Overview of Recent Stark Law Developments
There has been a flurry of judicial and administrative activity regarding the Stark Law in recent weeks, bringing both promises of reprieve for the health care industry in complying with the technicalities of the law, and reminders of the need for executive vigilance when evaluating and approving transactions with referring physicians.
On July 15, 2015, the Centers for Medicare & Medicaid Services (CMS) issued a notice of proposed rulemaking to amend the Stark regulations and to solicit comments from the health care industry on whether the Stark Law is a barrier to health care reform. Among other proposed amendments, CMS proposes: (1) to add two new compensation exceptions, (2) to expand the grace period for the signature requirement of various exceptions in some instances, and (3) to extend the six-month holdover provision of various exceptions. CMS also made several agency policy statements, including clarifying that signed writings do not need to be formal agreements and that the one-year term requirement of certain exceptions is satisfied when an arrangement in fact lasts for at least one year. CMS’s proposals to relax the technical requirements of various Stark Law exceptions, if implemented, would be a welcome reprieve to the health care industry by addressing the potentially draconian consequences of such seemingly innocent situations as a late signature on an agreement with a referring physician. Comments on the proposed rule are due September 8, 2015.
On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit upheld a $237 million False Claims Act judgment based on Stark Law violations related to part-time employment contracts between a hospital system and referring physicians in United States ex rel. Drakeford v. Tuomey, rejecting the defendant’s request for a new trial based on multiple errors by the trial court and its constitutional challenges to the trial court’s award of damages and penalties.) The ruling raises questions related to the advice of counsel defense and scienter, and the meaning and application of the Stark Law’s “volume or value” standard.
On June 12, 2015, the U.S. Court of Appeals for the District of Columbia Circuit struck down CMS’s regulatory prohibition on “per-click” equipment rental arrangements with referring physicians, but upheld CMS’s prohibition on “under arrangements” transactions. We previously posted about this decision. As we noted in that post, while it is not clear how CMS will respond to the ruling, if at all, per-click equipment rental arrangements still face scrutiny by the Office of the Inspector General (OIG) under the federal anti-kickback statute. The OIG has not taken the position that such per-click equipment rentals automatically create liability under the anti-kickback statute, but the risk of such potential liability under the federal anti-kickback statute (as well as state anti-kickback statutes) should be carefully considered.