On July 2, 2015, the United States Court of Appeals for the Fourth Circuit affirmed a $237 million judgment against Tuomey Healthcare System, Inc. (“Tuomey”), in a federal False Claims Act (“FCA”) case arising out of violations of the federal physician self-referral prohibition, also known as the Stark Law (“Stark”). Generally speaking, Stark prohibits physicians from referring Medicare patients for certain services to an entity with which the physician has a financial relationship. Conversely, Stark also prohibits the entity that receives such referrals from presenting claims to Medicare for reimbursement for services provided as a result of those referrals. In this case, Tuomey was found to have entered into part-time employment contracts with physicians that violated Stark.

Over the past several years (with the Tuomey decision serving as a prime example), alleged Stark violations have formed the basis of an increasing number of FCA cases against physicians, physician practice groups, and hospital systems. Claims that result from prohibited referrals in violation of Stark can render the claims false or fraudulent for purposes of the FCA, exposing providers to significant administrative and monetary penalties, up to and including exclusion from the Medicare program.

On July 15, 2015, the Centers for Medicare & Medicaid Services (“CMS”) published in the Federal Register the Calendar Year 2016 Physician Fee Schedule proposed rule (“proposed rule”), which included changes to Stark.

The following is a summary of several noteworthy modifications to Stark in the proposed rule:

• Clarifying that a collection of documents, as opposed to a single, formal contract, can satisfy the writing requirement for certain exceptions in the Stark law;
• Clarifying that the specific temporal term of a lease or personal services arrangement need not be in writing so long as the arrangement, in fact, lasts for at least one year;
• Allowing expired lease and personal services arrangements that are otherwise legally compliant to continue on the same terms;
• Clarifying that compensation paid to a physician practice cannot take into account the referrals of any provider in the practice, not just those who “stand in the shoes” of the practice;
• Clarifying that a potentially violative financial relationship does not necessarily exist when a physician provides services to patients in a hospital if both the physician and the hospital bill independently for their services.
   

With FCA prosecutions at an all-time high, it is important for health care providers dealing with Stark even infrequently to be fully aware of the potential changes to the law and how those changes may affect a provider’s delivery of services.

CMS is accepting comments from the public on the proposed rule through September 8, 2015. The final rule will be issued on or before November 1, 2015. A copy of the proposed rule can be found here. A copy of the Fourth Circuit’s decision in Tuomey can be found here.