The Evolution of the Writing and Signature Requirements of Certain Exceptions to the Stark Law

The Stark Law is the common name for a section of the Social Security Act that prohibits physicians from referring Medicare patients for designated health services to entities with which the referring physician has a financial relationship. There are various exceptions to this referral prohibition, each with its own set of specific criteria. One category of exceptions is compensation arrangements, certain of which — such as rental of office space, rental of equipment, delivery of personal services, and physician recruitment—  have writing and signature requirements. This means that the exception criteria are not satisfied unless, among other things, the contractual arrangement is reduced to a writing containing the operative terms (e.g., compensation, scope of services, term dates, etc.) that is signed by the contracting parties.

This seems like a reasonable requirement, but it is important to note that the Stark Law is a strict liability statute. That is, the parties’ intentions in failing to satisfy any given requirement are irrelevant. Thus, a single mistake can lead to a potentially expensive Stark violation.

In recognition of this, effective October 1, 2008, The Centers for Medicare and Medicaid Services (“CMS”) granted contracting parties a regulatory grace period to satisfy the writing and signature requirements. Aiming at the strict liability aspect of Stark, CMS granted a 90-day grace period if the failure to satisfy such requirements was inadvertent and 30 days if the failure was not inadvertent. Parties could only use the grace period once every three years.

As you may have already guessed, establishing inadvertence is difficult. For that reason, effective January 1, 2016, the inadvertent standard was removed and the grace period became 90 days in all instances. This change was published in a CMS Final Rule on November 16, 2015 at 80 Fed. Reg. 70885.

In that same Final Rule, CMS addressed questions about what would satisfy the signature requirement of various compensation exceptions. In response, CMS mentioned that parties could look to state law to inform their analysis of whether the signature requirement was satisfied. In context, this response was focused primarily on technological changes moving parties away from traditional ink signatures (but some form of “signature” was still required nonetheless). However, many read more into this response than was there. Specifically, some saw support for an argument that an unsigned or partially-signed contract in a state that enforces such agreements would satisfy the Stark signature requirement. Forms of this misinterpretation are still in circulation today, despite CMS saying the following in the same section of the same 2015 Final Rule:

…State contract law principles do not determine compliance with the physician self-referral law. The commenters’ suggestion illustrates a problem with relying exclusively on State law principles, namely that the requirements for a contract to be enforceable under State law may differ substantively from the requirements of the physician self-referral [Stark] law. By statute, the exceptions for the rental of office space, the rental of equipment, and personal service arrangements require an arrangement to be signed “by the parties.” (See section 1877(e) of the Act.) The commenters’ suggestion that an arrangement should be deemed to comply with the signature requirement if one or more of the parties have not signed the arrangement is inconsistent with the plain language of the statute…. In this context, it is not enough that the course of conduct between the parties could support an inference of assent to the terms. Rather, a signature is necessary to provide a written record of the assent of the parties to the arrangement.

Put simply, while state law may inform the analysis, there is nothing to analyze without some sort of signature from each party.

The next stage of evolution came about two years later. Effective February 9, 2018, the Bipartisan Budget Act (“BBA”) amended the Stark Law in multiple ways, including eliminating the restriction that a contracting party may only use the grace period once in a three-year period.

In response to the Stark Law changes effected by the BBA, CMS issued a Final Rule in 2019 that essentially comports the regulations with the statutory changes. The Final Rule also confirmed by regulation a position that CMS had taken for some time, namely that a collection of contemporaneous documents evidencing the parties’ course of conduct may satisfy the writing requirement. This was not a change in the regulations but a clarification of the writing requirement and therefore the confirmation applies retroactively. Critically, such a collection of contemporaneous documents does not automatically satisfy the signature requirement unless documents within that collection contain signatures of the contracting parties evidencing assent to the essential contract terms.

Most recently, on October 9, CMS published a proposed rule regarding Stark that got a lot of press (click here and here for more information). Among the various proposed changes were a few related to the writing and signature requirements — including some reorganization of provisions — but none would fundamentally alter the current state of either of the requirements or the grace period.