On April 21, 2020, the Centers for Medicare and Medicaid Services (“CMS”) released “Explanatory Guidance” related to the March 30, 2020 Blanket Waivers of Section 1877(g) of the Social Security Act (information about those waivers available in our previous blog post here), applicable during the COVID-19 public health emergency (“PHE”). The Explanatory Guidance clarifies the scope and application of the Blanket Waivers to certain financial relationships and responds to some of the issues raised by stakeholders since the release of the Blanket Waivers. The Explanatory Guidance offers some new insight, which providers should consider in structuring any arrangements that rely on the Blanket Waivers, but leaves many key questions and challenges unaddressed.

 Coronavirus, PHE

A. Compliance with Non-Waived Requirements of an Applicable Exception

CMS reiterates that sanctions and regulations are waived for referrals and claims that would violate the physician self-referral law (“Stark Law”) due to the failure to satisfy the specified requirements of the exceptions of the Stark Law. Financial relationships or referrals still have to satisfy all non-waived requirements of an applicable exception to avoid liability under the Stark Law. Failure to satisfy any non-waived requirement triggers the Stark Law’s referral and billing prohibitions. Importantly, this clarification underscores that key Stark Law requirements of many exceptions remain in place during the PHE, including that compensation be set in advance, that services or space be specified, and that arrangements be commercially reasonable.  The continuing enforcement of these requirements creates relevant practical limitations on the usefulness of the Blanket Waivers, as providers seek to quickly enter into or amend arrangements in response to the PHE’s changing circumstances, and providers may need to work closely with counsel to structure arrangements that comply with all non-waived requirements.

B. Amendment of Compensation Arrangements

Many stakeholders have raised concerns about whether the Blanket Waivers allow them to modify their existing arrangements in response to the PHE.  In the Explanatory Guidance, CMS points out that – even absent the Blanket Waivers – it permits second or subsequent amendments of remuneration terms of a compensation arrangement, even within the first year after an initial amendment of the remuneration terms, as long as the amended arrangement meets all the requirements of an applicable exception and satisfies certain other requirements. In the context of COVID-19, CMS advises parties can amend their existing arrangements during the PHE, as long as the amended arrangement satisfies all non-waived requirements of the applicable exception.  If the compensation arrangement is amended again, post-PHE, it must meet all the requirements of an applicable exception (without application of the Blanket Waivers) and satisfy certain other requirements.

However, CMS also emphasizes that a PHE-specific compensation arrangement could often be structured and analyzed as a new, additional compensation arrangement, compliant with the requirements of an exception that are not waived by the Blanket Waivers, which would avoid any need to amend the existing arrangement (and thus imperil its compliance with an exception).

C. Applicability of Blanket Waivers to Indirect Compensation Arrangements

CMS reiterates that the Blanket Waivers do not apply to indirect compensation arrangements, but that parties may request an individual waiver of sanctions for such arrangements.  CMS’ insistence on this limitation excludes from Blanket Waiver protections some indirect arrangements – for instance, arrangements between parent health systems operating hospitals and physicians that provide for aggregate compensation received by physicians that varies with the volume or value of referrals by the physicians to one of the hospitals, or between hospital-affiliated medical groups that result in aggregate compensation received by physicians that varies with the volume or value of referrals by the physicians to the hospital, and that would otherwise satisfy the exception for indirect compensation arrangements.

D. Repayment Options for Loans between a DHS Entity and a Physician (or the Immediate Family Member of a Physician)

CMS explains that, while the Blanket Waivers allow loans with an interest rate below fair market value or on terms that are unavailable from a commercial lender, they do not waive sanctions for referrals and claims related to the repayment of the loan. Therefore, loan repayment would need to satisfy the fair market value or isolated transaction exception, subject to the Blanket Waivers. Further, neither the isolated transaction exception nor fair market value exception requires cash payments to satisfy a borrower’s debt to a lender. Therefore, a physician borrower could pay back a loan wholly or partially through in-kind payments (for instance, through the provision of personal services, office space, or equipment), as long as the in-kind payment arrangement is commercially reasonable and the aggregate value of the in-kind payment is consistent with the amount of the loan balance being reduced. CMS states that the in-kind payment could take the form of the maintenance of a medical practice and continuing to serve patients in the community where an entity is located, depending on the applicable facts and circumstances of the parties.

E. Repayment of Loans, Rent Abatement, or Other Amounts Due Following the End of the PHE Period

In response to concerns about compensation arrangements reliant on the Blanket Waivers extending beyond the PHE, and therefore no longer satisfying the requirements of an applicable exception once the Blanket Waivers are lifted, CMS stated that the completion of obligations under an arrangement after its expiration or termination is common and does not necessarily result in noncompliance with the Stark Law. While a non-compliant arrangement must terminate or come into compliance by the end of the PHE, parties may continue to abide by the repayment terms in such an arrangement beyond the termination of the PHE and the lifting of the Blanket Waivers.  If loan proceeds are disbursed after the termination of the PHE and the lifting of the Blanket Waivers, an applicable Stark Law exception must be satisfied.

F. Restructuring of Existing Recruitment Arrangements with Income Guarantees

The Blanket Waivers do not permit parties to a recruitment arrangement to amend their arrangement after it has commenced, e.g., to provide for additional compensation to the recruited physician. CMS notes, however, that the Blanket Waivers may allow new arrangements wherein an entity provides additional compensation to a physician who experiences practice interruption due to the PHE, e.g., to maintain the availability of medical care and related services for patients and the community.

The Explanatory Guidance offers some welcome clarification of the Blanket Waivers.  Many of the clarifications highlight the importance of appropriately structuring, documenting, and memorializing the purpose of arrangements that will rely on the Blanket Waivers, even in the midst of a crisis and despite the urgency of entering into many of the arrangements.  Providers may wish to consider the prudence of entering into new, stand-alone arrangements that satisfy the Blanket Waivers, and can be terminable upon the lifting of the Blanket Waivers, rather than amending prior arrangements, even if doing so requires additional time and resources and achieves an identical practical effect.

This article is not an unequivocal statement of the law, but instead represents our best interpretation of where things currently stand.  This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, but which are not referenced in this article.

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*This alert is provided for information purposes only and does not constitute legal advice and is not intended to form an attorney client relationship.  Please contact your Sheppard Mullin attorney contact for additional information.*