Health Law Monitor

By: Alaina N. Crislip

On March 30, 2020, CMS issued blanket 1135 waivers of Section 1877 (g) of the Social Security Act (the “Act”), also commonly referred to as the “Stark Law”¹ in response to the COVID-19 National Emergency in the United States. The waivers are retroactive to March 1, 2020.  This means that providers can rely on these waivers without notifying CMS.

Both prerequisites to issue 1135 waivers were previously met: (1) the President declared a disaster or emergency under either the Stafford Act or the National Emergencies Act, and (2) the Secretary of Health and Human Services (“Secretary”) must declare a Public Health Emergency under Section 319 of the Public Service Act.

The Secretary may grant Section 1135 waivers during the emergency period to ensure any emergency area has the following resources and flexibility: 

• sufficient health care items and services available to meet the needs of individuals enrolled in Medicare, Medicaid, and the CHIP programs, and 
• absent any determination of fraud or abuse, health care providers that furnish such items and services in good faith, but are unable to comply with one or more requirements described in section 1135(b) of the Act, may be reimbursed for such items and services and exempted from sanctions for such noncompliance, including sanctions under the Stark Law.

Section 1135 defines “health care providers” as any entity that furnishes health items or services, and includes a hospital or other provider of services, a physician or other health care practitioner or professional, a health care facility, or a supplier of health care items or services. A complete listing of all declared COVID-19 1135 blanket waivers to-date can be found on CMS page.²

Why the Stark Waivers Matter

The Stark Law is a strict liability statute, meaning if an applicable health care provider does not meet all of the elements of an exception³, they have violated the statute⁴. Providers subject to the Stark Law in non-emergency times struggle to meet some of the applicable exemptions. The basic Stark Law restrictions are: 

• A physician is prohibited from making referrals for certain designated health services payable by Medicare to an entity with which he or she (or an immediate family member) has a financial relationship, unless all of the requirements of an applicable exception are satisfied; and 
• An entity is prohibited from filing claims with Medicare (or billing another individual, entity, or third party payor) for designated health services furnished pursuant to a prohibited referral.  

A financial relationship includes an ownership or investment interest in an entity or a compensation relationship with the entity.

The waivers during emergency times reflect the challenges providers face in maintaining sufficient physician and other health care practitioner resources, procuring necessary supplies, and ensuring the provision of certain services are maintained within provider facilities. 

The Purpose of the Stark Law Waivers

The Stark Law blanket waivers must be used solely for “COVID-19 purposes” which include:

• 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 U.S.;
• Ensuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the U.S.;
• Expanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak in the U.S.;
• Shifting the diagnosis and care of patients to appropriate alternative settings due to the COVID-19 outbreak in the U.S.; or
• Addressing medical practice or business interruption due to COVID-19 outbreak in the U.S. in order to maintain the availability of medical care and related services for patients and the community.⁵ 

CMS implemented the following 18 Stark Law blanket waivers as of March 1, 2020, which will continue until the declaration of a national emergency has ended:

1. Remuneration from an entity to a physician (or an immediate family member of a physician) that is above or below the fair market value for services personally performed by the physician (or the immediate family member of the physician) to the entity.
2. Rental charges paid by an entity to a physician (or an immediate family member of a physician) that are below fair market value for the entity’s lease of office space from the physician (or the immediate family member of the physician).
3. Rental charges paid by an entity to a physician (or an immediate family member of a physician) that are below fair market value for the entity’s lease of equipment from the physician (or the immediate family member of the physician).
4. Remuneration from an entity to a physician (or an immediate family member of a physician) that is below fair market value for items or services purchased by the entity from the physician (or the immediate family member of the physician).
5. Rental charges paid by a physician (or an immediate family member of a physician) to an entity that are below fair market value for the physician’s (or immediate family member’s) lease of office space from the entity.
6. Rental charges paid by a physician (or an immediate family member of a physician) to an entity that are below fair market value for the physician’s (or immediate family member’s) lease of equipment from the entity.
7. Remuneration from a physician (or an immediate family member of a physician) to an entity that is below fair market value for the use of the entity’s premises or for items or services purchased by the physician (or the immediate family member of the physician) from the entity.
8. Remuneration from a hospital to a physician in the form of medical staff incidental benefits that exceeds the limit set forth in 42 CFR 411.357(m)(5).
9. Remuneration from an entity to a physician (or the immediate family member of a physician) in the form of non-monetary compensation that exceeds the limit set forth in 42 CFR 411.357(k)(1).
10. Remuneration from an entity to a physician (or the immediate family member of a physician) resulting from a loan to the physician (or the immediate family member of the physician): (1) with an interest rate below fair market value; or (2) on terms that are unavailable from a lender that is not a recipient of the physician’s referrals or business generated by the physician.
11. Remuneration from a physician (or the immediate family member of a physician) to an entity resulting from a loan to the entity: (1) with an interest rate below fair market value; or (2) on terms that are unavailable from a lender that is not in a position to generate business for the physician (or the immediate family member of the physician).
12. The referral by a physician owner of a hospital that temporarily expands its facility capacity above the number of operating rooms, procedure rooms, and beds for which the hospital was licensed on March 23, 2010 (or, in the case of a hospital that did not have a provider agreement in effect as of March 23, 2010, but did have a provider agreement in effect on December 31, 2010, the effective date of such provider agreement) without prior application and approval of the expansion of facility capacity as required under section 1877(i)(1)(B) and (i)(3) of the Act and 42 CFR 411.362(b)(2) and (c).
13. Referrals by a physician owner of a hospital that converted from a physician owned ambulatory surgical center to a hospital on or after March 1, 2020, provided that: (i) the hospital does not satisfy one or more of the requirements of section 1877(i)(1)(A) through (E) of the Act; (ii) the hospital enrolled in Medicare as a hospital during the period of the public health emergency described in section ILA of this blanket waiver document; (iii) the hospital meets the Medicare conditions of participation and other requirements not waived by CMS during the period of the public health emergency described in section II.A of this blanket waiver document; and (iv) the hospital’s Medicare enrollment is not inconsistent with the Emergency Preparedness or Pandemic Plan of the State in which it is located.
14. The referral by a physician of a Medicare beneficiary for the provision of designated health services to a home health agency: (1) that does not qualify as a rural provider under 42 CFR 411.356(c)(1); and (2) in which the physician (or an immediate family member of the physician) has an ownership or investment interest.
15. The referral by a physician in a group practice for medically necessary designated health services 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).
16. The referral by a physician in a group practice for medically necessary designated health services furnished by the group practice to a patient in his or her 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.
17. The referral by a physician to an entity with which the physician’s immediate family member has a financial relationship if the patient who is referred resides in a rural area.
18. Referrals by a physician to an entity with whom the physician (or an immediate family member of the physician) has a compensation arrangement that does not satisfy the writing or signature requirement(s) of an applicable exception but satisfies each other requirement of the applicable exception, unless such requirement is waived under one or more of the blanket waivers set forth above.

A number of illustrative examples are provided for health care providers in the CMS COVID-19 Stark Law waivers document.⁶  A couple of those examples include: (1) an entity provides free telehealth equipment to a physician practice to facilitate telehealth visits for patients who are observing social distancing or are in isolation or quarantine, and (2) a hospital pays physicians above their previously contracted rates for furnishing professional services for COVID-19 patients in particularly challenging environments. 

In summary

The Stark Law blanket waivers are retroactive back to March 1, 2020 and solely apply to financial relationships and referrals related to the national COVID-19 emergency in the U.S.  Health care providers must meet all conditions of a specific blanket waiver for its benefits to apply.  Reliance on any of the Stark Law blanket waivers must be documented between the applicable parties. Additional blanket waivers may be issued by CMS as the strategies to address the COVID-19 outbreak continue to evolve.

It is important to note that health care providers may seek individual 1135 waivers from Stark Law sanctions based on the particular facts and circumstances of arrangement which may not qualify for an existing blanket waiver.

Jackson Kelly will continue to evaluate and provide you with timely information on the continuously changing health care regulatory environment due to COVID-19. Should you have any questions about Stark Law blanket waivers or how to file an individual waiver request, please contact a member of the JK Health Care Industry Group.

¹  https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf
(accessed March 31, 2020).
²  https://www.cms.gov/files/document/summary-covid-19-emergency-declaration-waivers.pdf
³  42 C.F.R. §411.355 through § 411.357.
⁴  See Section 1877 of the Act
⁵  https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf (accessed March 31, 2020)
⁶  See https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf for full listing of illustrative examples (accessed March 31, 2020).