Discover how six important additions and amendments to the physician self-referral law ("Stark") could create opportunities to grow your healthcare business in 2021
Physicians can now more closely coordinate with other providers, which is likely to drive digital health adoption as part of the shift to value-based care
A Final Rule published by CMS on Friday, November 20, 2020, which makes several important changes to the Stark Law, will be a boon for physicians eager to more closely coordinate with other providers to (1) better manage patient care and (2) to participate in the shift to value-based reimbursement.
It is also likely to spur growth in the digital health industry, as more providers are likely to adopt these technologies and related services to enable enhanced care coordination. As lawyers who think like the innovators we serve, we're excited to share the opportunities for both providers and digital health and remote patient monitoring (RPM) companies to innovate around care coordination by utilizing these new changes.
In this post, you'll get a high-level overview of the first three exceptions and some currently prohibited arrangements that might be possible once these exceptions go live. In the next post, I'll cover the remaining three exceptions.
Throughout, you'll get the business growth and innovation insights you've come to expect from our Firm.
Should you wish to talk to us about how to seize new opportunities for your business in 2021, we invite you to get started here.
Now, let's start by discussing why CMS made these changes.
Removing Barriers to Care Coordination
The self-referral law (“Stark’) prohibits a physician from making referrals for certain “designated health services (DHS)” defined in the regulation (e.g., laboratory services, PT/OT/ST, DMEPOS, prescription drugs, hospital services, radiology/imaging) to an entity with which that physician (or her family member) has a financial relationship (unless an exception applies).
Stark Law was created based on a fee-for-service system in which maximizing revenue could be accomplished by maximizing the number of services performed or supplies provided. So, the law endeavored to prohibit arrangements that might incentivize a physician to “self-refer” patients for expensive and medically unnecessary services in order to enrich himself.
A slew of value-based reimbursement models emerged and took hold in the last 10 years, in part because of the misaligned incentives of the FFS system and the need to curb healthcare costs in the US. These models are purposefully designed to minimize expensive and medically unnecessary services. They award providers for safely reducing costs. Examples include bundled payment models, global payments and capitation, and shared savings arrangements. These models eliminate many of the incentives the Stark Law was meant to counter, which is what CMS acknowledges in the preamble to these new exceptions.
For 10 years, CMS has endeavored to entice providers to enter into its own innovative payment and care delivery models (e.g., MSSP, BPCI) through a system of carrots and sticks. They dangle shared savings and increased reimbursement, and incrementally impose penalties for failure to meet cost and quality benchmarks. In addition, they created waivers of fraud and abuse laws available only for participants in CMS models. This Final Rule extends access to similar flexibilities to the rest of the industry.
This is about Physicians, right? Where does digital health fit in?
Achieving success in a value-based environment requires close coordination among providers across the continuum of care--something today’s fraud and abuse laws aim to prevent. The new and amended exceptions reduce barriers to coordination among providers to hasten the transition to value-based care.
We predict that care coordination innovations will proliferate, and this will lead to a significant increase in the use of digital health, telemedicine, and remote patient monitoring technologies and services, which technologies are key to enabling seamless communication between providers and patients.
HHS Defines a New Model: Value-Based Enterprises
The new Stark exceptions are accessible:
to VBE Participants
in the same Value-based Enterprise (VBE)
who participate in Value-Based Activities
conducted under a Value-Based Arrangement
for a Value-Based Purpose.
There are few limits to who can be a VBE Participant, what a valid Value-Based Purpose can be, what constitutes a Value-Based Activity, or what a Value-Based Enterprise looks like. A VBE could consist of an entire health system, or it could be two individual physicians armed with a great idea and some grit. There is tremendous room for innovation.
These new terms are key to understanding and applying the new exceptions and are described in detail in the Final Rule. We will explore these concepts in detail in an upcoming blog post in this series. For now, you can find them HERE.
Value-based Compensation Arrangement Exceptions
The three new exceptions for value-based compensation specifically enable a physician participating in a value-based enterprise to enter into compensation arrangements that involve the referral of DHS, without violating the Stark Law. Which of these exceptions applies depends on whether the arrangement involves full financial risk, meaningful downside risk, or no risk.
Full Financial Risk Exception (42 CFR §411.357(aa)(1))
This exception is applicable to a value-based enterprise that assumes “full financial risk” for the cost of total patient care.
Examples of full financial risk arrangements include capitation or global budget models between payors and providers.
This exception is available for the 12 months prior to assumption of full financial risk. This practical consideration offered by CMS is meant to give the parties to the arrangement the time to put in place processes and infrastructure that would enable them to coordinate care and establish capabilities to handle full financial risk (e.g., EHR and other digital health technologies, staffing and care protocols, communications planning).
This exception is available to value-based enterprises that are single corporate entities, and is also available to VBEs like IPAs and other less formalized physician networks that share the financial risk jointly.
These value-based arrangements can involve the payment of shared savings and other incentive payments, as is common in commercial ACO arrangements.
Under the Full Financial Risk exception, remuneration paid under a value-based arrangement does not constitute a “financial relationship” for the purpose of Stark if the following conditions are met:
(i) The value-based enterprise is at full financial risk (or is contractually obligated to be at full financial risk within the 12 months following the commencement of the value-based arrangement) during the entire duration of the value-based arrangement.
(ii) The remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
(iii) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient.
(iv) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement.
(v) If remuneration paid to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the value-based arrangement complies with both of the following conditions:
(A) The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.
(B) The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient's insurer determines the provider, practitioner, or supplier; or the referral is not in the patient's best medical interests in the physician's judgment.
(vi) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary upon request.
What Kind of Arrangement Might be Permissible Under the Full Financial Risk Exception?
Wellville Health system consists of a variety of healthcare providers—a hospital, a skilled nursing facility, a home health agency, and several primary care and specialist practices.
Wellville Health System contracts with an HMO to receive a fixed fee per patient for care delivered to the HMO’s members. Wellville Health System wants to institute a program that coordinates care within the system for chronically ill patients.
The health system itself is a value-based enterprise (“VBE”).
Two of the VBE participants—Wellville Hospital and Wellville Home Health—decide to engage in a value-based arrangement for the purpose of reducing readmissions to Wellville Hospital. One of the value-based activities in this VBE is a “discharge coordination initiative.” The parties believe that better coordination between the Hospital and the Wellville Home Health upon discharge (e.g., ensuring the home health agency (“HHA”) has the right information about medications, comorbidities, hospital physician instructions, etc.) would result in better patient outcomes and reduced hospitalization costs.
To address the lack of coordination around discharge, Wellville Hospital will pay for the HHA to hire care coordinators to work with the hospital on discharge coordination. The Hospital will also provide care coordination technology and services to the HHA to enable Hospital staff and HHA staff to communicate with each other. The technology also allows the discharging hospitalist to provide ongoing support to the HHA staff.
Meaningful Downside Risk Exception (42 CFR §411.357(aa)(2)
If a physician is not quite ready to take on full financial risk, she can still avail herself of flexibilities under this Final Rule if, as part of a value-based arrangement, she takes on “meaningful downside risk”.
For the purposes of this exception, “meaningful downside financial risk” means that the physician is responsible to repay (or forgo) at least 10 percent of the total value of the remuneration she receives under the value-based arrangement.
The value could be cash compensation or in-kind value, such as no-cost care coordination services or technical infrastructure tools or services.
Key to the applicability of this exception is that the methodology used to determine the amount of compensation (or other value received by the physician) must be set in advance.
Under the Meaningful Downside Risk exception, remuneration paid under a value-based arrangement does not constitute a “financial relationship” for the purpose of Stark if the following conditions are met:
(i) The physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the value-based enterprise during the entire duration of the value-based arrangement.
(ii) A description of the nature and extent of the physician’s downside financial risk is set forth in writing.
(iii) The methodology used to determine the amount of the remuneration is set in advance of the undertaking of value-based activities for which the remuneration is paid.
(iv) The remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
(v) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient.
(vi) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement.
(vii) If remuneration paid to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the value-based arrangement complies with both of the following conditions:
(A) The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.
(B) The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient's insurer determines the provider, practitioner, or supplier; or the referral is not in the patient's best medical interests in the physician's judgment.
(viii) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary upon request.
What Kind of Arrangement Might be Permissible Under the Downside Risk Exception?
Wellville Associates, P.C. is a private cardiology practice in Wellville. Its physicians have privileges at Wellville Hospital, and perform a significant amount of cardiac procedures there, which drives significant revenue for the Hospital.
Wellville Hospital wants to reduce adverse outcomes and unnecessary readmissions for its cardiology patients, and plans to do so through instituting a new evidence-based workflow process and requiring its medical staff adhere to new “best practices” for (i) pre-surgical advisory, (ii) the transition from inpatient to outpatient and (iii) post-discharge care coordination (the “Cardiac Outcomes Initiative”).
Wellville Hospital enters into a compensation arrangement with Wellville Associates, P.C. that entitles Dr. Brown and her colleagues to incentive payments for participation in the Cardiac Outcomes Initiative. The Hospital also fronts the cost of a SaaS-based remote patient monitoring technology solution (and related hardware) that Hospital would like for Wellville Associates P.C. to use to support the care coordination aspect of the Outcomes Initiative.
At the close of each 12-month period, if Wellville Associates is unable to reduce adverse outcomes and readmission rates for its patients (according to a pre-set benchmark set by the Hospital), they must repay at least 10% of the cash incentives and 10% of the value of the RPM technology.
No Risk Exception (42 CFR §411.357(aa)(3))
For those physicians that seek to enter into value-based arrangements that do not have a risk component, the “No Risk” exception is available. However, because of the absence of risk, this exception is harder to qualify for because it requires additional safeguards.
These parties must perform value-based activities as part of a value-based arrangement, which arrangement must be set forth in writing and signed by the parties.
The value-based purpose of the arrangement must relate to the value-based enterprise as a whole. The remuneration must be for or result from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population. The recipient of the remuneration must meet objective and measurable outcome measures to qualify for such remuneration. And, the methodology used to determine the amount of remuneration must be set in advance.
Notably, the exception requires ongoing monitoring of the value-based arrangement to determine whether the value-based activities are moving the needle on outcomes. If outcomes do not improve, the parties must terminate the value-based activity.
The No Risk exception is available to value-based enterprises consisting of as few as two individual participants. For this reason, the exception represents a tremendous opportunity for smaller providers to innovate around care coordination to produce improved outcomes for patients.
Under the No Risk exception, remuneration paid under a value-based arrangement does not constitute a “financial relationship” for the purpose of Stark if the following conditions are met:
(i) The arrangement is set forth in writing and signed by the parties. The writing includes a description of—
(A) The value-based activities to be undertaken under the arrangement;
(B) How the value-based activities are expected to further the value-based purpose(s) of the value-based enterprise;
(C) The target patient population for the arrangement;
(D) The type or nature of the remuneration;
(E) The methodology used to determine the remuneration; and
(F) The outcome measures against which the recipient of the remuneration is assessed, if any.
(ii) The outcome measures against which the recipient of the remuneration is assessed, if any, are objective, measurable, and selected based on clinical evidence or credible medical support.
(iii) Any changes to the outcome measures against which the recipient of the remuneration will be assessed are made prospectively and set forth in writing.
(iv) The methodology used to determine the amount of the remuneration is set in advance of the undertaking of value-based activities for which the remuneration is paid.
(v) The remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
(vi) The arrangement is commercially reasonable.
(vii) (A) No less frequently than annually, or at least once during the term of the arrangement if the arrangement has a duration of less than 1 year, the value-based enterprise or one or more of the parties monitor:
(1) Whether the parties have furnished the value-based activities required under the arrangement;
(2) Whether and how continuation of the value-based activities is expected to further the value-based purpose(s) of the value-based enterprise; and
(3) Progress toward attainment of the outcome measure(s), if any, against which the recipient of the remuneration is assessed.
(B) If the monitoring indicates that a value-based activity is not expected to further the value-based purpose(s) of the value-based enterprise, the parties must terminate the ineffective value-based activity. Following completion of monitoring that identifies an ineffective value-based activity, the value-based activity is deemed to be reasonably designed to achieve at least one value-based purpose of the value-based enterprise—
(1) For 30 consecutive calendar days after completion of the monitoring, if the parties terminate the arrangement; or
(2) For 90 consecutive calendar days after completion of the monitoring, if the parties modify the arrangement to terminate the ineffective value-based activity.
(C) If the monitoring indicates that an outcome measure is unattainable during the remaining term of the arrangement, the parties must terminate or replace the unattainable outcome measure within 90 consecutive calendar days after completion of the monitoring.
(viii) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient.
(ix) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement.
(x) If the remuneration paid to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the value-based arrangement complies with both of the following conditions:
(A) The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.
(B) The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient's insurer determines the provider, practitioner, or supplier; or the referral is not in the patient's best medical interests in the physician's judgment.
(xi) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary upon request.
(xii) For purposes of this paragraph (aa)(3), “outcome measure” means a benchmark that quantifies:
(A) Improvements in or maintenance of the quality of patient care; or
(B) Reductions in the costs to or reductions in growth in expenditures of payors while maintaining or improving the quality of patient care.
What Kind of Arrangement Might be Permissible Under the No Risk Exception?
Wellville Orthopedics is a specialty medical practice that provides orthopedic surgical and non-surgical physician services. Wellville Ortho refers many of its patients to Wellville Rehabilitation for pre- and post-surgical physical therapy and rehabilitation services.
Wellville Rehab has learned from its payors that its post-surgical patient costs are higher, and its quality outcomes are lower, when compared to other rehab facilities in Wellville County, which is beginning to impact its Medicare reimbursement. Wellville Rehab believes that better coordination with its patients’ surgeons and primary care physicians would improve patient outcomes.
Wellville Ortho is a significant referral source for Wellville Rehab, so Wellville Rehab proposes the following value-based arrangement: Wellville Rehab will pay Wellville Ortho to provide care coordination and physician consultation services, including jointly developing a care journey protocol and care coordination plan for its patients. Wellville Rehab will also provide to Wellville Ortho a digital health tool that provides a platform to track post-surgical outcomes throughout the patient journey, a tool which Wellville Ortho can use for all of its patients—not just those referred to Wellville Rehab.
The parties agree upon specific outcome measures they will revisit at the end of the first year of the arrangement, and they lay out the arrangement in a contract they both sign before any money or tech changes hands.
Evaluating these changes for your organization
This Final Rule gives healthcare providers and digital health companies more flexibility to enter into new business arrangements that incentivize care coordination and patient engagement as a means of improving outcomes and reducing the overall cost of care.
In my next article, I’ll cover the new exceptions for cybersecurity technology and related services and limited remuneration to physicians, and an important amendment to the electronic health records exception.
As my partner, Carrie Nixon, wrote in last week’s post about changes to anti-kickback regulations and the shift to value-based care, CMS also published a rule creating new safe harbors for similar arrangements under the Anti-Kickback Statute. Look for future posts on those safe harbors as well.
If you want to have a more specific discussion about how these changes to Stark Law regulations could spur growth and innovation for your business, I invite you to visit our Get Started page to begin the conversation.
