Lynn A. Hinrichs, Member

In order to address concerns about the capacity of the nation’s health care system to confront challenges arising out of the COVID-19 pandemic, the Centers for Medicare and Medicaid Services (“CMS”) has waived a number of regulations that, under other circumstances, would prohibit certain financial relationships between physicians and the entities to which they refer business.

The physician self-referral law, commonly known as the “Stark Law,” prohibits a physician from referring certain services payable by Medicare to entities with which he or she (or an immediate family member) has a financial relationship, unless an exception applies. This law, which can be violated even if parties do not intend to break the law, imposes potentially significant penalties. Among other things, the party that receives the referral is not allowed to submit claims to Medicare for services referred by the physician, and must repay any funds received arising out of a prohibited referral. As a result, parties are often very careful about how they structure business arrangements involving physicians.

However, in an effort to encourage partnerships between physicians and other health care providers, such as hospitals, during the COVID-19 outbreak, CMS has announced that it will temporarily permit certain financial relationships that would otherwise violate the Stark Law.

The principal waiver is that CMS will permit hospitals and other health care providers under some circumstances to pay amounts to physicians (and vice versa) that may be above or below fair market value. In general, compensation paid in business arrangements must be consistent with fair market value. However, CMS envisions scenarios in which, for example, a hospital may desire to lease equipment from a physician group whose members refer patients to the hospital, and the practice group, in order to meet patient-care needs in the community, may be willing to charge a rent that is below what it could charge another party. Normally, this would not be allowed, but CMS would permit it during the COVID-19 public health emergency. Similarly, a hospital might want to provide office space on its campus for free in order to make it possible for a physician who refers business to it to treat patients who have sought help at the hospital, but who do not receive care in one of the hospital’s inpatient or outpatient departments for various reasons. Again, this would typically violate the Stark Law, but CMS would allow it, in support of the public policy of making available to providers the flexibility they need to confront the COVID-19 pandemic.

Similarly, anticipating a surge of patients and a corresponding need for physicians to devote substantial time to caring for patients in hospitals, CMS will allow hospitals to provide certain non-monetary benefits to members of their medical staffs. Although such benefits are generally allowed, there are strict value thresholds and other restrictions. However, during the COVID-19 pandemic, CMS will permit hospitals to provide items and services such as multiple daily meals, laundry service to clean personal clothing, or child care while physicians are at the hospital and caring for the hospital’s patients. Similarly, a hospital would be allowed to provide non-monetary assistance such as quarantine-housing or meals to the family of a physician who was exposed to the coronavirus while working in the hospital’s emergency department, or continuing medical education to physicians in the community on the latest care protocols for patients suffering from COVID-19.

With respect to physicians themselves, the Stark Law places multiple restrictions on how physicians are permitted to practice, such as the locations from which ancillary services may be offered, among other things. However, during the COVID-19 pandemic, CMS will relax some of these restrictions. For example, a physician in a group practice could order medically necessary services, to be furnished to a patient by a nurse in a patient’s home at the same time that the physician cares for the patient via telehealth technology. Also, physician practices will be allowed to provide certain medically necessary imaging services or clinical laboratory services from mobile vans located in parking lots that the group practice leases on a part-time basis.

Similarly, although the Stark Law sharply restricts physician ownership in hospitals, and generally prohibits the expansion of physician-owned hospitals, in order to alleviate stresses caused by anticipated surges in admissions at traditional hospitals, during the public health emergency CMS will allow physician-owned hospitals to increase the number of their licensed beds, operating rooms, and procedure rooms (subject to applicable State licensing laws).  Similarly, a physician who has invested in such a facility would be permitted to support it in ways that would not typically be allowed, such as through a no-interest loan, so that the hospital can remain financially viable and the community’s need for continuity of care can thereby be supported.

These temporary alterations to the Stark Law’s otherwise strict prohibitions are welcome, in that they offer physicians and the health care providers with whom they do business additional flexibility to meet the possibly severe consequences of the COVID-19 pandemic. However, it must be stressed that the waivers that CMS has offered do not render the Stark Law inactive or otherwise make the law’s sometimes severe penalties ineffective. In other words, despite the waivers CMS has given, relationships between physicians and the entities to which they refer business must continue to be structured carefully in order to meet the requirements applicable to them. It should also be noted that one of those requirements is that the sorts of arrangements allowed by CMS through its recent announcement must be temporary, with relationships returning to those otherwise permitted under the Stark Law once the public health emergency posed by the COVID-19 pandemic has passed.