March 2, 2023

I heard that CMS added a new kind of provider – A Rural Emergency Hospital (“REH”).  Is this a new category of hospital? Does the Stark Law treat it like a hospital for purposes of physician investment?

You have asked several questions and so I will take them one at a time.

A Rural Emergency Hospital or REH is a new provider type that became effective on January 1, 2023.  In order to qualify to become an REH, a provider must have been either a Critical Access Hospital (“CAH”), or a rural hospital with not more than 50 beds, and must have been participating in Medicare as of the date of the December 27, 2020 enactment of the Consolidated Appropriations Act, and satisfy the new REH Conditions of Participation (which closely align with the current CAH Conditions of Participation).

Please do not be confused by the name of this new provider. An REH is not a “Hospital” for purposes of the Medicare Program or the Stark Law.  Rather, an REH is a new kind of provider.  The REH payment rules are unique as is the manner in which the Stark Law applies to an REH. 

An REH is defined as an entity that operates for the purpose of providing emergency department services, observation care, and other outpatient medical and health services specified by the Secretary in which the annual per patient average length of stay does not exceed 24 hours.

The time calculation for determining the length of stay of a patient receiving REH services begins with the registration, check-in or triage of the patient (whichever occurs first) and ends with the discharge of the patient from the REH. The discharge occurs when the physician or other appropriate clinician has signed the discharge order, or at the time the outpatient service is completed and documented in the medical record.

The REH must not provide inpatient services, except those furnished in a unit that is a distinct part licensed as a skilled nursing facility to furnish post-hospital extended care services.  This prohibition on providing inpatient services to a rural population is thought to be the major factor discouraging many eligible CAHs and rural hospitals with not more than 50 beds, from converting to an REH.

An REH is not a hospital and is not reimbursed in the same manner as a hospital.  Rather an REH is reimbursed at the then-current Medicare Hospital Outpatient Prospective Payment System (“OPPS”) rate PLUS 5%.  The REH is also entitled to a beneficiary copayment (which is not to take the additional 5% reimbursement into account).  In addition, an REH will be paid a monthly facility fee.

An REH is required to provide radiology and other outpatient services which fall within the Stark definition of a Designated Health Service (“DHS”).  Therefore, the Stark Law applies, and a physician may not have a compensation arrangement with, or an investment interest in, an REH unless an exception to the Stark Law can be satisfied.

Initially, CMS proposed a special exception for physician investment in an REH which was based on the whole hospital exception.  However, those regulations were never finalized.  Rather, CMS will require an REH to comply with the same compensation arrangement exceptions as any other entity that provides a DHS.

When it comes to whether a physician may have an investment interest in an REH, remember, an REH had to have been a critical access hospital or rural hospital with not more than 50 beds, and there is currently a broad exception to the Stark Law for physician investment in an entity that is located in a rural area.  Therefore, the rural provider exception should be available to most, if not all, REHs.   See 42 C.F.R. § 411.356(c)(1). 

However, an REH does not automatically qualify for this rural provider exception   Rather, this exception requires that in addition to the REH being located in a “rural” area, at least 75% of the REH’s services must be furnished to individuals who reside in a “rural” area.

Effective January 1, 2023, CMS also revised the definition of “Rural” for purposes of the Stark Law to state that a “Rural” area is any area that is not defined as “urban” under 42 C.F.R. § 412.64(b)

42 C.F.R. § 412.64(b) then states that a rural area is essentially any area located outside of a Metropolitan Statistical Area or a Metropolitan Division (in the case where a Metropolitan Statistical Area is divided into Metropolitan Divisions), as defined by the Executive Office of Management and Budget.  However, there are exceptions so you need to check the regulations.

Adding to the confusion is that CMS has stated in the preamble to the Stark regulations that the rural provider test “differs from the rural/urban test that a hospital uses for wage index purposes.”

CMS has also amended each compensation arrangement exception that applies to a Federally Qualified Health Center (“FQHC”) and Rural Health Clinic (“RHC”), to state that as of January 1, 2023, that exception will also apply to an REH.

Please keep in mind that your analysis of whether you should organize an REH should not rely solely on the new REH Medicare rule.   Some states (Pennsylvania for example) do not permit free-standing Emergency Departments.  Unfortunately, regardless of whether Medicare will recognize an REH as a provider, an REH cannot operate in a state unless it is licensed, and in order to be licensed, the state must either permit a free-standing Emergency Department, or adopt new rules licensing an REH.

Therefore, there are some states where REHs cannot lawfully operate under state law and as a result do not have the opportunity to achieve the enhanced reimbursement available to an REH.  If you are in such a state you must wait for your state to create a license category that will recognize either a free-standing Emergency Department or an REH.  But do not lose hope, even where currently prohibited, state licensure bodies are under pressure from rural providers to create a license category for an REH – but until they do, an REH will not be permitted to operate in some states.

If you want to learn more about the Stark Law, the False Claims Act, the Anti-Kickback Statute, recent developments like REHs, and other current issues in Hospital-Physician compliance, consider joining Dan Mulholland and Henry Casale at our next Hospital‑Physician Contracts and Compliance Clinic that will be held in Phoenix on November 16-18, 2023.

If you cannot wait until November for more information on these and many other health law related topics, check out HortySpringer’s Health Law Expressions “Kickback Chronicles” podcast episodes with Henry Casale and Hala Mouzaffar.

November 4, 2021

We know that we can provide a computer system that includes cybersecurity technology and related services to our employed physicians.  However, we have received several inquiries from independent members of our medical staff asking whether the Hospital can assist them to obtain cybersecurity technology and related services.  What can we do?

By way of background, the Stark EMR Donation exception has, for many years, permitted a hospital to donate software, information technology and/or training services (but not hardware) to the physicians on the hospital’s medical staff so long as the arrangement is: (i) pursuant to a written agreement that specifies the items and services being provided; (ii) the software is interoperable; (iii) the donor does not affect the interoperability of the software; (iv) the physician pays 15% of the donor’s cost; (v) the receipt of the item or service is not a condition of doing business with the hospital; and (vi) neither the eligibility of a physician nor the amount of the donation is determined in a manner that takes into account the volume or value of referrals.

The January 19, 2021 Rules have amended the EMR Donation Rule to:  (i) permit the donation of cybersecurity software and services (but not hardware); (ii) delete the restriction that the arrangement does not violate the Medicare Anti-Kickback Statute; (iii) require the 15% share by the physician to be paid before the donation; (iv) delete the requirement that the donor does not have actual knowledge whether the physician receiving the EMR possesses equivalent items or services; and (v) eliminate the December 31, 2021 sunset on donations pursuant to this section.

Therefore, while this exception may be used, its limitations outweigh its usefulness, especially when compared to the new cybersecurity technology and related services exception that was added by the January 19, 2021 Rules.  The new exception will provide much more flexibility for a hospital that is interested in donating cybersecurity technology and related services to a referring physician.

This new cybersecurity technology and related services exception, 42 C.F.R. § 411.357(bb), protects nonmonetary remuneration (consisting of hardware, software, or other types of information technology and services) that are necessary and used predominantly to implement, maintain, or reestablish cybersecurity, if all of the following conditions are met:  (i) neither the eligibility of a physician for the technology or services, nor the amount or nature of the technology or services, is determined in any manner that directly takes into account the volume or value of referrals or other business generated between the parties; (ii) neither the physician nor the physician’s practice (including employees and staff members) makes the receipt of technology or services, or the amount or nature of the technology or services, a condition of doing business with the donor; and (iii) the arrangement is documented in writing.

Please note that a hospital is not required to provide cybersecurity items and services to every physician on the hospital’s medical staff.  Rather, a hospital is given discretion to select the recipients of its donated cybersecurity items or services, so long as the hospital complies with the above-stated requirements.

Unlike the EMR Donation Rule described above, this new exception permits the donation of cybersecurity hardware such as encrypted servers, encrypted drives and network appliances but only if the hardware is necessary and used predominantly to implement, maintain or reestablish cybersecurity.  If the donated technology includes functions other than cybersecurity, the core functionality of the technology and services must be implementing, maintaining or reestablishing cybersecurity and cybersecurity must predominate.

Also, unlike the EMR Donation Rule, the physician is not required to pay the 15% cost sharing required by the EMR Rule.  However, the cybersecurity item or service must be nonmonetary.  Therefore, a hospital could not reimburse a physician for the cost of previously obtained cybersecurity technology or services.  Nor would this exception permit a hospital to make a ransomware payment on behalf of a non-employed physician in response to a cyberattack.

August 5, 2021

“Can you provide a quick guide to the Stark Value-Based Exceptions?”

While these Rules are difficult to summarize and the devil is in the details, the following is a summary of the Stark Value-Based Rules that became effective on January 19, 2021:

A Value-Based Arrangement is intended to compensate the physician Value‑Based Participants of a Value Based Enterprise for achieving the Value‑Based Purposes of the Value-Based Activity for a Target Patient Population, rather than basing that payment on the items or services furnished by the physicians.

CMS stated in the Preamble to the January 19, 2021 Rules that the anticipated benefits from the Value-Based Rules are to:  improve care coordination for patients; reduce cost to payers and patients from poorly coordinated, duplicative care; improve quality of care and outcomes; achieve substantial reduction in Stark Law compliance costs; and reduce administrative complexity and related waste.

Whether the Value-Based Rules will achieve any or all of these benefits remains to be seen.  What is clear is that the Value-Based Rules have requirements that are significantly different from the requirements in fee-for-service arrangements that were governed by the Stark Rules that have been previously in effect.  The Value-Based Rules have different requirements depending on the level of financial risk assumed by the physician Value-Based Participants.

The Stark exceptions for Value-Based Arrangements went into effect on January 19, 2021 and are found at § 411.357(aa)(1)-(3).  While each Value-Based Exception needs to be considered to determine which will apply,  there are several elements that all of the exceptions have in common: (i) the Value-Based Definitions found at 42 C.F.R. § 411.351; (ii) as the Value-Based Enterprise (“VBE”) and/or VBE participants increase the financial risk assumed, the applicable Stark Value‑Based Exception will allow for increased flexibility; (iii) the traditional definition of Fair Market Value is not required by any of the Stark Value-Based Rules; (iv) the remuneration to the VBE participants cannot constitute an inducement to limit services; (v) the remuneration to the VBE participants cannot be conditioned on the referral of patients who are not part of Target Patient Population; (vi) if remuneration is conditioned on referrals to a particular provider, then the referral arrangement must be in writing, signed by the parties, and must include the three exceptions contained in the Stark directed referral rules; and (vii) records of the compensation methodology used must be retained for six years and provided to HHS upon request.

The Stark Rules then categorize the Value-Based Exceptions based on the level of financial risk assumed with the greatest flexibility provided to a VBE that accepts Full Financial Risk which means the Value-Based Enterprise is responsible on a prospective basis for the cost of all patient care, items and services covered by the applicable payor for each patient in the Target Patient Population for a specified period of time (such as accepting capitation).

The next greatest amount of flexibility is permitted for Value-Based Arrangements with meaningful downside risk to the physicians.  Meaningful Downside Financial Risk requires the physicians to be responsible to repay or forego no less than 10% of the Total Value of the remuneration the physician receives under the Value-Based Arrangement.  Examples of this model provided by CMS in the Preamble to the January 19, 2021 Rules include:  a $50,000 payment, plus $25,000 for Value-Based Activities as long as the entire $25,000 is conditioned on achieving a specified Value-Based Activity for a Target Patient Population; and a $100,000 payment with a $20,000 withhold, so long as the withhold is only payable upon completing the Value-Based Activities for the Target Patient Population.

There is also a Value-Based Exception in which the Physicians are not placed at financial risk.  This is referred to in the regulations as the Value-Based Arrangements Exception, 42 C.F.R.  § 411.357(aa)(3).  This exception protects remuneration paid to the physician participants in the Value-Based Arrangement regardless of whether it is in cash or in kind.  However, due to the fact that the physicians are not at financial risk and are not required to be paid at Fair Market Value, this exception has the most detailed regulatory requirements of any of the Stark Value-Based Rules.

In addition to the terms described above, this exception requires that the Value-Based Arrangement must be set forth in writing that is signed by the parties and describes: (i) the Value‑Based Activities to be undertaken; (ii) how the Value-Based Activities are expected to further the Value‑Based Purposes of the Value-Based Enterprise; (iii) the target patient population; (iv) the type or nature of remuneration; (v) the methodology that is to be used to determine that remuneration; and (vi) the Outcome Measures against which remuneration is assessed.

CMS also requires that at least annually, or at least once if the arrangement is in effect for less than one year, the Outcome Measures must be monitored to determine: (i) whether the parties have provided the Value-Based Activities required by the Value-Based Arrangement; (ii) whether and how the continuation of the Value-Based Activities will further the Value-Based Purposes of the VBE; and (iii) the progress toward the attainment of the Outcome Measures against which the recipient of the remuneration will be assessed.

If this monitoring determines that the Value-Based Activity is not expected to further the Value‑Based Purposes of the VBE, then the VBE has two options in order to maintain compliance with the Stark Law:  (1) terminate the arrangement within 30 consecutive calendar days of the date of completion of the monitoring indicating that the Value-Based Activity was ineffective; or (2) modify the Arrangement to terminate the ineffective Value-Based Activity within 90 consecutive calendar days of completion of the monitoring and, if they choose, replace that Value-Based Activity with a different Value-Based Activity with prospective applicability.

While several differences exist between the Stark Value-Based Exceptions and the OIG Value‑Based Safe Harbors that also went into effect on January 19, 2021, this exception is the greatest point of departure from the OIG Value-Based Safe Harbors (42 C.F.R. § 1001.952(ee)-(kk)).  If a physician is not at financial risk, then the OIG Safe Harbors only protect in-kind remuneration.  (As stated above, the Stark exception protects remuneration in the form of cash or in-kind services.)  That said, payments of cash remuneration in a non-risk setting (such as a cost‑sharing arrangement) may be protected by the amended personal services and management contracts and outcomes-based arrangements safe harbor that was added by the January 19, 2021 Safe Harbor Regulations (see 42 C.F.R. § 1001.952(d)(2)).

June 24, 2021

QUESTION:   “Since the new Stark regulations came out late last year, can we still require our employed physicians to refer patients to our hospital or other providers in our health system?”

ANSWER:       Yes.  The amendment to the Stark regulations set forth a separate section on “directed referrals” at 42 CFR §411.354(d)(4) which permits physician compensation in employment relationships, personal service arrangements and managed care contracts to be conditioned on the physician’s referral of patients to a particular provider, practitioner or supplier as long as the physician is paid fair market value, agreement is in writing and subject to the following exceptions:  (i) the patient expresses a preference for a different provider, practitioner or supplier, (ii) the patient’s insurer determines the provider, practitioner or supplier, or (iii) the  referral is not in the patient’s best medical interests in the Physician’s judgment.  The required referrals must relate solely to the services covered by the contract in question.

The regulations go on to say that neither the existence of the arrangement or the amount of compensation can be contingent on the directed referrals.  However, an established percentage or ratio of the physician’s referrals to the designated providers can be required.  In other words, a directed referral provision in an employed physician’s contact could not provide that the physician’s compensation would be cut if the physician does not refer patients to the hospital, but it could require that a certain percentage of the physician’s patients who require hospitalization are sent to the hospital – subject always to the three exceptions.

But beware!  Although the Stark regulation says that personal services arrangements can contain a directed referral requirement, there is no corresponding directed referral language in the Anti-kickback safe harbors.  The only protection there would be the bona fide employment exception, so requiring independent contractors to refer to the hospital would be risky.

Want to know more about this or other provisions in the new Stark regulations? Contact Dan Mulholland or Henry Casale or call 412-687-7677 to schedule an appointment.

June 3, 2021

QUESTION:   “I know that the Stark law covers a lot of seemingly innocuous activities. But surely Stark does not affect the ability of the MEC to serve food and drinks at an off-site medical staff meeting – Can it???”

ANSWER:      As you may have guessed – the answer is YES.  But, do not despair, there are several ways to comply with the law.

Any time that a hospital provides remuneration to a physician, the arrangement must satisfy an exception to the law.  Unfortunately, the Stark law defines “remuneration” so broadly that any meal or gift that a hospital provides to a physician will be considered to be “remuneration” and so the law will apply.  Once the law applies, you must find an exception that will permit the proposed conduct.

The fact that the meeting will he held off campus will limit the exceptions that might otherwise apply.  But even still, the good news is that the hospital gets to choose the exception that applies and depending on the facts, there are several exceptions from which to choose to address the meals to physicians provided at a committee meeting or at an educational event.  Also, you should be aware of a new Stark exception that became effective on January 19, 2021, that will be very helpful in situations such as what you have described.

Employed Physicians
The Stark law provides the greatest amount of latitude when a hospital provides the meal or other benefit to an employed physician.  Most meals and other medical staff benefits provided to an employed physician should be considered to constitute employment related fringe benefits and are covered by the Stark employment exception.

For the purpose of your question, we will assume that the Physicians who will receive the meals or other medical staff benefits are not Hospital employees – but we wanted to mention the Employment exception in case it can be used to minimize the record keeping that will be required by the exceptions that are described below.

Non-Employed Physicians
When dealing with non-employed physicians, the Stark law divides meals and other medical staff benefits into two categories – (1) non-monetary compensation that may be provided anywhere, have no individual per gift limit, but are subject to an annual cap; and (2) medical staff incidental benefits that must be provided on the hospital campus, have a per item limit but no annual limit.  Depending on the facts, other exceptions may apply as well.  However, the two meal related exceptions work like this:

(1)        Non-Monetary Compensation Exception
The “nonmonetary compensation” exception (42 C.F.R. §411.357(k)) permits compensation in the form of items, meals or gifts (but not cash or cash equivalents) that do not exceed the then applicable limit in any Calendar Year, adjusted for inflation.  When this exception was adopted, this amount was $300/Calendar Year.  However, this amount is annually adjusted for inflation and the annual limit for Calendar Year 2021 is $429.  CMS updates this amount annually, and the current annual limit may be found at

Even when indexed to inflation, the $429 maximum in Calendar Year 2021 makes this exception of limited utility.  Furthermore, in order to satisfy this exception, the hospital must track all such items, meals or gifts, the item, meal or gift must not be determined in any manner that takes into account the volume or value of referrals or business generated by the referring physician and may not be solicited by the physicians.  However, there is no requirement that the meal or other benefit be provided on the Hospital’s campus.

In case it is needed, this rule also provides:  (1) no more often than once every three years, a physician who has inadvertently received non-monetary compensation of up to 50% in excess of the then applicable annual limit, may repay the excess within the earlier of the same Calendar Year or 180 days of receipt of the excess, but this exception may be used only once every three years with respect to the same physician.  In addition, a hospital may provide one medical staff function per year for the entire medical staff without regard to any monetary limit.

In order to comply with this exception, the hospital must track the value of all of the nonmonetary compensation that is provided to each physician during each Calendar Year.  However, this can be done by taking the cost of the event and dividing that cost by the number of physicians who attended (you do not need to track what each physician may eat).  Also, this exception does not include any geographic limitation.

(2)        Medical Staff Incidental Benefits
The other meal/gift related exception that applies to non-employed physicians is the “Medical Staff Incidental Benefits” exception (§411.357(m)).  While it is helpful that CMS has recognized that the Stark regulations should include an exception that recognizes a number of traditional relationships between a hospital and the physicians who are appointed to its medical staff, this exception is still relatively narrow and has a number of requirements, including the requirements that the item or services be offered to all staff members practicing in the same specialty without regard to the volume or value of their referrals to the hospital, provided only during periods when the medical staff members are making rounds or are engaged in other activities that benefit the hospital or its patients, used by the medical staff member “on the hospital’s campus,” be reasonably related to the delivery of medical services at the hospital, and not intended to induce referrals.

Also, the compensation must be of low value.  Originally, each item was valued at $25 or less, and subject to the same inflation adjustment used in the non-monetary compensation exception.  In Calendar Year 2021 this amount has been adjusted to $37 per occurrence.  Future updates can be found at the same area of the CMS website as the update for non-monetary compensation.  However, there is no annual limit and so there is not the same need for the per physician records to be maintained as there is for the above-described exception – but the hospital should keep records of the incidental benefits provided and their costs.

This is the so-called “free lunch exception.”  Therefore, assuming that all of the requirements to the exception are met, a hospital may provide free meals, free parking or any other “on campus” incidental benefit that it normally provides to all members of its medical staff practicing in the same specialty without fear that that benefit will be construed as a prohibited compensation arrangement, so long as each individual benefit (i.e., each meal) is less than $37 in 2021 even if the aggregate value of all of the benefits provided to a physician over the course of a year exceeds  $429 in Calendar Year 2021.  That said, based on the facts that you have provided (i.e., the off-campus location of the meeting), this exception will not apply.

(3)        Compliance Training Exception
There is a broad exception that permits a hospital to provide compliance training to a physician or to a physician’s staff, so long as the training is “held in the local community or service area” 42 C.F.R. §411.357(o) Compliance training is defined in this exception and is pretty broad – so it should apply to a medical staff committee meetings and most medical staff educational meetings. While the exception will permit the hospital to provide the training and CME so long as compliance training is the primary purpose of the program, this exception does not address serving food at the training.  While this exception should protect the training itself that you have described, we do not recommend relying on this exception to serve food at any such program.

(4)        Limited Remuneration to a Physician Exception – Added January 19, 2021
A new exception that became effective on January 19, 2021 will apply to a number of situations, including the one that you have described if none of the other exceptions apply. It does not require a written agreement, is very broad and permits a payment of up to $5,000 per Calendar Year per physician (with the $5,000/Calendar Year limit to be indexed to inflation in the same manner as the two exceptions described above).

Since this exception is new there is no case law interpreting.  However, it does not require a written agreement and is very broad.  While it has the disadvantage of requiring the hospital to track the amount paid to each physician each year (we recommend that you determine the amount/physician in the same manner described above), it will, in our opinion, cover the training that you described and much more.

We recommend relying on this exception first and should the $5,000/Calendar Year limit be exhausted then you may rely on the nonmonetary exception described above for the balance of the then applicable annual benefit.

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.

May 17, 2018

QUESTION:        We are analyzing the fair market value of what we pay our employed physicians.  How should we classify physicians who practice in more than one specialty?

ANSWER:            There is no definitive rule as to how a physician’s specialty should be classified for compensation or compensation analysis purposes.  For example, the MGMA Physician Compensation Survey directs survey respondents to list their specialty as the area where they spend 50% or more time.  Others may classify physicians into specific specialties based on their training or the specialty that the physicians hold themselves out in.

The Board certification of each physician is another criterion that can be used. In the end, specialty classification for compensation analysis purposes depends on the criteria used by those conducting the analysis.  The key is consistency.

As the Office of Inspector General stated in its Supplemental Compliance Guidance for Hospitals, that when analyzing physician compensation for compliance with the Stark law,

“hospitals should have appropriate processes for making and documenting reasonable, consistent, and objective determinations of fair market value.”
70 Fed. Reg. 4863 (Jan. 31, 2005). (Emphasis added.)

September 14, 2017

QUESTION:        We just discovered that several leases between the hospital and physicians who are active members of our medical staff expired several years ago without being renewed in writing.  We understand that the Stark Law requires a written lease.  Do we have any alternative other than a self-disclosure?

ANSWER:           Yes.  On November 16, 2015, CMS provided some much needed relief from technical violations of the Stark Law such as the one that you have described.

The first thing that you must determine is that a lack of a writing is the only problem that you have.  Therefore, you need to document that each lease complied with the other requirements of the Stark rental of office space exception, especially that at all times the rent that was paid by each physician constituted fair market value, commercially reasonable rent that did not take into account or vary based on any referrals or other business generated by the physicians.

If so, then you should be aware that in the November 16, 2015 Federal Register, CMS stated that it has received numerous submissions similar to your question that related to potential violations caused by the writing requirement, including the “…failure to renew an arrangement that expired on its own terms after at least 1 year.”  80 FR 71314.

CMS then clarified the writing requirement, provided policy guidance, and also provided illustrative examples of the writing requirement, including “checks issued for items, services or rent” (80 FR 71316).  (Emphasis added.)  In all likelihood, each month each physician paid the physician’s rent with a check that was in writing and signed by each physician, and each month the hospital endorsed and deposited those checks.  If the rent was deposited electronically, then the Uniform Electronic Transaction Act will give an electronic transfer of funds the same force and effect as a written check.

Those rent checks/electronic transfers of rent will be found to constitute “contemporaneous documents (that is, documents that are contemporaneous with the arrangement) [that] would permit a reasonable person to verify compliance with the applicable exception at the time that a referral is made” (80 FR 71315) and, as such, satisfied the writing requirement set forth in 42 C.F.R. §411.357(a).

Since this is a policy clarification and not a new regulation, the fact that the leases expired prior to the date of the CMS guidance does not prohibit you from applying this guidance to your situation, even if those expired leases predate that guidance.

If the leases expired after January 1, 2016, then you can take advantage of a change to the Stark Rental of Office Space exception that went into effect on January 1, 2016, which provides that the lease will continue to comply with the Stark exception so long as the lease continues to satisfy the other requirements of the exception.  (See 42 C.F.R. §411.357(a)(7).

September 22, 2016

QUESTION:        We have just determined that several of our compensation arrangements have failed to comply with a Stark Law exception and that we need to make a Self-Disclosure to CMS.  Is there anything new with this process?

ANSWER:            Yes.  Please see the “Government at Work” section of this week’s HLE for a link to CMS’s proposed Stark Voluntary Self-Referral Disclosure Protocol (the “Proposed SRDP”).  While it is only proposed and has not been adopted in final form, since CMS’s Proposed SRDP is based on CMS’s February 12, 2016 overpayment rule, we recommend you follow the Proposed SRDP.

The Proposed SRDP is much more structured than the former protocol and requires a provider to utilize CMS’s mandated forms and format.  One helpful feature of the Proposed SRDP is that it provides several illustrative examples as to how CMS expects a provider to determine the amount of the overpayment.

The Proposed SRDP also makes it clear that if conduct raises concerns under the Anti-Kickback statute and the Stark Law, then you are to use the OIG Self-Disclosure Protocol, not the Proposed SRDP.  The Proposed SRDP then states “Disclosing parties should not disclose the same conduct under both the SRDP and OIG’s Self-Disclosure Protocol.”

The Proposed SRDP also states that you must look back six years.  Again, this is now required by CMS’s Overpayment Rule.  CMS wants the six-year look-back summary to be by calendar year.  If no overpayments were made in one or more calendar years during that six-year look-back period, the year must be included, but the amount of the overpayment for that year is to be left blank.  A provider must also identify the overpayment by physician using the physician’s NPI Number.

CMS provided this chart as an example of the format they expect a provider to provide.








CY 2010

 CY 2011

 CY 2012

 CY 2013

 CY 2014

 CY 2015

 CY 2016

Dr. A xxxxxxxxxx 2/18/16 $100,000.00 $100,000.00 $100,000.00 $300,000.00
Dr. B xxxxxxxxxx 3/24/16 $25,000.00 $10,000.00 $75,000.00 $  50,000.00 $  50,000.00 $  50,000.00 $10,000.00 $270,000.00
Dr. C xxxxxxxxxx 4/5/16 $  5,000.00 $25,000.00 $  20,000.00 $  20,000.00 $  20,000.00 $  90,000.00
                                                                                                                                                                                                                 TOTAL:       $660,000.00

Want more information on the Proposed SRDP, the February 12, 2016 Overpayment Rule, recent False Claims Settlements, and new cutting edge issues like how to implement MACRA and CJR Gainsharing?  Then join Henry and Dan in Las Vegas on October 13-15 for HortySpringer’s Physician-Hospital Contracts Clinic.

September 24, 2015

QUESTION:        One of the few remaining independent physician groups whose physicians are members of our medical staff desperately needs help. They have been unable to find a physician who is willing to relocate, but have found several qualified non-physician practitioners who are. The group has approached the hospital requesting the same type of net income guarantee recruitment assistance agreement that the hospital would offer to the group if they had located a physician. Since it will be less costly to provide the recruitment assistance needed to recruit a non-physician practitioner, this seems like a simple decision. However, our attorney is telling us that the proposed arrangement violates the Stark law. How?

ANSWER:          Unfortunately, your legal counsel is correct. The Stark law only applies to physicians. A PA, CRNP, CRNA, or other non-physician practitioner (“NP”) is not a “physician” as defined by the Stark law. So the Stark law would not apply to a direct compensation arrangement between the NP and the hospital.

However, that is of little practical benefit if the request is for an income guarantee. By definition, the hospital must, directly or indirectly, pay the guarantee payment to the physician group. This creates a compensation arrangement between the hospital and the group and so in order to comply with the Stark law, this arrangement must satisfy an exception. Unfortunately, in the Preamble to the Stark Phase 3 Rules, in response to a comment asking whether recruitment assistance could be provided to a group to recruit an NP, CMS responded by stating that the physician recruitment exception is limited to the recruitment of a physician. CMS then stated that any recruitment payments made by a hospital to a physician group to assist the group to recruit an NP would constitute a compensation arrangement “to which no exception would apply.”

We have never understood CMS’s position and now it appears that CMS has seen the error of its ways. In the July 15, 2015 Federal Register, CMS proposed creating a new exception to the Stark law that would specifically permit a hospital to provide recruitment assistance to a physician group to employ an NP.

While a positive step, there are a number of concerns with the proposed exception. As proposed, the new exception is much more limited than the physician recruitment exception. For example, it limits the exception to PAs, CRNPs and certified nurse midwives who are employed by a physician group to provide primary care services. It also limits the type of recruitment assistance that may be provided.

In comments that we submitted to CMS, we requested that CMS revise this exception to make it less restrictive and more in line with the physician recruitment exception. Whether CMS will agree with our comments remains to be seen when it publishes final regulations.

Therefore, the safest course of action right now is to provide the recruitment assistance directly to the NP. However, current law does not permit a guarantee-type arrangement with a physician group to recruit an NP. As a result, we have found the types of recruitment assistance that are currently permitted to be used with an NP to be very limited. If you have the luxury of time, a better approach would be to wait and see if CMS publishes the proposed NP recruitment exception in final form and then follow that exception.

The $115,000,000 settlement described in the “Your Government at Work” section of this week’s HLE was, for the most part, due to the compensation paid to employed physicians. Want to learn more about the types of compensation that can be paid to employed physicians? Join Henry, Rachel and Charlie in Las Vegas on October 15-17 at the Physician Employment Institute.