The Centers for Medicare & Medicaid Services (CMS) recently announced 2020 settlements concerning past violation or potential violations of the physician self-referral law (the Stark Law) and the number and value of such settlements have returned to the pre‑2019 trends. The 2020 settlements based on voluntary submissions submitted several years ago mark an increase from 2019’s report when CMS announced the lowest aggregate settlement dollars collected since the Stark Law disclosure’s first year in 2011. We speculated last year that such decrease could continue in 2020 as the agency’s attention focused on the 2019 novel coronavirus (COVID-19). That said, as shown on the first chart below, CMS doubled its 2019 settlement numbers, and, as shown on the second chart, announced the greatest aggregate settlement dollars collected since reaching aggregate value that peaked in 2016.

These announced settlements stem from filings to CMS through its voluntary disclosure protocol in a good faith effort to resolve liabilities arising from the strict liability Stark Law. These liabilities arise frequently as the Stark Law prohibits a physician 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. As noted, these voluntary disclosures were submitted at least several years before CMS settles such disclosure. Congress required the establishment of such a protocol for technical violations in 2010 as part of the Affordable Care Act (a/k/a Obamacare).

Due to the frequency of conduct implicating the Stark Law, and the often, inadvertent and technical failure to comply fully with an exception, many in the industry believe that the number of voluntary disclosures filed each year are rising even though the announced settlement numbers suggest CMS has not increased the amount collected through settlements (or the number of filings reviewed annually) beyond simply returning to its 2017-2018 trend. CMS noted in its update, however, that in addition to the total of 369 disclosures settled by CMS, “an additional 155 disclosures to the protocol were withdrawn, closed without settlement or settled by CMS’ law enforcement partners” since 2011, and thus 524 filings that have been addressed in total. In commentary connected to finalizing revisions to the Stark Law in Nov. 2020, CMS noted it had received over 1,200 voluntary filings. Thus, even though the rate of settlement seems to be increasing (or at least over 2019), there remains a question of how CMS will respond to having over half of all submitted disclosures still unaddressed from the decade-old protocol.

Last year, we suggested CMS’ enhanced workload for those with Stark Law subject matter expertise within the agency could be responsible for the rise in pending voluntary disclosures. We noted that CMS was seeking to finalize its Stark Law modernization rule, which the agency finalized in 2020. We cautioned that if staff time restraints were in part responsible for the decrease in settlements, the trend could continue in 2020 as CMS staff were focused on both the modernization rule as well as addressing impact of the COVID-19 pandemic on the Stark Law, including the issuance of guidance and affirmative waivers to increase flexibility in the face of the pandemic (such guidance discussed on FCA Insider on May 2, 2020 and April 4, 2020). We also noted how regulatory changes over the past several years, which focused on loosening the requirements in Stark Law’s regulatory development, could also have impacted provider willingness to finalize settlements and led to CMS staff review time that did not result in additional announced settlements. With a return to 2017-2018 numbers, it appears that the agency may be back to its pre-2019 trend on finalizing voluntary disclosure protocol submissions.

We also noted that we would be interested to see if the lower 2019 average settlement was the start of a trend to be continued in future years, or of it was an outlier year. At least in reviewing this 2020 update, it appears that 2019 may simply have been an outlier and not a change in CMS’ anticipated settlement percentage, a reduction in the amounts at issue in filings, or a fundamental change in the types of voluntary disclosure scenarios being submitted and reviewed. Indeed, as demonstrated in the next chart, 2020 was the second highest average settlement number year on record. It is important to note that given the relatively low number of settlements in any given year, exceedingly low or high settlement amounts can easily skew averages, and CMS has made clear that the numbers are very fact-dependent.

In addition, to further understand CMS’ data, in the orange line below, we removed the minimum and maximum settlement in each year (CMS reports the settlement ranges each year). This suggests that not only did average settlement numbers increase in 2020, but if you remove the maximum and minimum settlements, 2020 was the largest average settlement number of any year thus far.

We will return to this discussion again next year when CMS announces 2021 settlements to better understand trends from providers making disclosures with an intent to settle with CMS. If average settlements were to remain high, it may suggest that as CMS has addressed certain technical issues in recent rulemaking, providers are withdrawing purely technical self-disclosures related, e.g., a lack of a signature on a contract, leaving only more problematic conduct with higher settlement percentages from the amounts at issue. Or, we may suspect from further information that some of these numbers are merely evidence that without significant settlement numbers each year, single cases could skew the average results positively or negatively, which could also be influencing these numbers, and not reveal as much information as the provider community would hope. Given the lag time between submission and settlement can stretch for several years, it will be some time before the impact of the changing law and landscape will appear in these settlement details.

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.