Doctors hold blood sample wearing ppe suit and face mask in hospital.

New Stark Law Waiver Opens Opportunity for Creative Physician Compensation and Benefits

By Carmel Shachar

On March 30, 2020 the Department of Health and Human Services (HHS) announced a partial waiver of some key elements of the Stark Law, a health care fraud and abuse law. The purpose of this waiver is to relax some of the fraud and abuse requirements around physician compensation during the COVID-19 pandemic to allow hospitals and physician groups to think creatively about meeting the needs of an overworked and stressed workforce. It also provides us an opportunity to consider the post-pandemic future of the Stark Law, long thought to be an impediment to innovative payment and delivery models.

The Stark Law Pre-Pandemic

The Stark Law is the health care fraud and abuse law that prohibits physicians from referring Medicare enrollees to any entity with which they have a “financial relationship” for certain health services. Financial relationship is defined broadly to include any direct or indirect ownership or investment interest by the referring physician or his or her immediate family members. It also encompasses all remuneration from a hospital to a physician, including in-kind compensation. Stark Law violations can result in significant financial penalties—up to $15,000 for each problematic billed service plus three times the amount of the government overpayment. Since the Stark Law is a strict liability statute, it does not matter if the referring physician intended to violate the law or if it was an accident. Knowing and intentional violations, however, can trigger exclusion from participation in Medicare and Medicaid, which is a very serious threat for most providers.

Over the years a labyrinth of complicated exceptions has arisen. One of the most significant exceptions is the Fair Market Compensation Exception, which allows for a compensation arrangement in writing, with specified timeframes and compensation amounts, for a commercially reasonable transaction that meets the “safe harbors” allowed under the Anti-Kickback Statute, another fraud and abuse law. Another key exception for compensating physicians is the Non-Monetary Exception, which allows for the payment of non-monetary compensation to a physician of up to $432 per year so long as the physician does not solicit the compensation and it is not impacted by the volume or value of any referrals.

Responding to COVID-19

Section 1135 of the Social Security Act allows the Secretary of HHS to grant waivers to ensure that during an emergency period there are sufficient health care items and services to meet the needs of Medicare and Medicaid enrollees. Using this power, HHS issued a blanket waiver of several provisions of the Stark Law, which will allow the Centers for Medicare & Medicaid Services (CMS) to pay claims that would have otherwise violated the Stark Law. This blanket waiver will last until the end of the end of the public health emergency.

The waiver covers arrangements “solely related to COVID-19 Purposes,” but that is interpreted very broadly and includes “[e]nsuring the ability of health care providers to address patient and community needs due to the COVID-19 outbreak in the United States,” “[s]ecuring the services of physicians and other health care practitioners and professionals to furnish medically necessary patient care services, including services not related to . . . COVID-19” and “[e]xpanding the capacity of health care providers to address patient and community needs due to the COVID-19 outbreak.” Any of these reasons can provide justification for providing additional support to physicians, including non-monetary compensation that will make their lives easier during a difficult time.

The waiver lists a series of eighteen types of transactions that would ordinarily violate the Stark Law but are permitted during the pandemic. Interestingly, the waiver does not relay these transactions back to the existing exceptions. On one hand, this makes it more difficult for fraud and abuse experts to relate the waiver back to established exceptions and provide guidance. On the other hand, this allows entities using the waiver to focus on intent — does this novel arrangement help combat COVID-19? — rather than get bogged down in complex criteria. In keeping with this focus on simplicity, the waiver also provides concrete examples now permitted under the waiver, including hazard pay, childcare, and non-monetary compensation over $423 per year, such as groceries.

Responding to the Needs of the Physician Workforce

Hospitals and physician groups have a real opportunity to meet the needs of key physicians because of this waiver. There have been a significant number of first-hand accounts describing the toll that working in the midst of a pandemic has taken on physicians as well as their families. While there has been a public outcry of support for health care providers, more concrete support is also required.

Unfortunately, in response to the financial crisis, many hospitals and health care companies are choosing to slash benefits or furlough workers, including some physicians. This is in part to reflect the decrease in revenue from shutting down all but the most critical procedures. It means that physicians may be asked to work longer hours for lower pay while worrying about how to protect and provide for their families. It is a poor way to respond to a crisis that requires a significant investment of person hours from medical professionals to solve.

Hospitals and health care companies should use the Stark Law waiver as a launching board for getting creative with physician compensation. There is an obvious need for quality childcare at a time where schools have shut down. Hospitals would remove a huge burden on working parents by arranging for, vetting, and providing childcare solutions. Many physicians worry about bringing COVID-19 home with them and are choosing to self-isolate away from their families. Hospitals should pay for the costs of establishing isolation shelter, especially for those with vulnerable family members at home. Some co-parenting physicians are finding that their children’s other parents are trying to remove custody to avoid exposure risk. A hospital could hire family lawyers to work with any physicians who find themselves in an emergency custody battle.

Some of these solutions may be relatively inexpensive, especially if hospitals use their buying power to negotiate better rates with childcare providers, hotels, meal delivery services, and other vendors than individual physicians could. This could help offset any necessary salary cuts and help maintain as resilient a workforce as possible during the epidemic.

Revisiting Stark Post-Pandemic

The Stark Law is outdated and creates serious regulatory barriers to developing innovative payment and delivery models of care. As the Senate Committee on Finance majority staff argued in a report evaluating the impact of the Stark Law on value-based care, “the Stark law’s breadth, complexity, and impenetrability have created a minefield for the health care industry.” The Public Interest Committee of the American Health Lawyers Association previously noted that the Stark Law introduced problematic complexities, discouraged development of new delivery and payment systems, and made non-compliance inevitable. Even the namesake of the Stark Law, Congressman Fortney “Pete” Stark believed that the law needed to be repealed due to its unworkable complexity. The post-pandemic era will see financial difficulties across all sectors, including the health care industry. This makes it even more important to remove any impediments to improved payment and delivery models.

The COVID-19 pandemic has triggered the rapid relaxation of many regulations, such as the ones governing telehealth. This includes the Stark Law waiver, which looks to the purpose of the financial arrangement to grant broader latitude rather than requiring providers to meet narrow, complex exceptions. In the coming months we will have to consider which regulatory changes were appropriate only for a crisis and which should be maintained moving forward. The Stark Law waiver is an opportunity to consider whether the “sky will fall” without the Stark Law governing physician compensation. The more it is used during the pandemic, and the more creative the uses, the better the evidence will be about the appropriate future of the Stark Law.

Carmel Shachar

Carmel Shachar

Carmel Shachar, JD, MPH, is the Executive Director of the Petrie-Flom Center for Health Law Policy, Biotechnology, and Bioethics at Harvard Law School. She is responsible for oversight of the Center’s sponsored research portfolio, event programming, fellowships, student engagement, development, and a range of other projects and collaborations. She is Co-Lead of the Center’s Involvement with the Regulatory Foundations, Ethics, and Law Program of Harvard Catalyst | The Harvard Clinical and Translational Science Center.

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