Blanket Waivers of the Stark Law: What This Means for Your Healthcare Practice During the COVID-19 Outbreak

Given the heightened need for coordination among healthcare providers to respond to the COVID-19 pandemic, HHS issued blanket waivers of the Stark Law. How will this impact your business arrangements during the COVID-19 outbreak?

On March 30, 2020, Secretary Alex Azar of the U.S. Department of Health and Human Services (HHS) issued “blanket waivers” of the federal Stark Law following earlier declarations of a national emergency by President Trump and a public health emergency by the HHS Secretary. The waivers mark another significant regulatory effort by HHS and other federal agencies to reduce the barriers to a comprehensive public health response to the COVID-19 outbreak. 

While the blanket waivers should come as welcome relief to healthcare providers, the waivers are not a complete suspension of the Stark Law. To ensure ongoing Stark Law compliance, you’ll need to understand the scope and limits of the waivers during the COVID-19 pandemic.

Stark Law Overview

The federal Ethics in Patient Referrals Act (or the “Stark Law,” as the legislation and its implementing regulations are more commonly called after former Congressman Pete Stark, the law’s sponsor) prohibits a physician who has a “financial relationship” with an entity from making a referral to that entity for the furnishing of “designated health services” (a “DHS entity”) for which payment otherwise may be made under Medicare. Examples of DHS include clinical laboratory, physical therapy, imaging, and hospital services.

If a physician makes a referral to a DHS entity where the parties have a financial relationship, the DHS entity cannot submit a Medicare claim for any referred designated health services. If the DHS entity has already submitted a claim, it must refund all payments it receives for those services. The physician who makes the prohibited referral may be subject to a civil monetary penalty and may incur liability under the federal False Claims Act for “causing” the submission of a claim by a DHS entity that is noncompliant with the Stark Law.

The only way for physicians and DHS entities to avoid the Stark Law’s referral and billing prohibitions is to structure their financial relationships in accordance with one of the law’s numerous “exceptions.” Each exception has its own requirements, but there are commonalities among them. For example, many exceptions require an arrangement be memorialized in a signed writing, with the compensation payable under the arrangement documented to be within fair market value (FMV), before the arrangement begins.

Even in normal circumstances, the highly prescriptive and technical components of the Stark Law exceptions can make compliance difficult and hinder anyone who needs to implement an arrangement swiftly. The COVID-19 pandemic has only magnified these challenges.

The COVID-19 Blanket Waivers

The blanket waivers, which are nationwide in scope, do not technically waive the entirety of the Stark Law. Rather, they waive the specific provision of the law that imposes sanctions for violations. In other words, some referrals that would not ordinarily comply with Stark Law will not incur a penalty during this time. However, even under the blanket waivers, the HHS Secretary reserves the right to pursue sanctions where there is “determination of fraud or abuse.”

Moreover, the waivers are “blanket waivers” only for arrangements that meet specific criteria. There are two key requirements for qualifying for a blanket waiver: (1) the arrangement “must be solely related to COVID-19 Purposes”; and (2) the arrangement must fit within one of 18 categories, each one of which constitutes its own blanket waiver of the Stark Law sanctions with respect to arrangements in that category.

Requirement 1: “Solely Related to COVID-19 Purposes”

The blanket waivers define the phrase “COVID-19 Purposes” to mean one of the following: 

1. Diagnosis or medically necessary treatment of COVID-19 for any patient or individual, whether or not the patient or individual is diagnosed with a confirmed case of COVID-19;
2. Securing the services of physicians and other healthcare practitioners and professionals to furnish medically necessary patient care services, including services not related to the diagnosis and treatment of COVID-19, in response to the COVID-19 outbreak in the United States;
3. Ensuring the ability of healthcare providers to address patient and community needs due to the COVID-19 outbreak in the United States;
4. Expanding the capacity of healthcare providers to address patient and community needs due to the COVID-19 outbreak in the United States;
5. Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the United States; or
6. Addressing medical practice or business interruption due to the COVID-19 outbreak in the United States to maintain the availability of medical care and related services for patients and the community.

This definition is notable for how broad it is. While the definition clearly encompasses arrangements directly relating to frontline COVID-19 response efforts, it also includes those arrangements that are an indirect outgrowth of or are impacted by the outbreak but are not directly related to it. In this respect, the definition of “COVID-19 Purposes” recognizes that the COVID-19 pandemic will have a significant and far-reaching effect on all manner of arrangements between physicians and DHS entities.

Requirement 2: Within Blanket Waiver Categories

The 18 blanket waiver categories describe the factual circumstances that must be present for an arrangement that is “solely related to COVID-19 Purposes” to qualify for a waiver of the Stark Law sanctions to which the arrangement would ordinarily be subject.

Among them, half of the blanket waivers pertain to arrangements where the compensation to be exchanged between the referring physician and DHS entity is not at an FMV rate. Examples of such arrangements include those where the referring physician leases office space or equipment from a DHS entity, or uses a DHS entity’s premises, items, or services, at rates that are below FMV. These and the other FMV-related blanket waivers should provide greater flexibility to healthcare providers as they deal with disruptions in supply lines, with resulting fluctuations in the prices of goods and services, or experience losses in their cash flow that constrain their ability to pay market-level rates.

Other blanket waivers include the following:

• The referral by a physician owner of a physician-owned hospital that temporarily expands its facility capacity above the number of operating rooms, procedure rooms, and beds in place for which the hospital was licensed when the moratorium on physician-owned hospital expansion under the Affordable Care Act went into effect in 2010. Under this blanket waiver, the hospital need not follow the usual prior application and approval process administered by the Centers for Medicare & Medicaid Services (CMS) that physician-owned hospitals must follow if they wish to expand.
• The referral by a physician in a group practice for medically necessary DHS furnished by the group practice in a location that does not qualify as a “same building” or “centralized building” for purposes of the “in-office ancillary services” exception.
• Referrals by a physician to an entity with whom the physician (or an immediate family member of the physician) has a compensation arrangement that does not satisfy the writing or signature requirement of an applicable exception but satisfies each other requirement of the applicable exception, unless the requirement is waived under another blanket waiver.

Examples of Arrangements Covered by the Blanket Waivers

The blanket waivers describe numerous examples of arrangements between physicians and DHS entities that would qualify under a blanket waiver. Examples include:

• A hospital or other DHS entity pays physicians above their previously contracted rate for furnishing professional services for COVID-19 patients in particularly hazardous or challenging environments.
• A DHS entity provides free telehealth equipment to a physician practice to facilitate telehealth visits for patients who are observing social distancing or in isolation or quarantine.
• A DHS entity sells personal protective equipment to a physician or permits the physician to use space in a tent or other makeshift location, at below FMV or at no charge.

Future of the Stark Law Blanket Waivers

The blanket waivers are self-executing, and there is no need to notify HHS or CMS that a party is availing itself of a blanket waiver. Given the retroactive date of the blanket waivers, parties may rely on them for arrangements dating back to March 1, 2020. The blanket waivers are set to expire on the earlier of May 29, 2020 or termination of an emergency declaration, but the HHS Secretary may further extend them.

Physicians and DHS entities should make sure to keep records of their arrangements while the blanket waivers are in effect. These records do not necessarily have to adhere to their usual contracting and record-keeping formalities. Still, they should be adequate to show the parties are relying on a blanket waiver to proceed with an arrangement. The HHS Secretary has instructed that any such records must be provided to HHS upon request.

With respect to those arrangements that are subject to the Stark Law but do not fit within a blanket waiver, physicians and DHS entities should continue to administer them in compliance with the usual Stark Law requirements. However, parties may submit individual requests for waivers of the Stark Law sanctions as applied to arrangements not subject to the blanket waivers by contacting CMS at 1877CallCenter@cms.hhs.gov. CMS is also responding to inquiries about the blanket waivers at the same email address.

What remains to be seen is the longer-term impact the blanket waivers might have on the Stark Law and its enforcement. Toward the end of 2019, CMS issued a rule that proposed to make sweeping changes to the Stark Law regulations to facilitate more value-based and coordinated care arrangements and alleviate some of the compliance requirements that healthcare providers have long criticized as unduly burdensome. The comment period on the proposed rule closed on December 31, 2019, and CMS has yet to issue any subsequent final rule. As the blanket waivers demonstrate, the COVID-19 pandemic has further underscored the constraints the Stark Law imposes on healthcare providers and could influence the final form of the regulatory reforms from CMS’s latest rulemaking.

If you have any questions about how the Stark Law blanket waivers may affect your practice or business amid the COVID-19 pandemic, reach out to the experienced attorneys at Jackson LLP: Healthcare Lawyers.

The COVID-19 pandemic is a dynamic and evolving public health emergency. The laws and situation are fluid, and this article may not reflect the most current situation.

This blog is made for educational purposes and is not intended to be specific legal advice to any particular person. It does not create an attorney-client relationship between our firm and the reader and should not be used as a substitute for competent legal advice from a licensed attorney in your jurisdiction.