Stark Law Clarifications Bring Both Benefits and Potential Challenges

Hospital Industry Viewpoint

December 09, 2015

The new clarifications suggest a more lenient CMS, but providers shouldn’t compromise their compliance standards.

Throughout the halls of hospitals’ legal and compliance departments, people have been talking.

“Did you hear that we don’t have to have formal written agreements with physicians anymore?”

“Yeah, apparently CMS will let us use emails, letters, and even invoices to show that we have a written agreement with a physician. I also heard that we have three months now to get a doc’s signature on an agreement.”

Although recent Stark amendments suggest a softer tone at CMS, don’t overlook the many challenges that remain.


As many know by now, CMS included in its recent 2016 Physician Fee Schedule Rule several clarifications of Stark law policies, as well as amendments to existing regulations. These clarifications are generally perceived as positive for hospitals grappling with the physician self-referral prohibition. Indeed, the heading of this section in the rule reads “Reducing Burden and Improving Clarity Regarding Writing, Term, and Holdover Provisions in Certain Exceptions and other Regulations.”

Of particular note is CMS’s discussion and clarification of the “writing” requirement that exists in most compensation arrangement exceptions. CMS clarifies that the Stark law does not require an arrangement to be documented in a single formal contract. Rather, “depending on the facts and circumstances of the arrangement and the available documentation, a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties, may satisfy the writing requirement of the . . . exceptions that require that an arrangement be set out in writing.” To implement this clarification, CMS has replaced the term “agreement” with the term “arrangement” in several exceptions.

CMS also provides guidance about how to apply the clarified writing requirement, specifically whether contemporaneous writings would permit a reasonable person to verify that the arrangement complied with the applicable exception at the time the referral was made. Examples of documents that evidence an arrangement include board meeting minutes or documents authorizing payments for services, emails or other written communications exchanged by the parties, canceled checks, and check requests, invoices, or accounts payable documents identifying the services furnished, the dates the services were provided, and/or the rate of compensation.

CMS received many questions about the signature requirement of many compensation arrangement exceptions (i.e., how can a “collection of documents” be signed by the parties?). CMS notes that it is the “arrangement” that must be signed by the parties and that not every document in a collection of documents need be signed: “To satisfy the signature requirement, a signature is required on a contemporaneous writing documenting the arrangement.” However, CMS avoids the question of whether an electronic signature (perhaps from an email), a typed name, the signature of the maker of a check, or the signature of a person endorsing a check would satisfy the signature requirement. Instead, CMS said that parties should look to state and federal law, including the law that pertains to electronic signatures, for guidance about whether a writing is signed by the parties. Not surprisingly, CMS stated that whether an arrangement is signed by the parties depends on the facts and circumstances of a particular arrangement.

Another helpful regulatory change finalized by CMS is eliminating the distinction between “inadvertent” and “not inadvertent” failures to obtain a signature under the regulation that governs temporary noncompliance with the signature requirement. Now, regardless of the reason that signatures were not obtained, parties have 90 days to gather missing signatures.

Potential Challenges

By now, compliance officers at most hospitals have worked hard to implement policies that require each compensation arrangement between a hospital and a physician to be set forth in a written agreement signed by the parties before any payments are exchanged. Without a doubt, these compliance policies are the most effective way of ensuring that parties satisfy a Stark law exception prior to any referrals being made. Compliance officers should remain vigilant regarding enforcement of these policies and not succumb to any temptation to relax the written agreement requirement. Don’t develop bad habits based on CMS’s clarification of the “writing” requirement or allowance of a 90-day missing signature grace period. As CMS reminds us, hospitals bear the burden of proof that an exception has been met, and the most straightforward way to comply with the writing and signature requirements of Stark law exceptions is to memorialize the terms of an arrangement in a single, signed agreement before either party provides items, services, space, or compensation to the other party.

CMS posits that all requirements of an exception must be met before a protected referral may be made and that referrals that predate documents evidencing the course of conduct between parties aren’t protected. Moreover, many compensation arrangement exceptions include a “set in advance” requirement, which is met when the relevant compensation is agreed to by the parties before furnishing the services for which the compensation is to be paid. Thus, the parties cannot meet the “set in advance” requirement from the beginning of the arrangement if the only documents stating the compensation term were generated after the arrangement began.

To be sure, CMS’s clarifications regarding the “writing” requirement are useful and will help hospitals demonstrate compliance with a compensation arrangement exception with a referring physician when (on those hopefully rare occasions) an arrangement was not set forth in a single written agreement signed by the parties. However, hospitals should not let this additional flexibility undermine the benefits of robust compliance policies that govern compensation arrangements with referring physicians.

Albert W. Shay