Proposed Changes to Stark Law Promote Value-Based Provider Arrangements

October 11, 2019 | Benjamin P. Malerba | Ada Kozicz | Fraud and Abuse | Legislation and Public Policy | Medicare and Medicaid

As part of the U.S. Department of Health and Human Services’ “Regulatory Sprint to Coordinated Care,” the U.S. Office of Inspector General (OIG) and the Centers for Medicare and Medicaid Services (CMS) coordinated their efforts in issuing proposed changes to the federal fraud and abuse laws which prohibit certain patient referrals. The changes are intended to promote provider participation in value-based arrangements and the provision of efficient and coordinated care for patients.

Background on Stark Law

The Stark Law prohibits physicians from referring certain designated health services (DHS) that are reimbursable under a federal healthcare program, including Medicare, Medicaid and managed care plans, to an entity in which the referring physician has a direct or indirect financial relationship, unless a specific exception applies. DHS that can potentially implicate the Stark Law includes laboratory services, radiology and imaging services, radiation therapy, durable medical equipment, prosthetics, physical therapy, occupational therapy and outpatient speech-language pathology, home health services, outpatient prescriptions drugs, and inpatient and outpatient hospital services. Generally speaking, the Stark Law has broad applicability across the healthcare industry and, as it currently stands, it potentially hinders certain provider arrangements that can promote efficient and more coordinated care for patients. CMS acknowledged that the Stark Law has not been significantly updated since it was enacted in 1989, at which time the healthcare payment system was primarily fee-for-service. Given the changing healthcare landscape and initiatives to encourage providers to work together in providing high-quality and cost-efficient care, CMS explained that changes to the Stark Law are warranted to reduce the burden for providers that seek to participate in value-based healthcare delivery while ensuring that certain safeguards remain in place to prevent fraud and abuse in the federal healthcare programs.

Proposed Exception for Value-Based Arrangements

CMS has issued a proposed rule which, among other things,1 creates a new exception under the Stark Law that will protect value-based arrangements. The exception will apply regardless of whether the arrangement relates to Medicare patients, non-Medicare patients, or a combination of both. However, the exception will only apply to value-based arrangements between a value-based enterprise and its participants or between participants in the same value-based enterprise. A “value-based enterprise” must be a distinct legal entity that includes organized groups of healthcare providers, suppliers and other stakeholders involved in the coordination of patient care. In addition, the purpose of the value-based arrangement must meet at least one of the following value-based goals with respect to a target patient population: (i) coordination and management of care; (ii) improvement of quality of care; (iii) reduction of costs of care; or (iv) transition from a healthcare delivery and payment system that is based on volume to a system that is based on quality and cost-controls.

The proposed value-based exception is divided into three categories. The first category applies to full financial risk arrangements, defined as arrangements in which a value-based enterprise is financially responsible on a prospective basis for the cost of all patient items and services covered by an applicable payor for each patient in a target patient population for a specified period of time. In order to fall under the exception, such full financial risk arrangements meet the following requirements:

(i)  The value-based enterprise is at full financial risk during the entire duration of the value-based arrangement;

(ii)  Remuneration received by participants results from value-based activities (i.e., activities that meet one of the value-based purposes described above with respect to a target patient population);

(iii)  Remuneration is not an inducement to reduce or limit medically necessary items or services;

(iv)  Remuneration is not conditioned on the referral of patients who are not part of the target patient population or not covered by the value-based arrangement;

(v)  If remuneration is conditioned on the referral of patients to a particular provider, the arrangement must satisfy the following requirements: (A) the requirement to make referrals must be set forth in a writing that is signed by the parties; and (B) the requirement to make referrals does not apply if a patient expresses a preference for a different provider, the patient’s insurer identifies a different provider, or the referral would not be in the patient’s best medical interests as determined in the referring physician’s judgment; and

(vi)  The methodology for determining remuneration, and the actual remuneration paid, under the arrangement must be recorded and such records must be maintained for at least six years and make available to the Department of Health.

The second category of the value-based exception applies to value-based arrangements with meaningful downside financial risk to the physician. “Meaningful downside financial risk” means that the physician is responsible to pay the value-based enterprise at least 25% of the value of the remuneration the physician receives under the value-based arrangement, or the physician is financially responsible to the enterprise on a prospective basis for the cost of all (or specifically defined) patient care items or services covered by an applicable payor for each patient in the target patient population for a specified period of time. In order to qualify for the proposed exception, the meaningful downside financial risk arrangement must satisfy the following requirements:

(i)  The physician has meaningful downside financial risk for failing to achieve value-based purposes for the entire duration of the value-based arrangement;

(ii)  A description of the nature and extent of the physician’s downside financial risk must be set forth in writing;

(iii)  The methodology for determining remuneration is set in advance of undertaking the value-based activities for which the remuneration will be paid;

(iv)  Remuneration is for value-based activities undertaken by the physician receiving the remuneration for patients in a target patient population;

(v)  Remuneration is not an inducement to reduce or limit medically necessary items or services;

(vi)  Remuneration is not conditioned on referral of patients who are not part of the target patient population or business not covered by the value-based arrangement;

(vii)  If remuneration is conditioned on the referral of patients to a particular provider, the arrangement must satisfy the following requirements: (A) the requirement to make referrals must be set forth in a writing that is signed by the parties; and (B) the requirement to make referrals does not apply if a patient expresses a preference for a different provider, the patient’s insurer identifies a different provider, or the referral would not be in the patient’s best medical interests as determined by the referring physician’s judgment; and

(viii)  The methodology for determining remuneration, and the actual remuneration paid, under the arrangement must be recorded and such records must be maintained for at least six years and make available to the Department of Health.

Finally, the third category of the proposed value-based exception applies generally to all value-based arrangements, defined as arrangements for the provision of at least one value-based activity (i.e., an activity that is intended to meet a value-based purpose, as summarized above) for a target patient population. This third category requires value-based arrangements to satisfy the following requirements:

(i)  The arrangement must be set forth in a writing signed by the parties, and the writing must include a description of:

(A)  value-based activities to be undertaken;

(B)  how the value-based activities are expected to further the value-based purposes of the enterprise;

(C)  target patient population;

(D)  type or nature of remuneration;

(E)  methodology for determining remuneration; and

(F)  performance or quality standards that will be used to evaluate the participating provider, if any;

(ii)  The performance or quality standards that will be used to evaluate the participating provider’s performance, if any, must be objective and measurable, and any changes to the standards must be made prospectively and set forth in writing;

(iii)  The methodology for determining remuneration is set in advance of undertaking the value-based activities for which the remuneration will be paid;

(iv)  Remuneration is for value-based activities undertaken by the physician receiving the remuneration for patients in a target patient population;

(v)  Remuneration is not an inducement to reduce or limit medically necessary items or services;

(vi)  Remuneration is not conditioned on referral of patients who are not part of the target patient population or business not covered by the value-based arrangement;

(vii)  If remuneration is conditioned on the referral of patients to a particular provider, the arrangement must satisfy the following requirements: (A) the requirement to make referrals must be set forth in a writing that is signed by the parties; and (B) the requirement to make referrals does not apply if a patient expresses a preference for a different provider, the patient’s insurer identifies a different provider, or the referral would not be in the patient’s best medical interests as determined in the referring physician’s judgment; and

(viii)  The methodology for determining remuneration, and the actual remuneration paid, under the arrangement must be recorded and such records must be maintained for at least six years and make available to the Department of Health.

The CMS proposed rule is open for the submission of public comments until December 31, 2019. Thereafter, CMS is expected to issue a final rule after taking into consideration the public comments it receives.

CMS has coordinated its efforts in updating the Stark Law with OIG, and OIG has also issued a proposed rule with updates to the Anti-Kickback Statute and Civil Monetary Penalties Law. The OIG proposed rule is similar to the CMS proposed rule and, like the CMS exception for value-based arrangements under the Stark Law, the OIG proposed rule creates a new safe harbor under the Anti-Kickback Statute for value-based arrangements.

The Department of Health Secretary, Alex Azar, has stated that the “proposed rules would be an unprecedented opportunity for providers to work together to deliver the kind of high-value, coordinated care that patients deserve.”

For further information, see the Department of Health press release.

 

1 The CMS proposed rule also provides new guidance and clarifications under the Stark Law, such as defining the “fair market value” and “commercially reasonable” standards which are requirements under most of the existing Stark Law exceptions. The proposed rule also establishes a new, more flexible exception for donations of cybersecurity technology that promote the use of integrated and secure technologies among providers.

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