CMS' Final Rule on Stark Law Is Mixed Bag, Observers Say

Ken Terry

November 25, 2020

The Centers for Medicare & Medicaid Services (CMS) has released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute generally known as the Stark Law.

The new rule, which will go into effect 60 days after it's published in the Federal Register next Wednesday, is largely aimed at removing legal barriers to value-based contractual arrangements among physicians and other providers by creating new exceptions to the Stark Law.

The Office of Inspector General (OIG) in October 2019 proposed a new "safe harbor" to the Anti-Kickback Act that generally parallels CMS' final rule with regard to value-based arrangements. The final rule will become effective on January 19, 2021, said an OIG spokesperson.

In a fact sheet on its final rule, CMS said that because the penalties for noncompliance with the Stark Law are so severe, "physicians and other healthcare providers may be discouraged from entering into innovative arrangements that would improve quality outcomes, produce health system efficiencies, and lower costs (or slow their rate of growth)."

The new exceptions to the Stark regulations were created so that providers can pursue these innovative projects. However, it's unclear how many value-based arrangements would actually fall under the exceptions.

Currently, all of the accountable care organizations (ACOs) in the Medicare Shared Savings Program (MSSP) have waivers from the fraud and abuse laws, including the Stark statute and the Anti-Kickback Act (AKA), Julie Kass, JD, a partner in the Baltimore law firm of Baker Donelson, told Medscape Medical News. The same is true, she said, for physicians who participate in the demonstration projects of the Center for Medicare & Medicaid Innovation (CMMI).

The CMS website confirms that these waivers exist for a wide range of Medicare-related programs, including the MSSP.

Value-based arrangements outside of government programs are not governed by Stark, which covers only care provided to Medicare and Medicaid beneficiaries, and the AKA covers only federal health programs, Kass said. So value-based contracts with private insurers and the various provider relationships that spring from those cannot violate Stark or the AKA per se, she said. Nevertheless, if an ACO or other organization has both Medicare and commercial contracts, CMS would scrutinize its physicians' referral relationships, she noted.

"If you're in a CMS [value-based] model, they had to create waivers to avoid colliding with fraud and abuse laws," she said. "But value-based care coordination that providers have wanted to do outside of these models do run into the fraud and abuse laws and are hampered by them."

In addition, she noted, some providers have steered clear of certain value-based arrangements because of their Stark and AKA concerns.

David Muhlestein, PhD, JD, chief strategy and chief research officer for Leavitt Partners, a Utah-based research and consulting firm that specializes in ACOs, told Medscape Medical News that he's not aware of any ACO provider that has been subject to Stark penalties because of their participation in value-based care. And he doesn't know of any ACO or other organization that decided not to enter a value-based deal because of uncertainty over Stark.

"[The Stark rule] probably isn't a game changer," he said. "There are many other reasons why people don't want to pursue value-based care, or why those who are in a pilot program don't want to go bigger."

On the other hand, he said, the new rule will be helpful in certain ways for physicians in organizations that are taking financial risk for a patient population. "Under that kind of direct contract, you can be more creative with how you reimburse other people who take care of your patients."

The Stark Law was passed in 1989, when most physician reimbursement was fee-for-service (FFS). Value-based reimbursement, in contrast, usually involves an element of financial risk. "As you soon as you're responsible for the population cost [of care], Stark goes away [in terms of financial self-interest]," Muhlestein noted. "Because if you pay yourself more from one pocket, you're taking it out of another. You're hurting yourself."

Risk Thresholds

CMS' press release about the new rule emphasizes that the Stark Law "has impeded the move toward value, not just in Medicare, but across all payers, including Medicaid and private health plans."

To counteract that, the rule's text states, "The final exceptions are intended to create additional incentives for the industry to move away from volume-based health care delivery and payment and toward population health and other non-FFS models."

To qualify for these exceptions, physicians must take a minimum amount of financial risk. In CMS' proposed rule, they would have been obligated to pay back up to 25% of their remuneration from a value-based enterprise such as an ACO if the enterprise spent more than its budget. The American Medical Association (AMA) protested that that was far too much downside risk. Other commenters cited a 2018 Deloitte survey finding that most physicians would be willing to tie 10% of their reimbursement to quality and cost measures.

Based on that survey, CMS decided to limit physicians' downside risk to 10% in order to qualify for the Stark exceptions. As Kass noted, this doesn't apply to doctors who already have fraud-and-abuse waivers by virtue of participating in MSSP ACOs or other CMS value-based projects. So doctors who participate in ACOs that take only upside risk in the MSSP are home free.

At the other end of the spectrum, the rule says, CMS will provide additional flexibilities in its Stark exceptions for compensation arrangements between parties that have increased their participation in "mature value-based payment models and their assumption of downside financial risk under such models."

A Range of Specific Provisions

Beyond the risk requirements, the final rule also defines other characteristics of value-based enterprises that qualify for the Stark exceptions. These organizations must coordinate care for a patient population and must aim to improve the quality of care while reducing costs.

The rule defines "value-based activities" as those that coordinate and manage the care of a population. Such a population cannot consist only of lucrative or adherent patients, while avoiding costly or noncompliant patients. "The selection of the target patient population may be not be driven by profit motive or purely financial concerns."

The new regulation also provides guidance on several key requirements that physicians and other providers must meet to comply with the Stark Law. "For example, compensation provided to a physician by another healthcare provider generally must be at fair market value," the CMS fact sheet notes. "The final rule provides guidance on how to determine if compensation meets this requirement."  

The rule also allows hospitals and health systems to donate cybersecurity technology to physician practices without violating the Stark law, regardless of whether the providers are in an FFS or value-based arrangement. This seems like a logical follow-up to the 2006 Stark exception that allows hospitals and other providers to donate electronic health records to physicians if the doctors pay at least 15% of the donor's cost.

Organized Medicine's Take

The reaction of physician societies to the Stark update has been fairly muted so far. An AMA spokesman told Medscape Medical News that the association hasn't yet had time to analyze the final rule. However, the AMA has previously expressed some strong objections to the proposed rule.

The Medical Group Management Association (MGMA) yesterday released a statement from Anders Gilberg, its senior vice president of government affairs. He said the MGMA supports the new value-based exception to the Stark Law, "which will provide some group practices with greater protection when entering into care coordination agreements."

However, Gilberg said, "the final rule could have gone further to reduce the [Stark Law's] overall complexity and intrusion into group practice operations."

"Efforts to improve the Stark Law's regulatory framework will be undercut by the law's strict liability regime, disproportionate penalty provisions, and vexing construct," he said. "We continue to believe there is a significant need for congressional action."

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