Health Law Update – November 19, 2015

Welcome to this week's edition of the Health Law Update. In this Issue:

  • CMS Finalizes Revisions to Stark to Ease Burden on Providers, Refines “Incident to” Requirements
  • IP Provisions of the TPP May Not Satisfy the Pharmaceutical Industry
  • Health System Free Transportation Program Does Not Warrant Sanctions, Says OIG
  • Susan Feigin Harris Named a Law360 Health MVP for 2015
  • Events Calendar

CMS Finalizes Revisions to Stark to Ease Burden on Providers, Refines “Incident to” Requirements

By Kristen McDermott Woodrum, Darby C. Allen, and Donna S. Clark

In its calendar year 2016 Physician Fee Schedule Final Rule published in the Federal Register on November 16, 2015 (Final Rule), the Centers for Medicare and Medicaid Services (CMS) finalized amendments to the federal physician self-referral (Stark) regulations proposed in the Physician Fee Schedule proposed rule released in July. Among the significant provisions contained in the Final Rule are (1) amendments and policy clarifications targeting Stark technical violations and compliance burdens, (2) a new recruitment exception and other changes focused on access to care, (3) an exception for timeshare licenses, and (4) amendments affecting physician-owned hospitals.

Key Changes Focused on Stark Technical Violations and Compliance Burdens

Prompted in part by its review of disclosures made under the Stark self-disclosure protocol for technical violations, CMS provides clarification and policy guidance on several exceptions and reduces the burden for providers through amendments to the Stark regulations. While these changes may help parties evaluating potential technical violations and self-disclosures for past conduct, they should not be taken as a signal to providers to abandon their current compliance protocols.

  • Writing Requirement. CMS clarified that there is no substantive difference among the writing requirements of the various compensation exceptions, despite the use of different terminology, and finalized its proposal to substitute the word “arrangement” for “agreement” in the leasing exceptions to better reflect this policy. The agency explains there is no requirement that an arrangement be documented in a single formal contract. Rather, the relevant inquiry is whether the contemporaneous documentation of the arrangement would permit a reasonable person to verify compliance with the exception at the time a referral is made.

Examples of documents that may be aggregated to satisfy the writing requirement include:

Board meeting minutes and other documents authorizing payments for specified servicesHard copy and electronic communications between the partiesFee schedules for specified servicesCheck requests or invoices identifying items or services provided, relevant dates, and/or rates of compensationTime sheets documenting services performedCall coverage schedules or similar documents with dates of services to be providedAccounts payable or receivable records documenting the date and rate of payment, and reason for paymentChecks issued for items, services, or rent

Notably, the Final Rule provides that parties considering conduct predating the proposed rule may rely on this clarification because it reflects current CMS policy. While this clarification is a helpful fallback, the best practice remains for parties to enter into a formal written agreement to evidence compliance with these exceptions.

  • Term of at Least One Year. CMS finalized changes in the proposed rule to clarify that the one-year term requirement of the rental of office space, rental of equipment, and personal services exceptions does not need to be memorialized in a formal agreement. Rather, parties must have contemporaneous writings establishing that the arrangement lasted for at least one year, or be able to demonstrate that the arrangement was terminated during the first year and the parties did not enter into a new arrangement for the same space, equipment, or services during the first year.
  • Temporary Noncompliance with Signature Requirements. The agency amended the special rule for arrangements involving temporary noncompliance with signature requirements to allow the parties 90 days to obtain the required signatures, even if the noncompliance was not inadvertent. However, CMS did not adopt a commenter’s suggestion to remove the provision that allows a designated health services (DHS) entity to use this special rule only once every three years. The Final Rule also indicates that what constitutes a “signature” for purposes of meeting an exception is flexible and, depending on the facts and circumstances, could include electronic signatures and typed names.
  • Indefinite Holdovers. The Final Rule liberalized the holdover provisions of the rental of office space, rental of equipment, and personal services exceptions to allow for indefinite holdovers, provided that the arrangement continues to meet all other requirements of the exception. Holdovers must continue on the same terms and conditions of the original arrangement, and must continue to meet all other elements of the applicable exception during the holdover period. For example, if office space rental payments are fair market value when the lease arrangement expires, but the rental amount falls below fair market value at some point during the holdover, the lease arrangement would fail to satisfy the requirement as soon as the fair market value requirement is no longer satisfied. CMS also cautioned that, depending on the facts and circumstances, the failure to apply a holdover premium that is legally required by the original arrangement may constitute a change in the terms and conditions of the original arrangement and therefore not meet the requirement that the arrangement continue on the same terms and conditions of the immediately preceding arrangement.

Other Technical Clarifications and Policy Guidance

CMS finalized a number of technical clarifications and changes to Stark exceptions and definitions aimed at improving clarity and ensuring proper application of CMS policies:

  • Stand in the Shoes. CMS finalized its proposal to remove the reference to “stand in the shoes” in the definition of locum tenens physician to avoid potential confusion with the stand in the shoes concept.
  • Split Billing. The agency affirmed its proposed position that a physician’s use of a hospital’s resources (e.g., exam room, nursing personnel, and supplies) in split billing arrangements does not constitute remuneration. CMS specifically declined to address whether the grant of an exclusive right to provide services could constitute remuneration in-kind, giving rise to a financial relationship.
  • Takes Into Account. The Final Rule amends certain exceptions to standardize references pertaining to the volume or value of referrals (e.g., takes into account, based on, without regard to) to clarify that there is only one standard.
  • Remuneration. CMS finalized its proposal to revise the regulatory definition of remuneration to clarify that remuneration excluded from the definition includes items, devices, or supplies used solely for one or more of the six enumerated purposes (e.g., the collection of specimens).

Recruitment and Access to Care

  • New Exception – Assistance to a Non-Physician Practitioner. The Final Rule contains a new exception for recruitment of non-physician practitioners (NPPs) that closely tracks the structure and requirements of the existing exception for physician recruitment, which CMS declined to extend to NPPs in its Phase III rulemaking. CMS explained its change in position was prompted by changes in the healthcare delivery and payment systems and a projected rise in demand for primary care and mental health services, especially in rural and underserved areas. The Final Rule expands the exception to apply to payments made by a hospital, federally qualified health center (FQHC), or rural health clinic (RHC) for not only primary care services, but also mental health services.
  • Additionally, CMS has expanded the definition of NPP to include clinical social workers and clinical psychologists in response to comments on the proposed rule. The Final Rule also applies whether the NPP is recruited as a bona fide employee or an independent contractor. There are a number of requirements and limitations associated with the exception, including a requirement that “substantially all” (defined as at least 75 percent) of the NPP’s patient care services be primary care or mental health services and a cap on the amount of assistance that may be provided.
  • Physician Recruitment. The Final Rule amends the physician recruitment exception to add a new definition of the geographic area served by an FQHC or RHC.


  • New Exception – Timeshare Arrangements. CMS finalized a modified version of the proposed new exception for timeshare leasing arrangements between hospitals or physician organizations and physicians for the use of premises, equipment, personnel, items, or services used predominately for evaluation and management (E&M) services. In its rulemaking, CMS recognized the existence of legitimate reasons for physicians to enter timeshare arrangements instead of traditional space leases (especially in rural and underserved areas) and acknowledged the challenges of structuring such arrangements in a compliant manner under Stark, including the exclusive use requirements of the rental of office space and equipment exceptions. CMS reiterated in the Final Rule that the new exception is not available for traditional lease arrangements that establish a possessory leasehold interest in the space – described as a “right against the world” (including the owner or sub-lessor of the space). The Final Rule is more liberal than the proposed rule in that it allows a hospital to be either the grantor or the grantee of the use of the space. This change will allow hospitals to take advantage of the timeshare exception for its employed physicians.

The new timeshare exception includes the following requirements and limitations:

The parties must be a physician or a physician organization in whose shoes the physician stands and a hospital or physician organization of which the physician is not an owner, employee, or contractor.The premises, items, and services must be “predominately” used to furnish E&M services.The compensation cannot be based on a percentage of revenues or per unit of services fees to the extent such fees reflect services provided to patients referred by the grantor.Any equipment covered by the timeshare arrangement must be (1) located in the same building where the E&M services are furnished, (2) not used to furnish DHS other than those incidental to the E&M services furnished at the time of the E&M visit, and (3) not advanced imaging equipment, radiation therapy equipment, or clinical or pathology laboratory equipment (other than equipment used to perform CLIA-waived laboratory tests).

CMS provided valuable guidance on the meaning of “predominate use” for E&M services that should be considered when designing an arrangement under this new exception. Additionally, CMS discussed the permissible fee methodologies under the new exception in-depth.

Physician-Owned Hospitals

The Final Rule addresses requirements for physician-owned hospitals introduced by the Affordable Care Act, which restricted “grandfathered” hospitals from expanding or increasing the percentage of physician ownership beyond baseline bona fide physician investment levels existing on March 23, 2010.

  • Bona Fide Investment Level. The Final Rule adopts CMS’s reversal of its prior position by requiring the calculation of the physician ownership level to include direct and indirect ownership and investment interests held by a physician regardless of whether the physician refers patients to the hospital. In recognition that some physician-owned hospitals may have relied on the agency’s prior position, which included only referring physicians, CMS delayed the effective date of this revision to January 1, 2017. Significantly, some hospitals may be facing divestment of physician ownership in excess of the bona fide investment level.
  • Public Website and Public Advertising Disclosure. CMS finalized, without modification, its proposed amendment to the Stark regulations to provide more certainty regarding public website and public advertising disclosure requirements for physician-owned hospitals. The Final Rule generally limits the required disclosures, for example, clarifying that social media does not qualify as a public website triggering disclosure obligations.

Revisions to the Medicare “Incident to” Regulation

The Final Rule adopted revisions to the “incident to” regulation that governs Medicare payment for services performed by qualified auxiliary personnel under the supervision of a physician or NPP. Specifically, CMS finalized changes to the regulation to clarify that the physician or NPP billing for the incident to services must also be the physician or NPP who supervises the auxiliary personnel performing the services. CMS proposed to remove the last sentence of the regulation, which currently provides that the physician or NPP “supervising the auxiliary personnel need not be the same physician [or NPP] upon whose professional service the incident to service is based.” In issuing the Final Rule, CMS recognized that its proposed deletion of this sentence introduced confusion about whether the supervising (and, therefore, billing) physician or NPP could be different from the ordering physician or NPP. CMS fixed this error by amending the regulation to state that the supervising physician or NPP need not be the same person who is “treating the patient more broadly.”

IP Provisions of the TPP May Not Satisfy the Pharmaceutical Industry

By S. Maurice Valla

On October 5, 2015, agreement was reached on the text for the Trans-Pacific Partnership (TPP) trade agreement. The 12 signatories (United States, Canada, Mexico, Australia, New Zealand, Japan, Malaysia, Vietnam, Singapore, Brunei, Chile, and Peru) now have two years to ratify the agreement in order for it to take effect. The White House released the text of the agreement to the public on November 5, 2015. While many U.S. industries would likely welcome the apparent willingness of the signatories to ensure robust intellectual property protection in their jurisdictions, the pharmaceutical industry, in particular, is likely to be dissatisfied with some aspects of the agreement.

Chapter 18 of the TPP sets forth the Intellectual Property provisions. This chapter specifies a variety of minimum trademark, copyright, and patent provisions that must be enforced by the member states. Most of the patent provisions align well with U.S. law, including features such as a one-year grace period that prevents disclosures by an inventor, or disclosures derived from the inventor(s), from being considered prior art. The agreement also requires that each state provide a form of patent term adjustment, both to account for patent office delays in issuing a patent and “unreasonable curtailment” of patent term during the marketing approval process for pharmaceutical products.

However, unlike the 12 years of market exclusivity provided by the U.S. Biologics Price Competition and Innovation Act of 2010 (BPCIA), the TPP caps the period of market exclusivity provided to biologics at eight years. The agreement also indicates that the period of data exclusivity is limited to only five years (as opposed to eight years in the U.S.), meaning that generic/biosimilar applications relying on such data can be submitted to the relevant approving bodies significantly earlier than current U.S. law allows. In addition, there are no provisions in the TPP for additional periods of exclusivity for “orphan” drugs. The U.S. provides at least seven years of market exclusivity for such drugs.

The eight years of exclusivity provided by the TPP is also shorter than the corresponding exclusivity provided by the European Medicines Agency. In Europe, biologics, like small molecule drugs, receive eight years of data exclusivity, plus two years of market exclusivity, and are also eligible for an additional one year of exclusivity for pediatric studies. For orphan drugs, the period of data exclusivity is 10 years.

The 12-year exclusivity provisions of the BPCIA were the subject of considerable debate and lobbying efforts during legislative consideration of the Act, and represented a hard-fought compromise between those who argued against passage of any approval pathway for “generic” versions of biologics and those who argued for exclusivity provisions equivalent to those afforded to traditional small molecule drugs (five years, plus an additional six months for pediatric studies). Indeed, it seems unlikely that the BPCIA would ever have passed Congress absent the 12-year exclusivity provisions.

But since Congress granted the President “fast track review” of the TPP, it is not subject to amendment at this point, and must be ratified or rejected as is. Whether the exclusivity provisions are considered to be “deal breakers” for pharmaceutical companies, and whether their position either for or against the TPP turns out to be dispositive for U.S. ratification, remains to be seen. The debate will be interesting to witness.

Health System Free Transportation Program Does Not Warrant Sanctions, Says OIG

By Donna S. Clark and Joel D. Gottesman

The Office of Inspector General (OIG) recently issued Advisory Opinion 15-13, addressing whether an integrated health system (Health System) was at risk for administrative sanctions under the federal anti-kickback statute or civil monetary penalty law for offering free shuttle services to patients. The OIG concluded that the proposed transportation arrangement presents minimal risk of fraud and abuse and warranted no cause for administrative sanctions. Complimentary local transportation has been addressed in several prior OIG advisory opinions, and a safe harbor to protect such programs from anti-kickback statute liability has been published in proposed form.

The Health System, which serves a rural population, comprises a 505-bed medical center, two community hospitals, an ambulatory surgical center, and a clinic that employs more than 1,000 physicians. According to the Health System, the dearth of available transportation options in the communities served by its facilities creates a barrier for residents in accessing healthcare services. Under the proposal, the Health System would offer a free van shuttle service without regard to patient insurance status or ability to pay for medical services. No medical treatment would be available on the shuttles, and no marketing of healthcare items or services would occur during the transportation. The shuttles would not be advertised to the general public or on the Health System website, and would be communicated only to current patients. The availability of the shuttle service to patients would have no relationship to any federal healthcare program business, and the Health System would bear the full cost of the program.

In concluding that the proposed shuttle service presents minimal risk of fraud and abuse, the OIG cited the following reasons:

  1. Shuttle services would not be conditioned upon past or anticipated federal healthcare program business for the Health System, patients’ use of specific items or services from the Health System, or patients’ insurance status or ability to pay. This proposal is distinguishable from “suspect arrangements” where transportation is selectively offered to patients based on the above criteria.
  2. Shuttle services would not include air, luxury, or ambulance-level transportation which is more valuable than shuttle services.
  3. The shuttle drivers would not be paid on a per-patient basis.
  4. The shuttle service would be offered only locally and is therefore not intended to recruit beneficiaries beyond the Health System’s primary service area.
  5. The Health System would not market or advertise the shuttle services to the general public, and therefore, the service could not be interpreted as an inducement for referrals.
  6. The Health System would bear the costs of the shuttle services.
  7. The shuttle service would be unlikely to subsidize the practices of private physicians located in the Health System communities. Although private physicians would incidentally benefit from the shuttle service, the OIG believes that there is no motive to induce referrals from these private physicians to Health System facilities.
  8. The Health System certified that there is a genuine lack of local public transportation, and no public transportation is available to some facilities.

These factors mirror those set forth in prior OIG advisory opinions and the proposed anti-kickback statute safe harbor, and provide guidelines for healthcare providers seeking to establish compliant transportation programs.

Susan Feigin Harris Named a Law360 Health MVP for 2015

In recognition of her legal and policy work on behalf of children’s hospitals and other provider clients, BakerHostetler Partner Susan Feigin Harris has been named one of Law360’s 2015 Health MVPs.

Harris’ selection was based in part on her “sterling reputation in Houston’s legal and health care communities,” the Law360 profile observed. In addition, two significant client successes solidified her spot on this year’s list: “[Harris] guided hospitals to an early victory over a high-stakes federal policy on Medicaid reimbursement and helped assemble a bipartisan coalition in Congress to modernize Medicaid treatments for children.”

Harris led a team that has been representing children’s hospital clients in challenging a CMS policy that could cost children’s hospitals millions by recalculating disproportionate share hospital payments from Medicaid. The BakerHostetler team obtained a preliminary injunction in U.S. District Court halting the recalculation of payments, and is awaiting a ruling on a motion for summary judgment.

In addition, she “spearheaded efforts by 25 leading children’s hospitals” across the United States in developing a legislative initiative, now actively backed by the Children’s Hospital Association, to “enhance coordinated care among as many as 2 million children who are enrolled in Medicaid and have ‘medically complex conditions.’” The bill is known as the Advancing Care for Exceptional Kids Act of 2015 – which the article points out “has racked up about 175 sponsors in the U.S. House of Representatives and almost 30 sponsors in the U.S. Senate, with roughly equal support from both parties.” Harris notes in the article that the prospects of the bill’s passage are very good given its aim “to help sick children while also saving money.”

The full profile is available to Law360 subscribers here.

Events Calendar

December 3

Houston Partner Lynn Sessions will speak on “The Data Breach: How to Stay Defensible Before, During, and After the Incident” at the 23rd Annual Cayman Captive Forum sponsored by the Insurance Managers Association of Cayman in Grand Cayman, Cayman Islands.

December 7

Washington, D.C., Partner Lee H. Rosebush will speak on “Ensuring Compliance Through Examination of Reportable and Non-Reportable Information” and as part of the “Data Integrity Panel: Best Practices and Lessons Learned” at the Life Science Transparency Reporting Conference in Dallas, TX.