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Health care providers in conducting business must navigate through many complicated regulations such as Stark law. Stark law governs physician self-referral for Medicare and Medicaid patients. Generally, a physician who has a “financial relationship” with a healthcare entity may not make referrals to that entity for health services unless if the relationship falls under one of the exceptions. Financial relationship is defined as a direct or indirect relationship which includes an ownership interest or compensation arrangement by or between a physician and an immediate family of the physician. The Stark Law‘s definition of “referral” is broad, generally encompassing any request for an item or service covered under Medicare Part B, but it excludes services performed personally by the referring physician in her own office or at the hospital for which the physician bills Medicare Part B.  However, if the service is made by anyone other than the referring physician such as a staff member, a referral has been made. Additionally, a physician performing surgery at the hospital would still be making a referral to the hospital and any financial relationship between the physician and hospital must fit into an exception. The exceptions are of three kinds: (1) exceptions that are related to both ownership/investment and compensation 42 CFR 411.355; (2) exceptions related solely to ownership/investment interest 42 CFR 411.356; and (3) exceptions related solely to compensation arrangements 42 CFR 411.357.

Stark law is a strict liability statute, and it does not require a criminal intent, so even if the violation is not intentional, it is still a violation. Violators of Stark law have to pay fines, refund payment, and may be excluded from participating in the Federal health care programs. The rationale behind Stark law is that physicians should act for the patient’s best interest and not doctor’s financial interest, and such financial arrangements may encourage excessive use of services which drives up health care costs.

Two new exceptions to the Stark law came into effect in January 2016.

  1. Recruitment of non-physicians practitioner

Traditionally, compensation for the recruitment of non-physician practitioners (“NPP”) was banned because of the possible risk of fraud or abuse.  However, the new exception allows compensation as long as it comes from a hospital to the physician for the purpose of hiring the non-physician practitioner (PAs, NPs, clinical nurse specialists, certified midwives, clinical social workers and clinical psychologists). This can recur to the same physician or physician practice once every three years. However, it requires that “substantially all” services provided by the NPP to be primary care services or mental health care services. Additionally, the amount of compensation cannot be higher than 50 percent of the NPPs’ salary, and NPP’s salary should not exceed the fair market value. However, these restrictions only apply to the first two years of the NPP’s employment.

Consequently, these exceptions put the hospital at risk if remuneration is higher than 50 percent of the NPPs’ salary, and NPP’s salary is above the fair market value, or if NPP’s services are not “substantially all” primary care or mental health care services. To avoid liability, it is wise for the hospitals to require the physician practice to offer some representation of warranties to comply with the Stark requirement or agree to indemnify the hospital if it is out of compliance.

  1. Physician Timeshare Arrangement

This exception addresses arrangements for the use of another person or entity’s premises, equipment, personnel, items, supplies, or services by physicians who, for different reasons, are not interested in a traditional office space lease arrangement because traditional timeshare arrangements did not satisfy Stark, thereby forced physicians and their landlords to enter formal, inefficient, and sometimes impractical lease arrangements. However, 42 CFR 411.357(y), permits physicians and hospitals or other physician groups to share “space, equipment, personnel, items, supplies or services” through non-exclusive timeshare arrangements as long as: (1) the arrangement is set out in writing; (2) The arrangement is between a physician (or the physician organization in whose shoes the physician stands) and (i) a hospital; or (ii) a physician organization of which the physician is not an owner, employee, or contractor; (3) the space, equipment and other items provided are used predominantly for evaluation and management services to patients on the same schedule; (4) any equipment provided is located in the same building where the services are furnished, and is not used to provide designated health services (DHS) for which referrals are prohibited under the Stark law except where they are incidental to, and provided at the time of evaluation and management visit, and is not advanced imaging, radiation therapy, or laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests); (4) the compensation over the term of the arrangement is set in advance, consistent with fair market value without regard to the volume or value of referrals or other business generated between the parties; (5) the arrangement is commercially reasonable; (6) the arrangement has to comply with the anti-kickback statutes or any Federal or State law or regulation governing billing or claims, and (7)  this arrangement is not available in situations where the arrangement establishes a possessory leasehold interest in the space.

This exception has created new opportunity for hospitals and physician organizations to share space, equipment, and services without violating Stark law. Furthermore, the new rule has eliminated the time limitation on contract holdovers. It does not require physicians who already have compensation arrangements that fall under a Stark Law exception, to renew the arrangement agreement once the contract expires if the arrangement continues under the same terms. Moreover, in the past the renter was required to have exclusive use of the space and a 1-year contract; however, now the timeshare arrangement allows part-time arrangements which is helpful for underserved areas who do not have the resources to have a particular specialist full-time. Additionally, this exception allows physicians to relocate their practice before their current lease expires. However, one needs to note that the timeshare arrangement exception does not extend to arrangements between physicians and other DHS entities such as a laboratory or independent diagnostic testing facility. Therefore, the traditional rental of office space exception which requires 1 year written contract and includes exclusive use requirement seem to be the only available option for entities other than hospitals.

For the foregoing reasons, an experienced health care attorney can help you evaluate whether the Stark law and any of the exceptions apply to your relationship.

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