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Stark Law Clarifications Bring Little Relief to Florida Health Care Providers, Daily Business Review

February 13, 2016

Reprinted with permission from the February 13, 2016 edition of Daily Business Review© 2016 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. ALMReprints.com – 877-257-3382 - reprints@alm.com.

The complexities of the Stark Law governing physician referrals and payments have long created challenges for health care providers.

The Centers for Medicare & Medicaid Services included in its 2016 Physician Fee Schedule Rule several clarifications of Stark Law policies as well as amendments to existing regulations. One of the more welcome changes was CMS's clarification of "writing" requirements giving hospitals more flexibility in documenting exempt physician compensation arrangements.

These clarifications are generally perceived as positive for hospitals and other health care businesses. However, upon closer review, the changes are modest at best and no substitute for comprehensive, state-of-the-art Stark Law compliance programs, particularly in an enforcement environment driven by an aggressive whistleblower's bar and active U.S. attorney's offices in Florida.

Writing Requirements

First and foremost, CMS clarified that the Stark Law does not require exempt physician arrangements to be documented in a single formal contract. To implement this clarification, CMS replaced the term "agreement" with the term "arrangement" in several regulations governing Stark Law exceptions.

CMS clarified that acceptable as documentation of an exempt "arrangement" are: 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.

Regarding its signature requirements, CMS noted that it is the "arrangement" that must be signed by the parties and 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."

CMS did not answer 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 directed hospitals to state and federal law for guidance regarding whether a writing has been "signed" by the parties. Not surprisingly, CMS also stated that whether an arrangement is signed by the parties depends on the facts and circumstances of each particular arrangement.

CMS also eliminated the distinction between "inadvertent" and "not inadvertent" failures to obtain a signature under the regulation that governs temporary noncompliance by providing a 90-day grace period to gather missing signatures.

In addition, CMS clarified that the Stark exception requiring that arrangements have at least a one-year term does not require a written provision expressly setting forth the one-year term. Instead, the one-year term requirement can be met if the arrangement lasts for at least one year.

Challenges Continue

CMS's clarifications regarding the "writing" requirement will help hospitals demonstrate compliance with a Stark exception when, on those hopefully rare occasions, a compensation arrangement with a referring physician was not set forth in a single written agreement signed by the parties.

However, hospitals should not let this new flexibility undermine the benefits of robust compliance policies and procedures that their compliance officers have worked hard to design and implement over many years. Among other things:

  • Hospitals should continue to review the compensation terms of any arrangement with a referring physician to verify that such terms are consistent with fair market value and not tied to the volume or value of referrals.
  • To remain exempt, arrangements should continue to be set forth in a single, signed agreement before either party provides items, services, space or compensation to the other party. Referrals that pre-date documentation are not protected.

Recent Stark-based settlements have been staggering. In 2014, Daytona Beach-based Halifax Hospital Medical Center and Halifax Staffing Inc., agreed to pay $85 million to resolve allegations that they violated the False Claims Act by submitting Medicare claims in violation of the Stark Law.

Just a few months ago, the North Broward Hospital District agreed to settle a Stark-based qui tam action for $69.5 million, and Adventist Health System resolved an action by the Justice Department and several states for $115 million.

With settlement figures in these ranges, whistleblower counsel will be further emboldened to seize upon the Stark Law's complexities in bringing Stark-based FCA actions to the attention of DOJ.

U.S. Attorney A. Lee Bentley III in the Middle District of Florida said in July 2015 that his office, which led the country last year by filing 51 whistleblower lawsuits, would be devoting even more investigative resources to combat health care fraud.

Unfortunately, CMS's recent changes to the Stark Law will do little to reverse this trend.

Alison Tanchyk is a litigation partner in the Miami office of Morgan, Lewis & Bockius. Her practice focuses on litigation and investigations involving the Foreign Corrupt Practices Act and False Claims Act and on clients' internal anti-corruption compliance and ethics programs. She may be reached at atanchyk@morganlewis.com. Albert W. Shay is a Washington-based partner in Morgan Lewis's life sciences group. He focuses his practice on counseling health care companies on litigation, regulatory, transactional and compliance issues involving fraud and abuse, the Stark law and Medicare reimbursement. He may be reached at ashay@morganlewis.com.