What the “Blanket” COVID-19 Stark Waivers Mean For Health Care Real Estate Arrangements

On March 30, 2020, the Centers for Medicare & Medicaid Services (“CMS”) issued blanket waivers of the sanctions under Section 1877(g) of the Social Security Act and its regulations thereunder, more commonly known as the Stark Law. The waivers, which have a retroactive effect to March 1, 2020, will apply nationwide to financial relationships and referrals aimed at combatting the outbreak of the COVID-19 pandemic, including certain real estate arrangements addressed below. The waivers will remain in effect until (i) the termination of the national emergency declared on March 13, 2020, or the public health emergency declared on January 31, 2020; or (ii) 60 days from the date of issuance. For a broader overview of the blanket waivers, please see Hall Render’s article on the subject, as well as the full text of CMS’s notice regarding the waivers.

Application of Waivers to Real Estate Arrangements

In its blanket waivers, CMS agreed to waive sanctions with respect to noncompliant real estate arrangements with the following Stark Law violations, provided the noncompliance relates to the COVID-19 pandemic:

Rental charges between an entity and a physician that are below fair market value for the lease of office space or equipment;
Remuneration from a physician to an entity that is below fair market value for the use of the entity’s premises or for items purchased by the physician from the entity;
Remuneration between an entity and a physician resulting from a loan between the parties: (1) with an interest rate below fair market value; or (2) on terms that are unavailable from a lender that is not (i) a recipient of the physician’s referrals or business generated by the physician; or (ii) in a position to generate business for the physician; and
Arrangements that do not satisfy the writing or signature requirements of an applicable exception (e.g., rental of office space exception), but otherwise satisfy the requirements of the exception.

CMS also provided examples of the following real estate arrangements that may fall within the scope of the blanket waivers but acknowledged that the examples are for illustrative purposes and do not represent an exhaustive list that would qualify for the waiver of sanctions:

To accommodate patient surge, a hospital rents office space or equipment from an independent physician practice at below fair market value or at no charge;
A hospital provides free use of medical office space on its campus to allow physicians to provide timely and convenient services to patients who come to the hospital but do not need inpatient care;
A hospital’s employed physicians use the medical office space and supplies of independent physicians in order to treat patients who are not suspected of exposure to COVID-19 away from their usual medical office space on the campus of the hospital in order to isolate patients suspected of COVID-19 exposure; and
A physician establishes an office in a medical office building owned by the hospital and begins treating patients who present at the hospital for health care services before the lease arrangement is documented and signed by the parties.

It is important to note that CMS did not explicitly list space leasing arrangements where the parties agree to abate rent as a result of economic hardship during the COVID-19 crisis as a situation for which the blanket waivers may apply. This is one issue that hospitals and physician groups hoped CMS would address in the blanket waivers, but CMS did not provide specific waivers for this scenario.

Maintenance of Records

Although CMS will not require the submission of documentation or notice in advance of using the blanket waivers, entities should nonetheless develop and maintain records as to the use of such waivers in a timely manner as such records must be made available to CMS upon request. Besides setting forth the specific terms of the arrangement to which the waiver applies (including any changes to existing arrangements necessitated by the COVID-19 pandemic), these records must identify the specific COVID-19 purpose for the waiver. Please see Hall Render’s article that identifies the enumerated COVID-19 purposes set forth in CMS’s notice.

Practical Takeaways

Since the regulatory environment surrounding these blanket waivers continues to change, parties negotiating space arrangements or amendments thereto in response to COVID-19 should, in good faith, try to fit such arrangements within one of the Stark Law exceptions (e.g., rental of office space exception) to reduce any compliance risks. But if those parties are unable to draft the agreement to comply with the Stark Law, the blanket waivers may provide some compliance shelter and reduce the risk of sanctions from CMS. In these cases, entities must be sure to maintain accurate and detailed records regarding their application of a blanket waiver, including a specific explanation showing the parties entered into the agreement for an express purpose related to the COVID-19 pandemic.

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