Key Takeaways from the Revised and Clarified Stark Law Regulations – Part 1

CMS made impactful changes to the Federal physician self-referral law’s (i.e., Stark Law’s) regulations in its Final Rule that were effective January 19, 2021 (with the exception of the changes to 42 C.F.R. § 411.352(i) that are effective January 1, 2022). Although lengthy (190 pages/3-column format), the Final Rule is worth the read with multiple clarifications and revisions to the dense regulations.

In this first part of our two-part blog, each reader will find gems in the Final Rule that are impactful, but we note particularly the following key changes, clarification, and discussion:

1. New Value-Based Exceptions (§ 411.357(aa))

The new value-based (VB) exceptions offer three (3) options to arrangements involving remuneration paid under a VB arrangement:

full financial risk for which the VB enterprise (VBE) is at “full financial risk”—meaning that the VBE is financially responsible on a prospective basis for the cost of all patient care items and services covered by the applicable payer for each patient in the target patient population for a specified period of time. 42 C.F.R. § 411.357(aa)(1)(vii)—(or is contractually obligated to be at full financial risk within the 12 months following the commencement of the VB arrangement) during the entire duration of the VB arrangement;

With regard to all three (3) VB exception options:

The exceptions have additional requirements, and there are multiple definitions that need attention.

2. New Exception for Limited Remuneration to a Physician (§ 411.357(z))

CMS finalized a new exception to protect compensation not exceeding an aggregate amount of $5,000 per calendar year, as adjusted for inflation, to a physician for the provision of items and services (including the lease of office space or equipment) without the need for a signed writing.

CMS noted that if an entity has multiple arrangements with a physician that are undocumented and unsigned, it will consider the parties to have a single compensation arrangement for the various items and services, and the aggregate compensation for all those items and services may not exceed the $5,000 annual limit (See 85 Fed. Reg. at 77,624).

3. New Cybersecurity Technology and Related Services Exception (§ 411.357(bb))

CMS adopted a new cybersecurity technology and related services exception that incorporates many of the same requirements of the EHR exception.

The exception covers cybersecurity software (e.g., malware prevention, data protection and encryption); cybersecurity-related hardware; and cybersecurity-related services (e.g., cybersecurity training services, services associated with performing a cybersecurity risk assessment). Examples are fleshed out in the Final Rule, and are illustrative, not exhaustive. (Id. at 77,634)

4. New Commercially Reasonable Definition (§ 411.351)

CMS added a definition of “commercially reasonable.” Commercially reasonable means that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty.

Commercial reasonableness is not a valuation determination.

This definition and discussion of commercially reasonable was incredibly helpful given the prior opinions of government experts regarding commercial reasonableness involving health systems that were not making a profit on certain physician practices. We have argued the examples noted above for commercial reasonableness, and now have confirmation from CMS.

5. New Tests Related to Volume or Value Standard and Other Business Generated Standard (§ 411.354(d)(5), (6))

CMS created objective tests for determining whether the compensation is determined in any manner that takes into account the volume or value of referrals or takes into account other business generated between the parties at 42 C.F.R. § 411.354(d)(5) and (6).

Only when the mathematical formula used to calculate the amount of the compensation includes referrals or other business generated as a variable, and the amount of compensation correlates with the number or value of the physician’s referrals to or the physician’s generation of other business for the entity, is the compensation considered to take into account the volume or value of referrals or take into account the volume or value of other business generated. (Id. at 77,537)

6. Revisions to the Indirect Compensation Definition (§ 411.354(c)(2))

CMS revised the definition for “indirect compensation arrangements” adding that any one of the following are true:

The individual unit of compensation received by the physician (or immediate family member) is not fair market value for items or services actually provided;

With this revised analysis, fewer indirect arrangements will meet the definition, and therefore, CMS acknowledges that less indirect arrangements will be in writing.

In evaluating your financial arrangements, we recommend that you also consider the changes to the Federal anti-kickback statute safe harbors that were also effective on January 19, 2021. See 85 Fed. Reg. 77,684 (OIG Final Rule Dec. 2, 2020). Stay tuned for part 2 of this blog series, which will drop tomorrow!

Foley is here to help you address the short- and long-term impacts in the wake of regulatory changes. We have the resources to help you navigate these and other important legal considerations related to business operations and industry-specific issues. Please reach out to Jana Kolarik, your Foley relationship partner, or to our Health Care Practice Group with any questions.

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