New Year Brings Stark Law Clarifications and Revisions

This new year brings welcome new flexibility for hospitals and health systems under the federal Stark law. Responding to the large volume of SRDP disclosures filed each year – more than 100 on average, double the anticipated number – CMS recently issued new rules and guidance to provide relief from some of the more common technical Stark violations, and comfort regarding persistent analytical questions (for the text of the new rules, click here). These rules, which took effect Jan. 1, 2016, fall into three main categories: clarifications, revisions and new exceptions. This client alert briefly summarizes some of the significant guidance in the first two categories, with a focus on their practical implications. We will cover the new Stark exceptions in a separate client alert.

Clarifications

“Writing” Requirement. CMS has clarified that a single, formal contract is not necessary to meet the Stark requirement that an arrangement be “in writing.” Instead, the relevant inquiry is whether the available documentation would permit a reasonable person to verify compliance with the applicable Stark exception at the time of the referral.

Entering into a single written contract to memorialize the key features of an arrangement will remain best practice. However, if necessary, providers may now rely on a contemporaneous set of documents to demonstrate that the arrangement satisfies a Stark exception. Such documents may include:

• board meeting minutes authorizing payments for specified services,
• written communication between the parties (including emails),
• fee schedules for specified services,
• detailed check requests, invoices, or A/P or A/R records,
• time sheets documenting services performed, or
• call coverage schedules showing dates of services to be provided.

While this flexibility should prove helpful, keep in mind that the signature requirement present in many Stark exceptions has not changed. Every document in the set need not bear the signature of one or both parties, but a signature for each party must appear on at least one contemporaneous writing that substantiates the arrangement. 

One-Year Term Requirement. With respect to the Stark exceptions for personal services arrangements and office space and equipment rentals, the new rules make clear that the formal arrangement documentation need not explicitly state a term of at least one year. 

We recommend continuing to include a formal term provision – which may include either party’s right to freely terminate the arrangement – in applicable contracts whenever possible. However, when an arrangement’s documentation does not include robust term provisions, providers may use contemporaneous writings to establish that the arrangement did in fact last for at least one year, or, if it did not, that the parties did not enter into a new arrangement during the first year for the same space, equipment or services.

Definition of “Remuneration.” The new rules provide a number of clarifications regarding the definition of “remuneration” under Stark, including, most notably, guidance on split billing arrangements. Split billing by a hospital and a physician does not constitute remuneration if:

• the hospital and physician do not provide each other with items, services or other benefits, and
• the physician bills the payor for the services he or she provided to the patient, and the hospital bills the payor for the resources and services it provided to the patient.

Although this clarification should prove helpful, it has its limitations. We now have assurance that a split billing arrangement on its own is not remuneration, and therefore does not create a compensation relationship, under Stark. However, if the hospital and physician have other compensation arrangements, their split billing arrangement may be a relevant factor in determining whether the entire relationship complies with the law, as the hospital’s facilities and technical fees may constitute “referrals” under Stark. 

Revisions

Holdovers. The new rules permit a holdover under a personal services arrangement or office space or equipment rental to last for an indefinite period, as opposed to six months, if the holdover:

• continues on the same terms as the original arrangement, and
• satisfies all elements of the applicable Stark exception – including the fair market value compensation element – when the arrangement expires and throughout the duration of the holdover.

Parties may continue to include a holdover premium in their arrangement documentation, so long as it is set in advance of the holdover (i.e., at the time of the initial arrangement or a renewal), and the compensation rate is fair market value and does not take into account the volume or value of referrals or other business that may be generated. However, if a premium is included, the parties must apply it. If they do not, they risk having the failure to apply the premium be considered forgiveness of a debt, which is then a secondary financial relationship subject to a separate Stark analysis.

Because parties relying on the holdover provisions for a long period of time bear the risk of market value fluctuations that jeopardize compliance with the fair market value compensation element, best practice continues to be avoiding holdovers when possible. 

Temporary Signature Noncompliance. Under the new rules, we thankfully no longer need to worry about proving that a failure to obtain signatures on a writing was “inadvertent.” Instead, providers may take 90 days to obtain the missing signatures without regard to intent. Importantly, however, the new rules retain the restriction that a particular set of parties may only take advantage of this grace period once every three years.

In addition, CMS has clarified that providers may look to state law and other bodies of relevant law, including both federal and state law governing electronic signatures, to determine whether a writing is “signed” for Stark law purposes. Given the flexibility of North Carolina’s law on electronic signatures (see N.C.G.S. § 66-311 et seq.), this is welcome news.