What providers must know about the 2016 Physician Fee Schedule Proposed Rule

A law review Q&A

On July 15, 2015, CMS published the 2016 Physician Fee Schedule (PFS) Proposed Rule, which includes several clarifications and proposed modifications to Stark Law regulations, including the creation of two new exceptions.

We spoke with Laura Seng at Barnes & Thornburg LLP to discuss the 2016 PFS Proposed Rule and how these proposed changes could impact providers if passed.

Q: What are your key takeaways from the 2016 PFS Proposed Rule?

Laura Seng: There are three major takeaways from the proposal.

First, based on the Stark Law clarifications included in the 2016 PFS Proposed Rule, it is apparent that after the Stark Law self-disclosure protocol was implemented a few years ago, CMS became inundated with a large volume of voluntary self-referral disclosures. Many of these disclosures are for very technical violations of the Stark Law—as a result, there is a proposed clarification of certain terms and how they should be interpreted under the statute, as well as other revisions to allow providers more flexibility with compliance and minimize CMS's workload in dealing with technical violations that do not result in potential overutilization of health care services paid by federal programs.

CMS also proposed two new exceptions that signify CMS's awareness of changes to health care delivery and how other financial relationships may exist that do not result in Medicare fraud and abuse.    

Lastly, CMS is asking for feedback regarding accountable care organizations in order to ensure the Stark Law is not impeding new models of health care delivery that could otherwise violate the statute.

Overall, CMS wants to make realistic changes, which is refreshing given the rigidity of the Stark Law and its application to health care organizations.

Q: What are the two new exceptions, and how will they affect the way providers currently operate if they are finalized?

Seng: One of the biggest changes providers can expect is related to the first new proposed Stark Law exception of allowing hospitals, federally qualified health centers, and rural health centers to financially assist the recruitment of non-physician practitioners into their service areas. There is currently a Stark Law exception (though with very specific requirements) that allows certain providers to assist a physician or physician group recruit new physicians into their respective communities.

Under the new exception, the requirements for this same type of assistance would expand to certain non-physician practitioners. This is tremendously helpful to the many federally-qualified health centers and rural providers needing to recruit healthcare professionals such as nurse practitioners, physician assistants, or certified nurse midwives. If passed, this proposal will be a significant and welcomed change made in recognition of the supply and demand disparity of primary care services nationally, and the uphill recruitment challenges that medically-underserved areas face.

The second new proposed exception relates to timeshare leases. There is currently a specific Stark Law exception for lease arrangements that states that physician groups can lease space from a hospital (e.g., an office building) through part-time leases, but, much to the disappointment of small physician practices not through timesharing. Under the new proposed exception, physicians or physician groups will be allowed to lease space from a hospital and timeshare the premise, staff, and equipment with other physicians or physician groups without being in violation of the Stark Law.

There will be certain exceptions to timeshare leases—for instance, laboratories and independent testing facilities will not be able to utilize timeshare leases under the current proposal. Also, certain equipment cannot be shared, such as equipment for radiation therapy, clinical laboratory and pathology services, and advanced imaging.  However, physicians not providing high-end ancillary services in their offices will be able to enter into timeshare leases to gain economies of scale to share space and equipment without being in violation of the Stark Law.

Q: If these proposals are passed, will there be any changes regarding penalties?

Seng: There are no actual proposed changes to Stark Law violation penalties. Penalties are not becoming harsher or changing—CMS is simply trying to make changes so that fewer providers will fall into a Stark Law violation for technical issues.

For example, there is a requirement included in several different exceptions where the arrangement between the referring physician and the designated health services entity requires a signed writing such as a written lease agreement. If providers did not garner all of the signatures on these agreements within 30 days, then that violates Stark Law for not having a written agreement. One of the proposals in the 2016 PFS Proposed Rule is to increase the time period to 90 days. In my opinion, a small technical lapse should not result in a Stark Law violation, which is why it is nice to see CMS proposing to expand the time period in light of business realities. Overall, some of these proposed changes seek to make some of the technical non-compliance issues disappear.

Q: What is the likelihood of these proposals being passed?

Seng: There is a very high probability that the clarifications and the two new exceptions will pass. However, there will likely be a lot of commentary on the exception related to physician-owned hospitals. Hospitals are currently limited in the percentage of ownership that can be held by physicians; unfortunately, that percentage is currently frozen at the limit established in 2010 when the Patient Protection and Affordable Care Act first passed. The percentage of ownership threshold currently includes only physician owners who are in a position to refer patients to a particular hospital, rather than all physician owners. In the 2016 PFS Proposed Rule, the proposed change is to include all physician owners when calculating the percentage of physician ownership. This could have a very big impact on many physician-owned hospitals if passed; some hospitals may have to divest themselves of certain physician ownership. This is why CMS sought commentary on the proposed change and the implementation period. Overall, proposed changes like this one may be modified and/or may not be implemented immediately.

The final rule will likely be published in November 2015, and the new exceptions and some of the clarifications that do not have an adverse effect on providers will likely go into effect immediately or on January 1st, 2016.

Q: How can providers best address Stark Law violations once they have occurred? How can providers best avoid Stark Law violations?

Seng: If there is suspicion of a Stark Law violation, then providers must conduct an internal investigation with counsel to assess whether or not a Stark Law violation occurred. If a Stark Law violation occurred, then providers must determine whether or not a disclosure needs to be submitted and/or refunds made to CMS as soon as possible. Overpayments must be refunded in a timely manner in order to avoid False Claims Act violations in addition to the Stark Law violation.

Overall, providers involved in the Medicare and Medicaid programs must have a robust corporate compliance plan. Providers must work to develop an ongoing corporate culture of compliance, self- monitoring, and careful consideration of all financial relationships among the stakeholders. Also, competent health care counsel and CMS can provide advice on how to appropriately structure financial relationships so as to avoid Stark Law violations.  Financial relationships among healthcare providers and physicians should be reviewed periodically to ensure that the financial arrangements are still compliant because details can often change over time, and even minor changes in a relationship could cause the arrangement to fall out of compliance with the Stark Law requirements.

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