October 31, 2019

QUESTION:        I thought I saw something recently about the Stark and Safe Harbor Regulations being changed?  Did I hallucinate after eating too much Halloween candy?

ANSWER:          Well, you may have been hallucinating, but it wasn’t about the Stark and Safe Harbor Regulations.  On October 9, 2019, CMS issued a proposed rule to modernize and clarify the Stark regulations and, at the same time, the OIG published proposed amendments to the Anti-Kickback Safe Harbor regulations.  Comments will be accepted through December 31, 2019.

The proposed amendments to the Stark regulations would:

  • create new, permanent exceptions to the Stark Law for value-based arrangements;
  • solicit comments about the role of price transparency in the context of the Stark Law and whether to require cost-of-care information at the point of a referral for an item or service;
  • provide additional guidance on several key requirements that must often be met in order for physicians and healthcare providers to comply with the Stark Law, including how to determine if compensation is at fair market value;
  • provide guidance on a wide range of other technical compliance issues; and
  • propose a new Stark exception for donations of certain cybersecurity technology.

The revisions proposed by the OIG to the Anti-Kickback safe harbors apply to certain coordinated care and associated value-based arrangements between or among clinicians, providers, suppliers, and others and add protections under the anti-kickback statute and civil monetary penalty (“CMP”) law that prohibit inducements offered to patients for certain patient engagement and support arrangements to improve quality of care, health outcomes, and efficiency of care.

The proposed rule would add a new safe harbor for donations of cybersecurity technology and amend the existing safe harbors for electronic health records (“EHR”) arrangements, warranties, local transportation, and personal services and management contracts.  The proposed rule would also add a new safe harbor related to beneficiary incentives under the Medicare Shared Savings Program and a new CMP exception for certain telehealth technologies offered to patients receiving in-home dialysis.

Do you want to know more?  HortySpringer partners Henry Casale and Dan Mulholland went over these proposals in detail earlier this month in a Special Audio Conference and told everyone what they should be doing right now to get ready for them.  You can order a recording of that audio conference here.

June 20, 2019

QUESTION:              I noted that one of the cases that was in this week’s HLE arose as a result of a hospital granting temporary privileges to an applicant for medical staff appointment.  While we do not routinely grant temporary privileges, they are useful from time to time.  How much risk is there in granting temporary privileges?


ANSWER:                 While temporary privileges should not be routinely granted, it is not unusual for a hospital’s medical staff bylaws to state that temporary privileges may be granted to applicants for initial appointment whose complete application is pending review by the Medical Executive Committee and the Board. In order to be “complete” there must be verification of licensure, training or experience, current competence, and an ability to perform the privileges requested. In addition, the bylaws should state that in order to be eligible for temporary privileges, an applicant must (i) have had no current or previously successful challenges to licensure or registration, (ii) have not been subject to involuntary termination of medical staff membership at another organization; and (iii) have not been subject to involuntary limitation, reduction, denial, or loss of clinical privileges.   The bylaws may include other criteria that must be met before temporary privileges are granted.

Additionally, the hospital must query and evaluate information from the National Practitioner Data Bank and check the Office of Inspector General’s List of Excluded Individuals/Entities before temporary (or any privileges) can be granted.  Finally, the grant of temporary privileges should be time limited consistent with the standards of the applicable accreditation organization.  According to The Joint Commission standard “Temporary privileges for applicants for new privileges are granted for no more than 120 days.” 

It is not clear, but it appears from the facts of the case described above, that the hospital’s hospitalist group had such a need for the nocturnist that it wanted to use temporary privileges to rush a candidate through the hospital’s credentialing process.  The temporary privileges were granted and rescinded in 2012, but the litigation did not end until 2019.  In this case, not only did granting temporary privileges fail to fill the nocturnist position, but also caused the hospital years of litigation.

The best way to avoid these kinds of situations and the endless litigation that sometimes ensues is only to grant temporary privileges to applicants after a thorough vetting, after confirmation that there are no red flags and only under the above-described circumstances.

January 24, 2019

QUESTION:        Is there anything new on physician retention arrangements?


ANSWER:            Unfortunately, no.  However, we have asked both the OIG and CMS to consider updating their respective positions on physician retention arrangements in response to the OIG’s and CMS’s requests for information on whether the Antikickback Statute and/or the Stark Law are creating barriers to improving quality care and achieving clinical and/or financial integration.

We urged CMS to consider changes to its exception for physician retention arrangements, 42 C.F.R. § 411.357(t), that will permit any hospital, regardless of its location, to use this exception and not limit this exception to instances where there is a firm, written recruitment offer.

There is no rational basis or business justification to continue to limit this exception to hospitals that are located in a rural area or HPSA (42 C.F.R. § 411.357(t)(3)(i)(A)) or where the physician’s patients reside in a medically underserved area or are members of a medically underserved population (42 C.F.R. § 411.357(t)(3)(i)(B)).

In our experience, hospitals, regardless of their location, would benefit from the ability to assist a physician in an existing independent practice to remain independent.  We are aware of clients that have been approached by a group of physicians who want to remain independent.  However, between the charity care they provide, their Medicaid patient population, and the amounts that were being paid to the physicians by Medicaid, Medicare and other third-party payors for their professional services, the group could not generate a sufficient amount of professional reimbursement to allow the group to compensate the physicians at a reasonable fair market rate and precluded the group from expanding the practice even though there was a need for additional physician services.

The hospital could have employed the physicians.  However, the physicians preferred to remain independent and the hospital determined that it would lose more money if the hospital employed the physicians than it would if the hospital provided a guarantee-like payment that would allow the physicians to remain independent.  While such a compensation arrangement might be able to be structured to comply with the Anti-Kickback Statute, there is no safe harbor that will protect such a retention arrangement.  Of greater concern is that currently there is no exception to the Stark Law that would permit this type of retention assistance in most hospitals.

One of the other problems with the Stark retention exception is that a hospital must wait until a physician has a written offer from a third party before it can offer retention assistance.  42 C.F.R. §411.357(t)(2).  By the time a physician has such a firm, written offer, he/she has often decided to leave the area and the permitted retention benefit is of little practical benefit.  We urged CMS to change the exception so that any hospital will be permitted to be proactive and has the ability to offer retention assistance to independent practicing physicians as long as the hospital has a good faith belief that the community served by the hospital would benefit from retention assistance, the amount of the financial assistance is reasonable, and the compensation arrangement complies with the other requirements set forth in this exception.

Whether CMS or the OIG listens to these concerns remains to be seen.

December 6, 2018

QUESTION:        A certain medication has gotten to be so expensive that our hospital has decided to stop stocking it.  As a result, we will not be able to treat certain patients.  The drug company that manufactures this medication has offered to provide the medication to the hospital FREE of charge, although it is our understanding that insurance will cover the drug after the patient is discharged.  This seems to us like a win-win.  Surely the government cannot object to such an arrangement.  Is this legal?


ANSWER:            Unfortunately, the Office of Inspector General cares a great deal about an arrangement such as the one that you have described and has recently opined that under certain circumstances a manufacturer providing an expensive drug free of charge to a hospital could violate the Medicare Anti-Kickback Statute.

The Anti-Kickback Statute prohibits any form of remuneration, in cash or in kind, that is provided with the intent to induce the referral of business that is paid for in whole or in part by a federal health program such as Medicare or Medicaid.  The free drug is remuneration under the law.  In OIG Advisory Opinion 18-14 (posted Nov. 16, 2018), the OIG opined that under the circumstances presented, the free drug could constitute an unlawful inducement and prohibited the arrangement.

Why?  The drug at issue had multiple uses, one of which was to treat a particular syndrome.  Once started, the drug had to be tapered or the patient would suffer serious side effects.  Most insurance, including the Medicare program, will pay for the drug on an outpatient basis.  However, when provided to a hospital inpatient, the cost of the drug was included in the hospital’s DRG payment.  At the current price of $38,892 per vial, many hospitals have decided that they could not afford to stock the medication.

The drug manufacturer’s response was to offer to provide the medication to hospitals free of charge while the patient was an inpatient.  Because the medication was covered on an outpatient basis, the drug company could be paid for the medication following discharge.  However, if the patient’s insurance would not cover the medication on an outpatient basis, the manufacturer would continue to provide the medication free of charge until either insurance coverage is obtained or the patient is tapered off of the medication.

Why did the OIG object to such a program when in the past the OIG has approved several arrangements in which drug manufacturers provided free medication to financially needy outpatients?  In order to answer that question, you need to examine how the OIG viewed this particular arrangement.

Typically, the OIG limits its review in an Advisory Opinion to the facts that are submitted by the entity requesting the opinion.  However, in this opinion, the OIG took the unusual step of considering publicly available information.  The OIG noted that the drug at issue was not new and that at one time it cost only $40.  The OIG also noted that at its current price of $38,892 per vial, the drug “has the highest total annual spending per use and the highest price per unit among drugs that CMS examines that met certain criteria.”  The OIG also considered the fact that the drug manufacturer had entered into a $100 million settlement with the FTC of an antitrust claim that was alleged to stifle competition for this medication.

The OIG also considered the fact that insurance, including Medicare, covered the drug on an outpatient basis.  Also important to the OIG was the fact that the program did not consider the financial need of the recipient.  The manufacturer only provided the drug at no cost on an outpatient basis if the patient had no insurance coverage for the medication and then only until insurance coverage could be obtained or the patient could be safely tapered off of the drug.

This led the OIG to conclude that providing the medication for free to hospitals “could function as a seeding arrangement.”  The OIG noted that the full course of treatment typically extended beyond the patient’s hospital stay.  Factors such as the length of the treatment, the fact that alternatives to the medication exist, and the need to taper the medication in order for the drug to be discontinued led the OIG to conclude that the manufacturer’s intent appeared to the OIG to be to induce hospitals to start patients on this medication while an inpatient, so that the manufacturer would eventually be paid for the drug after the patient was discharged.  The OIG was also concerned that providing the medication free to hospitals would steer patients to this medication as opposed to other medications that could be used to treat the syndrome.

These facts caused the OIG to determine that such an arrangement could violate the Medicare Anti-Kickback Statute and, as a result, the OIG would not approve the proposed arrangement.

If you want practical examples as to what is and what is not permitted by the federal fraud and abuse laws, join Henry and Dan in New Orleans from April 11 to 13 for the Physician-Hospital Contracts Clinic.

August 30, 2018

QUESTION:        What is the latest formal regulatory guidance from the government on how hospitals are to structure a gainsharing program or a compensation arrangement with physicians who assist a hospital with the hospital’s Value Based Purchasing Program (“VBP”)?

ANSWER:            Currently, there is none – this is why the responses to the June 25, 2018 CMS Request for Information on the Stark Law and the OIG’s August 27, 2018 Request for Information that is described in this week’s “Government at Work” are so important.

Both OIG and CMS have referenced the HHS “Regulatory Sprint to Coordinated Care.”  Both OIG and CMS have recognized that the Fraud and Abuse Laws that are within their jurisdiction (the Stark Law in CMS’s case and the Anti-Kickback Statute and Civil Money Penalty Law (the “CMP”) in OIG’s case) can create real or perceived barriers to achieving clinical and financial integration between hospitals and physicians.  What is unfortunate is that in the past neither CMS nor OIG has shown much of a willingness to address those barriers to hospital-physician integration efforts.

As we pointed out to CMS (and also intend to inform OIG), if removing unnecessary governmental obstacles to care coordination is a key priority for HHS, then the planned HHS “Regulatory Sprint to Coordinated Care” will not get off the starting line without significant revisions to the regulations implementing the Stark Law, the Anti-Kickback Statute and the CMP, which are well within the respective discretion of CMS and OIG to implement.

For example, hospitals need immediate guidance concerning the ability of a hospital to compensate physicians who assist the hospital under Medicare’s VBP.  It is difficult, if not impossible, for a hospital to achieve the desired goals under the VBP without physician input and cooperation.  However, the fair market value of that input and cooperation is difficult to determine and hourly payment rates are often not reflective of the fair market value of the services actually being provided to the hospital by the physicians.

Hospitals need to be assured that utilizing a payment methodology that is based, in whole or in part, on the amount of the payment that the hospital receives under the VBP due to the services provided by the physicians will satisfy an exception to the Physician Self-Referral Law and will not violate the Anti-Kickback Statute or the CMP.

In addition, since 2001, the OIG has provided Compliance Program and Advisory Opinion Guidance on gainsharing arrangements.  (See, OIG Supplemental Compliance Program Guidance for Hospitals, 70 Fed. Reg. 4858, 4869-70 (Jan. 31, 2005); e.g., OIG Advisory Opinions 01-01 (Jan. 11, 2001); 05-01 (Feb. 4, 2005); 05-02, 05-03, 05-04 (Feb. 17, 2005); 05-05, 05-06 (Feb. 25, 2005); 06-22 (Nov. 16, 2006); 07-21, 07-22 (Jan. 14, 2008); 17-09 (Jan. 5, 2018).  However, no safe harbor exists for gainsharing arrangements.

CMS issued a proposed regulation, Incentive Payment and Shared Savings Programs, on July 7, 2008 (to be codified at 42 C.F.R. § 411.357(x)).  However, that proposed regulation did not adequately address VBP and  differed significantly from OIG’s gainsharing guidance.  Rather than publish a final regulation, CMS asked for public comment on 55 aspects of the proposed regulation.  73 Fed. Reg. 69,725, 69,795-98 (Nov. 19, 2008).  Unfortunately, to date, CMS has failed to issue any type of formal (or informal) guidance on the application of the Stark Law to gainsharing or other shared savings programs.

The OIG should turn its gainsharing, compliance and advisory opinion guidance into a safe harbor.  While we would prefer a new Stark gainsharing exception, a new Stark exception may not necessary so long as CMS states unambiguously that a hospital that complies with that OIG gainsharing safe harbor will satisfy the personal services exception to the Physician Self-Referral Law.

CMS and OIG should also propose additional, consistent guidance that will address VBP and other shared savings programs.  Such a position would be consistent with the position taken by CMS and the OIG in adopting parallel Stark exceptions and anti-kickback safe harbors for providing financial assistance to physicians implementing electronic prescribing and electronic health records (See 42 C.F.R. § 411.357(v)-(w); 42 C.F.R. § 1001.952(x)-(y)) and would provide practical guidance that hospitals and physicians could use to achieve clinical and financial integration.

July 5, 2018

QUESTION:        Our On-Call Policy requires physicians to have 30 admissions or operating cases at the hospital per year to participate in the on-call schedule.  The Policy also gives discretion to the department chairs, who develop the call schedules, to limit the ability of a particular physician to participate in the schedule for a number of reasons, some of which have nothing to do with the quality of care being provided.  Do these provisions in our Policy pose any legal concerns?

ANSWER:            Yes.  First, conditioning participation in the call schedule on admissions at, or procedures done in, the hospital could be interpreted as conditioning participation on referrals to the hospital.  Such a requirement could present compliance issues with the federal Anti-Kickback Statute.  In Supplemental Compliance Program Guidance for Hospitals, the Department of Health and Human Services Office of Inspector General (“OIG”) cautioned that “conditioning privileges on a particular number of referrals or requiring the performance of a particular number of procedures, beyond volumes necessary to ensure clinical proficiency, potentially raise substantial risks under the [Anti-Kickback] statute.”  Some state courts have found that participation on the call-coverage roster constitutes a “privilege.”