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CMS Reissues Stark Rules Restricting Certain Unit-based Rental Rate Arrangements and Issues Two Stark Updates

On November 15, 2016, as part of its 2017 Medicare Physician Fee Schedule update, the Center for Medicare and Medicaid Services (CMS) reissued its prohibition on certain unit-based rental arrangements with referring physicians, adopted updates to the list of CPT/HCPCS codes (Code List) defining certain of the Stark Law’s designated health services (DHS) and implemented a minor technical change to its instructions for submitting a request for an Stark advisory opinion. These revisions can be found at 81 Fed. Reg. 80170, 80524-36.

Per-Click Arrangements

CMS reissued Stark regulatory text, effective January 1, 2017, prohibiting the use of per unit of service rental rates (commonly referred to as “per-click” fees in the equipment lease context) when the aggregate rent (or volume of units) paid reflects the volume of services furnished to patients referred by the lessor to the lessee. This prohibition had been struck down by the US Court of Appeals for the District of Columbia Circuit as applied to equipment rental arrangements in Council for Urological Interests v. Burwell, 790 F.3d 212 (D.C. Cir. 2015). The court struck down the prohibition under the two-step test from Chevron U.S.A. v. Natural Resources Defense Council, 467 U.S. 837 (1984) (Chevron) because of CMS’s stated rationale for imposing the prohibition, not because it did not believe CMS had the authority to impose it. The reissued regulatory text is located in the Stark Law exceptions for the rental of office space and equipment and the fair market value and indirect compensation exceptions (42 C.F.R. § 411.357(a), (b), (l) and (p)). As found in the Stark indirect compensation exception, the text is as follows:

Compensation for the rental of office space or equipment may not be determined using a formula based on—

*              *          *

(B) Per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.

This regulatory text was originally added by amendments to the Stark regulations, effective October 1, 2009. In Council for Urological Interests, the DC Circuit struck down CMS’s prohibition because the restriction was based, in part, on CMS’s flawed interpretation of a 1993 House Conference Committee report (the Conference Report). The Conference Report stated that “[t]he conferees intend that charges for space and equipment leases may be based on . . . time-based rates or rates based on units of service furnished, so long as the amount of time-based or units of service rates does not fluctuate during the contract period.” H.R. Rep. No. 103-213, at 814 (1993). CMS had originally interpreted the Conference Report to evince congressional intent to permit unit-based rental rates, but in the fiscal year 2009 inpatient prospective payment system (PPS) final rule CMS reinterpreted the statement to mean that if the total amount of rent over the term of the lease is directly affected by the number of patients referred, those rental charges can arguably be said to fluctuate during the contract period, and are therefore prohibited. An association representing urologists who leased urological equipment to hospitals on a per-service basis before the 2009 inpatient PPS final rule challenged the legality of the rule change. The DC Circuit found that CMS’s reinterpretation of the Conference Report “border[ed] on the incomprehensible” and was not a permissible and reasonable view of Congress’s intent. The court remanded the case to permit a fuller consideration of the legislative history with specific direction to consider whether a ban on per-click equipment leases is consistent with the Conference Report, effectively striking down CMS’s prohibition on June 12, 2015, the date of the decision.

In reissuing the prohibition on unit-based rental arrangements with referring physicians when the aggregate rent (or volume or units) is affected by the volume of services furnished to patients referred by the lessor to the lessee CMS relied on its statutory authority to impose additional requirements related to the rental exceptions as needed to protect against program or patient abuse at 42 U.S.C. § 1935nn(e)(1)(A)(vi) and (B)(vi) and its authority to establish other permissible exceptions under 42 U.S.C. § 1935nn(b)(4). The DC Circuit expressly recognized such authority, finding that “[w]hile Congress may not have originally intended the ban of per-click lease, it empowered the Secretary to make her own assessment of the needs of the Medicare program and regulate accordingly.” Council for Urological Interests, 790 F.3d 212 at 220. Although the DC Circuit ruled only on CMS’s prohibition on per unit of service rental rates for the lease of equipment, CMS reissued the text as applied to both equipment and space, presumably recognizing that the legal defect with the prohibition “per-click” equipment rentals applied equally to the ban on per unit of service rents for the lease of space.

In discussing the reissued text, CMS noted that the Conference Report does not constrain its authority to impose requirements regarding the type of compensation formulas that may be used in rental arrangements. In fact, the Conference Report was silent regarding CMS’s statutory authority to impose additional requirements related to the rental exceptions, “leaving the express words of the statute to speak for themselves.” Accordingly, as the DC Circuit noted, while the Conference Report states that rental charges “may” be based on units of service, it does not means that CMS must permit them. It simply indicates that, as written, the statute does not preclude per unit of service leases. CMS emphasized that the prohibition on per unit of service rental charges is not absolute, but extends only to per-unit rental charges “where the lessor generates the payment from the lessee through a referral to the lessee for a service to be provided in the rented office space or using the rental equipment.” 

Other Revisions

As noted above, CMS also issued its annual Code List update, which specifies, effective January 1, 2017, the entire scope of CPT/HCPCS codes of (1) the following four DHS categories: clinical laboratory services; physical therapy, occupational therapy and outpatient speech-language pathology services; radiology and certain other imaging services; and radiation therapy services and supplies; and (2) two exceptions to the Stark Law referral prohibition: certain dialysis-related drugs furnished in or by an end-stage renal disease facility and preventive screening tests, immunization or vaccines. The updated comprehensive Code List, will be available on the CMS website.

Finally, CMS issued a minor technical revision that replaced an outdated mailing address for the submission of requests for advisory opinions with a statement that such requests should be made according to instructions specified on the CMS website. 

© 2020 McDermott Will & EmeryNational Law Review, Volume VI, Number 321


About this Author


Daniel H. Melvin is a partner in the law firm of McDermott Will & Emery LLP and is based in the Firm's Chicago office.  Daniel focuses his practice on counseling clients on Federal health care program fraud and abuse, Stark law, and Medicare reimbursement issues. 

Amanda Enyeart Healthcare and Life Sciences Attorney Mcdermott WIll Emery Law Firm

Amanda Enyeart is an associate in the law firm of McDermott Will & Emery LLP and is based in the Firm’s Chicago office.  Amanda focuses her practice on general regulatory health law matters. 

Previously, Amanda was an associate at a national law firm in its Chicago office where she provided guidance on regulatory issues, such as practitioner licensure; telehealth; Medicare and Medicaid reimbursement; and compliance with Stark Law and the Anti-Kickback Statute and state fraud and abuse laws.

Additionally, Amanda has counseled health care providers and health information technology vendors regarding data privacy and security and related implications of HIPAA and the HITECH Act as well as state data privacy laws. 

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