CMS Posts New Stark Law FAQs On Its Website



CMS has added Frequently Asked Questions to its website addressing certain questions left open by the Stark II, Phase III final rule.  Highlights include the following:

  • Hospitals, FQHCs and staffing companies are not "physician organizations";
  • Physicians do not have to sign contracts between their "physician organizations" and others in order for the contracts to qualify for a direct compensation arrangement exception;
  • Physicians and group practices that share office space with other physicians or groups may qualify for the in-office ancillary services exception (note however that, unless the arrangement is structured as a block lease, it may be difficult to qualify for the applicable space and equipment lease exceptions); and
  • CMS' position on the termination/amendment of space and equipment leases applies to personal services arrangements.

Definition of Physician Organizations

In the Phase III rule, CMS revised the definition of a "direct compensation arrangement" to provide that a physician will be deemed to stand in the shoes of his or her "physician organization" (i.e., the physician will be deemed to have a direct compensation arrangement with a DHS entity if the only intervening entity between the physician and the DHS entity is the physician's physician organization).   CMS defined "physician organization" to include solo physicians, Stark group practices and "physician practices."  However, CMS did not define the term "physician practice," causing confusion as to what entities were “physician organizations.”

The FAQs clarify that physician organizations do not include, (i) hospitals (but may include separate legal entities owned by hospitals and organized for the purpose of owning and operating physician practices), (ii) federally qualified health centers, (iii) legal entities that include a faculty practice plan and either a medical school or hospital, or both, (iv) medical schools that do not operate a faculty practice plan but employ physicians to provide clinical and academic services, or (v) staffing companies that do not directly provide and bill for patient care services.

Based on our conversations with CMS, it appears that physician organizations also may not include hospitalist staffing or EMR companies, even though these companies may provide and bill of patient care services.  CMS' rationale seems to be that while these companies may provide and bill for services, their physicians do not practice together in the traditional sense.

Stand in the Shoes; Signature Requirements for Contracts with Physician Organizations

Many of Stark's direct compensation arrangement exceptions require written agreements executed by the parties.  As discussed above, the "stand in the shoes" doctrine provides that physicians are deemed to be direct parties to contracts between their physician organizations and other entities.  However, CMS clarifies in the FAQs that physicians need not sign the contracts to which their physician organizations are parties; rather the signature of a single authorized representative of the physician organization is sufficient to satisfy the signature requirement in the direct compensation arrangement exceptions.

Note however that the FAQs do not change the signature requirement with respect to "physicians in the group practice."  To fit services performed or supervised by an independent contractor physician (other than a locum tenens physician or an on-call physician providing services on-call) into either the physician services exception or the in-office ancillary services exception, the contractor must meet the definition of a "physician in the group practice."  In the Phase III rule, CMS provided that, to be considered a "physician in the group practice," independent contractor physicians must have a direct contractual arrangement with the group.  CMS confirms in the FAQs that the independent contractor physician must either sign a contract directly with the group or must sign the contract between the group and, for example, the physician's employer.

Shared Office Arrangements and the In-Office Ancillary Services Exception

In the Phase III rule, CMS seemed to suggest that, as a practical matter, qualification for the in-office ancillary services exception was impossible in shared office arrangements where the parties do not use space and equipment exclusively for specific blocks of time.  CMS clarifies in the FAQs that, to qualify for the in-office ancillary services exception, shared office arrangements do not necessarily need to be structured as block leases; provided that the location and billing requirements of the exception are satisfied and the in-office ancillary services are supervised by a member of the group practice.

However, note that office sharing arrangements not structured as block leases may not satisfy the applicable space and equipment lease exceptions.  The lease exceptions require that, except for common areas, the space and equipment be used exclusively by the lessee during the time periods it is leased and not be shared with or used by the lessor during those time periods.  Common areas include foyers, central waiting rooms, break rooms, vending areas, etc.  Common areas do not include exam rooms.  Certain limited equipment may be located in common areas and shared.  However, equipment that may be located in a common area and shared is limited to the type of equipment that is not usually separately leased.  For example, common areas such as hallways used by non-physician staff to weigh patients or draw fluid samples may be shared.  However, imaging equipment likely could not be located in a common area and shared.

Accordingly, a non-block lease office sharing arrangement may not preclude a group from referring ancillary services to itself (which services may still be protected by the in-office ancillary services exception).  However, notwithstanding the FAQs, such an arrangement may preclude referrals of DHS between the parties to the arrangement if the arrangement does not qualify for the applicable lease exceptions.

Termination and Amendment of Services Agreements

Many of Stark's direct compensation arrangement exceptions include a requirement that compensation be "set in advance."  In the Phase III rule, CMS interpreted the set in advance requirement to prohibit changing the rental in a lease during the term of the agreement.  The parties may change the rental only after the agreement has been in effect for 1 year and only by terminating the agreement and entering into a new agreement.  In the FAQs, CMS clarifies that it takes the same position with respect to personal services arrangements, and that the provisions regarding termination/amendment of office space and equipment leases are applicable to these arrangements.

There are several other topics discussed in the FAQs which can be found at:

The Physician Self-referral FAQs provide a little insight into the labyrinth that is the Stark law and its various phases of interpretative rulemaking.  Hopefully CMS will continue adding content as questions regarding the interpretation of Phase III continue to surface.

For more information on the FAQs and the Stark Law, please contact any member of Boult, Cummings, Conners & Berry, PLC’s Health Care Operations and Compliance Team.