Stark and the AKS 

The Physician Self-Referral Law, commonly referred to as “Stark,” prohibits physicians from referring Medicare and/or Medicaid patients to receive “designated health services” (DHS), including clinical laboratory services; physical, occupational, and/or speech-language therapy; radiology and/or other imaging services; durable medical equipment and supplies; prosthetics and/or orthotics; home health services; outpatient prescription drugs; and inpatient and outpatient services; from entities with which the physician or an immediate family member of the physician has a financial relationship, unless an exception applies (see 42 USC § 1395nn et seq.; see also 42 CFR § 411.350-389). The regulations that accompany the statute outline specific exemptions to the statutory prohibition for rental of certain office space, bona fide employment relationships and personal service arrangements (PSAs), but to qualify for those exemptions, the leases, employment contracts and PSAs have very specific requirements (see 42 CFR § 411.357); and the failure to comply with same risks significant civil monetary fines and exclusions from participation in federal health care programs, which can have severe adverse economic consequences on providers and health systems.

The AKS is similar in design to Stark but is a bit broader and is a criminal law, making the consequences more significant (see 42 USC §1320a-7b(b)). The AKS prohibits “remuneration” to induce or reward patient referrals or generation of business involving any item or service payable by the federal government for medications, supplies or health care services for Medicare and/or Medicaid patients and the definition of “remuneration” is very broad. Specifically, remuneration is defined to include anything of value, including, but not limited to, cash, free rent, free marketing, monetary gifts and excessive compensation (see 42 USC § 1320a-7b(b)). Like with Stark, the AKS has exemptions, referred to as “safe harbors,” but typically the applicability of those is dependent on complying with very rigid terms.

Typically, ensuring compliance with Stark and the AKS and meeting the rigorous terms of the exemptions is a magnanimous task for health care providers, hospitals, and health systems. In particular, to meet the exemptions, written agreements need to be prepared in advance, and cannot be done “on the fly.” Additionally, under Stark, health care systems and hospitals that employ physicians also need to ensure the compensation of those physicians are paid is within “fair market value” (FMV). According to the regulations that accompany Stark, the purpose of the FMV requirement is to avoid overpaying physicians or compensating them based on the volume and value to their referrals, but that stringent requirement can certainly be an impediment in an emergency situation like the current health pandemic where a physician’s services are essential and may warrant a unique compensation arrangement not usually permitted by law. 

Waivers to Stark in Response to COVID-19 Pandemic

On March 13, 2020, President Trump declared a national emergency under the Stafford Act, which allowed the U.S. Department of Health and Human Services (HHS) to take action under Section 1135 of the Social Security Action, and waive obligations that would otherwise be required under Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). These are referred to as “blanket waivers.” Significant to this discussion, the “blanket” waivers exempt providers from being sanctioned for failing to comply with the obligations otherwise required by Stark discussed above. HHS issued the waivers on March 30, 2020, though the waivers are retroactive to March 1, 2020.

As it relates to Stark, the Center for Medicare and Medicaid Services (CMS), an agency within HHS that oversees Stark compliance, issued 18 waivers that address a wide range of transactions that would otherwise be prohibited, provided the remuneration and referrals allowed by the waivers is “solely related to COVID-19 Purposes.” According to CMS, that means transactions that allow for the following are temporarily permitted: 

• 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;
• Securing the services of physicians and other health care 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;
• Ensuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
• Expanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States;
• Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the United States; or
• Addressing medical practice or business interruption due to the COVID-19 outbreak in the United States in order to maintain the availability of medical care and related services for patients and the community.

The waivers are summarized as follows:

• Payments by a DHS entity to a physician/immediate family member of a physician for services personally performed by the physician, where the remuneration is above or below FMV for services performed;
• Payments made between a DHS entity and a physician/immediate family member of a physician for space or equipment rental, where the remuneration is below FMV for the lease;
• Payments made between a DHS entity and a physician/immediate family member of a physician for items or services purchased, where the remuneration is below FMV for the items or services;
• Remuneration resulting from a loan between a DHS entity and a physician/immediate family member of a physician where the interest rate is below FMV or on terms that are unavailable from a bank or other commercial lender;
• A hospital or other DHS entity may provide non-monetary remuneration to physician/immediate family member of a physician where the medical staff incidental benefits exceed $36 per occurrence and/or the non-monetary compensation exceeds $423 per calendar year;
• 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 42 CFR § 411.355(b)(2);
• The referral by a physician in a group practice for medically necessary DHS furnished by the group practice to a patient in his private home, an assisted living facility or independent living facility where the referring physician’s principal medical practice does not consist of treating patients in their private homes;
• Referrals by a physician owner to a hospital temporarily expanding its bed capacity or an ambulatory surgical center (ASC) converted to a temporary hospital are permitted (provided certain requirements are met); 
• Physicians may refer patients to a home health agency in which the physician/immediate family member of the physician has an ownership or investment interest, regardless of whether the home health agency qualifies as a rural provider;
• Referrals to DHS entities with whom a physician has a financial relationship where the compensation arrangement does not satisfy the writing or signature requirements of a Stark Law exception, but satisfies all of the other requirements of the applicable exception. 

No notice needs to be given to CMS to exercise the waivers.

Exemption to the AKS Sanctions in Response to COVID-19 Pandemic

In response to CMS’s issuance of the blanket waiver in response to the COVID-19 crisis, on April 3, 2020, the HHS’s Office of the Inspector General (OIG) issued a policy statement acknowledging that financial relationships that violate Stark often also implicate the AKS, and OIG will not impose sanctions under the AKS that are otherwise permitted by the Stark waivers during the period of emergency covered by same. Indeed, OIG’s statement expressly states: “[a]ll the conditions and definitions that apply to the Blanket Waivers shall apply” to the AKS, and “shall terminate on the same date as the date that the Blanket Waivers terminate.” 

For more information regarding the Stark waivers or the AKS exemptions, please contact Jennifer M. Schwartzott or any of the attorneys in our Health Care Practice or the attorney in the firm with whom you are regularly in contact.