Rules Revamp Key Health Laws

Andrew Eills | January 15, 2021

On Nov. 22, 2020, after over two years of evaluating stakeholder comments, the U.S. Centers for Medicare and Medicaid Services released final rules that amend regulations to the federal fraud and abuse laws that govern relationships among healthcare providers including hospitals and physicians.

These amendments are specifically designed to promote payment for “value” in healthcare services rather than payments for the volume of procedures and tests performed.

For many years, the federal government has viewed overuse of healthcare services as a principal driver of higher costs, unnecessary care, and increased Medicare and Medicaid spending. This overutilization has resulted in the enactment and enforcement of laws designed to prevent physicians from referring patients for procedures or services in which physicians hold a financial interest, and where physicians stand to profit from patients’ use of these services.

These “fraud and abuse” laws include the “physician self-referral” law, known as the “Stark law,” and the Anti-Kickback Statute, or AKS.

The Stark law prohibits a physician from making referrals for healthcare services to a hospital or any other such entity “with which he or she has a financial relationship.” It is of no surprise that, in the majority of cases in which referrals are made, “financial relationships” do exist. For this reason, the law contains numerous and complex exceptions.

The AKS is a criminal statute designed to prevent individuals from receiving payments in exchange for referrals of governmentfunded services. Enforced by the Office of Inspector General, the AKS contains socalled “safe harbors” allowing, under certain circumstances, payments between parties that otherwise would violate the law. The limitations contained in each of these laws are strict and their penalties severe.

The Stark and AKS regulations made sense in an environment in which each and every procedure and service was separately billed to Medicare or Medicaid. Because this system of reimbursement — known as “fee-for-service” or “volume-based reimbursement“ — effectively incentivized physicians and other healthcare providers to embrace high utilization and self-referral, the Stark law and AKS have served as logical and vital impediments to unlawful behavior.

Over time, however, both healthcare delivery and the manner in which it is paid for have evolved. While “fee-for-service” payment still exists, federal and private insurance programs increasingly have aligned payment for healthcare with demonstrated quality of care provided to patients. To achieve high quality results, many believe that healthcare should be coordinated across disciplines such as primary care, behavioral health and substance use treatment.

For these reasons, the explicit goal of CMS is to create a value-driven healthcare system that pays for outcomes rather than procedures, and rewards quality over quantity. To accomplish this goal, participation is needed in “integrated care delivery,” “alternative payment models” and other financial arrangements designed to offer incentives for successful outcomes and greater cost reductions.

Healthcare providers, nonetheless, face a conundrum: These new financial arrangements may offer incentives to promote and reward “value,” but without new regulatory direction they risk violating the Stark law and AKS.

The November release of new rules signals a new era. CMS’s issuance of the Stark “final rule” and the OIG’s issuance of amendments to the safe harbors under the AKS address this new direction.

For example, CMS has created new exceptions to allow value-based care arrangements in which physicians are permitted outcome-based payments depending upon the level of financial risk they assume (full, meaningful downside and no risk).

In addition, CMS has clarified and enlarged several key definitions concerning such crucial concepts as “commercial reasonableness,” “fair market value” and “payment set-in-advance.”

While complex, these definitional changes allow greater flexibility to providers in structuring alternative payment models and integrated care delivery. Among a plethora of other revisions, CMS also has issued a new exception allowing hospitals to provide independent practice groups with cybersecurity technology and related cybersecurity hardware and services.

In addition, the OIG’s AKS rule codifies three new safe harbors designed to protect healthcare entities involved in value-based arrangements from prosecution. Similar to CMS’s new Stark rule, these safe harbors permit arrangements which pose financial risk and offer upside reward. This concept has largely been absent from the regulatory regime under which healthcare providers have functioned.

Implementation of compliant value-based arrangements will take time, but most stakeholders welcome these new rules as a positive step in the evolution of healthcare delivery.

This article was originally published in the New Hampshire Business Review and can be found here.