The number and value of announced settlements with the Centers for Medicare & Medicaid Services (CMS) concerning the physician self-referral law (the Stark Law) continued a downward trend in 2019. This marks the third straight year of such aggregate settlement declines since reaching a peak in 2016. Indeed, as shown on the first chart below, CMS announced the lowest aggregate settlement dollars collected since the Stark Law disclosure first year in 2011. Similarly, as shown on the second chart, CMS announced the lowest number of settlements since the second year of the disclosure protocol in 2012.

Aggregate Amount of Settlements

Number of Disclosures Settled

These announced settlements stem from filings to CMS through its voluntary disclosure protocol to resolve liabilities arising from the strict liability Stark Law. These liabilities arise frequently as a physician is prohibited from referring designated health services (e.g., hospital services, laboratory, prescription drugs, radiology or other imaging, or DMEPOS) to an entity, including his or her medical practice, where he, she or his/her family have a compensation or ownership relationship, unless the referral and/or the  relationship is protected by meeting each element of an enumerated Stark Law exception. Due to the frequency of such conduct, and the, often, inadvertent and technical failure to comply fully with an exception, many in the industry believe voluntary disclosures are rising although we are not aware of CMS confirming this expectation. This raises the question, however, of how to reconcile the increased number of voluntary disclosures with the decreases in the trends revealed in the charts above.

One possible answer has to do with CMS workload for those subject matter experts focused on the Stark Law. Similar CMS staff are responsible both for reviewing the voluntary disclosures and for promulgating Stark Law regulatory policy. In that vein, CMS released proposed reforms to the Stark Law last fall, as discussed in McGuireWoods’ alerts dated Oct. 10, 2019, Nov. 1, 2019, Nov. 7, 2019 and Nov. 22, 2019, which were focused on reducing the compliance burdens for providers (referred to herein at the “Proposed Rules”). CMS has also recently updated its separate advisory opinion process – effective Jan. 1, 2020 (as detailed by McGuireWoods) – and has issued rulemaking to provide additional flexibility on the writing requirements of the Stark Law exceptions effective in 2016 (as earlier discussed by McGuireWoods here).  These changes may have tied up CMS staff who might otherwise be processing the voluntary disclosures as the agency modernizes the Stark Law’s regulations.

If staff time restraints are in part responsible for the decrease in settlements (and, we should be clear, other explanations are possible), the industry could expect that 2020 will continue this trend of fewer settlements than previous years. CMS staff are currently working to finalize the Proposed Modernization Rules. In addition, the 2019 novel coronavirus (COVID-19) pandemic understandably may divert attention. CMS has issued guidance and affirmative waivers intended to give providers increased flexibility in the face of the pandemic, including with respect to the Stark Law (such guidance discussed on FCA Insider on May 2, 2020 and April 4, 2020). In addition to diverting subject matter experts, agency decision makers likely are focused on managing in light of the more pressing public health emergency rather than Stark law settlements, many of which have been pending for several years anyway.

CMS’ regulatory changes over the past several years, which each had the effect of loosening the requirements in Stark Law’s regulatory development, could also have impacted provider willingness to finalize settlements. To elaborate, providers who made disclosures with an intent to settle with CMS related to technical issues prior to this recent rulemaking, could have experienced different outcomes with the loosened standards.  For example, a self-disclosure related to the lack of a signature on a contract may no longer be deemed a technical violation of the Stark Law now that may utilize signatures on certain related documents. These changes, in turn, could be prompting providers to withdraw disclosures made prior to the rulemaking, reducing the number of settlements. At the same time, CMS staff may have still have expended time reviewing a disclosure before a provider withdraws, ultimately utilizing the same amount of staff time without a reported settlement reinforcing the potential explanation discussed above. CMS’s announced Stark Law settlement details also provides good news to providers seeking to assess the scope of any settlement liability.  As shown in the chart below, since the first year of the protocol, average annual settlements have ranged from a previous low of $67,601.83 (2016) to the current high of $136,866.49 (2015). This past year, however, set the lowest reported average settlement at $60,323.94.

Average Amount of Settlements

We will be interested to see if the lower 2019 average is the start of a trend to be continued in future years, or of it is an outlier. Decreasing settlement amounts in future years could suggest a change either in the kinds of voluntary disclosures submitted or the willingness of CMS to settle for lower amounts in voluntary disclosure scenarios. Anecdotally, we believe more physician groups are submitting voluntary disclosures today than in the protocol’s early days, which often focused on hospital-physician relationships. Such shift could be reflected in smaller average settlements (caused in part by less Medicare billings impacted by such technical violations in a physician group than a hospital billing relationship) in the last four years compared to the prior four-year period. Future trends could also indicate a change in CMS’ settlement formula, although we do not have any evidence that is the case. Alternatively, with fewer settlements, there is a greater likelihood that a single case could skew the average results positively or negatively, which could also be influencing these numbers.

One additional caveat, the reported settlements lag the date when the provider voluntarily submitted the disclosure. Providers often experience a significant period between voluntary submission and settlement with CMS through the Stark Law disclosure protocol. As such, it is possible the trends in the announced aggregated settlements result from an event or regulatory change a few years ago. Future settlement numbers may provide further context to evaluate the likelihood that such a historic event caused these trends.

McGuireWoods will continue to monitor the reported Stark Law settlements to assist clients in navigating voluntary Stark Law self-disclosures. If you have violated or potentially violated the strict liability Stark Law, we would be happy to discuss whether such conduct necessitates considering a self-disclosure.