May 04, 2020

CMS Issues Explanatory Guidance Regarding Stark Blanket Waivers

On April 21, 2020, the Centers for Medicare and Medicaid Services (CMS) issued a brief explanatory guidance document related to the scope and application of its previous Stark Law blanket waivers to certain financial relationships. Released by CMS on March 30 but made retroactive to March 1, the blanket waivers apply to any arrangements entered into for “COVID-19 purposes” that fall within one or more of the agency’s 18 listed waivers.

Waivers — and not new exceptions

The Explanatory Guidance first clarifies that the Stark Law waivers should not be mistaken for Stark Law exceptions. Financial relationships between physicians and providers still need to satisfy all non-waived requirements of an applicable Stark exception in order to avoid the law’s referral and billing prohibitions. Depending on the relevant exception, those requirements may include (for example) the one-year term and set in advance requirements, as well as the exclusive use and per-click payment prohibitions found in the rental exceptions. Some had read the waivers more broadly to protect any arrangement described in the waiver — without further restriction — but the Explanatory Guidance corrects this misperception.

One-year and set-in-advance requirements

The clear implication of this clarification is that the set in advance and one-year term elements continue to apply under the blanket waivers, leading CMS to address the obvious conundrum this raises: how can providers comply with these particular requirements while making temporary adjustments that (they hope) won’t be needed for more than a year, and when it may be difficult to “set in advance” an exact amount or formula for any compensation adjustments?

With regard to the one-year requirement, the Explanatory Guidance states that, even without use of the blanket waivers, compensation terms can be amended within the first year as long as “the overall arrangement [as opposed to the specific compensation term] remains in place for at least 1 year following the amendment[.]”1 Arrangements relying on a blanket waiver will need to be amended again (or terminated) at the expiration of the waivers. CMS states that at that point, the payment terms of the arrangement may be amended again — either to return to the original terms, or “to effectuate additional necessary modifications to the arrangement[.]” In other words, the blanket waivers would seem to allow parties to reset compensation terms twice within a single year — once for pandemic purposes, and a second time as needed to reset to the new norm.

Regarding the continued applicability of the set-in-advance requirement found in many in the existing Stark Law regulatory exceptions, CMS did not provide further guidance — other than its broad admonition that all elements of an applicable Stark exception continue to apply unless expressly waived by the blanket waivers. Some had speculated that CMS had accidentally omitted reference to the set-in-advance element in its initial blanket waiver document. However, it is now clear that even temporary arrangements designed solely for pandemic purposes must set forth prospective and objectively definable compensation terms.

Indirect compensation arrangements not waived

CMS’ blanket waivers did not on their face apply to so-called “indirect compensation arrangements” — that is, arrangements with intervening entities instead of directly between an entity and a physician or physician organization in whose shoes the physician stands. The Explanatory Guidance confirms that CMS’ omission of indirect compensation arrangements in its blanket waivers was no accident. However, CMS reminds parties that some indirect compensation arrangements may in fact qualify under the blanket waivers due to existing regulations that permit physicians to elect to “stand in the shoes” of their practice groups for purposes of Stark Law analysis. While this is true where stand-in-shoes principles apply, where they do not — for example, when the intervening entity is a management services organization, investment company or some other non-physician organization — parties must still comply with Stark’s indirect compensation exception, including its writing and signature requirements, regardless of pandemic conditions, if there is an indirect compensation arrangement.

Loan repayment and commercial reasonability

Two of CMS’ blanket waivers (#10 and #11) provided leniency for loans to physicians with interest rates below fair market value and/or on other terms that may not be available from banks and other commercial lenders. In the Explanatory Guidance, CMS acknowledges that “[t]he maintenance of a medical practice and continuing to serve patients in the community where an entity is located may constitute a physician’s in-kind loan repayment to the entity depending on the applicable facts and circumstances of the parties.” However, CMS warns that the blanket waivers do not waive Stark Law sanctions for referrals and claims provided in exchange for loan forgiveness, and adds somewhat paradoxically: "compensation arrangements involving in-kind payments must be commercially reasonable[.]” CMS offered no further explanation as to how below market interest rates or loan forgiveness in exchange for community service might satisfy this commercial reasonableness requirement.

Physician recruitment changes

Physician recruitment was another topic not addressed by the blanket waivers. Under longstanding CMS guidance, parties to hospital-physician recruiting arrangements are not allowed to amend their arrangements after the physician has relocated his or her practice to the hospital’s community. Can pre-pandemic recruitment arrangements be modified in light of current, dramatically changed circumstances — for example, to extend the physician’s income guarantee, or to increase or decrease the guaranteed amount? CMS responds that they may not modify such arrangements, but reminds parties that the blanket waivers may provide other, indirect relief. For example, blanket waiver #5 allows below fair market value charges for the physician’s lease of office space, and waiver #10 allows non-fair market value loans to physicians — which could be in addition to any loans or guarantees already furnished under a preexisting recruitment arrangement.

Parting solace

Overall, the Explanatory Guidance, like CMS’ initial blanket waivers, shows remarkable flexibility and responsiveness on the part of the agency in addressing the circumstances of the pandemic. While not relieving physicians and providers entirely from the Stark Law’s complicated requirements, parties working to address short-term crises caused by COVID-19 have more tools than ever before. And while whistleblowers and False Claims Act cases continue to abound, CMS opened the Explanatory Guidance with a remarkable assurance: that it “will work with the Department of Justice to address False Claims Act relator suits where parties using the blanket waivers have a good faith belief that their remuneration or referrals are covered by a blanket waiver.”

Given the regulatory complexities of the Stark Law even in normal times, this is good news indeed for health care providers.

  1. The Explanatory Guidance cites CMS’ 2009 preamble guidance in making this statement. In fact, the statement constitutes a significant expansion of CMS’ long-held interpretation requiring that “the amended rental charges or compensation (or the formula for the new rental charges or compensation) [i.e., not just the “overall arrangement”] remain in place for at least 1 year from the date of the amendment.” 73 Fed. Reg. at 48697.

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