New Stark and AKS Final Rules: Good or Bad for Medical Labs?

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Sweeping regulatory changes to two federal health care laws became effective on January 19, 2021, following a two-year review by The Centers for Medicare and Medicaid Services (CMS) and The HHS’ Office of Inspector General (OIG). The federal laws impacted are:

  1. the Stark Law (or physician self-referral law); and
  2. the Anti-Kickback Statute (AKS)

A product of the federal government’s “Regulatory Sprint to Coordinated Care,” the Stark Law and AKS final rules are intended to promote better coordination of care across providers and to reimburse providers based on the value of their services as opposed to the volume. CMS also clarified Stark Law regulations that had long caused administrative and compliance headaches.

How do these final rules impact the clinical lab industry? For the most part, the final rules are “good” for clinical labs in that they provide some clarification and guidance when it comes to complying with both the Stark Law and Anti-Kickback Statute. As these rules were intended to reduce regulatory barriers, they also create some additional flexibility in how labs structure arrangements.

Our health law attorneys regularly counsel medical and diagnostic lab owners and marketers on Stark Law and Anti-Kickback Statute compliance. Call (713) 909-7323 or contact us online to discuss your lab's compensation structures and referral arrangements. 

Stark Law and AKS Concerns for Medical Laboratories

Stark Law prohibits physicians from referring Medicare patients for designated health services (including lab services) to an entity with which the physician, or an immediate family member of the physician, has some type of financial relationship. The Anti-Kickback Statute prohibits any healthcare provider from willfully and knowingly paying, offering, soliciting, or receiving any form of remuneration to induce referrals or generate business involving any service or item payable by federal health care programs.

Common Stark Law and AKS compliance issues for medical labs include:

  • Sales and marketing activities that are compensated based on volume or value
  • Situations where a lab is providing goods or services for free or below fair market value (FMV)
  • Patient billing policies that favor a particular physician’s patients to encourage referrals

How Did the Stark and AKS Final Rules Impact Clinical Labs?

The final rules have multiple implications for medical labs and the physicians, marketers/recruiters, and telemedicine companies with which they contract. Here are a few key considerations:

  • Revised Stark Law Terminology. The Stark Law final rule adds clarification to several important terms, including how the CMS interprets an arrangement as “commercially reasonable,” how it applies the “volume or value” and “other business generated” standards, and what constitutes “fair market value.”
  • Stark Exception: Fair Market Value Compensation. CMS’ final rule removes the exclusion of office rental space from the Stark Law FMV Compensation exception and clarifies that the exception applies both to office space and equipment leases. This offers labs an additional option to cover arrangements involving medical office leases and equipment rentals, as the exception does not require a minimum one-year term. This can be useful when the parties want to engage in a short-term lease. However, you may want to speak with a health law attorney before extending that lease agreement: Other than under limited exceptions, the parties may not enter into more than one arrangement for the same equipment or office space during the course of a year.
  • AKS Safe Harbor: Personal Services and Management Contracts. The OIG’s final rule revised this AKS safe harbor to: (1) require that compensation methodology (rather than compensation) be set in advance; (2) eliminate certain written requirements for periodic or part-time contracts to specify duration and charge for services provided; and (3) create new protections to outcomes-based payment structures (labs are excluded from the outcome-based arrangement component of this safe harbor).
  • Stark & AKS: Electronic Health Records (EHR) & Cybersecurity and Technology Services. OIG and CMS made similar changes to the EHR items and services safe harbor and exception to expand EHR donation protection. While the EHR safe harbor and exception exclude labs and other non-providers, labs are not excluded from CMS’ and OIG’s final rules for the cybersecurity technology safe harbor and exception, which allow stakeholders to donate cybersecurity tech and services to entities with which they interact.
  • AKS Safe Harbor: Patient Engagement and Support. OIG’s final rule strengthened the limitations of the patient engagement and support safe harbor to clarify that funding (direct or indirect) can only come from individuals or entities that are VBE participants, excluding labs.
  • Stark Exception: Payments by a Physician. CMS’ final rule significantly expanded the application of this Stark exception and physician remuneration by deleting the reference to regulatory exceptions and the reference to exceptions in §§ 411.355 and 411.356. CMS made clear that the Payments by a Physician exception is intended to function in the statutory scheme as a catch-all for arrangements involving the furnishing of items or services by entities that are not specifically addressed by exceptions codified at § 411.357(a) through § 411.357(h).

Given the scope and complexity of federal health care regulations, seeking counsel from a qualified attorney is the best way to understand the final rules and their implications for specific arrangements.

Experienced attorneys can help labs evaluate compensation arrangements to identify those which take volume / value or generated business into account, consult with valuation experts to assess whether arrangements satisfy new standards for “commercially reasonable,” and tailor client-specific plans for proactive compliance moving forward.

Beyond Stark and AKS: Labs Should Be Mindful of EKRA

While the final rules may provide labs with clarity and additional flexibility in creating compliant arrangements, both fail to address the expansive language of the EKRA statute and its conflict with both the Stark Law and AKS.

In the absence of guidance from the DOJ, this means labs should remain mindful of the potential for prosecution under EKRA when structuring arrangements.

What is EKRA?

The Eliminating Kickbacks in Recovery Act (EKRA) is a 2018 law enacted under the SUPPORT Act to prevent referrals of substance use disorder patients to labs, treatment facilities, and recovery homes in exchange for illegal kickbacks. Specifically, EKRA makes it a federal crime to knowingly and willfully:

  1. Solicit or receive any remuneration (including kickbacks, bribes, or rebates) directly, or overtly in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or
  2. Pay or offer any remuneration either to induce a referral or in exchange for an individual using the services of a recovery home, clinical treatment, or laboratory.

Violations are punishable by up to $200,000 in fines and potential imprisonment per occurrence.

EKRA’s Broad & Restrictive Scope

Though EKRA was created in response to the nation’s opioid epidemic, it applies broadly to public and private payors, as well as to all physician-laboratory relationships – not solely those involved in treating substance abuse and addiction. Under EKRA, a lab is any facility that handles

“the biological, microbiological, serological, chemical, immuno-hematological, hematological, biophysical, cytological, pathological, or other examination of human specimens for the purposes of providing information for the diagnosis, prevention, or treatment of any disease or impairment of, or the assessment of the health of, human beings.”

Because the broad definition means that nearly all laboratory test referrals implicate EKRA, all labs – regardless of specialty – should carefully consider EKRA and the common referrals and compensation arrangements that can create liability, especially in regard to increased enforcement efforts targeting COVID-19 testing.

Additionally, labs should be aware that while there are similarities between EKRA and AKS safe harbors, EKRA is broader and more restrictive, and may prohibit certain forms of compensation that are permitted under the AKS. The AKS bona fide employee safe harbor, for example, allows employers to pay employees with percentage-based compensation, while EKRA places limits on referral and commission volume. What’s more, an EKRA violation may also constitute a valid basis for a False Claims Act complaint.

A Comprehensive Approach to Medical Lab Compliance

Despite providing access to new flexibilities, the final rules send an important reminder to clinical labs: Ensuring compliance in this highly regulated and evolving space is a complex and constant battle.

Because laboratories remain a top target for regulatory enforcement, it is important for all labs and those with whom they contract to be mindful of the imperfect alignment between federal health care regulations and the need to take a comprehensive and proactive approach in their compliance efforts.

At Hendershot Cowart P.C., our health and medical law team has closely tracked the federal government’s efforts to amend existing laws as the industry transitions away from fee-for-service based payment toward “value-based” payment systems, and how those laws are expected to influence the structuring of financial arrangements beyond the pandemic and transitory regulatory relief.

If you have questions about the new Stark and AKS final rules, EKRA, or any health care compliance matter, call (713) 909-7323 or contact us online to speak with a lawyer.

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