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Stark Law and Anti-Kickback Statute Waivers Prove to be Useful Measures During the COVID-19 Pandemic … But, Will They Last?

The novel Coronavirus (“COVID-19”) pandemic has brought about unprecedented applications of certain federal healthcare laws and regulations, including the federal physician self-referral law (the “Stark Law”) and the federal anti-kickback statute (“AKS”). These laws, in “normal” times, strenuously regulate and proscribe many arrangements for healthcare systems and hospitals, physicians and healthcare practitioners, ancillary service providers, and even so-called “lay” people.  While the federal government has loosened certain restrictions under the Stark Law and AKS during the COVID-19 public health emergency, don’t throw all caution to the wind; the softer approach is limited in scope, and the utilization of the new “waivers” is not meant to be a “free-for-all.”  The question remains whether this precedent could pave the way toward a more practical approach to certain typical arrangements within the healthcare landscape.

Basics of the Stark Law and AKS

In order to appreciate the context of the waivers under the Stark Law and AKS, one must first have at least a basic understanding and foundation of the scope, consequence and significance of these laws. 

a. Scope. Under the Stark Law, if a physician, or an immediate family member of a physician, has a financial relationship with an entity that furnishes designated health services (“DHS”)[1], the physician is strictly prohibited from referring patients to the entity, and the entity from submitting a claim for payment, for the furnishing of DHS that may be reimbursable by Medicare (or Medicaid), unless an exception applies. A physician includes an MD, DO, dentist, chiropractor, optometrist and podiatrist.  Immediate family members include parents, children, siblings, in-laws, grandparents and their spouses. The term “financial relationship” under the Stark Law is defined broadly and encompasses direct and indirect ownership and compensation arrangements. A compensation arrangement exists under the Stark Law if any “remuneration” passes between the DHS entity and the physician, including cash and “in kind” benefits.[2]  Quite literally, this statute prohibits a physician from making DHS referrals/orders to an entity (e.g., a hospital or physician practice) that may be paid by Medicare if the physician’s grandson’s spouse has a financial relationship with the DHS entity, unless there is an exception that protects either the financial relationship or the services.  And, since the Stark Law is a strict liability statute, meaning intent and knowledge are not pertinent, the physician could violate the law even if she was not aware of her grandson’s spouse’s financial relationship with the entity to which she made the DHS referral. The good news is there are many exceptions and most arrangements can be structured in a compliant manner.  The bad news is that most exceptions have several strict requirements that are all-too-often unintentionally overlooked and, thus, result in tremendous potential liability.

While the Stark Law is a civil statute that only applies to physicians, immediate family members of physicians and DHS entities, the AKS makes it a criminal felony offense for anyone to knowingly and willfully offer, pay, solicit or receive anything of value (i.e., remuneration), directly or indirectly, if “any one purpose” of the remuneration is to induce (1) patient referrals, or (2) purchasing, leasing, ordering, or arranging for (or recommending same) for any item or service that may be reimbursed in whole or in part by any federal or state healthcare program (e.g., Medicare, Medicaid and TRICARE).[3]  Similar to the Stark Law’s exceptions, the AKS established safe harbors that protect otherwise prohibited remuneration.  AKS is not a strict liability statute so failure to comply with a safe harbor is not a per se violation of the law, but it could potentially subject the parties to scrutiny by the Office of Inspector General for the U.S Department of Health and Human Services (“OIG”).  Based on the precise AKS language, the offer of payment in return for patient referrals (i.e., a “kickback”) is sufficient to violate the law; money does not actually have to change hands to establish an AKS violation. 

b. Consequence.  Penalties for violating the Stark Law may include denial of payment to the DHS entity, civil money penalties (up to $25,820 per prohibited referral and $172,137 for each circumvention scheme), exclusion from Medicare, recoupment of amounts paid pursuant to each prohibited referral, and potential federal and state False Claims Act (“FCA”) liability (i.e., up to $23,331 per false claim).

Violation of the AKS constitutes a felony, punishable by a maximum fine of $102,000, felony imprisonment up to ten (10) years, or both.  Conviction may also lead to exclusion from future participation in federal healthcare programs.[4]

c. Significance.  In 2019, the U.S. Department of Justice (“DOJ”) recovered more than $2.6 billion from healthcare fraud and false claims.  While that number is staggering and represents an increase of almost 24% since 2017, what’s even more striking is that fraud recovery related to healthcare represents almost 85% of the DOJ’s total fraud recovery across all industries.[5]  In other words, healthcare is far and away the number one source of fraud recovery for the DOJ, and many cases derive from violations of the Stark Law and AKS.         

CMS issues Blanket Waivers to the Stark Law

On March 30, 2020 (retroactively effective as of March 1, 2020), the Centers for Medicare & Medicaid Services (“CMS”) issued nationwide Section 1135 blanket waivers of sanctions under the Stark Law in response to the COVID-19 public health emergency, along with explanatory guidance issued on April 21, 2020.[6] The Stark Law blanket waivers only apply to direct financial relationships and referrals that are related to the COVID-19 public health emergency.  Specifically, remuneration and referrals described in the blanket waivers must be “solely related” to COVID-19 purposes, which means: (1) diagnosis or medically necessary COVID-19 treatment for any patient or individual, regardless of whether the patient or individual is diagnosed with COVID-19; (2) securing medically necessary patient care services, including services unrelated to COVID-19, in response to this public health emergency; (3) ensuring the availability and expanding the capacity of health care providers to address patient and community needs due to COVID-19; (4) redirecting patients to appropriate alternative settings for treatment due to COVID-19; or (5) addressing medical practice or business interruption due to this public health emergency to maintain medical care and services for patients and the community.[7]  

Importantly, based on the plain language of CMS’s blanket waiver, it does not apply to indirect financial relationships with so-called “intervening entities” between the physician and the entity (e.g., a hospital lease with a “propco” owned by a physician that is not a physician organization).[8]

Set forth below are several examples of the 18 blanket waivers under the Stark Law in effect during the COVID-19 pandemic:

  • Space and Equipment Leases:  The Stark Law exceptions for space and equipment rentals have very specific requirements with respect to payment terms, including a fair market value requisite. This waiver allows an entity (e.g., a hospital) to pay a physician (or an immediate family member) rent that is below fair market value for the space or equipment.  Similarly, a physician is permitted to pay an entity less than fair market value to lease space and equipment. It is noteworthy that CMS did not include a waiver allowing an entity to pay a physician (or vice versa) above fair market value to lease space or equipment.
  • Service Arrangements: A fundamental tenet in healthcare is whether payment is consistent with fair market value, commercially reasonable, set in advance and has not been determined in any manner that takes into account the volume or value of any referrals or other business generated between the parties.  Fair market value is usually a threshold, gating question, and payment that exceeds fair market value is typically indicative of a significant problem.  Under this waiver, however, CMS has allowed an entity to make payment to a physician (or an immediate family member) that is either more than or less than fair market value for personally performed services.  An example from CMS includes a hospital paying a physician above the originally-contracted rate for professional services to COVID-19 patients as “hazard pay.”[9]
  • Medical Staff Incidental Benefits and Non-Monetary Compensation: During the period of this public health emergency, CMS will allow for medical staff incidental benefits paid by a hospital to a physician to exceed $36 per instance and nonmonetary compensation from an entity to a physician or a physician’s immediate family member to exceed $423 per year.  These benefits include, for example, meals, change of clothes, on-site child care, groceries and transportation.[10]
  • Hospital Converted from Ambulatory Surgery Center: There is currently a very strict prohibition on physicians owning hospitals, with a limited and highly cumbersome exception for physician-owned hospitals that were grandfathered since 2010.  This CMS waiver allows physicians to own and make referrals to an ambulatory surgical center that converts to a temporary hospital on or after March 1, 2020, as permitted by the state’s Emergency Preparedness or Pandemic Plan.[11]  Importantly, the converted hospital must also comply with CMS conditions of participation that have not been waived and state laws (e.g., obtain a hospital license from the Department of Health).
  • Writing and Signature Requirements: During “normal” times, an arrangement must be set forth in writing and signed by the parties at the outset of their relationship (or at least signed within 90 days). During the COVID-19 pandemic, however, a compensation arrangement may commence even if it does not satisfy the writing or signature requirements of an applicable exception, as long as the arrangement satisfies all other requirements of an applicable exception.  For example, a physician may provide on-call coverage to a hospital before the agreement is memorialized in writing and signed, but the compensation must be set in advance, be commercially reasonable, and not take into account the volume or value of referrals.[12]  This is a practical approach to what oftentimes – not during COVID-19 – results in hyper-technical violations with staggering and disproportionate financial consequences. 

OIG rides CMS’s Coattails by Issuing AKS Policy Statement

The OIG followed suit on April 3, 2020 by issuing a Policy Statement, noting certain financial relationships that implicate the Stark Law could also potentially implicate and/or violate the AKS. Recognizing the unprecedented circumstances of the public health emergency, the OIG stated that it will not impose AKS sanctions for arrangements protected by the Stark Law blanket waivers. Notably, the Policy Statement applies only to conduct occurring on or after April 3, 2020. Meanwhile, as mentioned above, the Stark Law blanket waivers are retroactively effective March 1, 2020. As a result, there is a period between March 1, 2020 and April 3, 2020 where the OIG could technically impose AKS sanctions for financial relationships structured to meet the Stark Law blanket waivers that could otherwise violate the AKS.  

For example, if a hospital or a physician practice pays a physician more than fair market value for services, or if a physician pays a hospital below fair market value to lease space, for a so-called “COVID-19 Purpose,” which would be protected under the Stark Law blanket waivers since March 1, the OIG could nevertheless impose sanctions for those arrangements between March 1 and April 2 if “any one purpose” is to induce or in return for patient referrals in violation of the AKS.  We hope this is purely an academic exercise and that OIG would ultimately apply a practical approach during this COVID-19 crisis, especially considering the OIG’s indication that the Policy Statement is intended “to avoid the need for parties to undertake a separate legal review under the [AKS] for arrangements protected by the [blanket waivers].”[13] Nevertheless, parties utilizing the Stark Law blanket waivers should be aware of and account for this technical discrepancy when assessing arrangements under the AKS.

Post Pandemic Considerations – Return to “Business as Usual”?

The blanket waivers have undoubtedly served as a crucial tool to providers and facilities struggling to fully comply with technical and some substantive elements of Stark Law and AKS in the midst of the COVID-19 public health emergency. While the Stark Law and AKS waivers will automatically terminate at the end of the COVID-19 public health emergency, there is a remote possibility that CMS or OIG could make certain waivers (or aspects of a waiver) permanent. The government’s main concern in keeping any of the waivers in place is the potential for increased fraud and abuse. If this public health emergency continues for an extended period of time, which may be the case, and providers and facilities do not take undue advantage of the additional benefits as a means to induce or pay for referrals or other business generated, then CMS or OIG could determine that the Stark Law and AKS, respectively, should be amended to encompass the waivers on a permanent basis.

Parties utilizing the Stark Law blanket waivers should be aware, however, that there does not appear to be a grace period to unwind temporary arrangements after the COVID-19 pandemic subsides. Accordingly, entities and physicians should consider practical implications of using the blanket waivers, such as an automatic termination or reversion to prior contract terms. Furthermore, while fair market value requirements have been waived in certain circumstances, parties should still conduct a risk assessment under other applicable federal and state fraud and abuse laws, rules and regulations.  


[1] 42 C.F.R. § 411.351.  DHS includes, without limitation, inpatient and outpatient hospital services, physical therapy, certain diagnostic imaging services, clinical laboratory services, durable medical equipment, prosthetics, orthotics and supplies, and home health services.

[2] 42 C.F.R. § 411.351.

[3] 42 U.S.C. § 1320a-7b(b). 

[4] 42 U.S.C. § 1320a-7b(b); 42 U.S.C. § 1395nn(g). 

[5] https://www.justice.gov/opa/pr/justice-department-recovers-over-3-billion-false-claims-act-cases-fiscal-year-2019.

[6] Centers for Medicare & Medicaid Services, Blanket Waivers of Section 1877(g) of the Social Security Act Due to Declaration of COvID-19 Outbreak in the United States as a National Emergency, (Mar. 30, 2020), https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf; Centers for Medicare & Medicaid Services, Explanatory Guidance March 30, 2020 Blanket Waivers of Section 1877(g) of the Social Security Act, (Apr. 21, 2020), https://www.cms.gov/files/document/explanatory-guidance-march-30-2020-blanket-waivers-section-1877g-social-security-act.pdf.

[7] Centers for Medicare & Medicaid Services, Blanket Waivers of Section 1877(g) of the Social Security Act Due to Declaration of COvID-19 Outbreak in the United States as a National Emergency, (Mar. 30, 2020), https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.

[8] Centers for Medicare & Medicaid Services, Explanatory Guidance March 30, 2020 Blanket Waivers of Section 1877(g) of the Social Security Act, (Apr. 21, 2020), https://www.cms.gov/files/document/explanatory-guidance-march-30-2020-blanket-waivers-section-1877g-social-security-act.pdf.

[9] Id.

[10] Id.

[11] Id.

[12] Id.

[13] Office of Inspector General of Department of Health and Human Services, OIG Policy Statement Regarding Application of Certain Administrative Enforcement authorities Sue to Declaration of Coronavirus Disease 2019 (COVID-19) Outbreak in the United States as a National Emergency, (Apr. 3, 2020), https://oig.hhs.gov/coronavirus/OIG-Policy-Statement-4.3.20.pdf

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