Regulatory Reform Could Hasten Transition to Value-Based Care

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Jennifer Csik Hutchens and Kelly A. Koeninger
Hospitals & Health Systems RX, AHLA Newsletter
Oct. 2018

In recent months, officials at the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) have made clear in highly publicized remarks that accelerating the transition of the health care system from a primarily fee-for-service payment model to an integrated care model is a key priority. Dubbed the "Regulatory Sprint to Coordinated Care," these officials have announced their intention to address the federal regulations they believe are acting as unnecessary barriers to coordinated care. To date, officials have suggested that industry stakeholders can expect to see changes to the federal physician self-referral law (Stark Law),1 the federal Anti-Kickback Statute (Anti-Kickback Statute),2 the beneficiary inducement prohibitions in the Civil Monetary Penalty Law (CMP Law),3 the Health Insurance Portability and Accountability Act (HIPAA), and the rules under 42 C.F.R. Part 2 related to opioid and substance abuse disorder treatment.

Of particular note, over the summer of 2018, CMS and the HHS Office of Inspector General (OIG) released requests for information (RFI) seeking public feedback on how certain federal fraud and abuse laws (the Stark Law, the Anti-Kickback Statute, and the CMP Law) may inhibit the implementation of innovative payment arrangements and coordinated care arrangements (such as accountable care organizations, clinically integrated networks, bundled payment arrangements, and two-sided risk models).

Industry stakeholders certainly welcome this HHS initiative. The broad scope of the laws involved and the potential for serious penalties for even a technical misstep frequently prevent providers from pursuing or fully embracing alternative payment models, even when the adoption of such models could improve patient care and reduce the cost of medical care.

The first RFI, which CMS released on June 25, 2018, specifically seeks feedback on how the Stark Law may be impeding beneficial arrangements that would advance coordinated care.4

The Stark Law was enacted over two decades ago when a primarily fee-for-service landscape reimbursed providers for the volume of services performed. The Stark Law was needed to help protect Medicare and its beneficiaries from unnecessary costs, overutilization, and potential conflicts of interest that may occur when providers benefit financially from referring patients to health care entities in which they have a financial relationship. However, newer, alternative payment methodologies hold providers accountable for their overall management of a patient’s condition by rewarding them for working together to control costs and improve quality, rather than for procedures or referrals. Theoretically then, in a properly designed alternative payment model, overutilization and unnecessary costs should be less of a risk.

The Stark Law, a strict-liability statute with hefty penalties, generally prohibits certain care coordination activities and arrangements with providers. Under the Stark Law, unless an arrangement is structured to fit within a specific exception, providers are prohibited from making referrals to an entity in which they have a financial relationship. This term is broadly defined, such that almost any relationship between a provider and an entity that bills Medicare for certain common services is subject to the law.

While there are a few Stark Law exceptions that providers look to when structuring alternative payment arrangements (most notably, the risk sharing and physician incentive compensation exceptions),5 these exceptions are too narrowly drafted to cover all care coordination and alternative payment methodologies that providers want to pursue. In addition, since any arrangement must be structured to fit specifically within the exception, arrangements are tailored to the law, not in a way that would necessarily produce the best outcomes. As a result, from time to time, CMS has granted technical waivers of Stark Law compliance to providers participating in specific alternative payment models such as the Medicare Shared Savings Program and the Comprehensive End Stage Renal Disease (ESRD) Care Model. This patchwork approach does not seem sustainable for the long term—it is administratively burdensome on CMS and stifles innovation among industry stakeholders.

Indeed, in the comments submitted to date, many providers have expressed frustration at the limitations the Stark Law places on them when their end goal is to better coordinate care for their patients. For example, in their comments, the American Academy of Orthopaedic Surgeons noted that the Stark Law impedes their efforts to better coordinate with skilled nursing facilities and home health agencies to take care of their patients post-surgery.6

They noted that once compliance waivers were granted under the Bundled Payment for Care Improvement Program (BPCI), the program has seen higher quality, lower cost, and better care coordination. The group advocated for CMS to abandon its current case-by-case approach in favor of a formalized exception that would allow this sort of care coordination more broadly and not just under the BPCI program.7

Similarly, the American Hospital Association (AHA) has proposed adding a new value-based payment exception that would protect various types of financial arrangements, so long as the remuneration is reasonably related to, and used to achieve, certain coordinated care goals.8 AHA also advocated for revisions to the risk-sharing exception mentioned above, so that it would apply more broadly to include arrangements involving Medicare fee-for-service patients.9

Two months after the release of the Stark Law RFI, on August 24, 2018, the OIG released a separate RFI seeking input from the public on the Anti-Kickback Statute and the CMP Law.10 As in the previously released Stark Law RFI, the OIG is asking the public for focused comments on modernizing the Anti-Kickback Statute and the CMP Law to encourage and incentivize coordinated care.

The Anti-Kickback Statute is a criminal statute that prohibits the payment of remuneration to induce or reward the referral of federal health care business.11 Enacted when fee-for-service payment models dominated the health care industry, it is intended to protect patients and federal health care programs from fraud and abuse by curtailing the influence of remuneration on health care decisions. Like the Stark Law, certain arrangements are protected from prosecution if they are structured to fit within certain safe harbors. While not a strict liability statute (unlike the Stark Law, failure to fall within a safe harbor is not necessary a violation of the law), the high costs of running afoul of the Anti-Kickback Statute still restricts and shapes the way that industry stakeholders are willing to structure alternative payment arrangements and reward providers for coordination of care efforts. Indeed, OIG, from time to time, also has granted waivers to the Anti-Kickback Statute to allow certain Medicare-sponsored alternative payment arrangements to move forward, including the Medicare Shared Savings Program, the Comprehensive ESRD Care Model, and the BPCI program.

In addition to regulating how industry stakeholders interact with providers, the Anti-Kickback Statute, along with the beneficiary inducement provisions of the CMP Law, regulates how providers can interact with their patients. Under these laws, providers generally are prohibited from paying or offering any remuneration that is likely to influence a patient's selection of a particular provider of items or services that are payable by Medicare or Medicaid. For example, providing certain medical supplies or other items free of charge could be characterized as remuneration that is prohibited by the Anti-Kickback Statute and the CMP Law. While there are certain exceptions related to the provision of financial assistance to promote access to care,12 as health care providers are being asked to take on greater risk in managing the care of their patients and attempt to better coordinate care, providers want more flexibility to assist patients with other social determinants of health and reduce barriers to quality care.13

It is difficult to know exactly what changes HHS and CMS may ultimately make to the Stark Law, Anti-Kickback Statute, and CMP Law, but industry stakeholders should be encouraged that HHS and CMS have acknowledged that these federal fraud and abuse laws are impeding certain innovative payment arrangements that would advance coordinated care and are starting to take formal steps to modernize the laws.

Public comments on the Stark Law RFI were due August 24, 2018. Comments on the Anti-Kickback Statute/CMP Law RFI are due October 26, 2018.


  1. 42 U.S.C. § 1395nn.
  2. 42 U.S.C. § 1320a-7b(b).
  3. 42 U.S.C. § 1320a-7a(a)(5).
  4.  83 Fed. Reg. 29524, available at https://www.federalregister.gov/documents/2018/06/25/2018-13529/medicare-program-request-for-informationregarding-the-physician-self-referral-law.
  5. 42 C.F.R. § 411.357(n) and 42 C.F.R. § 411.357(d)(2).
  6. Letter from American Academy of Orthopaedic Surgeons to Seema Verma re:CMS-1720-NC, Request for Information Regarding the Physician Self-Referral Law, at 5 (Aug. 14, 2018), available at https://www.regulations.gov/document?D=CMS-2018-0082-0114.
  7. Id.
  8. Letter from American Hospital Association to Seema Verma re: CMS-1720-NC, Request for Information Regarding the Physician Self-Referral Law, at 15 (Aug. 3, 2018), available at https://www.regulations.gov/document?D=CMS2018-0082-0049.
  9. Id. at 18.
  10. 83 Fed. Reg. 29524, available at https://www.federalregister.gov/documents/2018/08/27/2018-18519/medicare-and-state-health-care-programs-fraud-andabuse-request-for-information-regarding-the.
  11. 42 U.S.C. § 1320a-7b(b).
  12. See, e.g., 42 C.F.R. § 1003.110.
  13. See, e.g., Statement of American Hospital Association for the Committee on Ways and Means, Subcommittee on Health of the U.S. House of Representatives, "Modernizing Stark Law to Ensure the Successful Transition from Volume to Value in the Medicare Program", July 17, 2018, available at https://www.aha.org/system/files/2018-07/180718-aha-statement-house-ways-means-stark-law.pdf
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