Providers hope for Stark overhaul to boost value-based payment

The 1989 Stark Law penalizing physicians and hospitals for making medical decisions for patients based on their financial self-interest has few remaining fans. Even its author, former California Democratic Rep. Pete Stark, has called for repealing the law, which has metastasized in complexity over 30 years.

Now the Trump administration, backed by provider groups, is poised to make what CMS Administrator Seema Verma called “the most significant changes to the Stark law since its inception.”

Administration officials argue that the law, written at a time when fee-for-service payment was dominant, hampers alternative payment models that encourage providers to deliver better-quality, lower-cost care. “In a system where we’re paying for value, where the provider is ideally taking on some risk for outcomes and cost overruns, we don’t have nearly as much need to interfere with who’s getting paid for each service,” Deputy HHS Secretary Eric Hargan said in January.

Providers say fear of being hit with penalties and even criminal actions has led them to go slow on value-based care models, which typically involve incentive payments for meeting cost and quality targets that could violate the rules. That’s despite no one being able to cite any enforcement actions against providers involved in such programs.

The Stark law is particularly dreaded because the federal government can go after providers for unintentional violations, including documentation errors, in their financial relationships with physicians who make referrals for designated health services. In addition, whistleblowers can sue providers for alleged Stark violations under the False Claims Act, which carries potential treble damages and other penalties.

The CMS is working on an update, to be issued later this year, that would, among other things, clarify the regulatory definition of the Stark law’s ban on paying physicians for the volume or value of referrals, Verma said last week during a speech to the Federation of American Hospitals. The agency also will address the murky definition of payments that are commercially reasonable and represent fair-market value. It received nearly 400 public comments on a request for information issued last year seeking input on how to retool the law.

HHS’ Office of Inspector General is working on a separate but related safe harbor rule for the anti-kickback statute.

But provider groups want the administration to go bigger. The American Hospital Association and others are seeking an exception for innovative payment models. The AHA also seeks safe harbors from the anti-kickback statute for shared-savings programs and for financial support to patients for services such as transportation, nutrition and housing. Providers would like to see Congress establish these safe harbors and clearer definitions in statutory law.

“Providers would really like to see a new exception for value-based arrangements,” said Kim Roeder, a healthcare compliance attorney at King & Spalding in Atlanta. “Or, if we can’t agree on that, at least give relief by clarifying terms like the volume or value of referrals, to accommodate value-based payments.”

Some healthcare executives would settle for greater clarity in the rules governing financial relationships. That would free them to move forward with innovative care-coordination, shared-savings and other financial incentive arrangements, without fear of large financial penalties or criminal prosecution. They’d also like to be able to help their physician partners with needed technology investments to enhance care coordination.

“We can’t do almost anything to incentivize changes in the behavior of our independent physicians that goes beyond the legal limit of $394 a year,” said Chris Van Gorder, CEO of Scripps Health in San Diego. “That’s the reason the law has to change.”

But some observers are skeptical that changing the Stark rule by itself will speed the sluggish growth of value-based payment. They argue that other factors such as providers’ failure to streamline clinical processes and unrealistic savings targets are at least as important in slowing progress. “Redefining payment-for-referral policies would be a big step to spur innovation,” said Dennis Butts, managing director at Navigant, who works with providers on clinical integration. “But it’s not a silver bullet. If more-efficient care models aren’t developed by providers, changes in Stark alone won’t achieve better outcomes.”

Others worry that new safe harbors and other relief from Stark and anti-kickback rules could open the door to fraud and patient harm, as well as giving hospitals camouflage to engage in anti-competitive conduct that boosts prices. 

“Fraud prevention is always trying to catch up to the innovations of entrepreneurial rip-off artists coming up with new ways of cheating the system,” said Peter Chatfield, an attorney with Phillips & Cohen in Washington who represents healthcare whistleblowers. 

Indeed, America’s Health Insurance Plans, which supports Stark law revisions to encourage greater participation in value-based care, urged the CMS to closely study whether value-based arrangements achieve their cost and quality goals while minimizing potential unintended consequences on patients. 

The AHA also recognizes the need for continued vigilance. It favors preserving the Stark law’s core purpose of barring physician ownership of businesses that benefit from their own referrals, which it says is working as Congress intended.

The CMS already offers some protection from Stark and anti-kickback provisions for providers participating in Medicare value-based programs such as the Medicare Shared Savings Program. Those waivers, for instance, allow Medicare accountable care organizations to distribute shared-savings bonuses to physicians for meeting cost and quality targets. But the AHA, AHIP and others want the CMS to standardize those waivers and extend them to value-based arrangements outside Medicare.

The CMS and HHS’ Office of Inspector General also carved out an exemption from violations during the buildup of the meaningful use program allowing hospitals to donate electronic health record products and services to physicians and still receive patient referrals. That protection sunsets in 2021.

Legal experts say with the current patchwork of waivers, providers can never be sure that shared-savings or quality-based payments across multiple payers and programs fall within those exemptions. Plus, the waivers do not apply to commercial insurance programs.

“We need an innovative payment exemption protecting value-based incentive programs outside of the existing Medicare programs,” said Craig Becker, CEO of the Tennessee Hospital Association, whose members have been slow in developing ACOs at least partly due to legal fears. 

Providers also want the Trump administration to decouple the Stark law from the anti-kickback statute by eliminating regulatory exceptions to Stark that say financial arrangements must not violate the anti-kickback law. Roeder said the two laws are so different, with different safe harbors, intent standards, and enforcement mechanisms, that they shouldn’t be tied together.  

Scripps’ Van Gorder says the healthcare world has changed dramatically from when Pete Stark pushed through his namesake law, and the rules need to evolve to accommodate the emerging payment models. “We’re now concerned about every dollar spent and getting the patient treated in the most efficient way,” he said. “If we can’t have a financial alignment with doctors, we can’t be effective in the value-based environment.”