CMS proposes changes to Stark Law regulations and Open Payments Program

On July 13, 2021, the Centers for Medicare and Medicaid Services (CMS) released the calendar year 2022 Medicare Physician Fee Schedule Proposed Rule (Proposed Rule). Included in that Proposed Rule are proposals related to the Physician Self-Referral Law (Stark Law) and the Open Payments Program.

Proposed Stark Law regulatory changes
CMS recently made a number of changes to the Stark Law regulations which were effective January 19, 2021. Among the changes finalized in that rulemaking was a revision to the definition of “indirect compensation arrangement” for Stark Law purposes which added a second condition related to the compensation under review for the compensation to potentially implicate the Stark Law. In finalizing the revised definition, CMS acknowledged that the revised definition will “reduce the number of unbroken chains of financial relationships that fall within the ambit of the physician self-referral law as indirect compensation arrangements (although they may still implicate the anti-kickback statute, depending on the facts and circumstances)” and that as a result, “many unbroken chains of financial relationships will no longer be required to satisfy the writing requirement.” But, just six months later, CMS is backtracking, saying it made a mistake and “inadvertently omitted” language in the revised definition that would have ensured that additional arrangements – specifically certain arrangements involving unit of service-based payment for the rental of office space or equipment – continue to qualify as indirect compensation arrangements for which an exception must be met.

CMS is proposing to revise the definition of “indirect compensation arrangement” to make clear that the revised definition only applies if the compensation arrangement closest to the physician involves compensation for that physician’s (or physician’s immediate family member’s) personally performed services. All other arrangements would be analyzed under essentially the same definition that was in effect prior to January 19, 2021. The result of the Proposed Rule is that if there is an unbroken chain of financial relationships in which the compensation arrangement closest to the physician (or immediate family member) is an arrangement for the rental of office space or equipment, an indirect compensation arrangement will be determined to exist if all other conditions of 42 C.F.R. § 411.354(c)(2)(i)-(iii) are met. This will mean that the compensation for the rental or office space or equipment may not be determined using a formula based on per-unit of service rental charges to the extent that such charges reflect services provided to patients referred by the lessee to the lessor in order for the indirect compensation arrangement to qualify for the indirect compensation arrangement exception at 42 C.F.R. § 411.357(p).

CMS is also proposing to define the word “unit” contained in the definition of “indirect compensation arrangement” that the agency finalized in January 2021. Under the Proposed Rule, “unit” would be defined as (1) time, where the compensation paid to the physician (or immediate family member) is based solely on the period of time during which the services are provided; (2) service, where the compensation paid to the physician (or immediate family member) is based solely on the service provided; or (3) time, where the compensation paid to the physician (or immediate family member) is not based solely on the period of time during which a service is provided or based solely on the service provided.

CMS provides several examples to illustrate how to apply the definition of “unit”:

The identification of purely time-based or service-based units is straightforward. With respect to compensation that is entirely paid per hour, per day, per month, per year, or per similar period of time, the individual unit of compensation is the smallest unit of time for which the compensation is paid. For example, where a physician is paid $150 per hour for his or her medical director services, the unit is an hour. Similarly, where a physician is paid $350,000 per year for his or her full-time professional services, the unit is a year. With respect to compensation that is entirely paid per service, such as a work relative value unit (wRVU) or the provision of a training seminar, the unit is the individual service. For example, where a physician is paid $30 per wRVU that he or she personally performs, the unit is a wRVU. Similarly, where a physician is paid $1000 to provide a training session on infection control measures for an organization’s employees, the unit is a training session. Compensation formulas that incorporate a percentage of a variable are also unit-based. For example, if a physician is paid 50 percent of the amount collected for the professional services that he or she performs in a calendar year, the unit is a calendar year. If a physician is paid 95 percent of the Medicare PFS amount for a particular service that he or she personally performs, the unit is the service.  [“Hybrid” compensation]—compensation that has both a time-based unit component and a service-based unit component—is appropriately analyzed by converting it to compensation for a unit of time.

To illustrate, assume that an employment arrangement between a physician and a physician organization specifies compensation of $200,000 per calendar year for the physician’s full-time professional services plus a productivity bonus of $10 for each wRVU that he or she personally performs, and that the physician is paid on a monthly basis. The unit of compensation would be a month, and the formula for determining the compensation per month would be ($200,000 ÷ 12 months) + ($10 x the number of wRVUs personally performed during the month). (In the alternative, the parties could analyze the arrangement under [42 C.F.R.] § 11.354(c)(2)(ii)(A) using a calendar year as the unit of compensation.) However, if the employment arrangement specified productivity bonus compensation of $10 per wRVU only for those personally performed wRVUs above a predetermined target, the unit would be the period of time for which the target is applicable. To illustrate, instead of $10 for each wRVU that the physician personally performs, assume that the physician receives $10 for the wRVUs that he or she personally performs in excess of 4,000 wRVUs per calendar year. The unit of compensation would be a calendar year, and the formula for determining the compensation per year would be $200,000 + $10 x (actual number of wRVUs personally performed during the calendar year – 4,000).

We note that a compensation arrangement may also involve multiple units of the same type. For example, a physician employed by a physician organization may receive a salary of $200,000 per year for his or her full-time professional services plus $150 per hour for his or her personally performed medical director services or $500 per month for each of the physician organization’s NPPs that he or she supervises. Or, a physician may receive compensation for services based on a fee schedule; for example, $50 for service A, $75 for service B, and $100 for service C. In circumstances where more than one unit of the same type is used to calculate the physician’s compensation, each unit must be analyzed under [42 C.F.R.] § 411.354(c)(2)(ii)(A)(1) through (4) to determine whether the conditions for an indirect compensation arrangement exist.

If the proposal revising the definition of “indirect compensation arrangement” discussed above is finalized, this proposed definition of “unit” and these examples will only be applicable when analyzing potential indirect compensation arrangements where the compensation at issue is for the referring physician’s (or the physician’s immediate family member’s) own personally performed services.

CMS is also proposing a definition of “services that are personally performed” to go with the proposed revision to the definition of “indirect compensation arrangement” discussed above. Under the Proposed Rule, services that are performed by any person other than the physician (or immediate family member), including, but not limited to, the referring physician’s (or immediate family member’s) employees, independent contractors, group practice members or persons supervised by the physician (or the immediate family member) are not considered to be personally performed by the physician.

In connection with the COVID-19 public health emergency, CMS is also proposing revisions to the Stark exception for Preventive Screening Tests, Immunizations, and Vaccines (42 C.F.R. § 411.355(h)) to ensure that the way that exception currently reads does not impede the availability of COVID-19 vaccines for Medicare and other patients. That exception currently only excepts referrals for vaccines that are subject to CMS-mandated frequency limits. Under the Proposed Rule, the exception would be available for the COVID-19 vaccine even if CMS does not impose frequency limits for the vaccine.

Proposed changes to the Open Payments Program
CMS is proposing a number of changes to the Open Payments Financial Transparency (Open Payments) Program. The Open Payments program is a national disclosure program that requires drug and device manufacturers and group purchasing organizations (reporting entities) to report payments or transfers of value to physicians, teaching hospitals and other providers (physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists & anesthesiologist assistants, and certified nurse-midwives) to CMS. 

Under the Open Payments program, there are three categories of reported information: (1) general (includes food and travel); (2) research; and (3) ownership interests.  Payments associated with research may be flagged for delayed publication to protect sensitive information related to research and development, but many payments in the general category have been flagged by reporting entities for delayed publication. CMS clarified that delaying the reporting of general payments is not permitted and that research-related payments do not have to be specifically outlined in the original research agreement to be reported as research payments.

CMS is also proposing to add a field to the reporting template for reporting payments to teaching hospitals to help them verify that the reported information is correct. Historically, the information reported has not been sufficient, leading to disputes between reporting entities and teaching hospitals. Under the Proposed Rule, the added field would only be visible to the teaching hospital disputing the reported information.

CMS is also proposing to define physician-owned distributorships (PODs), a type of group purchasing organization, and make clear that PODs are required to report and self-identify under the Open Payments program.

CMS is accepting comments related to the Proposed Rule until September 13, 2021.