The Federal Stark self-referral law has always presented potential issues insofar as the permissibility of amendments to existing contractual relationships.  The  Centers for Medicare & Medicaid Services (CMS) has come out with recent guidance on amendments which, while providing some certainty, is somewhat restrictive and, in part, somewhat puzzling. 

                         First, CMS issued an advisory opinion under Stark with respect to a physician recruiting agreement.  The arrangement involved the recruitment of a physician into a group practice.  The question raised was whether the parties could amend the existing agreement to delete an excess receipts repayment obligation under the income guarantee component.  The opinion noted that this amendment would cause the arrangement to fall outside the Stark recruitment exception, because the deletion of the excess practice receipts provision would provide (or potentially provide) additional compensation to the recruit that would not be to induce the physician to relocate to the geographic area served by the hospital, one of the conditions for the Stark recruitment exception.  On a positive side, the opinion did note that the recruitment exception regulation did not mandate an excess receipts repayment provision.  Nevertheless, the fraud and abuse and tax-exemption rules must be considered in that context.

                         Second, in the commentary to the recent Stark III regulations, CMS discussed amendments in the context of office space leases, and responded to a number of different scenarios.  Of course, the Stark exception for office space rental arrangements has a series of conditions, including that a lease have a term of not less than one year.  In discussing amendments, CMS did note that parties may legitimately amend leases multiple times during or after the first year of the term, provided the rental charges are not changed and the other requirements of the exception are satisfied.  CMS cautioned, however, that changes which are material to the rental terms, such as the amount of space leased, may cause a lease to fall out of compliance.  Moreover, CMS stated that parties to a lease cannot amend it to change the rental charges even after the first year.  Instead, the parties must terminate the existing lease arrangement, and enter into a new lease with the new rental term but then only after the initial one year of the original lease term and otherwise in compliance with the criteria in the office rental exception.  This latter position is somewhat bewildering but, given the deference provided to an agency’s interpretation of its own rules, should be followed.

                         Thus, amendments to agreements within the purview of the Stark law must be handled very cautiously, and reviewed on a case-by-case basis to assure that any amendment will not result in a violation of the Stark rules.  Of course, the fraud and abuse and exemption limitations raise additional concerns that must be considered in the context of any amendment as well.

                         This alert is a periodic publication of Steptoe & Johnson PLLC and should not be construed or relied upon as legal advice or legal opinion on any specific facts or circumstances.  The contents are intended for general information purposes only, and you are urged to consult your own lawyer concerning your own situation and any specific legal questions that you may have.  For further information about these contents, please contact Steptoe & Johnson PLLC.  Walter L. Williams of Steptoe & Johnson PLLC is the lawyer responsible for the content of this alert.