CEO SUMMARY: Both the federal Stark Law and Anti-Kickback Statute have been revised and the final rules became effective on Jan. 19. The good news for clinical laboratories and anatomic pathology groups is that federal regulators from the Centers for Medicare and Medicaid Services and the Office of the Inspector General made it a goal to harmonize the language of the two new rules. Attorneys advising labs say the changes will make it easier for labs to understand how to comply.
OVERALL THE RECENTLY PUBLISHED CHANGES to the Stark Law and the Anti-Kickback Statute will ease regulatory uncertainty for clinical laboratories and anatomic pathology groups.
Although CMS made many changes to the Stark Law, below we highlight some of the more important regulations for clinical laboratories and pathology practices.
Definition of a Physician
Previously, the definition of “physician” used in the Stark regulation was not consistent with the Medicare statute. The Dec. 2 regulation makes the definition consistent, so that a “physician” includes an MD, a DO, a dentist, a chiropractor, and an optometrist.
Collection and Surgical Supplies
In the past, supplies provided by laboratories to physicians typically fell under an exception to the definition of remuneration under the Stark law, but the regulation specifically carved out “surgical” items, such as reusable aspiration and injection needles and snares, from the exception.
“This been a hot topic over the years, with numerous CMS advisory opinions about it,” explained Karen Lovitch, an attorney with Mintz. “CMS has come to the logical conclusion that it doesn’t make sense to carve out all surgical supplies from the exception. It will now consider how a device, item, or supply is actually used in practice. This will be a helpful change for clinical labs and pathology groups.”
Jane Pine Wood, legal counsel for Bio-Reference Laboratories, noted that most laboratories have the ability to track supplies and how they are being used, which helps in making the determination.
Exceptions to Compensation Arrangements
There is a number of exceptions to the prohibition on self-referrals under Stark. Most of these exceptions require a written arrangement, a commercially reasonable arrangement, and that the compensation be at fair market value, set in advance, and cannot vary with the value or volume of referrals. The sections that follow address specific factors covered by the revisions made with the Stark Law revisions.
Limited Renumeration to Physicians
This is a new exception that permits payment of up to $5,000 to a physician in a calendar year without a written agreement or compensation that is set in advance.
This could be applicable in a situation where a laboratory director quits and a temporary replacement needs to be brought in immediately. Brandt noted that the agency considered payments of $3,500 to $10,000 and that $5,000 was a compromise.
CMS is extending the grace period during which providers can modify their arrangements to ensure they are in compliance with Stark, as well as tweaking the requirement that arrangements be set in advance.
“We wanted to give providers as many options as possible,” explained Kimberly Brandt, formerly principal deputy administrator for policy and operations at the Centers for Medicare and Medicaid Services (CMS). Now an attorney with Tarplin, Downs, and Young LLC, Brandt explained how CMS “said that providers can modify the compensation agreement at any time during the arrangement and still satisfy the requirement that it be set in advance. It gives more flexibility and allows providers to adapt agreements as things change.” CMS also stated that electronic signatures are valid for purposes of the signature requirement.
Defining ‘Commercially Reasonable’
CMS, for the first time, has defined the term “commercially reasonable,” which is used in many Stark exceptions. Under the new definition, an arrangement can be commercially reasonable if it makes good business sense, even if it does not turn a profit (for example, if a new clinical laboratory opens a patient service center in a physician office building, but does not make a profit in the first year).
“The term ‘commercially reasonable’ was never defined in the statute, which is very disconcerting when you have a strict liability statute,” Lovitch commented. “CMS now defines a ‘commercially reasonable’ arrangement as one that furthers the legitimate business interest of a party even if it does not result in a profit. Examples include improvement of health outcomes, community need, timely access to health services, fulfillment of licensure obligations and charity care.” The key element for compliance with this requirement is to document the legitimate business rationale, Wood added.
Defining Volume or Value of Referrals
CMS provides a bright-line rule as to when compensation would be deemed to vary directly or indirectly with the volume or value of referrals for designated health services.
“Only when the mathematical formula used to calculate the amount of compensation includes referrals or other business generated as a variable, and the amount of compensation correlates with the number or value of the physician’s referrals to or for the physician’s generation of other business for the entity,” would the volume or value standard be violated, states CMS in the final rule. The formula applies both to an increase, as well as a decrease in the physician’s compensation. This test does not apply under the AKS.
Rental of Office Space or Equipment
Clarifies that multiple lessees can use the same space or the same equipment. The limited remuneration exception above can also be used to cover lease payments.
This exception says a provider can have a single isolated transaction that is commercially reasonable—typically used for sale of a practice—once per year.
CMS has more clearly defined this as a one-time financial transaction with a single payment or integrally-related installment payments. This can be used to cover a single instance of forgiveness in an amount used to settle a bonafide dispute.
Personal Services Safe Harbor
While the changes to Stark are more significant because of the strict nature of the law, there is one important revision to the AKS about which clinical laboratories should be aware. The personal services safe harbor typically is used when a health system contracts with an individual physician, such as a pathologist, as an independent contractor.
Historically, the personal services safe harbor required aggregate compensation to be set in advance. If an entity paid someone by the hour, that was not considered to be set in advance.
CMS has modified the requirement so that the compensation methodology has to be set in advance. CMS has also eliminated the requirement that if the services are to be provided on a periodic or part-time basis, the agreement must specify the schedule, length, and the exact charge for such intervals.
This change reflects CMS’ position that existing safeguards are sufficient to protect against fraud and abuse. This change aligns the personal services safe harbor more closely with the Stark law.
Cybersecurity Donation Safe Harbor
There are a few other instances where CMS and the OIG revised the Stark and AKS regulations to make them more closely aligned so that the exception under Stark and the safe harbor under the AKS are the same.
One of the most important of these exceptions for clinical laboratories is a new exception and safe harbor that allows healthcare providers to donate cybersecurity technology and services to physicians and other providers who may not be able to afford sufficient protection.
Covered technology and services must be “necessary and used predominantly to implement, maintain, or re-establish cybersecurity,” which is the same standard applied under the safe harbor and exception for EHR donations, noted HHS.
Donors have wide discretion in choosing the technology to be donated. When determining eligibility or the amount or nature of a donation, donors cannot directly take into account the volume or value of referrals or other business generated between the parties.
The most important difference between the exception and safe harbor is the writing requirement. Under the safe harbor, the arrangement must be set forth in writing and signed by the parties, and it must include a general description of the donation and the contribution amount. In contrast, CMS merely requires that the arrangement be documented in writing.
Both agencies considered whether to restrict the scope of potential donors but ultimately declined to do so, noted Lovitch. Various laboratory industry organizations recommended the exclusion of laboratories based on the fact that many physicians reportedly conditioned referrals on EHR donations before laboratories became excluded donors in 2013 under the exception and safe harbor for EHR donations.
According to the agencies, there is no need to exclude laboratories because recipients cannot make the receipt of cybersecurity technology or services, or the amount or nature of such technology of services, a condition of doing business with the donor.
Regardless of these changes, clinical labs that contemplate business relationships with physician practices and other healthcare providers should ensure that all arrangements comply with both the Stark Law and the Anti-Kickback Statute. Clinical laboratories should consult with inside or outside counsel before entering into any arrangements that could potentially be perceived as problematic.
Contact Karen Lovitch at 202-435-7324 or KSLovitch@mintz.com; Kimberly Brandt at 202-940-5294 or email@example.com; Jane Pine Wood at 201-566-6555 or firstname.lastname@example.org.