Rent Abatement & Physician Arrangement Compliance During & After COVID-19

In a song titled “When the Man Comes Around” Johnny Cash sang that “there’s a man going round, taking names…and he decides who to free and who to blame.” How well hospitals and health systems document their blanket waiver arrangements in response to COVID-19 may dictate whether they are “freed” or “blamed” by CMS once the pandemic has passed.

On April 21, 2020, CMS issued explanatory guidance regarding blanket waivers of the sanctions under 1877(g) of the Social Security Act and its regulations thereunder (“Stark Law”) previously issued by CMS on March 30, 2020 and retroactive to March 1, 2020. Hall Render originally detailed potential implications for real estate arrangements in a post that can be found here. The publication of the guidance, however, answered lingering questions about rental compensation arrangements that would allow for repayment to occur beyond the end of the term of the emergency waivers – such as emergency rent abatement arrangements. For a broader overview of the blanket waivers and explanatory guidance issued by CMS, please see Hall Render’s article on the subject, as well as the full text of CMS’s blanket waivers document and explanatory guidance document regarding the waivers.

Blanket Stark Waivers/Explanatory Guidance

In its blanket waivers, CMS agreed to waive sanctions with respect to noncompliant real estate arrangements so long as a valid COVID-19 purpose exists. In particular, CMS specifically permitted the following:

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 (a) a recipient of the physician’s referrals or business generated by the physician; or (b) 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.

Originally, CMS did not specifically identify rent abatement in response to economic hardship resulting from the COVID-19 pandemic as falling within the blanket waivers exceptions. However, Section E of the April 21, 2020 explanatory guidance document, titled Repayment of Loans, Rent Abatement, or Other Amounts Due Following the End of the Emergency Period provided guidance on this point. In this section, CMS states that appropriate repayment terms agreed to by the parties prior to the termination of the blanket waivers will not run afoul of the physician self-referral law so long as the disbursement of the remuneration to an entity or physician was completed before the termination of the blanket waivers. This includes arrangements that were entered into prior to the termination of the blanket waivers, but that continue after the termination of the blanket waivers.

Developing a Physician Arrangements Compliance Program

CMS will not require the submission of documentation or notice in advance of using the blanket waivers. However, parties to an arrangement must produce records and documentation regarding the use of such waivers upon the request of CMS. Traditionally, the responsibility to properly document an arrangement that fits within a Stark Law exception falls upon the parties to the arrangement. However, documenting rent abatement or adjustments to rent during the pandemic are often based on a good faith belief that the tenant is asking for rent abatement to comply with a valid COVID-19 purpose. Landlords should adopt various policies and processes to ensure compliance. As a protective measure, landlords should appropriately document and operationalize these emergency waiver physician arrangements including by creating physician consultation committees; COVID-19 sub-committees; implementing proper monitoring of the arrangements going forward; and undertaking compliance assessments once the COVID-19 emergency has passed.

Practical Takeaways

The explanatory guidance issued by CMS provides that parties who have negotiated real estate arrangements prior to the termination of the blanket waivers, but that continue beyond the termination of the blanket waivers will not be subject to penalties under the Stark Law in certain cases. However, parties to such an arrangement are required to maintain accurate and detailed records regarding the use of blanket waivers, including documentation by the tenant explaining that the arrangement had a valid COVID-19 purpose.

During non-crisis times, health care providers often lack sufficient physician arrangement policies that contain robust controls and procedures governing the initiation, review, approval and monitoring of physician contracts. Although it is imperative for entities to adequately document physician arrangement activities prior to the COVID-19 pandemic, it is especially important during the pandemic for entities to adequately document the reasons for any waivers and to ensure that the reasons are properly vetted and monitored.

If hospitals and health systems do not have a physician arrangements policy, their Compliance Departments should consider working with In-House Counsel or external counsel to develop and implement one. If they have one, they should assess to what extent it is being followed.

Extensive education on the requirements of this policy must be provided to operational leaders, especially those who are responsible for negotiating and managing these contractual relationships.
The policy should include a physician contract review form that requires sign off by key stakeholders such as In-House Counsel, the operational contract owner, and senior leaders (i.e. CEO, CFO, etc.). This form should be retained with the contract and all amendments, addendums and other documentation.

The monitoring of these policy requirements, as well as any COVID-19 related waivers, should be part of the Compliance Departments’ annual auditing/monitoring plans and reported through appropriate Compliance Committees.

Due to the substantial legal and regulatory risks associated with physician arrangements, physician arrangements audits should be part of the Compliance or Internal Audit Departments’ annual auditing/monitoring plans. During the pandemic and after the pandemic subsides, these audits should test whether reasons for waivers/abatements are adequately documented and whether policies and procedures exist, including the following elements and controls:

Requirements for the initiation, review, approval and monitoring of physician arrangements;
A process for including the roles of In-House Counsel and Finance, use of templates, documentation of Fair Market Value (“FMV”) and approving compensation that is substantially higher than FMV;
Processes for managing contracts after they are executed;
Processes for reviewing and approving payments to ensure payments are being made in accordance with the terms of the agreement;
Processes for monitoring that the services required by the contract are being performed, including the requirement for the physician to provide a time log for all administrative services contracts; and
Requirements for monitoring physician leases and invoicing tenants for late fees when required by the leases.

In short, hospitals and health systems should assess to what extent they can demonstrate physician arrangement compliance. This should include a plan to identify and document COVID-19 related waivers/abatements and be prepared to comply with physician arrangement rules and regulations post-COVID-19. In the case that CMS requests such documentation, it’s best to have the words written down…when the man comes around.

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