CMS Addresses Common Questions Regarding Stark Waivers for COVID-19 Purposes

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The COVID-19 pandemic has created the need for flexibility in physician arrangements during the public health emergency. In response to that need, the Centers for Medicare and Medicaid Services (“CMS”) issued Stark waivers, effective March 1, 2020, applicable to certain physician arrangements. A summary of that waiver document can be found here. Since issuing that document on March 30, CMS has fielded numerous questions from industry stakeholders regarding how the waivers should be utilized. CMS responded on April 21, 2020 by issuing an Explanatory Guidance memo, which addresses common inquiries CMS has received since issuing the Stark waivers. A summary of that memo is below. 

A. Compliance with Non-Waived Requirements of an Applicable Exception

  • As an initial matter, financial relationships or referrals, as applicable, must satisfy all non-waived requirements of an applicable exception in order to avoid Stark referral and billing prohibitions. The failure of a financial relationship or specific referral to satisfy one or more of the other requirements of an applicable exception would trigger Stark’s referral and billing prohibitions. CMS reminded stakeholders that waiver use may be unnecessary if arrangements otherwise comply with an existing Stark exception. Arrangements that comply with existing exceptions remain complaint and do not need to utilize a waiver. 

B. Amendment of Compensation Arrangements

  • CMS responded to parties seeking advice regarding modifying existing compensation arrangements as a result of the COVID-19 pandemic during the emergency period. “With respect to blanket waiver use, if parties amend the remuneration terms of an existing compensation arrangement during the emergency period, the amended arrangement must satisfy all non-waived requirements of an applicable exception. Following the expiration of the emergency period, the remuneration terms of the compensation arrangement may again be modified to return to the original terms of the arrangement or to effectuate additional necessary modifications to the arrangement, provided that, each time the remuneration terms are amended, all requirements of an applicable exception are satisfied, the amended remuneration is determined before the amendment is implemented, the formula for the amended remuneration does not take into account the volume or value referrals or other business generated by the referring physician, and the overall arrangement remains in place for at least 1 year following the amendment.”
  • CMS highlighted that amending existing arrangements is not the only possible avenue to Stark compliance. Parties could analyze a modification as an additional compensation arrangement between or among the same parties during the term of the emergency period. For example, instead of modifying the terms of a lease arrangement between a hospital and a physician, the parties could enter into a separate compensation arrangement to provide financial support without changing any terms of the lease arrangement. The parties could rely on the blanket waivers for the additional compensation arrangement providing financial support, keeping in mind that blanket waivers will terminate in the future. 

C. Applicability of Blanket Waivers to Indirect Compensation Arrangements

  • CMS clarified that the blanket waivers do not apply to indirect compensation arrangements. Parties may request an individual waiver from CMS related to remuneration under an indirect compensation relationship. 
  • As a practical matter, a waiver for indirect compensation arrangements may not be necessary in most instances.” 
    • “Under 42 CFR 411.354(c)(3)(i), a physician who stands in the shoes of his or her physician organization (as defined at 42 CFR 411.351) is deemed to have the same compensation arrangements (with the same parties and on the same terms) as the physician organization. All physicians with non-titular ownership or investment interests stand in the shoes of their physician organizations. (See 42 CFR 411.354(c)(1)(ii) and (2)(iv)(A).) Any other physician in a physician organization is permitted to stand in the shoes of the physician organization. (See 42 CFR 411.354(c)(1)(iii) and (2)(iv)(B).) Thus, when a compensation arrangement for which parties seek protection under the blanket waivers is directly between an entity and a physician organization, the remuneration is deemed to be directly between the entity and: (1) each non-titular physician owner of the physician organization; and (2) each non-owner physician in the physician organization whom the parties treat as permissively standing in the shoes of the organization.”

D. Repayment Options for Loans between a DHS Entity and a Physician 

  • CMS tackled questions regarding the use of blanket waivers #10 and #11, which address remuneration in the form of a loan with an interest rate below fair market value or on terms that are unavailable from a lender that is not in a position to make referrals to or generate business for the party making the loan. Stakeholders identified the exceptions for isolated transactions and fair market value compensation as applicable to such loan arrangements and asked whether repayment of the loans had to be in cash. Further, some parties asked whether repayment could be in the form of in kind remuneration, such as professional services.  
  • In response, CMS stated that isolated transactions or fair market value exceptions do not require cash payments to satisfy a borrower’s debt to a lender. “However, blanket waivers #10 and #11 do not waive sanctions for referrals and claims related to the repayment of the loan. Thus, the aggregate value of in-kind payments must be consistent with the amount of the loan balance being reduced through the in-kind payments. In addition, compensation arrangements involving in-kind payments must be commercially reasonable. They may also implicate the Federal anti-kickback statute (section 1128B(b) of the Act; 42 U.S.C. § 1320a-7b(b)).”
  • Some parties inquired as to whether some or all of the loan could be forgiven if the physician who is the recipient of the loan monies agrees to and, in fact, does maintain a medical practice and continue to serve patients in the community where the entity is located for a predetermined period of time after receipt of the loan monies. In response, CMS stated that the maintenance of a medical practice and continuing to serve patients in the community where an entity is located may constitute a physician’s in-kind loan repayment to the entity depending on the applicable facts and circumstances of the parties. A physician’s relocation to a community to establish a medical practice is viewed as a benefit to the community, not the recruiting hospital. CMS noted that “the exception for retention payments in underserved areas may be available to protect remuneration from a hospital to a physician on the hospital’s medical staff to retain the physician’s medical practice in the geographic area served by the hospital.”

E. Repayment of Loans, Rent Abatement, or Other Amounts Due Following the End of the Emergency Period

  • CMS addressed additional questions regarding loan repayment concerns, specifically concerning Stark compliance if repayment is not complete prior to the termination of the blanket waivers. Stakeholders expressed concern that, after the termination of the blanket waivers, the compensation arrangement would no longer satisfy the requirements of an applicable exception because the interest charges, rental charges, or other charged amounts would not be consistent with the fair market value of the remuneration provided.
  • The completion of obligations under an arrangement after its expiration or termination is common and does not necessarily result in Stark noncompliance
    • “For example, assume that a compensation arrangement calls for payment for a physician’s services upon the provision of documentation that the services were furnished and the presentation of an invoice for payment. Assume also that the arrangement expired by its terms on December 31, 2019. The entity may not receive documentation of and invoices for services furnished on or before December 31, 2019 until after such date. The entity may make appropriate payments for previously furnished services after the expiration of the arrangement.”
  • Appropriate repayment terms agreed to prior to the termination of the blanket waivers may continue beyond the termination of the blanket waivers without running afoul of the physician self-referral law. However, any disbursement of loan proceeds after the termination of the blanket waivers, or additional remuneration after the termination of the blanket waivers for office space, equipment, items, or services furnished by or to an entity or physician, must satisfy all requirements of an applicable exception.”

F. Restructuring of Existing Recruitment Arrangements with Income Guarantees

  • CMS reported that stakeholders asked whether a hospital could extend an income guarantee under an existing physician recruitment arrangement for the purpose of addressing the recruited physician’s medical practice interruption due to the COVID-19 pandemic in order to maintain the availability of medical care and related services for patients and the community. Parties enter into these arrangements pursuant to Stark’s physician recruitment exception.
  • None of the blanket waivers change CMS’ long standing policy that parties to a recruitment arrangement should not be able to amend their arrangement after it has commenced to provide for additional (or potentially additional) compensation to the recruited physician. This policy is memorialized in advisory opinion CMS-AO-2007-01 (2007). This policy is based mainly on CMS’ view that additional compensation, after a physician’s relocation, could not be for the purpose of inducing relocation since the relocation would have already occurred.  
  • CMS offered that other blanket waivers may be available for remuneration from a hospital (or other entity) to assist a physician whose medical practice experiences interruption due to the COVID-19 pandemic in order to maintain the availability of medical care and related services for patients and the community. 
    • “For example, blanket waiver #5 waives sanctions under section 1877(g) of the Act for referrals and claims related to rental charges that are below fair market value for the physician’s lease of office space from an entity, and blanket waiver #10 waives sanctions under section 1877(g) of the Act for referrals and claims related to remuneration from an entity to a physician resulting from a loan to the physician with an interest rate below fair market value or on terms that are unavailable from a lender that is not a recipient of the physician’s referrals or business generated by the physician.”

This explanatory guidance from CMS addresses the most common inquiries it received related to the Stark waivers for COVID-19 Purposes, but probably does not address every outstanding question. CMS stated, “the Secretary will work with the Department of Justice to address False Claims Act relator suits where parties using the blanket waivers have a good faith belief that their remuneration or referrals are covered by a blanket waiver.” This statement may be in response to worry from stakeholders that, in the need to move quickly to address issues from the COVID-19 pandemic, a Stark compliance issue may have been created or overlooked. Despite CMS’ assurances in this regard, there remains a whistleblower risk with regard to the use of these waivers, keeping in mind that the Department of Justice may decline to intervene in a whistleblower suit but the relator can push the case forward without the government.   In order to prevent that, the Department of Justice would have to use its authority to dismiss the case to prevent this occurrence.  That tool is not often used so caution and careful analysis is required in relying on a Stark law waiver.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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