Stark Law Waivers Issued During COVID-19 Pandemic

On March 30, 2020, Department of Health and Human Services Secretary Alex Azar issued blanket waivers to permit certain financial relationships and referrals that would otherwise be sanctioned by the Physician Self-Referral Law (Stark Law). The blanket waivers protect those financial relationships and referrals (and the claims submitted as a result thereof) specifically enumerated by the Centers for Medicare & Medicaid (CMS) as pertaining to at least one outlined 2019 novel coronavirus (COVID-19) purpose. These blanket waivers were given a retroactive effective date of March 1, 2020, and thus protect those referrals and financial relationships since that date.

The Stark Law is a strict liability statute that prohibits a physician from making referrals of Medicare and Medicaid designated health services (DHS) to an entity with which the physician (or the physician’s immediate family) has a financial relationship, absent an exception. Typically, if a financial relationship exists between a physician and a DHS entity, the arrangement needs to meet a technical Stark Law exception in order to bill for the referred DHS services. These blanket waivers temporarily permit payments and referrals between physicians and DHS entities if the relationship falls into one of CMS’ stated categories during the COVID-19 pandemic, even if such an arrangement would not meet a Stark Law exception.

These blanket waivers are another way CMS is giving providers more freedom and flexibility as the COVID-19 pandemic continues. Similar to other Section 1135 waivers issued in response to the COVID-19 public health emergency, these blanket waivers will terminate at the end of the public health emergency. Note that the blanket waivers apply only if: (i) the providers are acting in good faith to provide care in response to the COVID-19 pandemic; (ii) the financial relationship or referral is protected by one of CMS’ 18 permitted relationships (discussed below); and (iii) the government does not determine that the financial relationship creates fraud and abuse concerns.

COVID-19-Related Purposes

CMS’ blanket waivers are limited to remuneration and referrals that are “solely related to COVID-19 Purposes.” However, the blanket waivers define “COVID-19 Purposes” broadly to include the following:

“Diagnosis or medically necessary treatment of COVID-19 for any patient or individual, whether or not the patient or individual is diagnosed with a confirmed case of COVID-19;
Securing the services of physicians and other health care practitioners and professionals to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID-19, in response to the COVID-19 outbreak in the United States;
Ensuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
Expanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the United States; or
Addressing medical practice or business interruption due to the COVID-19 outbreak in the United States in order to maintain the availability of medical care and related services for patients and the community.”

Though the utilization of a waiver does not require notice or pre-approval from CMS, any provider or physician utilizing a blanket waiver should maintain sufficient documentation supporting reliance on the applicable waiver. Such documents must be made available to the Secretary of HHS upon request. Such documentation should include which of the COVID-19 purposes, outlined above, the relationship was necessary to address. Parties should also articulate which of the below-outlined waivers the parties relied upon in setting up the arrangement. The less any particular arrangement is tied to the COVID-19 pandemic, the greater risk that it could be challenged regarding these blanket waivers.

CMS’ Permitted Financial Relationships

The blanket waivers do not apply to all relationships or waive the Stark Law completely. Instead, the waivers apply only to one of 18 enumerated relationships. These 18 enumerated relationships can be described in two broad categories: (1) permissible forms of remuneration and (2) permissible referral relationships. This list summarizes but does not repeat the full listing of 18 enumerated relationships, which are set forth in full in the blanket waivers.

1. Permissible Forms of Remuneration. CMS determined that, solely for the duration of the COVID-19 pandemic, the following categories of remuneration directly between a physician (which in all cases includes a physician’s immediate family member) or a physician’s practice, and an entity that furnishes DHS, are exempted from Stark Law penalties. Importantly, these waivers do not address indirect financial relationships.

Compensation for Personally Performed Services – Remuneration paid by an entity to a physician that is above or below the fair market value (FMV) for the physician’s personally performed services to the entity is permitted by the waivers. For example, if an entity elects to provide an increase in FMV compensation to an already contracted physician to encourage the physician to treat COVID-19 patients during a provider shortage (i.e., overtime or hazard pay), this waiver would protect such compensation.
Office Space and Equipment Rent Payments – Remuneration paid either by an entity to a physician or by a physician to an entity that is below FMV for rental of office space or equipment is permitted by the waivers. These rental payment waivers permit hospital landlords to reduce rental rates for physicians struggling with cash flow as a result of the COVID-19 pandemic to enable physicians to maintain their office space while continuing to provide treatment within the community. These waivers would also permit a hospital to provide physician practices (or practices could provide to a hospital) equipment or space in a tent at no charge to accommodate patient surge due to COVID-19. Notably, these waivers do not protect rental payments that exceed fair market value.
Payments for the Purchase of Items or Services – Remuneration paid by an entity to a physician, or by a physician to an entity, that is below FMV for the purchased items or services, including the use of the entity’s premises, is permitted by the purchase waivers. These waivers are intended to permit parties to quickly source needed items or services without overpaying for the service during the COVID-19 pandemic. CMS gave an example of a DHS entity (i.e., an imaging facility) selling personal protective equipment (PPE) to a physician.
Provision of Additional Incidental Benefits to Medical Staff – Remuneration from a hospital to a physician in the form of medical staff incidental benefits that exceed the $36-per-item limit set forth in 42 CFR § 411.357(m)(5) is protected by the medical staff benefit waiver. This waiver allows a hospital to offer a variety of benefits to its medical staff members, including childcare services or a change of clothes to a physician while the staff member is on the hospital campus, which otherwise would surpass the typical annual limits established in the regulations.
Provision of Nonmonetary Compensation – Remuneration from an entity to a physician in the form of nonmonetary compensation that exceeds the $423 annual limit set forth in 42 CFR § 411.357(k)(1) is protected by the nonmonetary compensation waiver. Similar to the medical staff benefit waiver, this could allow a DHS entity to provide additional services that would otherwise surpass the limits established by the regulations, even for those individuals not on a hospital’s medical staff, including allowing hospitals to provide free technology/software to a physician practice to facilitate telehealth, free CME on COVID-19 training, and free transportation, childcare, hotel rooms and meals. CMS has not indicated how this nonmonetary compensation waiver will impact the application of the annual aggregate limits on nonmonetary compensation provided the rest of the year outside the public health emergency window. CMS may provide further guidance on this point in the future to determine if the full $423 limit will be available the rest of the year; however, if an entity needs to continue offering benefits after the public health emergency, an individual waiver request could be made as discussed further below.
Provision of Low-Interest or Interest-Free Loans – Remuneration between an entity to a physician in the form of a loan by/to either party, with an interest rate below FMV or on terms that are unavailable from a third-party independent lender, is permitted by the loan waiver. Effectively, CMS is providing enhanced ability for providers to make loans to one another to assist with liquidity challenges during the COVID-19 pandemic. For example, a hospital can loan money to an anesthesia group that is providing exclusive anesthesia services at the hospital to help the group offset lost income resulting from the cancellation of elective surgeries due to COVID-19.

2. Permissible Referral Relationships. CMS determined that, solely for the duration of the COVID-19 pandemic, the following categories of referrals between a physician and an entity that furnishes DHS are exempted from the Stark Law requirements.

Referrals by Owners of Physician-Owned Hospitals – Referrals by a physician owner of a hospital that temporarily expands its facility capacity above the number of operating rooms, procedure rooms and beds for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such provider agreement), without prior application and approval of the expansion of facility capacity will not be deemed prohibited by Stark (discussed in a April 1, 2020, client alert).
Referrals by Owners of ASCs That Temporarily Convert to Hospitals – Referrals by a physician owner to an ambulatory surgery center (ASC) that such physician owns, following the ASC’s conversion to and enrollment as a Medicare-participating hospital, during the period of the public health emergency will be not a Stark Law prohibited referral, even if the ASC is unable to satisfy certain hospital ownership and investment restrictions, which will be discussed in a forthcoming alert.
Referrals by Owners in Home Health Agencies – Referrals by a physician to a home health agency owned by the physician (or the physician’s immediate family member) and which does not otherwise satisfy the rural provider requirements will not be deemed prohibited by the Stark Law. CMS specifically noted that it was permitting a physician to refer a Medicare beneficiary to a home health agency owned by the physician because there may not be other home health agencies with capacity to provide medically necessary services due to the COVID-19 pandemic.
Referrals for In-Office Ancillary Services at Additional Locations – Intra-group practice referrals for medically necessary DHS will continue to be protected under the in-office ancillary services exception (IOASE), but the blanket waivers extend the exception to be available at additional locations. Specifically, CMS will allow the IOASE to apply during the public health emergency in the following locations: (1) a practice location where DHS is furnished that does not qualify for all requirements set forth in the “same building” or “centralized building” definitions contained in the IOASE requirements; or (2) in the patient’s private home, an assisted living facility or an independent living facility in circumstances where the referring physician’s principal medical practice does not consist of treating patients in their private homes. If a patient is too sick to leave his or her place of residence, physicians would be able to furnish medically necessary DHS (e.g., radiology services or other imaging services) outside the group practice’s office location and not violate the in-office ancillary services requirements. Further, the relaxation of the “same building” or “centralized building” requirements could permit physicians to provide medically necessary DHS to patients in mobile vans, other pop-up locations, or even some shared office spaces in response to the COVID-19 pandemic.
Rural Referrals to Immediate Family Members – Referrals by a physician to an entity with which the physician’s immediate family member has a financial relationship, where the referred patient resides in a rural area, will not be deemed a Stark Law prohibited referral. The Stark Law protects certain rural referrals, but to utilize this exception, certain technical rules must be satisfied. The blanket waivers instead focus on whether the patient is from a rural area, and if the patient is, the physician can refer that patient to an immediate family member without meeting the other technical rules of the referral requirements.
Waiving In-Writing Requirements – CMS is further relaxing any in-writing requirements under Stark Law exceptions. Stark Law compensation arrangement exceptions often require the arrangement to be in writing. While CMS previously granted flexibility here, allowing a collection of writings instead of a single contract to satisfy this requirement, the blanket waivers will simply remove the in-writing requirements under an applicable Stark Law exception provided all other requirements of the exception are satisfied. For example, if a hospital delivers PPE to a physician practice during the COVID-19 pandemic, a signed contract will not be necessary as long as the other elements of an applicable exception are met.

Though certain examples applying the blanket waivers are included above, the examples provided are only illustrative. CMS provided additional examples on pages 6-7 of its guidance document.

Fraud and Abuse

The blanket waivers require that the arrangement not pose risk of program fraud or abuse. CMS likely intended this language to protect the Medicare program from abusive relationships. Therefore, DHS entities and providers should not view these blanket waivers as a pathway to provide improper remuneration by the entity to the physician.

Unfortunately, the blanket waivers document does not provide further guidance for physicians and DHS entities about how CMS may use this language to limit the applicability of the blanket waivers. Without further context, this language adds ambiguity on whether relationships will qualify for protection. Potentially, this requirement could mean these blanket waivers will not be available if the relationship violates the federal Anti-Kickback Statute (AKS). However, CMS recently proposed to remove certain regulatory ties between the strict liability Stark Law and the intent-based AKS.

Consistent with the discussion in the COVID-19-related purposes section above, providers should document the reasons why the arrangement was necessary and in good faith for providing services in response to COVID-19. Providers should also recognize that more aggressive relationships could be challenged, particularly if there are not strong ties to the COVID-19-related purpose, or if the arrangement appears to incentivize DHS referrals.

Post COVID-19 Considerations

While these blanket waivers will offer certain providers relief and flexibility during the COVID-19 pandemic, they only last for the duration of the public health emergency. Thereafter, providers will need to perform a compliance review with their various arrangements under the Stark Law. This review should include at least the following:

Ensuring appropriate documentation for any arrangement entered into during the public health emergency to ensure the documentation (i) details the appropriate COVID-19 purpose and (ii) specifies which of the approved blanket waivers the provider utilized
Returning any items that an entity may have provided to a physician (or that a physician provided to an entity) during this time due to one of the waivers, including but not limited to, telehealth equipment, EHR software that does not otherwise meet the applicable exception, mobile vans and other medical equipment that may have been necessary to combat the COVID-19 pandemic
Terminating any financial relationships allowed under the blanket waivers at the end of the public health emergency, or, if the parties wish to maintain the financial relationship, ensuring such now satisfies an applicable Stark Law exception (e.g., compensation and rental rates that are FMV under their applicable exceptions)

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CMS offered the above blanket waivers under its authority under Section 1135 of the Social Security Act in order to reduce burdens on physicians and DHS providers during the COVID-19 pandemic. While not entirely waiving the Stark Law, CMS’ waivers will provide flexibility in navigating the COVID-19 pandemic to allow physicians and providers to focus attention on patient care. CMS encourages providers to email [email protected] with any questions about the blanket waivers. Providers should include the words “Request for 1877(g) Waiver” in the subject line and include the following minimum information:

Name and address of the requesting entity
Name, phone number and email address of the person designated to represent the entity
CMS Certification Number (CCN) or Taxpayer Identification Number (TIN) of the requesting entity
Nature of the request

In the event a specific financial relationship does not fall within the scope of CMS’ enumerated categories, an individual waiver could be requested by email to the appropriate regional office.

Please contact the authors for additional information on the Stark Law blanket waivers and their availability to providers. McGuireWoods has published additional thought leadership on how companies across various industries can address crucial coronavirus-related business and legal issues. The firm’s COVID-19 response team stands ready to help clients navigate urgent and evolving legal and business issues arising from the COVID-19 pandemic.