Life Science Compliance Update

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February 01, 2017

Stark Law Regulatory Changes for 2017


The Centers for Medicare and Medicaid Services (CMS finalized) the 2017 Medicare Physician Fee Schedule (PFS) rule. This rule, which took effect on January 1, 2017, updates payment policies and rates for services furnished under the PFS. A CMS fact sheet summarizing the major components of the rule is available here. The rule included several updates to and clarifications regarding the federal physician self-referral law (or “Stark Law”).

Changes in Regulation

As reported, CMS reissued its prohibition on certain unit-based rental arrangements with referring physicians, adopted updates to the list of CPT/HCPCS codes defining certain of the Stark Law’s designated health services, and implemented a minor technical change to its instructions for submitting a request for an Stark advisory opinion.

Absent an exception, the Stark Law prohibits a physician from referring patients for certain designated health services (“DHS”), for which payment may be made under Medicare, to an “entity” with which the physician (or an immediate family member) has a “financial relationship.” Likewise, the statute prohibits the DHS-furnishing entity from filing claims with Medicare for those referred services. The Stark regulations define financial relationship as either a direct or indirect ownership or compensation arrangement between the DHS entity and the referring physician.

In the rule, CMS included a lengthy discussion of “unit-based compensation” in arrangements for the rental of office space or equipment (so-called “per-click” arrangements).  This discussion stemmed from an opinion issued by the D.C. Circuit on June 12, 2015 in Council for Urological Interests v. Burwell.

In response to the D.C. Circuit’s ruling in Council for Urological Interests, CMS reissued its ban on per-click rental charges in both office space and equipment lease arrangements. However, CMS emphasizes that it “did not propose and [is] not finalizing an absolute prohibition on rental charges based on units of service furnished” and that “[i]n general, per-unit of service rental charges for the rental of office space or equipment are permissible.” As CMS had previously stated, the per-click ban applies only “to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.”

The final rule argues that “the physician self-referral statute responds to the context of the times in which it was enacted . . . [and] incorporates sufficient flexibility to adapt to changing circumstances and developments in the health care industry.” CMS reiterated its primary concerns with permitting physician lessors to charge rent to lessees for each patient referred to the leasing entity – namely, overutilization of services, patient steering, reduction in the quality of care and patient outcomes, and increased costs to the Medicare program.

The ban on per-click rental charges in office space and equipment lease agreements has been re-finalized by CMS. Although CMS’s clarifications and purportedly new rationales for implementing this rule may again come under fire from the health care industry, as it stands, providers should remain wary of this prohibition and ensure that all lease agreements entered into with a referral source meet the applicable requirements for the Stark exceptions for office space or equipment leases.

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