By: Andrew B. Eills
April 9, 2020
Last week, the Centers for Medicare and Medicaid Services (CMS) issued blanket waivers of sanctions under the federal physician self-referral law, also known as the “Stark law.” https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf The purpose of these waivers is to support physicians and health care providers in responding to the COVID-19 national emergency. These waivers allow providers to enter into financial arrangements that might be otherwise illegal. This development is significant because, as a result of and during the pandemic, hospitals and other healthcare providers will need to enter into immediate and new financial arrangements to conduct operations in the most effective and efficient manner they can. The blanket waivers are effective March 1, 2020 and may be used without notifying CMS. The waivers will sunset when the national emergency declaration is terminated. The waivers are national in scope and may be revised from time to time, and any narrowing or elimination of a waiver shall be on a prospective basis only.
The Stark Law
In a nutshell, the Stark law prohibits a physician from making referrals for “designated health services,” paid for by Medicare, to an entity with which the physician has a financial relationship, unless all the requirements to an exception to the prohibited referral are satisfied. “Designated health services” cover a wide variety of services, from hospital stays to lab tests to specialist care. A “financial relationship” can be a compensation arrangement with the entity such as an employment relationship or an ownership or investment interest in the entity. The Stark law also prohibits the entity from filing a claim with Medicare for payment (or billing another entity) for the services provided pursuant to a prohibited referral.
Because the Stark law on its face would prohibit a great variety of business relationships, over the past 30 years of the law’s existence, CMS has enacted multiple exceptions permitting certain financial relationships. If the arrangement falls squarely within an exception there is no risk of making an illegal referral or an illegal claim for payment of a referral. The danger lies in the nature of the law; the Stark law is a strict liability statute. If a financial arrangement does not satisfy each requirement of an exception, the referral (and claim for payment) will be illegal. Sanctions for violation of the referral and claims submission prohibitions are significant; penalties can result in up to $15,000 for each billed service based on a prohibited referral, plus three times the amount of any overpayment.
Under normal circumstances, providers have found daunting the complexity of the exceptions and the potential for penalties. Faced with the challenges the COVID-19 emergency presents, CMS now recognizes that the ability to cope with increasing caseloads of coronavirus- inflicted patients, coupled with loss of revenue as a result of the reduction of elective surgeries, may force providers to seek alternative arrangements that have not yet been permitted under existing Stark law exceptions.
The Effect of “Blanket Waivers”
Health care providers that furnish items and services in good faith, but are unable to comply with one or more specific requirements of the Stark law as a result of the COVID-19 pandemic, may submit claims for reimbursement and are exempted from Stark noncompliance (unless there is a finding of fraud and abuse).
The blanket waivers only apply to remuneration (payment) that flows directly between the entity and (1) the physician or physician organization in whose shoes the physician stands under 42 CFR § 411.345(c); or (2) the immediate family member of the physician.
Significantly, the remuneration and the referrals described in the blanket waivers must be solely related to “COVID-19 Purposes.” Examples of a “COVID-19 Purpose” include:
- Diagnosis or medically necessary treatment of COVID-19 for any patient or individual, whether the patient or individual is diagnosed with a confirmed case of COVID-19;
- Securing the services of physicians and other health care practitioners and professionals to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID-19, in response to COVID-19;
- Ensuring the ability of health care providers to address patient and community needs due to COVID-19;
- Expanding the capacity of health care providers to address patient and community needs due to COVID-19;
- Shifting the diagnosis and care of patients to appropriate alternative settings due to COVID-19; or
- Addressing medical practice or business interruption due to COVID-19 in order to maintain the availability of medical care and related services for patients and the community.
The Blanket Waivers
CMS has waived the sanctions that normally would be imposed for improper referrals and claims resulting from a violation of an applicable exception. Thus, the following arrangements (and examples provided by CMS) are permitted if necessitated by a COVID-19 Purpose:
- Personal Services Exception: Remuneration from an entity, such as a hospital, to a physician (or immediate family member) that is above or below the fair market value for services personally performed by a physician (or immediate family member) to the entity. Example: A hospital pays physicians a greater amount than contracted for under a professional services agreement to furnish services to COVID-19 patients in particularly hazardous environments.
- Space and Equipment Exception: Rental charges paid by an entity to a physician that are below fair market value for the entity’s lease of office space from the physician; or rental charges paid by a physician to an entity that are below fair market for the physician’s lease of equipment from the entity. Examples: To accommodate patient surge, a hospital rents office space or equipment from an independent physician practice at below fair market value or at no charge; a hospital provides free use of medical office space on its campus to allow physicians to provide timely and convenient services to patients not in need of inpatient services; or, a hospital provides free telehealth equipment to a physician practice to facilitate telehealth visits for patients who are observing social distancing or in isolation or quarantine.
- Incidental Medical Staff Benefits Exception: Remuneration from an entity to a physician (or immediate family member of a physician) of medical staff incidental benefits that exceeds the limit set forth in 42 CFR §411.357(m)(5). Example: A hospital provides meals, comfort items (for example, a change of clothing), or onsite childcare with a value of greater than $36 per instance to medical staff physicians who spend long hours at the hospital during the COVID-19 outbreak).
- Nonmonetary Compensation Exception. Remuneration from an entity to a physician (or physician’s family member) in the form of nonmonetary compensation that exceeds the limit set forth in 42 CFR § 411.357(k)(1). Examples: A hospital provides nonmonetary compensation in an amount in excess of the $423 per year limit for CME relating to the COVID-19 outbreak in the US, supplies, food, isolation needs (for example, hotel rooms and meals), childcare, and transportation; or, an entity sells, or provides at no charge, personal protective equipment to a physician.
- Below Market Rate Loans. Remuneration from an entity, such as a hospital, to a physician (or immediate family member) resulting in a loan to the physician (or immediate family member): (1) with an interest rate below fair market value, or (2) on terms that are unavailable from a lender that is not a recipient of the physician’s referrals or business generated by the physician. Examples: A hospital lends money to a physician practice that provides exclusive anesthesia services at the hospital to offset lost income resulting from the cancellation of elective surgeries to ensure surgical capacity for COVID-19 needs or covers a physician’s contribution for EHR items and services.
- Signature Requirements. A compensation arrangement that commences prior to the parties obtaining required documentation of the arrangement in writing and the signatures of the parties, but otherwise satisfies the requirements of the exceptions. Examples:
- A physician provides call coverage services to a hospital before the arrangement is documented and signed by the parties;
- A physician with in-office surgical capability delivers masks and gloves to the hospital before the purchase arrangement is documented and signed by the parties;
- A physician establishes an office in a medical office building owned by the hospital and begins treating patients who present at the hospital for health care services but do not need hospital-level care before the lease arrangement is documented and signed by the parties; or
- The daughter of a physician begins working as the hospital’s paid COVID-19 outbreak coordinator before the arrangement is documented and signed by the parties.
To the extent possible, providers should document the “COVID-19 Purpose” of an arrangement and set in place provisions that terminate arrangements at the conclusion of the national emergency. Documentation with this information will help to ensure that claims submitted during and after the emergency declaration will receive appropriate reimbursement and not be deemed prohibited referrals subject to False Claims Act Liability, civil monetary penalties, repayment obligations and/or federal program exclusion.
 Section 1877 of the Social Security Act