After the COVID-19 Public Health Emergency: Returning to “Normal” Under the Stark Law

In March 2020, the Secretary of Health and Human Services issued waivers for many of the restrictions in the Physician Self-Referral Law (Stark Law) in accordance with Section 1135(b) of the Social Security Act (42 U.S.C. § 1320b-5). The Stark Law prohibits physicians from referring patients to receive services from another provider if the physician has a financial relationship with that provider (see 42 CFR 411.354 for definitions of these terms). Over the past two years, these waivers temporarily eliminated sanctions for these referral situations to ensure healthcare providers could address patient needs and maintain their own viability during the COVID public health emergency shutdowns.

One of the important regulations that was waived was the test of fair market value for compensation, rents, leases, and other financial arrangements between physicians and other providers. That provided flexibility for physicians, hospitals, home health agencies, diagnostic clinics, to devise new partnerships or new healthcare delivery mechanisms during the public health emergency.

Some of these financial relationships are innovative responses that allow for patient care under adverse circumstances. Probably the best example is the transformation from in-office to telehealth visits. Other new financial relationships are designed to offset the devastating financial impact COVID-19 had on many physician specialties, such as surgeons, radiologists, anesthesiologists, and pathologists who could no longer perform elective procedures.

The waivers will be rescinded in coordination with the end of the federal public health emergency. As things slowly return to normal, both providers and healthcare attorneys need to review physician arrangements created under the waiver to ensure they will be Stark Law-compliant going forward. For many agreements, compliance falls into broad categories: documentation of the arrangement and financial terms that meet fair market value requirements.

Examples of arrangements that require fair market value terms include payments for professional clinical services or coverage; rental of office space and equipment; provision of telehealth equipment and services; arrangements for sharing staff; loans to physicians, such as hospital-based specialists; and personal services agreements with physician groups or individual doctors (see the CMS waiver document for additional examples).

Several challenges may exist with bringing these agreements into compliance. There may be limited documentation for the scope of the services and other contractual terms. COVID may have dictated significant changes in operations and responsibilities from those originally implemented or described in an agreement. There may be limited information about how payment and compensation arrangements were established. There may be limited supporting documentation for payments made under an agreement.

The starting point in reviewing agreements and ensuring Stark Law compliance is documenting actual activities, responsibilities, outcomes, clinical production, and payments under the current arrangement. That will serve as the basis for determining activities, responsibilities, and business terms in a revised agreement.

The second step in reviewing and revising COVID-era agreements is to develop a pro forma budget or costs analysis for the scope of services going forward. A detailed budget that is carefully reviewed by the parties and their attorneys is an important tool for working out operational details under the agreement, and for establishing a solid working relationship between the parties.

A detailed pro forma budget, a cost analysis, or a detailed comparable market analysis is also essential in deciding whether the financial terms are fair market value. COVID has impacted fair market value rates, particularly for rental rates and certain categories of physician or advanced practice professional compensation arrangements.

The determination of fair market value should be handled by competent firms or individuals with up-to-date healthcare and market knowledge. Marcum LLP has decades of experience providing services to a wide range of healthcare organizations and healthcare attorneys.