Possible Stark Law Reform Could Enable Greater Flexibility for Coordinated Care Models

The Centers for Medicare and Medicaid Services (CMS) is once again requesting feedback from health care industry stakeholders in connection with possible future revisions to the federal physician self-referral law (Stark Law). As shown by its recent request for information (RFI), CMS continues to recognize the need for greater flexibility for coordinated care arrangements (such as accountable care organizations, clinically integrated networks, bundled payment arrangements and two-sided risk models).

Industry stakeholders certainly welcome this CMS initiative. As health care providers seek to continue to provide increased quality of care in an environment where fee-for-service rates are often reduced, alternative payment models that emphasize care coordination and payment for quality are increasingly attractive options for providers. However, in its current form, the Stark Law (and other federal and state fraud and abuse laws) frequently prevents providers from pursuing or fully embracing alternative payment models.

The Stark Law was enacted over two decades ago when a primarily fee-for-service landscape reimbursed providers for the volume of services performed. It 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, there should be less risk of overutilization and unnecessary costs.

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 Stark Law exception, a provider is prohibited from making referrals to an entity in which he or she has 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 the Stark Law does contain a risk-sharing exception, the exception is not broad enough to cover all care coordination and alternative payment methodologies that providers want to pursue.  In addition, since any arrangement must fit specifically within this 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 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.

CMS’s RFI seeks specific information from industry stakeholders regarding the structure of relationships between parties that participate in alternative payment arrangements and the need for additional exceptions to the Stark Law to protect accountable care organizations, bundled payment models and other financial arrangements that involve the integration and coordination of care. Public comments are due by Aug. 24, 2018 and can be submitted electronically to http://www.regulations.gov or by regular or express mail. CMS then has the discretion to determine how and when the Stark Law may be revisited for possible reform.