Episode 4 - The Stark Law: Writing Requirement

Please see below for a full transcript of this episode:

The Stark Law: a strict liability statute that prohibits certain physician relationships that are otherwise legal in a non-healthcare-related business transaction. This episode examines the writing requirement of the Stark Law exceptions.

Welcome to Redefining Health Law, brought to you by the law firm of Parker Hudson, Rainer Dobbs, LLP. A boutique law firm with offices in Atlanta, Chicago, and Tallahassee. Your host for this podcast is Tara Ravi, a healthcare partner with prior work experience in both clinical research and patient care delivery.

She is an adjunct professor at the Emory School of Law, where she teaches corporate health law. Tara leverages her past work experience in the healthcare industry to advise healthcare organizations facing growth related challenges. Although Tara is a partner in the law firm of Parker Hudson, the views expressed in this podcast are Tara's personal views and not the views of the firm or any of the firm's clients, and are not intended to be legal advice.

We hope you enjoy this podcast.

Hey there, and welcome back. If you listened to my introductory episode, you'll know that some episodes are legal heavy in this podcast and some are legal light. Today's will definitely be legal heavy. We're jumping from our overall theme set out in the introductory series and diving right into the Stark Law, which in my opinion, is the most onerous of the healthcare regulations applicable to hospitals and physicians.

So let's get started because I want to focus on a specific requirement that has caused some difficulty for many of our clients in the past year or so. Alright, so as background, the Physician Self Referral Law, commonly referred to as the Stark Law, prohibits physicians from making referrals of designated health services to healthcare entities that the physician or an immediate family member has a financial relationship with, unless an exception applies.

Note that the prohibition only applies to services that are payable under Medicare or Medicaid, but some states have enacted similar laws that capture services payable by all payers. Financial relationships include two categories, and the first is an ownership or investment interest, and the second is a compensation arrangement.

So, for example, in the first category, a physician is prohibited from referring DHS, or a designated health service, to an entity that he or she has an ownership interest in, unless a specific exception applies. So if I'm a physician and I own an imaging center, I can't send my patient over to that imaging center to go get imaging and then get money out of that imaging center via my ownership interest.

I have to find a Stark Law exception, which by the way, in this example, there wouldn't be one. A physician is similarly prohibited from referring DHS to an entity that the physician has a compensation arrangement with. So for example, if I'm a physician, I have my own practice and I engage with the hospital to do some call coverage for that hospital, every time I send a patient over to that hospital to get, let's say, laboratory services or imaging services, I need to find an exception under the Stark law to be able to continue to get paid by that hospital while also referring those DHS services to the hospital.

So what are DHS services? I've alluded to a couple already. Clinical laboratory services, physical therapy, occupational therapy, outpatient speech language pathology services, radiology, and certain other imaging services, radiation therapy services and supplies, DME and supplies, parenteral and enteral nutrients, equipment and supplies, prosthetics, orthotics, prosthetic devices and supplies, home health services, outpatient prescription drugs, and inpatient and outpatient hospital services.

So basically that covers the gamut of all services that are really outside of just strictly professional physician services. But, you have to look at the specific list because the Stark Law is very specific. Why? Because it is a strict liability statute, which means you don't need to know that the law exists. You don't need to know that you're violating it, but if you do violate it, you're going to get in trouble. Absolutely. It's not like a typical criminal statute where I need to know that I'm doing something bad. You could be thinking you're doing something perfectly great, but if you're violating it, you're in trouble.

Now what do I mean? The Stark Law prohibits the submission or causing the submission of claims in violation of the law's restrictions on referrals. Trouble are the penalties for physicians, which can include a penalty of up to $27, $28,000 per claim and up to five years in prison, there's also the self disclosure protocol to the extent you find out you have been violating the Stark Law or you did violate the Stark Law, you can calculate your penalties and you'll typically get 1.5X the penalties when you go and self disclose your liability.

So we're talking about exceptions under the Stark Law. Like I said, what I just described is pretty onerous so there has to be exceptions so that at least physicians can interact with hospitals. And those common exceptions are employment arrangements, rental of office space and equipment, that's rental of office space between hospitals and physicians for equipment or space, personal services exception, which is not an employment agreement. It's basically like a contractor agreement or an agreement to enter into buying supplies or a vendor agreement and physician recruitment agreements as a common one. That's where hospitals have a need for a specific specialty of a physician, or maybe they just need more physicians and they'll pay a practice in the nearby area to be able to recruit a physician into that practice.

Isolated transactions: that's another exemption. Typically we use that one when we're buying a position practice. It's a one time deal transaction. The fair market value exception. It's very similar to the employment exception or the personal services exception, except it can be for a time period that's less than a year. The other two have to be for at least a year.

Now, the one thing that's common, and let me remind you that these exceptions are the compensation category. That's when a physician has a compensation arrangement with a hospital, you want to fit one of these exceptions. One requirement that's found in these exceptions is that whatever that agreement is must be in writing and signed by the two parties.

And that's what this podcast is going to focus on. What does that mean to be signed and in writing? Now, it's a pretty simple requirement, but if you're a big hospital system or you're a physician practice, or maybe you're just a one person physician practice, sometimes you have conversations and you have these conversations and you start to do your work and it turns out we forgot to write it down and we forgot to sign it.

Or we had an agreement in place and it got emailed back and forth or you texted me something and we thought we had an agreement in place. It just was never actually signed. So what do we do about that? There was a period of time where CMS acknowledged that this is a regulatory burden or frankly, an administrative burden to get all this paperwork.

Imagine you're a large healthcare system. You could typically have, if you've got a large physician practice nearby, you could have like 50, 60, 80 contracts in place for various services. And it's hard to keep track of all of them. And it's hard to keep them in writing. And it's hard in this day and age where you've got like Teams messages and text messages and emails.

It's, it's hard to put it all in one place. And then it's finally hard to get these signatures, which in CMS's mind, they don't see why it could be that hard. But certainly when you're on the practice side, it is that hard. Okay, so what are we going to talk about the writing requirement? The writing requirement is what can you do if you venture into an arrangement?

We've had an agreement. We went for coffee. We went for drinks. We've decided that my physician practice is going to do stuff for your hospital. But we forgot to put it in writing. Well, in the recent revisions, and that recent, I mean, 2021, they created a grace period and we've always had this concept that the writing doesn't have to be a beautiful contract written by your attorney.

The writings could be a compilation of writing. So it could be that we have an arrangement and all the terms, if I combined all our printed out all our text messages and a couple of our emails and I wrote on a napkin, I put it together in a folder to explain, okay, well, If you look at this text message and you look at this email and you look what I wrote on this napkin, you can take away from all of that, that I need to be at your hospital Tuesdays and Thursdays from nine to five, and you're going to pay me X number of dollars. And I'm going to see these types of patients. And CMS said, okay, that's fine. We'll call that a collection of documents used to support the writing. Okay. But where's the signature on that? Like we can't just sign all these text messages and we can't sign the paper napkin and we can't sign the email. So eventually you're supposed to be able to like get that into a writing and sign it.

Well, they realized that requires a grace period, because like I said, this is strict liability. So if you don't do it strictly how it says in the law, you're going to be in violation and you have all these penalties and the self disclosure and it all is not great. So now we have this grace period where you've got 90 days to then get it in writing if you want and make sure that signature to make sure it's a pretty little package and we put it in the file. Now, the issue that's coming up with our clients is, well, we had a writing and we had a signature, but then one of the terms changed. It's like, oh, well, it turns out we're not going to be coming on Tuesdays. We're going to be coming on Wednesdays. And Stark Law has this very specific provision where once you get it in writing, you can't, especially for some of these, like the fair market value exception or the personal services, you have to have it in place for the set time that you said. So if we were going to have this contract for six months, and I'm coming on Tuesdays and Thursdays. And then if I change it and say, well, I don't want to come on Thursdays anymore. I want to come on Wednesdays, then that'd be considered a modification to the contract.

Does that automatically violate this requirement that says the contract has to last for, you know, six months or a year and CMS has said, okay, well, we're not going to be brutal about it. Yeah, you can make those changes because the number one thing they're concerned about is money, right? So we don't want you referring all of this DHS to get more money to get volume or value of referrals. It's fair market value is a big term that we hear and so at the end of the day yes, you have time to get it all in writing.

Yes, you have time to get your signatures but if you're making a change to the compensation arrangement and that can be in any number of things that can mean, okay well, you're supposed to pay me $20 a day, but now we're going to bump it up to 25 that doesn't get any grace. You have to get that in writing.

There's a little bit of wiggle room if it's the first time I've interacted with you. This is our first agreement. We're pulling together all the text messages and the paper napkins. And one of those napkins says you're going to get paid, let's say $100 a day. I've got some grace period there to get it into the 90 days worth of writing and the signatures.

But if some period during those 90 days we said, Oh wait, you know what, actually that's wrong. Let's do it for $150 there's no grace period the minute that happens and I start doing a service for $150 it needs to be in writing on day one in that minute that I started doing the service and getting paid that at its core if you make a change to the compensation even with all of your like compiled writings.

It needs to again be in writing and there's no grace. So the moral of the story and really the short answer to a lot of questions we've been getting from our client is, Hey, we heard there's a grace period and we've got these 90 days and we've made all this changes to comp. It doesn't work. There's not grace to changes in compensation.

That's always something that needs to be in writing and set out before you start getting that compensation, because at its core, this is a Stark Law that's affecting financial relationships. And so that is what we need to have set in advance, because otherwise there's too much leeway to say, well, we didn't get it in writing, but we realized this guy's a high performer. So we decided at the last minute to change the rate because he's great. She's great. That's what they're looking for as a red flag.

So I hope that's helpful. I know the Stark Law can be pretty boring. It's like a billion pages worth of writing. Everybody's written on it. I'm not going to redescribe the Stark Law background to my listeners. Again, you're going to have to listen to this episode because some of the issues that come up in the Stark Law, they don't always require hearing what the law is. I think this was a good background, but I'd like to get into other episodes when we do talk about the Stark Law. Like, let's just get straight to the issue.

For the most part, the health lawyers, we know the Stark Law, we know what's not permitted, but there are all these little nits questions that we get, and so we'd like to just jump into what those little nits and questions are moving forward.

And to all my med students, by the way, who are listening to this, you know, my sister's in medical school at Tulane, y'all better be paying attention to this because these little important Stark Law nits, it's not just for lawyers. This is going to affect your day to day life, and it's really important you understand the ins and outs.

Well, thanks again for listening to Redefining Health Law. If you haven't already, I invite you to subscribe on your favorite podcast player, so you won't miss an episode. And of course, if you have any topics you'd like to hear discussed, please don't hesitate to email us at redefininghealthlaw@phrd.com.

That's P like Parker, H like Hudson, R like Ravi, and D like doctor. Again, that's redefininghealthlaw@phrd.com. We'd love to hear from you, and thanks for listening. Until next time, I'm Tara Ravi.