Tips For Applying COVID-19 Stark Law Waivers
Among the many extraordinary measures taken by the federal government in response to the COVID-19 pandemic is the issuance of blanket waivers of certain provisions of the federal self-referral prohibition commonly known as the Stark Law.
The waivers loosen significant restrictions on physician financial relationships in an effort to provide health care providers with greater flexibility to meet the challenges of the pandemic. Although the waivers remove a number of key obstacles, they come with several unique qualifications and, as with all rules implementing the Stark Law, they demand careful application.
On March 30, the secretary of the U.S. Department of Health and Human Services issued blanket waivers of Section 1877(g) of the Social Security Act, which imposes sanctions for violations of the Stark Law. The waivers apply nationwide and may be used parties without providing notice to or receiving approval from the Centers for Medicare & Medicaid Services.
Although termed blanket waivers, the waivers do not suspend the Stark Law entirely; rather, they waive sanctions in a range of specified circumstances. Functionally, the blanket waivers operate as waivers of certain requirements of Stark Law exceptions. Financial relationships still must satisfy all non-waived requirements of an applicable exception to avoid a violation.
In all, there are 18 Stark Law blanket waivers in effect at this time. Most of the waivers relate to requirements for remuneration in exceptions for compensation arrangements (such as the requirement in many exceptions that remuneration be consistent with fair market value).
Others relate to requirements in exceptions for ownership or investment interests (such as the requirement that physician-owned hospitals not expand bed capacity beyond previously established limits).
Still others relate to other Stark Law requirements (such as the requirement that a physician in a group practice furnish certain services only in a location that qualifies as a same building or centralized building within the meaning of the exception for in-office ancillary services).
The blanket waivers apply only to financial relationships that relate to the COVID-19 pandemic. That is, to be within the scope of the blanket waivers, the remuneration and referrals at issue must be solely related to at least one of six pandemic-related purposes.
These COVID-19 purposes run the gamut from the diagnosis or treatment of COVID-19
(regardless of whether the patient is diagnosed with a confirmed case of COVID-19) to addressing medical practice or business interruption due to the COVID-19 pandemic in order to maintain the availability of medical care for the community.
Parties seeking to make use of the blanket waivers should appreciate the dynamic regulatory environment in which the waivers exist. The waivers may be revised from time to time, though the government has indicated that any revisions which narrow a waiver, and any termination of the blanket waivers, will be effective on a prospective basis only.
More to the point, CMS has already issued, on April 21, explanatory guidance concerning the application of the blanket waivers. The explanatory guidance addresses a number of questions of common concern, including questions related to the amendment of compensation arrangements, the repayment of loans made during the emergency period, and the application of the waivers to physician recruitment arrangements. A thorough review of the explanatory guidance is essential to a complete understanding of the blanket waivers.
Don't abandon the familiar analytical framework.
The blanket waivers do not fundamentally alter the way in which financial relationships should be analyzed. Any analysis should begin with an evaluation of whether the arrangement at issue implicates the Stark Law in the first place, and, if it does, whether it meets all of the requirements of an applicable exception.
If all the requirements of an applicable exception are met, so ends the analysis. If, however, one or more of the requirements are not met, one should determine whether the waivers potentially provide relief.
There is a natural temptation to zero in on the conduct permitted by the blanket waivers without considering the surrounding context. As noted above, however, financial relationships must satisfy all nonwaived requirements of an applicable exception to avoid a violation.
Thus, for example, while a professional services arrangement may be modified to temporarily provide for above fair market value compensation for furnishing care to COVID-19 patients, the arrangement must not provide for compensation that is determined in a manner that takes into account the volume or value of any referrals or other business generated between the parties, an essential element of both the personal services arrangements exception at Title 42 of Code of Federal Regulations 411.357(d) and the fair market value compensation exception at Title 42 of Code of Federal Regulations 411.357(l).
Another area worthy of consideration in this regard is that of medical staff incidental benefits and nonmonetary compensation. The blanket waivers allow remuneration from a hospital to a physician in the form of medical staff incidental benefits or nonmonetary compensation that exceeds the limits set forth in regulations.
But the waivers do not do away with the requirement in the medical staff incidental benefits exception that the compensation be offered to all members of the medical staff practicing in the same specialty, or with the requirement in the nonmonetary compensation exception that the compensation may not be solicited by the physician or the physician's practice.
Nor do the waivers affect the requirement common to both exceptions that the compensation not be determined in any manner that takes into account the volume or value of referrals or other business generated by the physician.
It also remains the case that parties should consider the potential application of the federal Anti-Kickback Statute, as well as state self-referral and anti-kickback laws, to any financial relationship with a potential referral source. On April 3, the HHS Office of Inspector General issued a policy statement indicating that it will exercise its enforcement discretion not to impose sanctions under the federal Anti-Kickback Statute for remuneration covered under certain of the Stark Law blanket waivers.
While health care providers have no doubt welcomed this exercise of regulatory flexibility, they should be mindful of the fact that the OIG's policy statement does not cover all of the conduct permitted under the Stark Law blanket waivers, and that the policy statement has no bearing on arrangements that are not covered by the blanket waivers.
Along the same lines, parties should consider the somewhat nebulous statement in the HHS announcement regarding the Stark Law blanket waivers that the waivers apply absent the government's determination of fraud and abuse.
Document, document, document.
Although hospitals, physicians and other health care providers may use the blanket waivers without the submission of specific documentation or advance notice to the government, they are required to make records relating to use of the waivers available to the secretary upon request. The available guidance is bereft of detail as to what these records should include.
As described above, use of the blanket waivers is conditioned not only on the existence of a valid COVID-19-related purpose, but the idea that the remuneration and referrals covered by the waivers be solely related to one of the enumerated purposes. Parties seeking to rely on the waivers would be well-advised to create contemporaneous documentation of the purpose of the arrangement as well as its material details.
This need not be complicated. A simple face sheet identifying the intended purpose of the arrangement would seem to go a long way. So too would an explanatory paragraph in the recitals of a short-term contract.
Likewise, documenting the reasons for a provider's actions in board or committee minutes could be helpful, particularly in the case of a more substantial change, like a physician-owned hospital's temporary conversion of observation beds to inpatient beds to accommodate an expected patient surge. And creating a single repository or designating a point person to track arrangements structured in reliance on the waivers can be accomplished with relative ease.
Good documentation practices improve compliance on the front-end and provide helpful support on the back-end, particularly where compliance hinges on the parties' intent. Not only will effective documentation provide some assurance that the parties have satisfied the conditions necessary to use the Stark Law blanket waivers, it also may help head off future litigation: as noted in the explanatory guidance released on April 21, HHS will work with the U.S. Department of Justice to address False Claims Act claims where parties have a good faith belief that their conduct is covered by the blanket waivers.
Enter with an exit plan.
The blanket waivers were issued on March 30, but are effective as of March 1. They will terminate in accordance with Section 1135(e) of the Social Security Act, which provides for termination upon (1) the termination of the presidential declaration of emergency or disaster, (2) the termination of the secretary's declaration of a public health emergency, or (3) the end of the 60-day period following the issuance of the waiver, which period may be extended by the secretary.
In the context of the COVID-19 pandemic, this standard likely means the Stark Law blanket waivers will terminate upon the formal termination of the declarations issued by the president and the secretary, whichever comes first. Parties may not rely on the waivers thereafter.
The import of this limited window of effectiveness is that parties relying on a waiver should plan to get out before they get in. The Stark Law is, after all, a strict liability law, at least in most senses. If the parties continue to maintain a financial relationship that was compliant during the emergency period only by virtue of the application of one or more waivers, they will, following the end of the emergency period, be party to a noncompliant financial relationship.
The form of the exit plan will of course depend on the details of the arrangement. Parties may wish to tether the effect of certain terms to the emergency period (or more directly to the period during which the blanket waivers are in effect), or they may seek to include change in law provisions that specifically contemplate the termination of the waivers.
In certain contexts, such as the expansion of capacity in a physician-owned hospital, or the temporary conversion of a physician-owned ambulatory surgical center to a hospital, the unwind strategy may be a bit trickier but is nevertheless essential to maintaining compliance.
Mind the limits of loans.
Two of the blanket waivers address remuneration in the form of a loan with an interest rate below fair market value or on terms that are unavailable from a lender that does not have a referral relationship with the loan recipient. With a couple of exceptions, the concept of a hospital lending money to a referring physician practice on any terms is not exactly ordinary practice.
Of course, these are extraordinary times. Specialists whose practices depend heavily on elective procedures, like anesthesiologists, have sustained heavy losses, and hospitals may seek to support these physicians to ensure the continued availability of their services for hospital patients.
Parties seeking to use these blanket waivers should bear several things in mind.
First, loan arrangements, like any other financial relationship that implicates the Stark Law, must meet the requirements of an applicable exception. Loans may be structured in accordance with the exceptions for isolated transactions or fair market value compensation, among others. Both of those exceptions include a requirement that the remuneration not be determined in a manner that takes into account the volume or value of any referrals. Both also include a commercial reasonableness requirement.
Along the same lines, parties must bear in mind both the need for the loan to relate solely to an enumerated COVID-19 purpose and the potential application of other laws, namely the federal Anti-Kickback Statute. Loans that go beyond pandemic-related business interruption or that are not necessary to maintain the availability of medical care in the community may be problematic.
Because the blanket waivers are only effective for a limited period of time, many have raised questions about the repayment of loans made in reliance on the blanket waivers. In particular, stakeholders have expressed concern that the arrangements would, after the termination of the blanket waivers, no longer satisfy the requirements of an applicable exception because the interest charges would not be consistent with fair market value.
CMS has indicated, however, that appropriate repayment terms agreed to prior to the termination of the blanket waivers may continue beyond the termination of the blanket waivers without resulting in noncompliance. With that said, the post-termination disbursement of loan proceeds would not be covered by the waivers.
Lastly, parties evaluating potential loan arrangements should consider the government's commentary in the supplementary explanatory language. In response to questions about whether a physician could repay a loan in kind (whether through professional services or through the provision of office space or other items), CMS observed that in-kind repayment is not prohibited.
Indeed, CMS noted that the maintenance of a medical practice and continuing to serve patients in the community where the entity is located "may constitute a physician's in-kind loan repayment … depending on the applicable facts and circumstances."
CMS cautioned, however, that the blanket waivers do not waive sanctions related to the repayment of a loan. In other words, there must be consistency between the value of any in-kind payments and the amount by which the loan balance is reduced. Suffice it to say any such arrangement would benefit from a thorough valuation.
The article, Tips for Applying COVID-19 Stark Law Waivers, was originally shared by Law360 on May 8, 2020.