Stark Law & Anti-Kickback Statute Proposed Rules – Regulatory Transition to Value

Presenters/Authors
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Following through on its long-signaled intention of providing regulatory relief in the industry’s ongoing shift to value, CMS published an ambitious proposed rule to expand the exceptions to the Stark Law as well as propose certain other interesting changes.

As a reminder, the Stark Law (aka the Physician Self-Referral Law) prevents physicians from referring patients to medical facilities in which they have financial interests. Penalties for violating the law are significant.

Here are three new proposed Stark Law exceptions:

  1. Full Financial Risk Model – Applicable to arrangements in which participants assume full financial risk for the cost of all patient care items and services covered by the applicable payor for the target patient population
  2. Meaningful Downside Financial Risk to Physician(s) – Applicable to arrangements where a physician is at meaningful (at least 25 percent of remuneration) downside financial risk for failure to achieve the set-in-advance cost, quality or other performance benchmarks
  3. Value-Based Arrangements – Applicable to compensation arrangements that qualify as value-based arrangements, regardless of financial risk undertaken by its participants

All three proposed new exceptions noted above allow for financial terms that generally don’t meet existing Stark Law exceptions, such as allowing for the direct financial incentivization of physicians for adherence to best practice clinical care protocols. 

The broadest of these proposed exceptions is the value-based arrangements exception. A plain reading of the exception indicates a very broad expansion in physician alignment options. However, as one might expect, there are conditions that must be met to qualify as a value-based arrangement. The proposed definition for value-based arrangements includes these requirements: (a) applicability only within a target patient population, (b) may not serve as an inducement reducing/limiting necessary services, (c) may not be conditioned on referrals for patients/services outside of arrangement’s target patient population, (d) terms must be set in advance and (e) records must be maintained for six years.  

Robust governance, engaged management and the ability to measure and monitor activities under the identified proposed exceptions will be the key to compliance. The seeds for these arrangements and attendant monitoring for abuse of the same have been laid out in regulatory waivers and/or rules to various programs, such as Medicare’s Shared Savings Program and Medicare’s Comprehensive Care for Joint Replacement mandatory bundled payment program.

CMS has proposed a variety of other meaningful and potentially significant changes, including:

  • First formal definition of “commercial reasonableness”
  • Revised definition of fair market value
  • Revisions to permissible compensation terms via the “value or volume standard” and the “other business generated standard”
  • Revisions to the exceptions for the rental of office space and equipment
  • Permission to donate cybersecurity technology and services 
  • Administrative relief for nonabusive business practices

There are several other proposed modifications as well.

As described within the proposal on page 71, CMS delivers on its belief that “… bold reforms to the physician self-referral regulations are necessary to foster the delivery of coordinated patient care …” The rules as proposed seem to do just that. View the Stark Law proposal’s full text for more information. 

A proposal to update the Anti-Kickback Statute (AKS) was simultaneously released with the proposed Stark Law regulatory update.

As a refresher, the AKS prohibits payments for recommending products or services to patients covered by Medicare or Medicaid and is meant to protect against fraud and abuse on a criminal basis. Penalties can be up to $25,000 and a potential five-year prison sentence per violation in addition to $50,000 in civil penalties per violation and three times the amount of government overpayment.

The AKS-proposed update includes safe harbors that generally mirror the proposed updates identified under the Department of Health & Human Services’ “Regulatory Sprint to Coordinated Care.” View the AKS proposal’s full text for more information.

As always, there will be first-mover benefits from a competitive standpoint, as it appears there will be new and more direct means to further hospital physician alignment around value-based activities. For more information, reach out to your BKD trusted advisor or use the Contact Us form below.


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