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.

February 11, 2021

QUESTION:        I hear that the new Stark regulations have a way that Stark violations can be corrected without penalty.  Is that so?

ANSWER:           Yes, within limits.  CMS has now given hospitals and doctors a new way to correct noncompliance with the Stark law without having to make a self-disclosure.  The regulations, which became effective on January 19, 2021, contain a new regulation at 42 CFR §411.357(h) that allows parties to a compensation arrangement to reconcile all discrepancies while a contract is in effect or up to 90 days after it terminates so long as after the reconciliation the arrangement fully complies with all elements of the applicable exception.

For example:  say a hospital contract with a medical director calls for payment at $140 per hour but the doctor is paid $150 per hour.  If $150 still is within FMV range, all that is necessary is to reflect that in amendment going forward.  If the amount actually paid exceeds fair market value, the contract can be amended to recoup payments in excess of FMV via an offset against amounts due in the future (e.g., a payroll deduction) while the relationship is in effect, but the entire amount of the excess must be recouped within 90 days after the contract ends.

CMS also said that not every error will cause a financial relationship to be out of compliance with Stark nor must every mistake or error be corrected in order to maintain compliance.  Administrative and operational errors that are identified and rectified in a timely manner will not cause a relationship to be out of compliance.  In addition, CMS said that not all transfers of remuneration create compensation arrangements.  Examples include mistaken payments that are never identified, theft, use of office space not in lease, use of equipment beyond the expiration of the lease term or slight deviation from written agreement such as a one-time incorrect rental payment.

This new option is a great alternative to resorting to the Stark self-disclosure protocol.  To learn more about it, stay tuned for an upcoming Health Law Expressions podcast, where Horty Springer attorneys Josh Hodges and Dan Mulholland will discuss this new rule, or e-mail them at or


November 21, 2019

QUESTION:        We need to employ physicians in order to provide the care needed by our patients.  The main reasons that private practice is no longer a viable option for many physicians are the ever increasing costs of operating a practice (especially malpractice insurance and EHR costs) while professional reimbursement keeps decreasing.  However for the same reasons, we rarely break even on a physician practice.  Does anyone in the government understand this or do they assume that we overpay physicians to get their referrals?

ANSWER:          Unfortunately, many courts do not understand your dilemma.  Some courts seem to take the position that a hospital paying a physician more than the physician generates in professional fees is evidence of unreasonable compensation that violates the Stark Law.

However, help is on the way.  In the October 19, 2019, proposed Stark Regulations, CMS has provided an excellent description of the analysis that should be followed when assessing whether the compensation paid to a physician violates the Stark Law.

For the first time, CMS has included a definition of the term “commercially reasonable” that specifically states that an arrangement may be commercially reasonable even if “it does not result in a profit for one or more of the parties.”  CMS has also substantially revised the definition of “fair market value” and has made it clear that in order to violate the “volume or value” standard there must be a direct correlation between the physician referrals and the amount to be paid to the physician.

CMS also stated that salary surveys are to be treated as benchmarks, not the last word on physician compensation and even provided easy to understand examples such as the following in order to make this point crystal clear:

By way of example, assume a hospital is engaged in negotiations to employ an orthopedic surgeon.  Independent salary surveys indicate that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital.  However, the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the entire country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate.  Thus, although the employee compensation of a hypothetical orthopedic surgeon may be $450,000 per year, this particular physician commands a significantly higher salary and the general market value (or market value) of the transaction may, therefore, be well above $450,000.  The statute requires that the compensation is the value in an arm’s length transaction, but that value must also be consistent with the general market value (or market value) of the subject transaction.  In this example, compensation substantially above $450,000 per year may be fair market value.

The proposed rules also provide much needed guidance on value-based arrangements.

The comment period will end on December 31, 2019.  We hope that CMS will finalize these proposed regulations as soon as possible after that date and that the federal courts begin to adopt CMS’s analysis.

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.

February 25, 2016

QUESTION:        The new, final, Stark regulations permit a hospital to provide financial assistance to a physician or physician group to employ or contract with non-physician practitioners (physician assistants, nurse practitioners, clinical nurse specialists, certified nurse midwives, clinical social workers, and clinical psychologists) (“NPP”). Is the amount of the assistance capped? How long can a hospital provide such financial assistance?

ANSWER:            The financial assistance may not exceed 50 percent of the actual compensation, signing bonus, and benefits paid by the physician or physician group to the NPP. Compensation must be at fair market value and may not take into account referrals or business generated between the parties. As far as duration of the assistance, hospitals may provide financial assistance only for the first two consecutive years of the compensation arrangement between the NPP and the physician.

January 21, 2016

QUESTION:        We have an e-mail exchange with a referring physician that clearly describes the services that the physician is to perform and the amount that the hospital is to pay the physician for those services. However, we cannot locate a written agreement. Do we have a Stark problem?

ANSWER:           No, thanks to the new Stark Regulations that went into effect on January 1, 2016. These regulations were promulgated as part of Medicare’s 2016 Physicians’ Fee Schedule. In these regulations, CMS stated that, based in large part on what CMS has learned from voluntary self-disclosures, CMS wanted to clarify the terms that are required in order to satisfy the Stark writing requirement that is included in many of the compensation arrangement exceptions.

CMS first stated that “in most instances, a single written document memorializing the key facts of an arrangement provides the surest and most straightforward means of establishing compliance with the applicable exception.” However, CMS then made it clear that this is not the only means of complying with the Stark writing requirement, stating: “CMS’ existing policy is that a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the exceptions for compensation arrangements that require a writing.”

CMS then listed a number of examples that will comply with the writing requirement that included, but are not limited to: board minutes or other documents authorizing payment for specified services; written communications between the parties “including hard copy and electronic communication”; time sheets; fee schedules for specified services; check requests or invoices identifying items or services provided and the rate of compensation; or accounts payable or receivable records documenting the date and rate of payment and the reason for the payment.

Therefore, your e-mail exchange will satisfy the Stark writing requirement and the electronic signatures in the e-mail will satisfy that the arrangement must be signed by both parties (see the Federal Electronic Records and Signatures in Commerce Act).

The new rules are not intended to undo hospital compliance efforts and an effective compliance process remains an essential component of any health care organization. However, the new Stark rules will allow the parties to place substance over form when determining compliance with an applicable Stark exception.

December 3, 2015

QUESTION:         The new, final, Stark regulations permit a hospital to provide financial assistance to a physician or physician group to employ or contract with certain non-physician practitioners. What types of non-physician practitioners are covered under the new regulations?

ANSWER:            Hospitals may provide financial assistance to help physicians or a physician group hire or contract with physician assistants, nurse practitioners, clinical nurse specialists, certified nurse-midwives, clinical social workers, or clinical psychologists. Financial assistance for other types of non-physician practitioners, such as nurse anesthetists, physical therapists, and dietitians, is not covered by the new exception.