Hall Render – Modernizing the Stark Law framework


The DFW Hospital Council posts guest blogs by Associate Members. The following was provided by Hall Render.

On October 19, 2019, the Centers for Medicare & Medicaid Services (CMS) released an anticipated proposed rule (Proposed Rule) aimed at modernizing Federal Stark Regulations.

The Proposed Rule is one component of the Department of Health and Human Services (HHS) recently launched “Regulatory Sprint to Coordinated Care” and is intended to provide flexibility to providers as they face the transition from volume to value.

CMS previously published a Request for Information (RFI) that sought input on how to address regulatory barriers posed by the Stark Law. Many stakeholders inquired about the need for new Stark regulatory exceptions to protect value-based arrangements. Others sought clarifications to Stark Law compliance, notably the standards of fair market value, commercial reasonableness and the Stark Law’s prohibition on “taking into account” the volume/value of referrals.

New Value-Based Exceptions
CMS proposed three exceptions intended to encourage physicians and providers to enter into arrangements that facilitate a “value-based purpose” for delivery and payment. The Proposed Rule states that “value-based purpose” means:

• Coordinating and managing the care of a target patient population;

• Improving quality of care;

• Reducing costs to, or growth in expenditures of, payors without reducing quality;

• Transitioning from delivery and payment mechanisms based on volume to mechanisms based on quality and control of costs.

Proposed exceptions would protect arrangements that satisfy requirements based on characteristics and the level of financial risk undertaken, including:

• A value-based enterprise has assumed financial risk from a payor for patient care;

• A physician has meaningful financial risk.

“Value-based enterprise” is defined by two or more entities collaborating to achieve a value-based purpose with documentation prescribing the enterprise. “Target patient population” means an identified population selected by a value-based enterprise based on advance criteria.

The proposed value-based exceptions would not have a fair market value requirement or a prohibition on “taking into account” the volume/value of a physician’s referrals. According to CMS, value-based arrangements already have safeguards against harms such as overutilization. Instead of including traditional requirements, CMS is proposing a “carefully woven fabric of safeguards, including requirements incorporated through the value-based definitions.”

Other Proposals
The Proposed Rule included other additions:

• Exceptions for arrangements where an entity pays a physician less than $3,500 a year in exchange for services. This exception would not have a signature or set-in-advance requirement but would require compensation is consistent with fair market value with terms commercially reasonable. CMS said it developed this exception in response to numerous nonabusive self-disclosures involving nominal amounts of remuneration.

• CMS proposes to broaden the definition of “electronic health record” for current donation exception as well as add a new exception to protect arrangements with physicians for donations of cybersecurity technology.

• CMS proposes to expand the 90-day grace period for signatures on written arrangements to also include a 90-day grace period for the document. Parties would still be required to comply with all other elements.

New Guidance and Clarifications
The Proposed Rule provides guidance on three Stark Law requirements, fair market value, commercial reasonableness and the prohibition on “taking into account” the volume/value of a physician’s referrals:

Fair Market Value – CMS revisited the fair market value standard and confirmed it is separate from the volume/value. CMS proposed revising the definition to eliminate cross-references to the volume/value standard. CMS also proposed reorganizing the definition into three components (i.e., general application, equipment rentals) to achieve clarity.

Commercial Reasonableness – CMS addressed a misconception about its position on the nexus between commercial reasonableness and profitability. CMS proposed the following definition to clarify commercial reasonableness:
Commercially reasonable means that the arrangement furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements. An arrangement may be commercially reasonable even if it does not result in profit.

This proposed change corresponds to the view under Anti-Kickback analysis that the concept of commercially reasonable should be analogous to a purpose-driven arrangement serving a legitimate need.

The Volume or Value Standard – In the Proposed Rule, CMS proposes a standard regarding two circumstances where compensation is considered to “take into account” the volume/value of referrals. First, the standard is violated if the formula to calculate compensation includes physician referrals to an entity as a variable, resulting in an increase or decrease of compensation that positively correlates with the value of the physician’s referrals to the entity. Second, the standard would be violated if there is a predetermined, direct correlation between a physician’s referrals to an entity and the prospective rate of compensation to be paid over the duration of the arrangement for which compensation is determined.

Practical Takeaways
The Proposed Rule outlines CMS’s intention to modernize the Stark Law framework. Please note, the Proposed Rule is not final. Comments must be received by CMS by December 31, 2019. If you would like more information, please contact:

Gregg Wallander, 317-977-1431, gwally@hallrender.com;
Joseph Wolfe, 414-721-0482, jwolfe@hallrender.com;
Keith Dugger, 214-615-2051, kdugger@hallrender.com;
Alyssa James, 317-429-3640, ajames@hallrender.com;
• Your regular Hall Render attorney.