CMS’ Blanket Waivers to the Stark Law Offer Relief to Providers During COVID-19 Emergency

On March 30, 2020, the Centers for Medicare and Medicaid Services (CMS) issued an unprecedented list of Stark Law blanket waivers under its emergency authority granted in Section 1135 of the Social Security Act (the Act) authorizing the waiver of the requirements of public health care programs during periods of declared national and public health emergencies. While case-by-case Stark Law waivers are still available, today’s blanket waivers are far-reaching in scope and will likely alleviate the need for many if not all individual waiver requests prompted by the COVID-19 outbreak.

The Stark Law prohibits physicians from referring designated health services (including inpatient our outpatient hospital services) to entities with which they (or their family members) have financial relationships, and entities are prohibited from billing for those services, unless all of the elements of a statutory or regulatory exception are fully met. Navigating the Stark Law’s detailed and rigid requirements was challenging enough in normal times. Today’s blanket waivers by CMS are an acknowledgement that for the duration of the current pandemic, at least some of the normal rules can no longer apply.

Conditions of the blanket waivers

CMS’ blanket waivers apply nationwide, and CMS indicates that it may issue additional waivers as needs continue to be assessed. Parties do not need to provide any notice or documentation prior to relying on one of the waivers. Although the waivers were just issued — following weeks of intense lobbying by industry groups — the Agency has given them retroactive effect to March 1.

Similar to the existing Stark Laws exceptions, CMS cautions that each waiver is limited to the circumstances described in the waiver, and all elements of the waiver need to be satisfied. Moreover, CMS warns that none of the waivers apply “absent the government’s determination of fraud or abuse” — a hook present in many of the Stark Law’s existing regulatory exceptions that introduces difficult questions of intent.

While one of the waivers expressly waives the Stark Law’s near-ubiquitous writing requirement, parties relying on a blanket waiver are nonetheless reminded that — as with all arrangements involving items or services ultimately paid for by public health programs — the parties must make any records relating to the arrangement available to the Secretary of Health and Human Services upon request.

What are “COVID-19 purposes”?

The blanket waivers apply solely to arrangements that are entered into for “COVID-19 Purposes,” which are defined as follows:

• Diagnosis or medical treatment of COVID-19.
• Securing physician and practitioner services to furnish medically necessary patient care, including services not related to COVID-19, in response to the COVID-19 outbreak.
• Ensuring the availability of providers to address patient and community needs due to the outbreak.
• Expanding the capacity of providers to address patient and community needs due to the outbreak.
• Shifting patients to appropriate alternative settings due to the outbreak.
• “Addressing medical practice or business interruption” due to the outbreak “in order to maintain the availability of medical care and related services for patients and the community.”

This last purpose is both the broadest and most extraordinary, potentially opening the door to a wide array of arrangements designed to buffer the financial impact of the outbreak on independent physicians and their practices where necessary to assure their continued ability to provide care to the community. Given the curtailment or outright cessation of elective procedures in many parts of the country, combined with the production-based formulas used in many physician compensation arrangements, many hospitals and health systems have already been reopening contract discussions with their essential providers.

The 18 blanket waivers

CMS’ blanket waiver is actually a patchwork of 18 specific individual waivers, each of which incorporate the Stark Law’s existing definitions. Providers should reference the precise wording of each waiver in analyzing their particular arrangements. In summary, CMS will waive any referral prohibitions and sanctions under the Stark Law relating to:

1. Above or below fair market value remuneration paid to a physician “for services personally performed by the physician.” CMS provides the example of paying physicians above their previously-contracted rate for working “in particularly hazardous or challenging environments.”
2. Below fair market value rent paid by an entity to a physician for the lease of office space from the physician. (These and several of the waivers to follow may be especially useful to entities that are owned in whole or part by physicians.)
3. Below fair market value rent paid by an entity to a physician for the lease of equipment from the physician.
4. Below fair market value remuneration from an entity to a physician for items or services purchased from the physician.
5. Below fair market value rent paid by a physician to an entity for the lease of office space from the entity. CMS cites the free use of medical office space on a hospital’s campus as an example.
6. Below fair market rent paid by a physician to an entity for the physician’s lease of equipment from the entity. CMS cites the example of free telehealth equipment.
7. Remuneration from a physician to an entity that is below fair market value for the use of the entity’s premises or for items or services purchased from the entity. CMS cites the example of free personal protective equipment.
8. Medical staff incidental benefits that exceed the current $36 limit per occurrence set forth in the current rule’s CPI-U adjusted formula. CMS cites the examples of meals, changes of clothing and onsite child care.
9. Non-monetary compensation to a physician that exceeds the $423 limit set forth in the current rule’s formula. CMS cites the examples of continuing medical education (CME) related to the outbreak, supplies, food, grocery items, transportation and “isolation needs” such as hotel rooms.
10. Loans to physicians with interest rates that are below fair market value or on terms that would be unavailable from commercial lenders. CMS cites as examples: (1) a loan to an anesthesia provider to offset lost income resulting from the cancellation of elective procedures, if this is necessary to ensure capacity for COVID-19; and (2) a loan to cover a physician’s 15% contribution to hospital-provided electronic health records (EHR) software and services in order to continue the physician’s access to the system.
11. Loans from a physician to an entity (again, this seems likely only in the case of entities that are owned in whole or part by physicians) with interest rates that are below fair market value or on terms that would be unavailable from commercial lenders.
12. The referral by a physician-owner of a hospital that temporarily expands its capacity above the number of operating rooms, procedure rooms and beds otherwise capped under the Stark Law’s regulations applicable to physician-owned hospitals.
13. Referrals by a physician owner of a hospital that converted from a physician-owned ambulatory surgical center to a hospital on or after March 1, 2020, subject to several conditions set forth in the blanket waiver. (If a state has adopted an Emergency Preparedness or Pandemic Plan, ASCs may convert to Medicare-participating hospitals, even if they would otherwise be unable to satisfy certain Medicare conditions of participation related to hospitals.)
14. A physician’s referrals to a home health agency (HHA) owned by the physician, if the HHA does not qualify as a rural provider under the Stark Law and regulations.
15. The referral by a physician in a group practice for medically necessary services furnished by the group practice in a location that does not qualify as a “same building” or “centralized building” under the Stark regulations. This appears designed to facilitate social distancing and the provision of testing services in a broader array of settings.
16. The referral by a physician in a group practice for medically necessary services furnished by the group practice to a patient in his or her private home, an assisted living facility, or independent living facility where the referring physician’s principal medical practice does not consist of treating patients in their private homes.
17. A physician’s referral to an entity with which the physician’s immediate family member has a financial relationship if the patient who is referred resides in a rural area.
18. Referrals by a physician to an entity with whom the physician has a compensation arrangement that does not satisfy the writing or signature requirement(s) of an applicable exception, but satisfies each other requirement of the applicable exception, unless such requirement is waived under one or more of these blanket waivers.

The final blanket waiver (#18) sets aside at least for now two of the most formalistic aspects of the Stark Law — the writing and signature requirements — that have long served as a trap for the unwary. While providing welcome flexibility during urgent times, parties should continue to preserve all records relating to waived arrangements, and where circumstances permit may still prefer to record their arrangements in writing.

What’s left out of the waivers?

While broad, the blanket waivers do not remove all potential Stark-related hurdles. Cumbersome requirements under the Stark Law’s several compensation exceptions appear to remain in place (or perhaps are yet to be addressed by CMS), including, for example:

• The requirement under the rental, personal services and fair market value exceptions that payments be “set in advance” for the term of the arrangement. While the blanket waivers provide leniency to certain fair market value requirements, the rates finally used must apparently remain constant for the term of the parties’ arrangement — at least absent further clarification by CMS.
• Prohibitions against percentage of revenue charges and charges per use or “per click” in lease arrangements. While potentially useful ways to peg charges during periods of uncertain volumes, it remains unclear whether the blanket waivers loosen these requirements.
• The continued inability to amend prior physician recruitment arrangements in light of current, dramatically changed circumstances. Parties apparently (and for now) remain bound by their pre-existing recruitment arrangements, notwithstanding new circumstances presented by the pandemic.
• The blanket waivers on their face do not appear to apply to so-called “indirect compensation arrangements.” CMS states that the remuneration described in the blanket waivers must be “directly between the entity and … the physician or the physician organization in whose shoes the physician stands[.]” The apparent exclusion of indirect compensation arrangements may not have been intended by CMS, and additional clarification may be forthcoming. As things stand for now, it appears that compensation arrangements that do not fit under the Stark Law’s direct compensation exceptions (e.g., physician services, fair market value, space and rental exceptions) must still comply with Stark’s indirect compensation exception, including its writing and signature requirements — regardless of whether the arrangements are for COVID-19 purposes.

CMS may issue additional guidance or expanded waivers in the coming days. Nevertheless, even in the absence of additional relief, parties can continue submitting case-by-case waivers requests where Stark Law requirements continue to hobble their COVID-19 responses.

Final words

CMS’ blanket waivers apply to a broad array of arrangements addressing COVID-19 needs, and are a much needed and welcome relief for hospitals and providers struggling to provide life-saving care under extraordinary circumstances. In addition to the waivers, parties can continue to invoke the many existing exceptions to the Stark Law — and in fact in many instances reliance on the waivers will be unnecessary, even for one-off arrangements tailored specifically for COVID-19 response.

Faegre Drinker’s Coronavirus Resource Center is available to help you understand and assess the legal, regulatory and commercial implications of COVID-19.