New Stark Exception Provides Additional Flexibility for Limited Financial Arrangements With Physicians

*This is the eighth article in a series analyzing recent updates to the Stark Law and Anti-Kickback Statute and their effects on health care providers. To request a copy of the entire series, click here.

View the finalized new exception

CMS indicated that the new exception is due, in part, to the agency’s review of numerous arrangements submitted for self-disclosure through CMS’s self-referral disclosure protocol (SRDP).

Based on its review of the SRDP submissions, CMS concluded that there are arrangements – for example, short-term medical director arrangements - where limited remuneration is provided for needed items or services, but where the arrangement does not otherwise fit into an existing exception (for example, due to a failure to have a signed, written agreement memorializing the arrangement). The Limited Remuneration Exception will provide hospitals and other providers additional flexibility when entering into short-term arrangements with physicians. By availing themselves of the new exception, providers may also be able to avoid disclosing previously non-compliant physician relationships through the SRDP.

Requirements for the Limited Remuneration Exception

In finalizing the Limited Remuneration Exception, CMS determined that arrangements meeting the following requirements would not pose a risk of program or patient abuse and thus should be protected by the exception:

• The arrangement is for items or services actually provided by the physician; 
• The amount of the remuneration provided to the physician is limited to an annual aggregate limit of $5,000, as adjusted annually for inflation; 
• The arrangement is commercially reasonable; 
• The remuneration is not determined in any manner that takes into account the volume or value of referrals or other business generated by the physician; and
• The remuneration does not exceed fair market value for the items or services.

Notably, the exception protects arrangements that are not set forth in a written agreement and arrangements where the remuneration is not set in advance. These are both common requirements for already existing exceptions, and prior to the Limited Remuneration Exception, a party’s failure to meet them would have caused an arrangement to fall out of compliance. This would violate the law or necessitate disclosure through the SRDP. The Limited Remuneration Exception also protects payments to physicians where the physician provides the item or service through: (1) an employee hired for the purpose of performing the service, (2) a wholly-owned entity, or (3) a locum tenens physician.

Depending on the type of arrangement the Limited Remuneration Exception is being used to protect, there may be additional requirements that apply. First, if the arrangement requires a physician to refer patients to a particular provider, the arrangement must also comply with the special rules on compensation tied to referrals set forth in 42 C.F.R. § 411.354(d)(4).

Additionally, to the extent the Limited Remuneration Exception is applied to protect short-term leases for the use of office space or equipment, the compensation cannot be determined using a formula based on: (1) a percentage of revenue earned, billed, or collected while using the space or equipment; or (2) per-unit of service fees that are not time-based (for example, based on “per-click” or “per-use”). These restrictions are similar to the restrictions on compensation formulas in the exceptions for indirect compensation and timeshare arrangements.

Finally, the Limited Remuneration Exception protects the first $5,000 paid to a physician by a designated health services entity (DHS entity), such as a hospital, in a calendar year. Therefore, if a DHS entity made payments up to $5000 to a physician through March 30th of one year, the hospital would be prohibited from making any additional payments to the physician during that calendar year unless the payments were protected by another Stark Law exception.

Applicability to Physician Organizations and Their Members

In certain instances, the compensation payments may apply towards the $5,000 limitation for more than one physician. Where remuneration is paid from a DHS entity directly to a physician, the compensation will apply towards that physician’s $5,000 limit. However, when the remuneration is paid from a DHS entity to a physician organization (for example, a group practice), then the arrangement must be analyzed to determine whether the remuneration applies to the $5,000 limit of each of the physicians who “stand-in-the-shoes” of the physician organization (i.e., all of the physician-owners), or to the $5,000 limit of a specific physician who is part of the physician organization.

Whether the compensation applies to one physician or to all physicians who stand-in-the-shoes of the physician organization will depend on the facts and circumstances of the arrangement. An analysis of the facts and circumstances may include, whether: (1) a specific physician provides the items or services under the arrangement (as opposed to multiple employees or physicians at the physician organization), (2) the items or services are owned by an individual physician, rather than the organization, and (3) the payments are made directly to an individual physician rather than the physician organization, and if payments are made to the organization, whether the organization functions purely as a middleman passing all payments to the physician providing the services.

When the analysis demonstrates that payments were made to the organization, rather than directly to a physician, the compensation will count towards the $5,000 limit of each physician required to stand-in-the-shoes of the organization.

The Benefits and Risks of the Limited Remuneration Exception

As CMS noted in the Final Rule, the Limited Remuneration Exception may help protect arrangements that traditionally have failed to meet existing exceptions, necessitating self-disclosure through the SRDP. For example, if a hospital needed a physician to provide emergency on-call services, but the parties did not have an opportunity to enter into a signed written agreement before the physician began providing the services, the Limited Remuneration Exception would protect the first $5,000 in payments to the physician. In the past, the hospital was required to execute a written agreement with the physician before making the payments, which could have been difficult in the case of an emergency.

Importantly, the Limited Remuneration Exception can be used in conjunction with other Stark Law exceptions in two ways. First, where an entity has multiple arrangements with a physician, and where the compensation for one of the services is protected by a different exception, the compensation that is otherwise protected by an exception does not count towards the $5,000. For example – if a hospital has an on-call arrangement with a physician that meets the requirements of the personal services exception and a second “supervision” agreement on a periodic basis that does not meet an existing exception, the first $5,000 paid to the physician under the supervision agreement could be protected by the Limited Remuneration Exception and payments under the on-call arrangement would not count towards the $5,000 limit. However, if a DHS entity has multiple undocumented, unsigned arrangements with the same physician, all of the arrangements would be considered a “single compensation arrangement” and the aggregate remuneration for all arrangements during the calendar year could not exceed the $5,000 limitation. To the extent the total compensation paid under the arrangements exceeded the maximum permitted amount, none of the arrangements would be protected.

The Limited Remuneration Exception can also be used in conjunction with another exception to protect an arrangement during the course of the arrangement. For example, if the physician receives $4,000 in compensation for medical director services before a signed, written agreement is put in place, the Limited Remuneration Exception can be used to protect the $4,000. Once the signed, written agreement is in place, the arrangement is then fully protected by the personal services exception.

Notably, CMS also explicitly modified exceptions to the personal services and fair market value exceptions so that they can be used with the Limited Remuneration Exception, primarily by clarifying that: (1) arrangements that meet the Limited Remuneration Exception do not have to be included in the list of arrangements (or otherwise cross-referenced) maintained for compliance with the personal services exception; and (2) the fair market value exception requirement that states that parties may only enter into one arrangement for the same items or services during the course of a year does not apply to arrangements that meet the Limited Remuneration Exception, thus permitting parties to use both exceptions, as necessary, to protect an arrangement for the same items or services during a calendar year.

While there are numerous benefits to the Limited Remuneration Exception, including protecting arrangements with physicians that previously would not have met a Stark Law exception, providers relying on the Limited Remuneration Exception must carefully track the remuneration it pays to physicians. Once the $5,000 limit for a physician is met, the payments from the DHS entity to the physician must fall within another Stark Law exception or the parties will risk violating the law. In many instances, by taking a few additional steps, including memorializing the arrangement in a signed, written agreement, the parties to the arrangement will be able to use the personal services exception to protect the arrangement. When entering into short-term or otherwise limited arrangements with physicians, DHS entities should carefully consider their long-term goals regarding the arrangement and take necessary steps to ensure compliance with the Stark Law requirements throughout the arrangement. This includes converting arrangements that initially comply with the Limited Remuneration Exception into arrangements that fit the requirements of other applicable exceptions, as necessary.