New Year Brings New Stark Law Exceptions

Effective Jan. 1, 2016, hospitals and health systems may take advantage of two new exceptions to the federal Stark law: one that will allow them to help physician-owned practices recruit and employ or contract with non-physician practitioners (NPPs), and one that expressly permits physician-hospital timeshare arrangements (click here to see the new rules). Given current trends in the delivery of designated health services (DHS), these new exceptions provide welcome reinforcements on the Stark compliance front.

Assistance in Employing Non-Physician Practitioners

In response to concerns about the shortage of available primary care and mental health services, and in acknowledgement of new and evolving care delivery models, Centers for Medicare & Medicaid Services (CMS) promulgated an additional Stark exception that permits a hospital, federally qualified health center (FQHC) or rural health center (RHC) to assist a physician or physician-owned practice in recruiting a NPP. The exception is available for many common categories of NPPs – physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives – and for clinical social workers and psychologists. Because the goal, however, is to promote expansion of access to primary care and mental health services in particular, the exception is not available for the recruitment of certified registered nurse anesthetists, physical therapists, or lab, ultrasound or x-ray technicians.

Technical requirements generally track the physician recruitment exception. In addition, the following restrictions apply:

• Remuneration to the physician or practice may not exceed 50 percent of the NPP’s compensation and benefits for the first two years.
• The recruitment assistance may not exceed two years.
• The hospital, FQHC or RHC may use the exception for a particular physician or practice only once every three years, unless the recruited NPP is replacing another recruited NPP who left the practice within one year.
• The NPP cannot have practiced in the same geographic area within the year prior to the beginning of the employment or contractual relationship.
• At least 75 percent of the NPP’s services must be primary care or mental health services.

Note that if the hospital, FQHC or RHC passes the remuneration through directly to the NPP, and the physician or practice does not retain any to cover its expenses, then there is no direct compensation relationship with a “physician” for purposes of the Stark law. Nonetheless, the DHS entity should consider whether the incidental benefit to the practice, in the form of reduced-price NPP services, may itself constitute remuneration. Note also that the anti-kickback statute requires separate analysis and may be implicated if the NPP or the practice is a referral source for the hospital.

Timeshare Arrangements

The second new exception from CMS seeks to enhance access to needed health care services by expressly permitting so-called “timeshare” arrangements under which visiting physicians pay hospitals for the right to use office space, equipment, personnel, items, supplies or services on an exclusive but periodic basis. Under the new rules, a timeshare arrangement is excepted from the Stark law if it meets certain criteria.

Writing, signature and compensation requirements for this exception generally track those for existing Stark exceptions. In addition:

• The timeshare must be between a physician (or the physician organization in whose shoes the physician stands) and either a hospital or a physician organization of which the physician is not an owner, employee or contractor.
• The covered resources must be used predominantly to furnish evaluation and management (E/M) services to patients (with the parties having the right to determine “predominant” use through any reasonable, objective and verifiable means).
• All locations subject to the arrangement must be used on identical schedules.
• Equipment covered by the arrangement must be used only to furnish DHS that are incidental to the E/M services and at the same time as the E/M services, and must be located in the same building as the office the physician uses to provide E/M services.
• The equipment may not include advanced imaging, radiation therapy, or clinical or pathology laboratory equipment, other than that used to perform Clinical Laboratory Improvement Amendments-waived laboratory tests (although the parties may use Stark exceptions for rental of office space or equipment if they wish to include this type of equipment in their arrangement).
• The arrangement may not use compensation formulas that are based on either a percentage of the revenue attributable to the services provided while using the timeshare, or per-unit of service fees that are not time-based.

Because CMS continues to maintain that true leases of office space must meet the criteria for Stark’s office space rental exception, and may not qualify under others, this new timeshare exception also expressly precludes arrangements that convey a possessory leasehold interest in the covered resources (as opposed to permission to use them).

Our Jan. 19 Client Alert (available here) provides a brief summary of the significant changes and clarifications to Stark, together with their practical implications, that these rules also contain. Should you have questions or need additional guidance regarding any of the new rules, please contact any member of our Health Care Practice Group.