CMS Adds Stark Waiver for Independent Free-Standing Emergency Department Physician Owners - McDermott Will & Emery

CMS Adds Stark Waiver for Independent Free-Standing Emergency Department Physician Owners


On April 27, 2023, the Centers for Medicare and Medicaid Services (CMS) added a new blanket waiver to the nationwide Section 1135 waivers applicable to the physician self-referral law (Stark Law) that were promulgated in response to the COVID-19 pandemic. This addition provides an essential Stark Law waiver for physician owners of independent free-standing emergency departments (IFEDs) that served Medicare patients on the front lines during the pandemic. Without this new waiver, the financial relationship between an IFED and its physician owners who refer designated health services (including inpatient and outpatient hospital services) to the IFED would create a Stark Law violation necessitating refunds of the Medicare reimbursement received for such referred services.

In Depth

CMS’s IFED waiver not only applies retroactively but also marks the only time that CMS has modified its blanket Stark Law waivers since their inception in 2020. For a comprehensive background regarding CMS’s 18 original waivers, please see our On the Subject, “CMS Issues Nationwide Blanket Waivers of Stark Law and OIG Issues an AKS Policy Statement.” IFEDs will now receive similar protections to ambulatory surgical centers (ASCs), which were also permitted to temporarily convert to hospitals during the pandemic and were afforded one of CMS’s original 18 blanket waivers in connection with their efforts to expand their capabilities during the COVID-19 pandemic. The temporary hospital enrollment for both IFEDs and ASCs ended on May 11, 2023.

Like all of the Stark Law blanket waivers, the remuneration and referrals at issue must satisfy a COVID-19 purpose as defined in the blanket waivers, such as expanding the capacity of healthcare providers to address patient and community needs due to the COVID-19 outbreak, or shifting the diagnosis and care of patients to appropriate alternative settings because of the COVID-19 outbreak.

CMS’s IFED waiver applies to referrals by a physician owner of a hospital that was an IFED immediately prior to its enrollment as a hospital in Medicare, provided that the following conditions are met:

  • On March 1, 2020, the hospital was licensed as an IFED by the state in which it is located and had physician ownership or investment.
  • The hospital enrolled in Medicare as a hospital during the period of the public health emergency.
  • The hospital did not increase the aggregate percentage of physician ownership or investment in the hospital after enrolling in Medicare.
  • The hospital meets the Medicare conditions of participation and other requirements not waived by CMS during the period of the public health emergency.
  • The hospital’s Medicare enrollment is not inconsistent with the emergency preparedness or pandemic plan of the state in which it is located.

Although the additional waiver applies retroactively, it does not extend through the end of the public health emergency, which expired on May 11, 2023. Instead, the IFED waiver is effective from March 1, 2020, through April 10, 2023, which marked the end of the national emergency. CMS’s IFED Stark Law waiver provides welcome relief to the hundreds of IFEDs that otherwise were not afforded Stark Law protection in connection with their COVID-19 pandemic efforts.

The McDermott Difference

CMS’s new waiver came as a direct result of McDermott’s advocacy on behalf of IFEDs that converted to hospitals temporarily during the COVID-19 pandemic. Our lawyers can assist IFEDs in analyzing waiver applicability and remediating any potential regulatory exposure, including for IFEDs whose physician owners referred designated health services to the IFED between April 11 and May 11, 2023.