Rule has the potential to limit instances of "technical" noncompliance with the Stark Law by extending the holdover "grace period" permitted under exceptions for leases and services arrangements. It also calls into question whether timeshare arrangements commonly used in the health care industry require restructuring to meet a proposed stricter "timeshare arrangements" exception.

What You Need to Know:

1. Recruitment and Retention. The provider community will almost certainly welcome a proposed (albeit limited) exception that allows hospitals, federally qualified health clinics (FQHCs) and rural health clinics (RHCs) to assist physicians and physician practices to recruit physician assistants, nurse practitioners, clinical nurse specialists and certified nurse-midwifes (but not CRNAs) that provide primary care services to patients (i.e., general family practice, general internal medicine, pediatrics, geriatrics, and obstetrics and gynecology).

This new proposed exception closely mimics the Physician Recruitment Exception at 42 C.F.R. 411.357(e). For example, the proposed exception requires that the recruitment assistance may not take into account the volume or value of the physician's or nonphysician practitioner's referrals, bars unduly burdensome non-competes, contains geographic restriction requirements, and requires that the compensation paid to the nonphysician practitioner by the physician or physician practice not exceed fair market value. Also, the nonphysician practitioner must be directly employed by the physician (or his/her physician organization), and the total recruitment incentive is capped at the lower of: (i) 50 percent of the actual salary, signing bonus, and benefits paid by the physician to the nonphysician practitioner; or (2) an amount calculated by subtracting the receipts attributable to the services furnished by the nonphysican practitioner from the actual salary, signing bonus, and benefits paid by the physician to the nonphysician practitioner.

2. Geographic Service Area for FQHC and RHCs. The Proposed Rule allows FQHCs and RHCs to cast a wider net for the purpose of determining their geographic service area under the Physician Recruitment Exception at 42 C.F.R. 411.357(e).

3. Clarification Regarding Volume or Value Standard. CMS clarifies that some of its exceptions that have a volume or value standard do not use the phrase "takes into account," including Physician Recruitment, Medical Staff Incidental Benefits, Obstetrical Malpractice Insurance Subsidies, and Professional Courtesy. The Proposed Rule clarifies that any other terms used in those exceptions—including "based on" the volume or value of referrals and "without regard to" the volume or value of referrals—mean the same as "takes into account" the volume or value of referrals, and amends the exceptions to insert "takes into account" in place of the other phrases. CMS states that its goals are to ensure consistency in the language used, and to avoid any confusion over whether differing standards apply to the various compensation exceptions.

4. Writing, Term and Holdover. After receiving dozens of disclosures that include technical violations of the Stark law through the CMS Self-Referral Disclosure Protocol, CMS has finally given providers a much-needed break by proposing to ease limitations on requirements related to signed writings, holdover and late signature. Specifically:

• Signed Writing. CMS has clarified what we have presumed all along—"there is no requirement under the [Stark Law] that an arrangement be documented in a single formal contract. Depending on the facts and circumstances of the arrangement and the available documentation, a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the leasing exception and other exceptions that require an arrangement be set out in writing." In essence, CMS proposes to make clarifying amendments to remove the words "agreement," "contract" or "contracted for" from exceptions that require a signed writing —this is intended to clarify that exceptions requiring a signed "writing" do not require a signed, formal contract.
• Term of One Year. CMS clarifies that "an arrangement that lasts as a matter of fact for at least a year" will meet the one-year term requirement set forth in several exceptions, such as the Rental of Office Space Exception and the Personal Service Arrangements Exception. Said in another way, a formal contract with a 1-year term is not necessary to meet these exceptions.
• Holdover. CMS proposes to allow parties to rely on "holdover" provisions of the Rental of Office Space, Rental of Equipment and Personal Service Arrangements Exceptions for an indefinite period of time or, alternatively, 1-3 years. As CMS states "in our experience, an arrangement that continues beyond the 6-month holdover period does not pose risk of program or patient abuse, provided that the arrangement continues to satisfy the specific requirements of the exception…" This is welcome relief to providers that have been forced to disclose arrangements with referring physicians due to an inadvertent lapse in the term of a written agreement.

5. Hospital-Based Space. CMS clarifies that a hospital's provision of space, equipment and staff for a physician to provide outpatient services does not constitute remuneration to the physician as long as the hospital bills for the facility component of the service, and the physician bills for the professional component. This clarification is expressly in response to the holding of the United States Court of Appeals for the Third Circuit's decision in United States ex rel. Kosenske v. Carlisle HMA, 554 F.3d 88 (3d Cir. 2009. Interestingly, the Proposed Rule does not address whether exclusivity constitutes remuneration, which was central to the holding in Kosenske.

6. Stand in the Shoes. The "stand in the shoes" regulations generally provide that when a DHS entity has a financial relationship with a physician group, the physician owners of the group are deemed to have the same financial relationship with the DHS entity as the group itself—that is, for purposes of the direct compensation exceptions the physician owner will be deemed to "stand in the shoes" of his or her group. CMS proposes to clarify that where one or more physician owners of a group "stand in the shoes" of the group for purposes of a direct compensation exception, the compensation under the exception must not take into account the volume or value of any referrals from any physician in the group, not just the referrals from the owner physicians.

7. New Timeshare Lease Exception. The most significant commentary in the Proposed Rule concerns timeshare arrangements with referring physicians. CMS has become aware through the Self-Referral Disclosure Protocol process that may physicians and DHS entities (such as hospitals) have structured part-time exclusive use leases of office space that also contemplate the tenant physicians' use of equipment in the space, and call for the DHS entity's personnel to provide certain services to the tenant physician.

CMS calls into question whether such an arrangement is truly a lease—that is, whether it actually gives the physician dominion and control of the leased space during the physician's part-time occupancy—or whether the arrangement should more fairly be characterized as a "license" to use the space, equipment and personnel. In those instances where the arrangement constitutes a "license," CMS states that neither the lease exception at 42 C.F.R. § 411.357(a) nor any other exception would apply to the arrangement.

CMS offers no guidance as to how to distinguish a part-time lease for which the lease exception would be available from a license for which the lease exception would not be available.

CMS has proposed a new, much stricter timeshare license exception with the following notable attributes:

• The licensor (landlord) can only be a hospital or physician organization;
• The licensed premises, equipment, personnel, items, supplies and services are used predominantly for the provision of evaluation and management services to patients (as opposed to predominantly for providing DHS); and
• Any licensed equipment is: (i) located in the office suite where the evaluation and management services are furnished; (ii) not used to furnish designated health services other than those incidental to the evaluation and management services furnished by the physician at the time of the patient's evaluation and management visit; and (iii) not advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).

If the proposed regulation is finalized in this form, DHS entities that are landlords under part-time leases with physicians that involve turn-key services may need to revisit those relationships to determine whether they are more fairly characterized as "licenses," and if so, whether the relationships can be restructured to take advantage of the new exception. We are preparing more in-depth analysis on this issue for a client alert to be released shortly.

8. Temporary Non-Compliance – Signature Requirements. CMS proposes to remove the "advertent" and "inadvertent" distinctions from exception for "temporary noncompliance" with signature requirements" at 42 C.F.R. 411.353(f). In essence, DHS entities will now be able to comply with an exception that requires a signed writing as long as they obtain all necessary signatures within 90 days of commencement of an agreement and the parties complied with all other elements of the exceptions except for the signature requirement.

9. Physician-Owned Hospital – Public Disclosure Requirements. CMS has published special instructions for physician-owned hospitals to inform the public of their physician ownership (e.g., use of social media is insufficient). Further, CMS published special instructions for submissions to the SRDP for failure to meet the public notice requirement for physician-owned hospitals.

10. Physician-Owned Hospitals – Bona Fide Investment. CMS clarifies that when determining the baseline bona fide investment level for purposes of determining compliance with 42 C.F.R. 411.362, the ownership or investment interests held by both referring and non-referring physicians are included.

Click here for a complete copy of the commentary and proposed regulations.