CMS Adopts Final Stark Rule Exceptions and Clarifications

Health Law Alert

November 23, 2015
Health Law Alert

On October 30, 2015, CMS issued its final changes to the physician self-referral regulations (the "Stark Law") as part of the Physician Fee Schedule Rule for 2016, published in the Federal Register on November 16, 2015. The Final Rule adopts most of the provisions set forth in the July 15 proposed rule, which Hinshaw & Culbertson LLP previously summarized here. A brief summary of the Final Rule, highlighting changes to the July proposed rule, follows:

Timeshare Arrangements

Under the Stark Law regulations pre-dating the Final Rule, timeshare arrangements had to be analyzed under the exception for the rental of office space. CMS, recognizing the distinct differences between more traditional office space lease agreements and timeshare arrangements, created a new exception for qualifying timeshare arrangements, while leaving the rental of office space exception intact.

The exception protects only those arrangements granting a right or permission to use the premises, equipment, personnel, items, supplies and services of another party without establishing a possessory leasehold interest in the medical office space that constitutes the premises. Drawing comparisons between a timeshare arrangement and a license, the Final Rule refers to the parties to a timeshare arrangement as "licensor" and "licensee." While CMS specifies that the terminology used by the parties in the documentation describing the timeshare arrangement will not control whether the parties have satisfied the exception, healthcare providers nonetheless might consider the use of such nomenclature in applicable agreements.

The exception applies to those timeshare arrangements between a physician (or the physician organization in whose shoes the physician stands) and a hospital or a physician organization of which the physician is not an owner, employee or contractor - regardless of which party grants and which party receives permission to use the premises, equipment, personnel, items, supplies and services of the other party. The proposed rule contemplated applicability of the exception only in those arrangements in which a hospital or physician organization was the licensor and a physician the licensee. In addition, while the proposed rule contained a requirement that all equipment be located in the same office suite in which the physician performs evaluation and management services, the Final Rule requires only that the equipment covered under the arrangement be located in the "same building" as where the evaluation and management services are furnished.

Additional factors must be met to qualify for protection under the exception. We recommend that hospitals, physician organizations and physicians that are currently party to, or are contemplating entering into, a timeshare arrangement carefully review both the Final Rule and their current or proposed timeshare agreements to ensure compliance with the various requirements and limitations of this exception.

Assistance to Compensate Nonphysician Practitioners

The Final Rule creates a second new exception for payments made by a hospital, Federally Qualified Health Center (FQHC) or rural health clinic (RHC) to a physician to assist the physician in employing or contracting with nonphysician practitioners (NPPs) in the hospital's, FQHC's or RHC's geographic service area. The existing exception permits payment to assist in relocation of physicians. The Final Rule expands the scope of the exception to permit both compensation arrangements between physicians and NPPs for employment and for contracted services – noting, however, that it must be a direct compensation arrangement between the physician and NPP. The Final Rule also expands the exception, at the urging of commenters, to cover the employment or contracting of mental health care providers, specifically expanding the definition of "nonphysician practitioner" to include clinical social workers and clinical psychologists, in addition to the nurse practitioners, physician assistants, clinical nurse specialists and certified nurse midwives called out in the proposed rule. Finally, the Final Rule adopts a "substantially all" standard (meaning at least 75%) for the minimum amount of primary care services or mental health services that an NPP must furnish to patients of the physician's practice.

Hospitals, FQHCs and RHCs interested in pursuing their options under this exception should carefully study the Final Rule in order to understand all relevant limitations.


In addition to the two new exceptions summarized above, the Final Rule clarifies a number of questions that providers have raised in interpreting the Stark Law and makes certain technical revisions to provide for more flexibility in the application and enforcement of the Stark Law. Among these clarifications and technical revisions are the following:

Healthcare providers interested in learning more about the two new exceptions, and/or any of the clarifications and modifications set forth in the Final Rule are encouraged to contact their usual Hinshaw attorney or Stephen T. Moore