Proposed Changes to Stark Law Encourage Transition to a Value-Driven Healthcare System

Last week, the Department of Health and Human Services (HHS) and the Center for Medicare and Medicaid (CMS) revealed proposed changes to “modernize” and clarify regulations that interpret the Physician Self-Referral Regulations (Stark Law) and the Federal Anti-Kickback Statute. The Proposed Rule immediately highlights a focus on the transition to a value-driven healthcare system, which is in-line with the OIG’s priorities. 

HHS identified the broad reach of the Stark law, along with the federal Anti-Kickback Statute, as potentially inhibiting arrangements that can advance both the transition to value-based care and the coordination of care among providers. Nationwide feedback has convinced CMS the current structure of the law discourages innovation. It does so by inhibiting providers, suppliers, and physicians from entering into potential arrangements that can improve care quality, produce efficiencies and lower costs.

CMS has thus proposed three new safe harbors for remuneration exchanged between or among eligible participants in a value-based arrangement that fosters better coordinated and managed patient care. These new safe harbors are defined as:

• Full Financial Risk Exception
• Meaningful Downside Financial Risk Exception
• No Financial Risk Exception

CMS has stated their exceptions need fewer “traditional” requirements ensuring arrangements do not pose a risk of program or patient. Reason et all: a value-based health care delivery and payment system itself provides safeguards against harms such as overutilization, care stinting, patient steering, and negative impacts on the medical marketplace.

CMS has outlined the “modernized” exceptions as such.

Full Financial Risk Safe Harbor

This proposed exception applies to value-based arrangements between VBE participants in a VBE that has assumed “full financial risk” for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time. Essentially, CMS believes when a VBE is at full financial risk for the cost of all patient care services, the incentives to order unnecessary services or steer patients to higher-cost sites of service are diminished.

Meaningful Downside Financial Risk Exception

This proposed exception would protect remuneration paid under a value-based arrangement where the physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the value-based enterprise. CMS defines “meaningful downside financial risk” as the physician is responsible for paying the entity no less than 25 percent of the value of the remuneration the physician receives under the arrangement. It would also mean the physician is financially responsible to the payor, or entity, on a prospective basis for the cost of all or a defined set of items and services covered by the payor for each patient in the target patient population for a specified time period. 

No Financial Risk Exception

 This exception applies to compensation arrangements that qualify as value-based arrangements, regardless of the level of risk undertaken by the value-based enterprise or any of its VBE participants. It would permit both monetary and nonmonetary remuneration between participating parties. Requirements for this proposed exemption include that: 

• Remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
• Remuneration is not provided as an inducement to reduce or limit medically necessary items or services to a patient in the target patient population.
• Remuneration is not conditioned on referrals of patients who are not part of the target population or business not covered by the value-based arrangement.
• The methodology used to determine the amount of the remuneration is set in advance of the furnishing of the items or services for which the remuneration is provided.
• Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for at least six years.

In addition to these new safe harbors, CMS’s Proposed Rule creates an exception for donations of cybersecurity technology.

It proposes to amend the exception for electronic health record (“EHR”) to clarify that the exception is available to protect certain cybersecurity software and services and to more broadly protect the donation of software and services related to cybersecurity. CMS is, in fact, considering eliminating or reducing the 15 percent contribution requirement in the EHR exception for either all physician recipients or at least small or rural physician organizations. Additionally, CMS is considering eliminating the sunset provision of the EHR exception.

Finally, the Proposed Rule provides greater guidance for current key terms impacting providers and suppliers governed by the Stark statute and regulations. CMS proposes to include a definition for the term “commercially reasonable,” which has not been defined to-date. It also proposes to modify the definition of “fair market value” to define the general application to the rental of equipment and application to the rental of office space.

The Proposed Rule remains open for comments over the next several days. As we await public comments and ultimately the final rule, one thing stands clear. It is clear HHS and CMS are intent on transitioning to a value-driven healthcare system through responsive changes to its requirements.

We will continue to update you further on the proposed changes and the impact on the way the market currently approaches fair-market value and commercial reasonableness, should this become law.

About the Co-Author

Christina Street, CPA, CVA, is a senior manager in the healthcare valuation practice at HORNE where she specializes in physician contracting arrangements and business valuation.