Physician Referrals: New Rules Offer Some Stark Law Relief but Not Nearly Enough

Like most budget bills, the new federal Bipartisan Budget Act of 2018 includes a number of changes to Medicare fraud and enforcement requirements. One set of changes affects the current physician referral rules under the Stark Law. So, to the extent you are owned by or do business with physicians (and what lab or pathology practice isn’t?), you need to be on top of the changes.

The Context
The Stark Law, aka Physician Self-Referral Law, bans physicians from referring Medicare or Medicaid patients to labs in which the physicians or a family member have a financial relationship unless the transaction meets a specific exception. The Stark Law is what is known as a strict liability law. Translation: Just committing the banned action triggers liability regardless of whether you meant to or what your mental state was.

Over the years, many in the health care industry have contended that the law is too strict and that it throttles not only business but critical collaboration between physicians and labs (and, of course, other providers). Two years ago, Congress held hearings to discuss whether Stark should be rolled back to allow for value-based, coordinated health care service business models and arrangements. (To learn more, see GCA, Aug. 15, 2016.) On Jan. 17, 2018, CMS Administrator Seema Verma stated that an inter-agency review would tackle the issue of reducing Stark Law burdens.

Unfortunately, while they are intended to make Stark Law compliance simpler, the BBA changes are not the kind of fundamental reforms Congress was talking about back in 2016 or that Ms. Verma was hinting at in January. In fact, the changes are not even new rules so much as codification and clarification of previous changes. Still, they could very well have an impact on your current or future physician business arrangements. These are the three changes you need to be on top of.

1. Clarification of How to Meet the Writing Requirement
Several of the Stark Law exceptions allowing for compensation arrangements between physicians and referral sources require that there be a written agreement between the sides. The BBA change clarifies that the written agreement requirement does not necessarily mean a literal contract but may also be satisfied “by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties involved.”

2. Clarification of How to Meet the Signature Requirement
Another common requirement of Stark Law compensation arrangements is the signature of the parties. The BBA change clarifies that the requirement can be satisfied if the parties obtain the necessary signatures “not later than 90 consecutive calendar days following the date on which the compensation arrangement became noncompliant” as long as the arrangement meets all of the other applicable criteria. The reason this is something of a big deal is that the previous formulation in the Stark legislation was out of whack with the signature requirement language in the regulations. The BBA change fixes the problem so that now both the statute and regulation say the same thing.

3. Clarification of How to Meet Holdover Lease & Personal Service Agreement Exception
Stark Law exceptions allow for physicians to enter into leases (both office and equipment) and/or personal service arrangements with referral sources provided that the terms of the lease/service contract provide for fair, market value rent/compensation not reflecting the value of referrals. There are also provisions allowing for “holdovers,” i.e., leases/service arrangements that continue in effect past the term stated in the written agreement, for up to six months. The BBA revokes the six-month limitation and clarifies that indefinite holdovers of office space or equipment leases and/or personal services arrangements are allowed provided that the following four conditions are met:

  1. The immediately preceding arrangement expired after a term of at least one year (i.e., indefinite holdovers are not in play for short-term arrangements);
  2. The preceding arrangement met all of the requirements of the exception when it expired (i.e., noncompliant arrangements do not qualify for indefinite holdover protection);
  3. The holdover arrangement must be on the same terms and conditions as the previous arrangement; and
  4. The holdover arrangement must continue to satisfy the applicable conditions of the exception.

Takeaway: The main significance of the BBA Stark Law changes is that they iron out inconsistencies between the Stark legislation and implementing regulations and clarify what the parties must do to meet some of the more problematic requirements of the exceptions. While this is a welcome and favorable development, it is a far cry from the fundamental reform and easing up of the Stark Law that the industry has been craving and that, given the political orientation of the current administration, might actually come to fruition in the not all too distant future.


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