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Update on CMS’s April 21, 2020 “Explanatory Guidance” for Stark Law Blanket Waivers

April 23, 2020 - Scott R. Landau

As we previously reported here, on March 30, 2020, CMS issued 18 “blanket” Stark law waivers designed to put “patients over paperwork” and permit providers to engage in certain transactions meant to aid in the fight against COVID-19 but which might otherwise run afoul of technical requirements of Stark law.  The blanket waivers (“Blanket Waivers”) sought to relax certain regulatory requirements for purposes “solely related to COVID-19” response,” including waiving the requirement that payments from hospitals and providers to rent equipment or receive services from physicians (or vice versa) be within “fair market value.”

Following issuance of the Blanket Waivers, providers raised a plethora of questions and concerns. In response, on April 22, 2020, CMS issued “Explanatory Guidance” relating to the “scope and application of the blanket waivers to certain financial relationships,” and to address certain issues and queries raised by stakeholders about the waivers.

Interestingly, in the introduction to the Explanatory Guidance, CMS appears to suggest that the intent of the parties will be considered by the government in False Claims Act (FCA) cases alleging Stark law violations for arrangements that may be covered by the Blanket Waivers. Specifically, CMS stated here that “the Secretary [of HHS] will work with the Department of Justice to address False Claims Act relator suits where parties using the blanket waivers have a good faith belief that their remuneration or referrals are covered by a blanket waiver.” Given that the Stark law is a “strict liability” statute under which intent is ordinarily irrelevant, this could be a significant development limiting the specter of FCA cases based on alleged Stark law violations in the wake of the COVID-19 crisis. 

In the Explanatory Guidance, CMS also addressed the following specific issues related to the Blanket Waivers:

  • Compliance with Non-Waived Requirements of an Applicable Exception: Here, CMS clarified that while the Blanket Waivers eliminate or amend only some requirements of existing Stark law exceptions, providers still have to satisfy all non-waived requirements of an applicable exception.
  • Amendment of Compensation Arrangements (During Emergency Period): Here, CMS clarified that if parties amend the remuneration terms of an existing arrangement during the “emergency period” based on the “Blanket Waivers,” (1) the amended arrangement still must satisfy all non-waived requirements of the applicable Stark exceptions(s), and (2) that following expiration of the emergency period the renumeration terms may again be modified to return to the original terms or to effectuate additional necessary modifications.

Interestingly, CMS used this opportunity to state that, contrary to many providers’ (and attorneys) belief, that it interprets the preamble guidance in the Fiscal Year 2009 Inpatient Prospective Payment System (FY 2009 IPS) final rule (73 FR 48434) to allow amendments to the remuneration terms of compensation agreements even within the first year after an initial amendment of the remuneration terms of the arrangement, provided that: (1) each time the remuneration terms are amended all requirements of an applicable Stark exception are still satisfied; (2) the amended remuneration is determined before the amendment is implemented; (3) the formula for the amended remuneration does not take into account the volume or value of referrals or other business generated by the referring physician; and (4) the overall arrangement remains in place for at least 1 year following the arrangement. This additional nugget – in particular the statement that CMS expects such arrangements to “stay in place” rather than be for “terms” of at least 1 year – is itself confusing, and is bound to lead to more questions regarding this “guidance” in the future.

  • Applicability of Blanket Waivers to Indirect Compensation Arrangements: Here, CMS clarified that while the Blanket Waivers only related to “direct” compensation arrangements under the Stark law, parties “may request an individual waiver” with respect to “indirect” compensation arrangements.”  CMS further noted here that arrangements where physicians own the subject physician organization, the arrangement may not need to be analyzed as an “indirect” compensation arrangement and instead should be analyzed as a “direct” arrangement based on the “stand in the shoes” provisions of the Stark law.
  • Repayment Options for Money Loans Between a DHS Entity and a Physician (or the Immediate Family Member of a Physician): Blanket Waivers # 10 and # 11 address remuneration in the form of loans with interest rates below FMV or on terms that are unavailable from lenders not in a position to make referrals to or generate business for the party making the loan. Regarding these waivers, CMS responded to providers’ inquiries about form of loan repayment by stating that cash payments are not required to satisfy the debts and that instead, borrowers could repay the loans through in-kind payments (including potentially through the provision of office space, items, or service to the physician lender) so long as the aggregate value of in-kind repayments are consistent with the amount of the loan balance being reduced through the in-kind payments and are commercially reasonable. CMS cautioned here, however, that Blanket Waivers # 10 and # 11 do not waive sanctions related to referrals and claims related to the repayment of the loan. In other words, the loans must be repaid (whether through cash or in-kind payments), and loan forgiveness may form the basis for liability under the Stark law (and the Antikickback statute as well).
  • (Timing of) Repayment of Loans, Rent Abatement, or Other Amounts Due Following the End of the Emergency Period: Here CMS clarified loans, rent abatements, or for other items (such as office space, equipment, items, or services) provided at below fair market value do not have to be repaid prior to the termination of the Blanket Waivers and that, instead, appropriate repayment obligations agreed to prior to termination of the Blanket Waivers may continue beyond such termination without running afoul of the Stark law.
  • Restructuring of Existing Recruiting Arrangements with Income Guarantees: In response to inquiries about restructuring existing physician recruiting arrangements such as income guarantees to address practice interruptions, CMS clarified that the Blanket Waivers do not address or relax the requirement that the terms of a physician recruitment arrangement cannot be altered once the physician has relocated his or her practice. However, CMS did note that Blanket Waivers # 5 (waiving sanctions for referrals related to below FMV rental charges) and # 10  (waiving sanctions for loans to physicians with below FMV interest rates) may be available to waive sanctions for remuneration from hospitals (or other entities) to assist physicians whose medical practices experience interruption from the COVID-19 outbreak in order to maintain the availability of medical care and related services for patients and the community during the national emergency.

If you have any questions about the Explanatory Guidance or the Blanket Waivers generally, please contact us and we will be happy to assist.