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News | Compliance

Hospitals Identify Needed Stark Reforms

News | Compliance

Hospitals Identify Needed Stark Reforms

Aug. 24—Hospitals and their advocates urged specific regulatory changes to the enforcement of federal anti-referral laws, even as some industry stakeholders raised concerns about potential changes.

Some critics pushed back on Stark Law changes—or at least the extent of such changes.


Aug. 24—Hospitals and their advocates urged specific regulatory changes to the enforcement of federal anti-referral laws, even as some industry stakeholders raised concerns about potential changes.

On Aug. 24, the Centers for Medicare & Medicaid Services (CMS) finished collecting public input on possible changes to Stark Law enforcement that may be needed to allow improved coordination of care under value-based payment (VBP) models. Generally, Stark prohibits any physician (or an immediate family member) who has a financial relationship with an entity from referring patients for “designated health services” that will be paid for by a federally funded healthcare program.

Changes to federal prohibitions on physician self-referral have been a longtime goal of many hospitals and health systems participating in VBP, and they recently outlined their specific priorities to CMS.

“We urge that compensation exceptions to the Stark Law be created or adapted to enable hospitals and physicians, working together, to coordinate care and improve patient outcomes,” Melinda Reid Hatton, general counsel for the American Hospital Association (AHA), wrote in comments submitted to CMS.

Changes urged by the AHA included:

  • Adding a new exception for VBP arrangements, and modifications to the personal-services and risk-sharing exceptions
  • Defining key elements of compensation exceptions and revising the advisory opinion process
  • Eliminating provisions that do not address overutilization yet add unnecessary complexity and ambiguity

Specific changes regarding overutilization should include adding an alternative method for demonstrating compliance with documentation requirements, modifying the payment-by-physician exception, and de-coupling compliance with Stark from compliance with the Anti-Kickback Statute, according to AHA.

Changes urged by executives at the Missouri Hospital Association (MHA) included adoption of an automatic compensation exception to Stark for providers that participate in any CMS innovation program even after the program has ended. CMS offers limited waivers for providers in Medicare accountable care organizations (ACOs), bundled payment models, and other programs.

“This would remove the administrative barriers that cause providers to opt out of such arrangements,” the MHA executives wrote. “Because innovation waivers only are available for the duration of the program, many providers decline to invest the financial and human resources necessary to adapt their operations for short-term gain.”

Similarly, MHA said exemptions are needed for physicians treating patients at the 393 hospitals that participate in CMS’s mandatory Comprehensive Care for Joint Replacement model.

“Such waivers should include the ability to share technological frameworks that support information sharing and data analytics without penalty,” the MHA leaders wrote. “Shared decision-making requires a shared information infrastructure, including electronic records systems, which is greatly impeded by the current regulatory scheme.”

Hospital Experiences

Allina Health, a not-for-profit Minnesota health system, operates a Next Generation ACO and previously operated a Pioneer ACO. Tracey Stanich Witherow, director of organizational integrity and regulatory affairs for AllinaHealth, wrote that the health system has found Stark to be one of the main impediments to rewarding physicians for delivering high-quality, cost-effective care with better outcomes in their VBP models.

Stanich Witherow urged CMS to clarify the law’s reference to “commercial reasonableness,” around which considerable confusion remains.

Spectrum Health in Michigan allocates at least 9 FTEs and over $800,000 annually—not including internal and outside legal fees—to Stark compliance.

That health system has found that many community physicians whom it works with in various payment models forgo various infrastructure improvements—quality-analytics support, process improvement activities, case management assistance, and IT services—due to cost. Spectrum argued the health system instead should be allowed to provide such items or services at a price equal to their cost to the hospital, which is frequently able to obtain them using volume discounts at much lower prices than in the retail market.

“Physician practices are not equipped or cannot afford to adopt and implement comprehensive quality improvement, care coordination, health information technology support, protocol development, and other such resources and often elect not to participate in these activities due to the associated costs.,” wrote David Leonard, chief legal officer for Spectrum.

Arlington, Texas-based Texas Health Resources spends a substantial amount of resources to make sure payments to physicians or physician entities are consistent with the requirement around “fair market value,” wrote Barclay Berdan, CEO of Texas Health Resources. Insufficient proof of such a determination is a common component of fraud lawsuits, and that difficulty leads many providers to settle, he said.

CMS, Berdan wrote, should clarify that fair-market value of payments to physicians in various models is sufficiently determined by providers who follow specific requirements.

Berdan noted that “when considering alternative payment models and payment models based on the value of care provided to patients, the historical fair market value survey data is not as valuable or useful in guiding health care entities to appropriately structure compensation.”

‘Financial Relationship’

The “financial relationship” in Stark’s underlying payment prohibition applies to indirect compensation arrangements, including the “volume or value” of referrals generated by the referring physician.

“The volume/value element of the Stark law has created immense confusion, thereby chilling the drive of hospitals and health systems to create innovative payment arrangements,” wrote Kathy Reep, vice president of financial services for the Florida Hospital Association.

She recommended that CMS clarify that the prohibition does not apply to fixed compensation determined by a methodology that neither considers referrals nor is subsequently adjusted during the term of the agreement based on referrals.

Some Pushback

CMS officials considering the changes sought by hospitals and their advocates also will weigh countervailing opinions.

For instance, the Coalition Against Insurance Fraud, which is composed of insurers and other entities, warned that self-referral violations adversely affect patients and drive up the cost of health insurance.

The group urged CMS “to strengthen and expand such prohibitions rather than loosening or modifying the law's current restrictions.”

The National Committee for Quality Assurance (NCQA) was more supportive of hospital efforts—within limits.

NCQA urged CMS to base expanded VBP model waivers on those that it already uses for ACOs that have two-sided risk. However, provider “gaming” concerns led NCQA to urge limiting waivers for bundled payment models to cases “that meet consensus and evidence-based appropriateness criteria.”

“Similarly, one-sided risk models may lack sufficient value-based incentives to counteract potential financial benefits of questionable self-referral and their waivers warrant close monitoring,” wrote Margaret O’Kane, president of NCQA.


Rich Daly is a senior writer/editor in HFMA’s Washington, D.C., office. Follow Rich on Twitter: @rdalyhealthcare

About the Authors

Rich Daly
HFMA senior writer/editor

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