CMS Releases New Stark Exceptions for Timeshare Arrangements and Assistance to Recruit Non-Physician Practitioners

In its Final Rule addressing changes to the Physician Fee Schedule and Part B payments for CY 2016, CMS also buried two new exceptions to the physician self-referral law. The Final Rule took effect January 1, 2016 (the “Final Rule”). 

One exception relates to what CMS has termed “timeshare arrangements,” which appears to be an expansion of the Stark exception relating to rental of office space. The rental of office space exception protects remuneration from a lessee to a lessor for the rental of office space if the arrangement satisfies six formal criteria, including that the lease arrangement be for at least a year and the space be used exclusively by the lessee.

Through administration of its Self-Referral Disclosure Program, CMS has learned of arrangements for the use of another entity’s premises, equipment, personnel, items, supplies or services by physicians, who, for various legitimate reasons, do not require or are not interested in a traditional office space lease. For example, it is common for a hospital or physician practice to make available to a visiting independent physician (such as a specialist), on a “timeshare” basis, space, equipment and services necessary to treat patients and also provide the physician a furnished and operational office suite pursuant to such an arrangement. 

In the Final Rule, CMS recognized that under its current regulations any arrangement that includes the use of office space (such as timeshares) must be analyzed under the rental of office space exception. The new exception for timeshare arrangements permits hospitals and local physician practices to ask specialists and others from neighboring communities to provide services in space owned by the hospital or practice on a limited or as needed basis without the necessity of a formal lease/sublease and accompanying services arrangement. Thus, the timeshare arrangement exception protects remuneration between a physician and hospital (or physician organization of which the physician is not affiliated) for the use of premises, equipment, personnel, items, supplies, and services where these are used predominantly for the provision of evaluation and management services to patients. Among other criteria that echo the long-standing principles that the compensation not be based on referrals, be consistent with fair market value and set in advance etc., the exception also requires that the arrangement not grant a formal lease to possess space and other nuanced criteria if the timeshare involves the use of equipment.

The second exception that CMS has implemented in the Final Rule relates to compensation for recruitment of non-physician practitioners. This too is an expansion of the existing Stark exception that protects remuneration from a hospital to a physician when the hospital induces the physician to relocate to a geographic area served by the hospital to become a member of the hospital’s medical staff.

In Phase III of the Stark Rule, CMS declined to extend the exception to non-physician practitioners. In the Final Rule, CMS now acknowledges that there have been significant changes in the health care delivery and payment systems since Phase III (a whopping nine years ago), including alarming trends in primary care workforce shortage projections while the demand for primary care increases, especially in rural and medically underserved areas. CMS recognized that non-physician practitioners are the fastest growing segment of the primary care workforce and can help mitigate these shortages. The new and evolving health care delivery models also feature an increased role for non-physician practitioners. As a result, CMS implemented a limited exception for hospitals, federally qualified health centers and rural health clinics that wish to provide remuneration to a physician to assist with the employment of non-physician practitioners to provide patient care services.

This second exception again echoes all the principles of a traditional Stark exception: the arrangement must be set out in writing, not conditioned on the volume or value of referrals, the compensation does not exceed fair market value, etc.

Some highlights of the exception that are distinctive include: (i) the remuneration from the hospital cannot exceed 50 percent of the actual compensation, signing bonus, and benefits paid by the physician to the non-physician practitioner during a period not to exceed two consecutive years of the arrangement, (ii) the non-physician practitioner has not, within one year of the onset of the arrangement, practiced in the geographic area served by the hospital or been engaged by a physician in the geographic area to provide patient services, (iii) the compensation arrangement is directly between the non-physician practitioner and the physician, (iv) substantially all of the services the non-physician practitioner furnishes are primary care or mental health, and (v) the physician does not impose practice restrictions on the non-physician practitioner that unreasonably restrict the non-physician practitioner’s ability to provide patient care services in the geographic area served by the hospital. Otherwise, the patois and requirements of this new expanded exception to Stark will parrot the recruiting exception.

Although not a panacea for the pressures on the American health care system, CMS’s expansion of two valuable exceptions to the Stark law proscriptions are welcome and will aid hospitals and physician groups with the legal, compliant expansion of service options for their respective patients.


Philip M. Sprinkle II is Chair of the Balch & Bingham LLP Health Care Practice Group and is licensed in, among other states, Georgia, Virginia and Florida where he is also Board Certified in Health Law. Natalie R. Majeed is an associate in the Firm’s Health Care Practice Group and is licensed in Georgia and Florida.


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