In a December 2, 2020 rulemaking (2020 Final Rule), the Centers for Medicare & Medicaid Services (CMS) finalized the most sweeping and significant revisions in over a decade to the regulations implementing the federal physician self-referral statute (Stark Law). The bulk of the new regulations took effect earlier this year on January 19, 2021. CMS is now proposing an additional set of modifications to the Stark Law regulations (Proposed Rule). The proposed modifications are scheduled to be published in the Federal Register on Friday, July 23, 2021, and comments on the Proposed Rule are due on or before Monday, September 23, 2021, at 5:00 p.m. ET. The two most significant changes being proposed relate to the definitions of the terms, “indirect compensation arrangement” (ICA) and “unit-based” compensation.
The history of the ICA definition is long, tortured, and summarized here, in one of the white papers that we prepared in connection with our recent webinar series, Stark Law Overhaul: An In-Depth Series on CMS’s New Final Rule.
Under the current regulation, an ICA exists between a physician and an entity that furnishes designated health services (DHS entity) if three “prongs” are satisfied. In order to satisfy the second of the definition (which is the prong that is the most difficult to understand and challenging to apply) two conditions must be met:
Although the Aggregate Compensation Condition had existed prior to the 2020 Final Rule, the 2020 Final Rule added the Individual Unit of Compensation Condition. This new condition narrowed the regulatory definition of an ICA, such that far fewer unbroken chains of financial relationships likely would result in an ICA.
In the Proposed Rule, CMS proposes to revise the ICA regulatory definition to add a fourth means by which the second condition (i.e., the Individual Unit of Compensation Condition) can be satisfied. Specifically, the Individual Unit of Compensation Condition also would be met if the individual unit of compensation involves “payment for anything other than services personally performed by the physician,” such as space, equipment, and services performed by the physician’s “employees, independent contractors, group practice members, or persons supervised by the physician.” Practically speaking, this new fourth condition would make the ICA definition decidedly easier to satisfy (albeit through a more cumbersome analytical approach requiring the accurate identification of the individual unit of compensation received by the physician), thereby increasing the potential for Stark Law violations.
According to CMS, this additional requirement is necessary “to more precisely address the concerns and effectuate the policies that we articulated in [the 2020 Final Rule].” According to the agency, “in streamlining” the “process” identifying an ICA in the 2020 Final Rule, CMS “inadvertently excluded from the [ICA] definition... compensation arrangements that we have long identified as presenting significant program integrity concerns. Specifically, “certain arrangements involving unit of service-based payment for the rental of office space or equipment.”
We have repeatedly stated our view that unit of service-based compensation formulas in arrangements for the lease of space and equipment are inherently susceptible to abuse because the physician lessor has an incentive to profit from referring a higher volume of patients to the lessee...
Program integrity concerns arise when payment for items or services provided as the result of a physician’s referrals or the other business the physician generates, rather than the physician’s own labor, is included in the calculation of compensation.
The current regulations, however, “are not limited to indirect compensation arrangements under which a physician… is paid solely for services that he or she personally performs, which, as a general matter, do not raise significant program integrity concerns, provided that the compensation is consistent with fair market value for the personally performed services.” The proposed modification to the Individual Unit of Compensation Condition is intended to address this oversight. Effectively, unbroken chains of financial relationships where compensation is exchanged for equipment rentals, office space, or the services of anyone other than the referring physician (e.g., an employed advanced practice professional) would be analyzed in a manner similar to the analysis of potential ICAs prior to the 2020 Final Rule changes.
As noted above, to apply the ICA definition, the “individual unit of compensation” must be identified. According to CMS, in the wake of the 2020 Final Rule, stakeholders asked how prong two of the ICA definition “should be applied in situations where compensation does not appear to be unit-based or is calculated using two or more different units or types of units.” In response, CMS proposes to define unit-based compensation.
As a threshold matter, CMS states that “all compensation essentially is unit-based compensation.” In effect, the agency then goes on to propose four categories of compensation:
To further assist stakeholders in analyzing arrangements under the broadened ICA definition being proposed, CMS also proposes to include a definition of “personally performed services.” For purposes of prong two of the ICA definition, CMS proposes to include regulatory text clarifying that “[s]ervices that are personally performed by a physician (or immediate family member) do not include services that are performed by any person other than the physician (or immediate family member), including, but not limited to, the referring physician’s (or immediate family member’s) employees, independent contractors, group practice members, or persons supervised by the physician (or the immediate family member).” If promulgated, the narrow definition of “personally performed services” promises to contribute to a much larger number of ICAs in the future, assuming, of course, that the proposed revisions to the definition of an ICA become law.
CMS just overhauled the ICA definition in December 2020 and industry stakeholders are still grappling with how those changes impact existing financial relationships between physicians and DHS entities. These same stakeholders will now have to pause and re-assess how this second round of proposed changes to the ICA definition, if finalized in their current form, will impact these same relationships. We intend to keep analyzing the Proposed Rule (and its anticipated impact on the health care industry). In the coming days and weeks, we will prepare a long-form article summarizing our findings and conclusions. Among other questions we will want to address are these:
Given the significant implications of this Proposed Rule, industry stakeholders may wish to consider submitting comments to CMS.