Despite the drastic changes to the healthcare system, particularly the move from volume- to value-based reimbursement, certain laws and regulations governing physician referrals remain the same. Some of the laws create barriers to the coordination of care needed to lower costs and improve quality. One prominent example is the federal Stark Law, enacted in 1989 and expanded in 1992. The goal of the Stark Law was to limit the influence of financial relationships on physician self-referrals involving Medicare and Medicaid patients. In an increasingly value-based system, the legislation becomes less relevant and more problematic.

Today, several other care delivery models can improve care by leveraging behavioral economics (economic analysis that applies psychological insights into human behavior to explain economic decision-making). Risk-sharing models, by definition, establish a certain level of financial gain or loss to incentivize participants to pursue a set of predetermined performance metrics. Although the Stark Law provided several safe harbors (or exemptions to the law), most notably In-office Ancillary Services, those provisions lack the flexibility and clarity needed for physicians to fully participate in the various models that are being promoted as replacements to fee-for-service reimbursements. For example, skilled nursing facilities and home health agencies are required to have waivers when coordinating with physicians on postoperative care if there is a financial relationship.

Such arrangements were likely not anticipated when Congress passed the legislation, and even former Representative Pete Stark (D-Calif.)—who authored the law—has admitted it needs reform. AAOS is encouraged by the renewed push for reform, which will lower healthcare costs by increasing coordinated care and efficiencies and will allow for better patient care through physician oversight.

AAOS has actively advocated for the modernization of this obsolete law for years. In a statement prepared for a 2018 congressional hearing, former AAOS President David A. Halsey, MD, explained that a key problem is that the Stark Law “is a strict liability statute that leads to heavy penalties for unintentional and technical errors by physicians and their staff.” AAOS has previously asked the Trump Administration to relax the strict liability standard, especially for technical, inadvertent violations. The president’s Fiscal Year (FY) 2020 budget recommends a similar change by allowing providers to self-report “inadvertent, technical noncompliance violations of the law.”

Executive and regulatory initiatives

The president’s FY 2020 budget also includes a number of other Stark reform recommendations that AAOS has requested in the past. Among the recommendations is an exception to the Stark Law for those in advanced alternative payment models (APMs).

As the Medicare Access and CHIP Reauthorization Act is implemented, AAOS has repeatedly urged the Department of Health and Human Services (HHS) and Congress to ensure that the self-referral and anti-kickback laws are updated to accommodate the new payment infrastructure. In fact, in recent remarks, HHS Secretary Alex Azar shared this same view: “Today, the rules we need to have governing our payments should look different because our payments look different—and we want them to look more different still.” The president’s FY 2020 budget was released amid an overarching HHS initiative called the Regulatory Sprint to Coordinated Care. As part of that initiative, last fall, the Secretary’s Office published two Requests for Information (RFIs) to reform both the Stark Law and the Anti-kickback Statute (AKS).

In response to the RFIs, AAOS stressed that consolidation in the provider community, in many cases, is being driven by the restrictions of the fraud and abuse laws, as both HHS Secretary Azar and Deputy Secretary Eric D. Hargan have acknowledged. In discussing the Regulatory Sprint recently, Secretary Azar reiterated that “consolidation should happen because of economic and market forces, not regulatory demands.” A full proposed rule on Stark reform is expected later this year. AAOS anticipates that the rule will involve substantial reform of the existing law and its implementation, and AAOS plans to comment when the rule is published.

Legislative proposals

In Congress, there is bipartisan support for statutory reform among the committees of jurisdiction and a strong likelihood of legislative action in the 116th Congress. Two proposals are already getting a lot of attention: the Patient Affordability, Value, and Efficiency Act (PAVE Act) and a new Medicare Care Coordination Improvement Act.

PAVE Act
AAOS has been working with Senators Bill Cassidy (R-La.) and Mark Warner (D-Va.) on the PAVE Act, which would provide safe harbors from self-referral laws and help facilitate new and innovative payment models for medical services and pharmaceuticals. By providing narrow exceptions to the AKS and Stark Law, the legislation seeks to define and then increase the use of value-based arrangements (VBAs). A VBA is currently defined as “an arrangement in which each participant assumes a level of financial risk relative to the achievement of targeted outcomes that improve patient care or reduce cost, increase efficiency, or foster another evidence-based outcome. This may include mechanisms such as rebates, discounts, price reductions, contributions, reimbursements, guarantees, patient care, shared savings payments, withholds, bonuses, or anything of value.”

Any VBA would be exempt from the Stark Law and AKS, so receiving or providing remuneration would not be a crime. Additionally, a VBA would not be considered a “compensation arrangement,” so there would be no Medicare sanctions when physicians make referrals or entities receive referrals from physicians even though such arrangements involve remuneration.

Medicare Care Coordination Improvement Act

The Medicare Care Coordination Coalition is developing a proposal similar to last Congress’ bipartisan Medicare Care Coordination Improvement Act but is broadening it and increasing flexibility. Senators Rob Portman (R-Ohio) and Michael Bennett (D-Colo.) are spearheading the effort in the Senate. The proposal establishes the same waiver authority from Stark Law and AKS for APMs as is provided to accountable care organizations without violating the Civil Monetary Penalties law.

The legislation exempts submitted and approved APMs from the Stark “value and volume” requirements, which impede lowering cost or volume, and expands the Centers for Medicare & Medicaid Services’ authority to make additional exceptions. It also removes the fair market value requirement for physicians developing or engaged in APMs. The costs to physicians of the tools they utilize to analyze APMs are often below market value. Most importantly, the Medicare Care Coordination Improvement Act ensures that “all financial relationships” are protected from Stark Law, not just furnishing services, and removes all changes to the Stark Law that impact physicians participating in the Merit-based Incentive Payment System.

Forecast for change

Both legislative proposals would make significant strides in promoting improved care coordination. The added support for reform from federal agencies and the president makes the modernization of these laws more possible now than ever.

It is becoming increasingly clear that the concerns of the 1980s are being reconsidered. Laws to inhibit financial gains from physician self-referrals, the associated risk of increased utilization, higher costs, and compromised quality of care are being replaced with the realization that economic incentives to patients and providers may be required to promote the current risk-based models being heralded as our future.

Rory Wright, MD, is a member of the AAOS Board of Councilors.