Brief Overview of Stark Final Rule

November 21, 2020

On November 20, 2020, The Centers for Medicare & Medicaid Services (“CMS”) released the much anticipated Stark Law final rule.  This final rule modifies existing Stark exceptions and fundamental terminology and also creates new exceptions.  We are in the process of reviewing CMS’s responses to comments received by stakeholders.  In the interim and due to the expansive nature of the final rule, this update provides a brief overview of the final rule intended to highlight certain of the modified and new Stark exceptions, as well as other changes and clarification to fundamental Stark terminology and definitions.  These regulations are effective January 19, 2021, unless otherwise noted in the final rule.  We welcome any questions to focus our analysis of the final rule. Future updates will take a deeper dive into the modified and new exceptions and other changes outlined in the final rule. To view the final rule in its entirety, please visit here, with the text of the amended regulations beginning on page 533.

Facilitating the Transition to Value-Based Care and Fostering Care Coordination

  • CMS is finalizing a new exception to be located at 42 C.F.R. § 411.357(aa)(1) that applies to a “value-based arrangement” where a “value-based enterprise” has, during the entire duration of the arrangement, assumed full financial risk from a payor for patient care services for a target patient population.
  • CMS is also finalizing another new exception to be located at § 411.357(aa)(2) that applies to a value-based arrangement under which the physician is at meaningful downside financial risk for failure to achieve the value-based purposes of the value-based enterprise during the entire duration of the arrangement.
  • CMS is finalizing a third, new exception to be located at § 411.357(aa)(2) that applies to any value-based arrangement, provided that the arrangement satisfies certain requirements.
  • CMS is finalizing new definitions at § 411.351 for application of the new exceptions described above for the following terms: value-based activity, value-based arrangement, value-based enterprise, value-based purpose, VBE participant and target patient population.

Fundamental Terminology and Requirements

  • As CMS notes, most of the exceptions to Stark include one or more of the following “big three” requirements: the compensation arrangement itself is commercially reasonable, the amount of the compensation is fair market value, and/or the compensation paid under the arrangement is not determined in a manner that takes into account the volume or value of referrals or other business generated between the parties.  In effort to make the application of this terminology and requirements more clear, CMS is finalizing certain changes to these requirements.
  • CMS finalized a definition of “commercially reasonable” which is contained in § 411.351. A particular arrangement is considered “commercially reasonable” if it furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope and specialty. An arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.
  • CMS finalized and established special rules that identify the compensation formulas that are considered to be determined in a manner that takes into account the volume or value of a physician’s referrals or the other business generated by a physician for the entity paying the compensation.
  • Finally, CMS is also revising the definitions of “fair market value” and “general market value” at § 411.351.  For the definition of “fair market value,” CMS is modifying this definition to provide three separate definitions: a definition for general application, a definition for rental of equipment and a definition for rental of office space. 

Group Practices

  • CMS finalized corresponding revisions to the group practice rules located at § 411.352 to accommodate the revised definitions and special rules made to certain Stark fundamental terminology and requirements.
  • In addition, CMS is finalizing certain of its proposed changes to § 411.352(i) with respect to the payment of profit shares to a physician to eliminate the potential barrier to a physician’s participation in value-based care delivery.  CMS also is finalizing certain clarifying revisions and amendments related to the definition of “overall profits” and the payment of productivity bonuses.  Amendments to § 411.352(i), including to the definition of “overall profits” and the payment of productivity bonuses, become effective on January 1, 2022.  If you are paying physicians productivity bonuses or sharing overall profits with physicians, please be sure to review these changes. 

Recalibrating the Scope and Application of the Regulations

  • CMS is finalizing its proposal to remove the requirement that an arrangement not violate the Anti-Kickback Statute from all the Stark exceptions except for the fair market value compensation exception at § 411.357(l).  CMS also finalized its proposal to remove from all applicable exceptions the requirement that an arrangement not violate any federal or state regulation governing billing and claims submission. 
  • CMS is amending certain definitions located in § 411.351, including the definition of “designated health services” to exclude from the definition services furnished by a hospital to an inpatient that do not increase the amount of Medicare’s payment to the hospital under certain prospective payment systems including the acute care hospital inpatient (IPPS), amongst other changes.  CMS also finalized clarifying changes to the following defined terms: physician, remuneration and transaction (as well as isolated financial transaction).
  • CMS is deleting in their entirety the provisions setting forth the period of disallowance at § 411.353(c)(1) in an attempt to eliminate confusion reported by stakeholders.  This change does not affect Stark’s billing and referral prohibitions.
  • CMS finalized modifications to signature and writing requirements applicable for certain exceptions at § 411.354(e)(4).
  • CMS finalized certain modifications to the special rule on compensation at § 411.354(d)(1), including codifying requirements for modifying compensation during the course of an arrangement, which requires the modified compensation to be set out in writing prior to the furnishing of items or services for which the modified compensation is to be paid. 
  • CMS finalized its proposals to remove certain interests held by a physician from qualifying as an ownership or investment interest for purposes of Stark under § 411.354(b)(3)(vi).
  • For the rental of office space and equipment exceptions located at § 411.357(a) and (b), respectively, CMS finalized its proposal to add clarification to the exceptions that exclusive use means that the lessee (and any other lessees of the same office space or equipment) uses the office space or equipment to the exclusion of the lessor (or any person or entity related to the lessor).
  • For the physician recruitment exception located at § 411.357(e), CMS is finalizing its proposal to only require the physician practice to sign the writing documenting the recruitment arrangement, if the remuneration is provided indirectly to the physician through payments made to the physician practice and the physician practice does not pass directly through to the physician all of the remuneration from the hospital.
  • For the payments by a physician exception located at § 411.357(i), CMS finalized certain regulatory changes to implement its modified interpretation of this exception.
  • For the fair market value compensation exception located at § 411.357(l), CMS modified this exception so that it may now be used to permit parties to protect arrangements for the rental or lease of office space, including short-term arrangements of less than one year. 
  • For the electronic health records items and services exception located at § 411.357(w), CMS eliminated the sunset provision and finalized certain proposals to revise this exception, working closely with the OIG to ensure consistency with the policies finalized by the OIG.
  • For the assistance to compensation a nonphysician practitioner exception located at § 411.357(x), CMS finalized its clarifying proposals related to certain defined terms such as “patient care services” as well as the provisions related to the geographic requirements.

Providing Flexibility for Nonabusive Business Practices

  • CMS finalized a new exception for limited remuneration to a physician to be located at § 411.357(z), which protects remuneration to a physician for the provision of items or services provided by a physician to the entity that does not exceed an aggregate of $5,000 per calendar year, as adjusted for inflation, so long as the other requirements of this exception are met.  Notably, this exception does not require contemporaneous documentation of the terms of the arrangement or that the compensation be set in advance prior to the provisions of the physician’s services.
  • CMS finalized a new exception for cybersecurity technology and related services to be located at § 411.357(bb), which applies to arrangements involving the donation of cybersecurity technology and related services.  CMS believes this exception will help to improve the cybersecurity of the health care industry by removing barrier to donations of technology and services.  The OIG established a similar safe harbor to the Anti-Kickback Statute.