Stark Law Changes Effective in 2016

By Richard D. Sanders, Esq.


On October 30, 2015, the Centers for Medicare and Medicaid Services (“CMS”) revealed the 2016 Medicare Physician Fee Schedule (the “Final Rule”), which included significant changes to the Physician Self-Referral Law (the “Stark Law”). The Stark Law generally prohibits physician referrals for designated health services payable by Medicare or Medicaid to an entity with which such physician (or an immediate family member) has a financial relationship, unless an exception applies.

The purpose of this Final Rule is to accommodate healthcare delivery and payment system reform, reduce burdens, facilitate compliance, and issue new exceptions to the Stark Law. These new regulations became effective on January 1, 2016, with the exception of the definition of “ownership or investment interest” as it relates to the level of physician ownership in physician-owned hospitals, which will become effective on January 1, 2017.

New Stark Exceptions

Assistance to Compensate a Non-physician Practitioner

In an attempt to address changes to the healthcare delivery and payment systems, alarming primary care workforce shortage projections, and the increasing demand for primary care services (particularly in rural and underserved areas), the Final Rule includes a new exception that permits remuneration from a hospital, federally qualified health center (“FQHC”), or rural health clinic (“RHC”) to a physician in order to assist the physician in employing a non-physician provider in the geographic area served by the hospital, FQHC or RHC. The specific limitations and requirements of this new exception can be found under 42 C.F.R. § 411.357(x).

Timeshare Arrangements

The Final Rule also includes an exception to the Stark Law for “timeshare” arrangements in which a hospital or local physician practice may arrange with a specialist from another community to provide services in a space owned by a hospital or practice on a limited or as-needed basis. CMS acknowledged the utility of timeshare arrangements whereby an individual could use another person or entity’s premises, equipment, personnel, items, supplies or physician services under a license rather than under a traditional lease. Further details regarding this arrangement can be located at 42 C.F.R. § 411.357(y).

Modifications to Existing Stark Law Exceptions, Policies, Definitions and Other Changes

Writing Requirement

CMS clarified in its Final Rule that the existing writing requirement in many Stark Law exceptions does not require an arrangement to be in a single “formal” written contract. Rather, the writing requirement can be satisfied by showing a collection of documents evidencing the course of conduct between the parties. To further clarify this policy, CMS replaced the terms “agreement,” “lease,” “written contract,” and “contract,” with the terms “arrangement” and “writing.” Moreover, when parties use a collection of documents to satisfy the writing requirement, a signature is required on a contemporaneous writing(s) sufficient to document the arrangement.

Term Requirement

Certain Stark Law exceptions (i.e., rental of office space, rental of equipment, and personal services arrangements) require a term of at least one year. CMS clarified that a formal written contract or other document with an explicit term provision is not required to satisfy the “term” element. Instead, the term requirement can be satisfied so long as the arrangement clearly establishes that a business relationship will last for at least one year. On the other hand, an arrangement that actually lasts for one year will satisfy this requirement. CMS further provides that “Parties must have contemporaneous writings establishing that the arrangement lasted for at least one year, or be able to demonstrate that the arrangement was terminated during the first year and that the parties did not enter into a new arrangement for the same space, equipment, or services during the first year.”

Signature Requirement & Temporary Noncompliance

The Final Rule allows an entity ninety (90) days to obtain required signatures, regardless of whether the noncompliance was purposeful or inadvertent. In order to utilize this temporary noncompliance period, the arrangement must satisfy all other requirements of the applicable exception. However, an entity can only use this temporary noncompliance period to satisfy the signature requirement once every three (3) years for the same referring physician.

Holdover Arrangements

Previously, expired arrangements under the Rental of Office Space Exception, Rental of Equipment Exception and Personal Services Exception were permitted for up to six (6) months if the arrangement satisfies the requirements of an exception upon its expiration, and the arrangement continues to comply with the same terms and conditions after the stated expiration. Under the Final Rule, indefinite holdovers are permitted provided the arrangement: (1) satisfies all of the elements of the applicable exception at the time of the stated expiration; (2) continues under the same terms and conditions as the original agreement; and (3) continues to comport with all of the elements of the applicable exception during the course of the holdover.

Definition of Remuneration

The Final Rule revised the definition of “remuneration” under the Stark Law to make it clear that the provision of items, devices, or supplies that are used solely to collect, transport, process, or store specimens for the entity providing the items, devices, or supplies, or to order or communicate the results of tests or procedures for such entity does not constitute remuneration.

Geographic Area Served by FQHCs and RHCs

According to the Physician Recruitment Exception, remuneration may be provided by a hospital to a physician in order to induce the physician to relocate his or her medical practice to the geographic area served by the hospital and become part of the hospital’s medical staff. This exception was also expanded to include FQHCs and RHCs. The term “geographic area served by the hospital” is partially defined as “the lowest number of contiguous postal zip codes from which the hospital draws at least 75 percent of its inpatients.” However, this definition did not provide guidance as to the geographic areas in which a FQHC or RHC can recruit a physician. As a result, the Final Rule added a new definition to clarify this discrepancy by defining the geographic area served by a FQHC or RHC as “the lowest number of contiguous or noncontiguous zip codes from which the FQHC or RHC draws at least 90 percent of its patients, as determined on an encounter basis.”


In all, CMS made some very significant changes to the Stark Law (including the addition of two new exceptions) which should offer healthcare providers greater clarity and flexibility under certain arrangements.

Richard D. Sanders is an attorney in Atlanta who specializes in corporate and regulatory matters for physicians. He can be reached at or (404) 806-5575.