The “Regulatory Sprint To Coordinated Care”: It’s Big And It’s Fast, And It May Literally Redefine What Is Fair Market Value And Commercially Reasonable For Stark Law Purposes

On June 20, 2018, Department of Health and Human Services (HHS) Deputy Secretary Eric Hargan and his colleague, Kelly Cleary, from the HHS Office of General Counsel conducted a webinar for members of the American Health Lawyers Association. In that webinar, they announced details of HHS’s “Regulatory Sprint to Coordinated Care,” a new HHS initiative to remove Federal regulatory barriers that impede the transition to coordinated, value-based health care delivery. Among the four regulatory focus areas of the initiative is identifying and reforming cumbersome aspects of the Federal physician self-referral law, commonly known as the “Stark Law.” [i]

The Stark Law is a strict liability statute that was enacted in 1989 to combat fraud and abuse of Federal healthcare payment programs. It prohibits submitting payment claims to Federal healthcare programs for any of a list of “designated health services” (including inpatient and outpatient hospital services) if the services are the result of a referral from a physician with which the entity has a “financial relationship,” unless the relationship meets the requirements for one of a finite list of specified exceptions. The exceptions have very particular requirements, and for many exceptions those requirements include that the compensation in the arrangement is consistent with fair market value, that the arrangement is commercially reasonable, and that the compensation is not determined in a manner that takes into account the volume or value of referrals or other business generated by the physician.

Most legislative and rulemaking activity around the Stark Law has been based on study and identification of concerns related to fee-for-service payments[ii].  The financial consequences for violations of the Stark Law may be severe, and have reached hundreds of millions of dollars when violations have been adjudicated through proceedings under the Federal False Claims Act. [iii]  In the context of the current transition away from pure fee-for-service payment structures, many in the health care industry perceive a troublesome incongruity among the Stark Law’s strict requirements, the severe consequences for failing to adhere to them, and the new objectives and realities of value-based care, which often hinge on financial alignment among providers in ways that seem incompatible with certain Stark Law restrictions.

To underscore its recognition of the potential impediments posed by the Stark Law, and as a facilitating step to remedying these impediments, HHS released a Request for Information (RFI) to the healthcare community following the webinar. The Introduction to the RFI stated as follows:

The Department of Health and Human Services (HHS) is working to transform the healthcare system into one that pays for value. Care coordination is a key aspect of systems that deliver value. Removing unnecessary government obstacles to care coordination is a key priority for HHS. To help accelerate the transformation to a value-based system that includes care coordination, HHS has launched a Regulatory Sprint to Coordinated Care, led by the Deputy Secretary. This Regulatory Sprint is focused on identifying regulatory requirements or prohibitions that may act as barriers to coordinated care, assessing whether those regulatory provisions are unnecessary obstacles to coordinated care, and issuing guidance or revising regulations to address such obstacles and, as appropriate, encouraging and incentivizing coordinated care.

The Centers for Medicare & Medicaid Services (CMS) has made facilitating coordinated care a top priority and seeks to identify ways in which its regulations may impose undue burdens on the healthcare industry and serve as obstacles to coordinated care and its efforts to deliver better value and care for patients. Through internal discussion and input from external stakeholders, CMS has identified some aspects of the physician self-referral law as a potential barrier to coordinated care. Addressing unnecessary obstacles to coordinated care, real or perceived, caused by the physician self-referral law is one of CMS’s goals in this Regulatory Sprint. To inform our efforts to assess and address the impact and burden of the physician self-referral law, including whether and, if so, how it may prevent or inhibit care coordination, we welcome public comment on the physician self-referral law and, in particular, comment on the questions presented in this Request for Information (RFI).[iv]

The RFI sets forth 20 questions to elicit input from stakeholders regarding the ways in which the Stark Law creates stumbling blocks to coordinated care, and the ways that CMS may remove those stumbling blocks. Notable among the questions are requests for input regarding:

• Possible approaches to modifying the definition of ‘‘fair market value’’ consistent with the statute and in the context of the exceptions to the Stark Law;

• Possible approaches to defining ‘‘commercial reasonableness’’ in the context of the exceptions to the Stark Law;

• Thoughts on when compensation should be considered to ‘‘take into account the volume or value of referrals’’ by a physician or ‘‘take into account other business generated’’ between parties to an arrangement; and

• Thoughts on how the Stark Law should define and address concepts in coordinated care, such as “clinical integration,” “gainsharing” and “physician incentive program” (among others).

The RFI was formally published in the Federal Register on June 25, 2018 and is available to view here: https://www.gpo.gov/fdsys/pkg/FR-2018-06-25/pdf/2018-13529.pdf

Responses are due by 5:00pm ET on August 24, 2018.

FMV Pitfall: The RFI and the resulting actions by CMS could literally redefine the standards by which the health care industry evaluates fair market value, commercial reasonableness and/or whether a particular compensation arrangement or approach to valuing such compensation arrangement “takes into account the volume or value of referrals” for Stark Law purposes.  It may also redefine and significantly alter how we think about increasingly-popular care coordination and population health management strategies such as clinical integration and gainsharing.  Given that the changes may be big and fast, we must be vigilant contributors and observers. Please stay tuned for future FMVantage Points on these topics.