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Bipartisan Budget Act Helps Avoid Inadvertent Stark Violations (but Strengthens Penalties)

on Monday, 5 March 2018 in Health Law Alert: Erin E. Busch, Editor

The Bipartisan Budget Act was signed into law by President Trump on February 9, 2018. While there are several health care features in the Act, this article focuses on two important changes:


In 2015, CMS included commentary in its Stark update that has helped avoid inadvertent violations of Stark. But these actions were in commentary and were identified as clarifications of existing regulations and thus did not change existing law or regulation. The result was uncertainty whether or not a court would follow these informal clarifications. The Act formalizes two of these changes into law:

  1. Written Requirement. For any compensation exception that requires that the arrangement be in writing, the Act provides that the requirement can be met by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties. This can be very helpful if an arrangement is discovered that lacks a formal written agreement but that is consistent with fair market value and otherwise satisfies Stark.
  2. Signature Requirement. For any compensation exception that requires that the arrangement be in writing and signed by the parties, the Act provides that the signature requirement is met if within 90 days following the date on which the compensation arrangement became noncompliant, the parties obtain the required signatures (and the compensation arrangement otherwise complies with all the other criteria). This can be helpful in avoiding inadvertent violations where an arrangement commences but there is a delayed signature.

In addition, the Act incorporated 2015 regulations that allowed for Stark compliance for holdover leases or personal services arrangements that expired after at least one year. The Act provides that the exception will continue to apply in a holdover period so long as the lease or personal service arrangement met the exception during the term, the terms are the same during the holdover, and the holdover arrangement continues to satisfy the lease or personal services exception. This can be helpful where a space or equipment lease or a personal services arrangement continues beyond its term but the parties failed to formally extend it.

Fraud and Abuse Penalties

  • The Act contains provisions that substantially increase many of the existing fraud and abuse civil and criminal penalties. For example:
  • The fine for claims that the person knows or should know were not provided as claimed is increased from $10,000 to $20,000 for each item or service.
  • The fine for when a person knows of an overpayment but has not reported and returned it as required is increased from $10,000 to $20,000.
  • The criminal fines for violations of the anti-kickback law increase from $25,000 to $100,000.
  • The penalty for a hospital making a payment to a physician as an inducement to reduce or limit medically necessary services to an individual or for a physician to receive such a payment is increased from $2,000 per individual to $5,000 per individual.
  • The jail time increases for most federal health care crimes from not more than 5 years to not more than 10 years.

These changes make it clear that the current Congress and administration does not intend to ease up on fraud and abuse enforcement.

John R. Holdenried

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