Type: Law Bulletins
Date: 11/12/2015

CMS Final Rule Includes Revisions to Stark Law

On Oct. 30, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a final Medicare physician fee schedule rule that adds two new exceptions and clarifies certain terminology and requirements of the federal physician self-referral law (the “Stark Law”). This final rule with comment period adopts most of the provisions that were in the CMS proposed rulemaking, published July 15, 2015. The final rule will be published in the Federal Register on Nov. 16, 2015. Some of the important Stark Law changes under the final rule are summarized below.

New Exceptions

  1. Assistance to Employ a Nonphysician Practitioner

    The final rule establishes a Stark Law exception permitting hospitals, Federally Qualified Health Centers, and Rural Health Clinics to provide payments to physicians for the purpose of recruiting and employing nonphysician practitioners (NPPs). Specifically, the exception requires that the NPP be a bona fide employee of the physician and that substantially all of the patient care services furnished by the NPP be for primary care or mental health services. The remuneration is limited to no more than 50 percent of the aggregate compensation and benefits paid to the NPP. For purposes of this new exception, the definition of NPP includes clinical social workers, clinical psychologists, physician assistants, nurse practitioners, clinical nurse specialists and certified nurse midwives. 

  2. Timeshare Arrangements

    The final rule creates a new Stark Law exception for timeshare arrangements where the hospital or physician organization is the “licensor” and the arrangement is for use of the hospital/physician organization’s premises, equipment and personnel. The new timeshare exception is meant to allow more flexibility in structuring timeshare arrangements that might not qualify for protection under existing Stark Law exceptions (e.g., because the arrangement doesn’t meet the requirements under the rental exceptions of having a one-year term and exclusive use by the lessee). Under the new exception, the licensed premises, equipment and/or personnel must be used predominantly to furnish evaluation and management services to the licensee’s patients. Thus, for instance, the use of office space by a physician licensee solely or primarily to furnish designated health services to patients would not be protected by the new exception. Importantly, the new exception prohibits compensation based on (1) a percentage of the revenue raised, earned, billed, collected or otherwise attributable to the services provided while using the timeshare; or (2) per-unit of service fees, to the extent that such fees reflect services provided to patients referred by the party granting permission to use the timeshare to the party to which the permission is granted. CMS noted that it is not prohibiting compensation using a formula that is time-based (for example, per hour or per day), though it declined to prescribe a minimum amount of time per unit for compensation that utilizes a time-based formula.


  1. “Takes into Account”

    Several Stark Law exceptions prohibit compensation that “takes into account” or is “based on” or “with regard to” the volume or value of patient referrals. Because these terms are used inconsistently throughout the current exceptions, the final rule amends the regulations to consistently use the phrase “take into account.”

  2. Written Requirement

    The final rule clarifies that the writing requirement of various compensation exceptions does not require a single, formal contract but instead can be a collection of documents. To memorialize this, the final rule removes “agreement” from almost all of the relevant exceptions and replaces it with “arrangement.” CMS does note that the writings must be contemporaneous to evidence the writing requirement and that the signature requirement must be satisfied.

  3. One-Year Term

    Certain Stark Law exceptions require that the relevant arrangement have a term of at least one year. The final rule clarifies that the arrangement need not have a formal explicit term provision to satisfy the exceptions. Instead, the requirement is satisfied if, as a matter of fact, the arrangement lasts for at least one year or the parties terminated the arrangement during the first year and did not enter into a new arrangement for the same services. CMS notes that any pre-existing arrangements that lasted at least one year are in compliance with the exceptions.

  4. Temporary Noncompliance with Signature Requirements

    The current Stark Law regulations make a distinction between inadvertent and advertent noncompliance with the signature requirements, resulting in different time periods for obtaining the signatures. The final rule allows parties up to 90 days to obtain all required signatures, regardless of whether the failure to obtain the signature was inadvertent.

  5. “Stand in the Shoes”

    The final rule clarifies that for the purpose of complying with the signature requirement, only physicians who stand in the shoes of their physician organization are parties to an arrangement. However, for Stark Law purposes other than the signature requirement, all physicians in a physician organization, including employees and independent contractors, are considered to be parties to the arrangement. Therefore, for instance, compensation paid to a physician organization cannot take into account the referrals of any physician in the physician organization, regardless of whether the physician stands in the shoes of the physician organization.

  6. Holdover Arrangements

    Some Stark Law regulatory exceptions allowed holdover arrangements for up to six months if certain requirements were satisfied. Under the final rule, these exceptions permit indefinite holdover arrangements, so long as the holdover is on the same terms and conditions as the immediately preceding arrangement and the arrangement continues to comply with the applicable exception. This modification also revises the “fair market value” compensation exception, which currently permits unlimited renewals only for contracts of less than one year. The final rule allows for arrangements of any timeframe, including arrangements for more than one year, to be renewed any number of times.


In the July 15, 2015, proposed rule, CMS solicited comments on several additional topics addressing the integration of health care providers to improve population health and quality of care while reducing costs in light of the evolving health care delivery and payment models. In the final rule, CMS notes that many commenters expressed frustration that “outside of the Medicare Shared Savings Program or certain Center for Medicare and Medicaid Innovation-sponsored care delivery and payment models—for which we have issued waivers of the prohibitions of the physician self referral law—the physician self-referral law prohibits financial relationships necessary to achieve the clinical and financial integration required for successful health care delivery and payment reform.” In addition, CMS notes that it received numerous stakeholder inquiries regarding whether certain compensation methodologies (particularly performance-based or incentive compensation methodologies) would be viewed as taking into account the volume or value of a physician’s referrals or other business generated between the physician and the entity furnishing DHS that provides the compensation. CMS intends to address these comments in a report to Congress, and it will determine whether additional rulemaking is necessary in light of these issues raised by stakeholders.

If you have questions regarding the substance or effect of this rulemaking, please contact a member of Taft’s Health & Life Sciences group.  

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