AMERICAN BAR ASSOCIATION HEALTH LAW SECTION 18 TH ANNUAL EMERGING ISSUES IN HEALTHCARE LAW Laissez les Bons Temps Rouler: Hope for Potential Stark Law Changes New Orleans, Louisiana Friday, March 10, 2017 Violet M. Anderson, Regional General Counsel, CHRISTUS Health, Irving, TX Clay J. Countryman, Breazeale, Sachse & Wilson, LLP Baton Rouge, LA Chip Hutzler, Healthcare Appraisers Delray Beach, FL
I. The Stark Law Commonly known as the Stark law, The Ethics in Patient Referrals Act, Section 1877 of the Social Security Act (42 U.S.C. 1395nn), prohibits physicians from making referrals for certain designated health services (DHS) payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. The Stark law also prohibits the entity from filing claims with Medicare (or billing another individual, entity, or third party payer) for the referred services. The Stark law was enacted to limit the influence of financial relationships between DHS entities and physicians and to provide a bright line test to curb physician self-referral. However, the Stark Law has become extremely complex and has created a compliance and liability minefield for the healthcare industry. 1 This paper provides some of the highlights of the December 10, 2015 roundtable discussion on the Stark law convened by the Senate Committee on Finance and the House Committee on Ways and Means. The roundtable discussion focused primarily on whether changes to the Stark law are necessary to implement the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Pub. L. No. 114-10 (2015) and other health care alternative payment reform initiatives. 2 The roundtable s discussion is summarized in the Finance Committee Majority Staff Report, Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models (the Report ). A summary of existing Stark requirements and possible penalties for violating Stark follows the examination of the roundtable s discussion. Recognizing the reluctance of many providers to move toward value-based payment of MACRA and other health care reform because of the tension between the Stark law and alternative payment models and the possibility of devastating penalties if they guess wrong. The Report included the following quote by Judge James A. Wynn of the United States Court of Appeals for the Fourth Circuit to illustrate the significant challenges in complying the Stark law: even for well-intentioned health care providers, the Stark law has become a booby trap rigged with strict liability and potentially ruinous exposure especially when coupled with the False Claims Act. 3 With respect to implementing value-based payment models that Congress, the Centers for Medicare and Medicaid Services (CMS), and commercial health insurers have promoted, the Stark law has been a significant impediment: Before Congress passed health care reform, the health care industry recognized that the Stark law would be an obstacle to 1 Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models, Senate Committee on Finance, A Senate Finance Committee Majority Staff Report, Majority Staff Chairman Orrin Hatch (R-Utah). Page 2. 2 Id. at 1. 3 Id. at 2., citing United States ex rel. Drakeford v. Tuomey Healthcare Sys. Inc., No. 13-2219 U.S. App. LEXIS 11460 at *56, *69 (4 th Cir. July 2, 2015). 1
hospitals and other providers efforts to align incentives with physicians for certain alternative payment models, including pay-for-performance, gainsharing, bundled payment or outcomes measures. During the American Health Lawyers Association s (AHLA) 2009 Stark discussion, many participants noted that alternative payment programs inevitably link physician payments to the volume or value of referrals a payment formula that will generally not pass muster under the compensation arrangement exceptions to the Stark law. 4 While the Affordable Care Act authorizes the Health and Human Services (HHS) Secretary to issue regulatory payment waivers from the Stark law for innovative payment and service delivery models and while MACRA modifies the Civil Monetary Penalties law (CMPL), 42 U.S.C. 1320a-7a, to specify that gainsharing applies only to inducement made to reduce or limit medically necessary services to beneficiaries and removes some barriers to gainsharing and pay-for-performance programs, the waivers and the modification of the CMPL do not protect all alternative payment models under MACRA or with commercial payers. 5 II. ROUNDTABLE PARTICIPANT S SUGGESTED CHANGES TO THE STARK LAW Roundtable participants suggested changes to the Stark Law that were intended to work in a payment environment that includes both fee-for-service (FFS) payment and alternative payment models. The following are some of the suggestions by the roundtable participants 6 : Repeal. Repeal Stark and rely on the Anti-Kickback Statute ( AKS ), 42 U.S.C. 1320a-7b, statute to address the behavior the Stark law is intended to curtail, or sunset Stark once Medicare has transitioned to alternative payments to a meaningful extent. However, some participants noted that the Stark law addresses conduct that may not fall under the AKS. Repeal Compensation Arrangement Prohibitions. Repeal the compensation arrangement requirements of the Stark law and limit the Stark law to ownership and investment interests, citing that the compensation arrangement prohibitions are no longer necessary 4 Id. at 2-3. 5 Id. at 3. 6 Id. at 8 13. 2
because the AKS may now be enforced in a civil context through the False Claims Act (FCA) and the CMP. New Risk Revenue Waiver/Exception. Create a waiver from the Stark law once a health care entity s risk revenue reaches a certain majority percentage of its total revenue. Health care entities receiving such a waiver would be required to meet certain criteria, for example, having the governing board of the ACO entity approve applicable financial relationships through a process that validated Triple Aim principles and show no motivation to increase utilization. Commenters believe that enforcement agencies may could the AKS and the gainsharing CMP to address problematic arrangements. Create New or Expand Currently Restricted Waivers. Extend waivers from the Stark law that are currently highly limited to CMSrun programs to all payers. Participants commented that Congress should create waivers to address this problem and should give HHS express authority to create broader waivers than currently authorized by law. Another suggestion was to create a waiver that would apply to MIPS, alternative payment models, and ACOs, modeled on current Stark law exceptions for Medicare prepaid plan enrollees. Create New Exceptions. Create new exceptions to allow financial arrangements that involve risk-sharing and gainsharing in alternative payment models when certain safeguards are in place, called the APM Exception. Some recommended that this exception would apply to all MACRA alternative payment model financial arrangements and expressly allow for compensation arrangements that take into account the volume or value of referrals, and that the exception not impose a fair market value requirement. Other roundtable participants suggested a new exception for financial relationships designed to foster collaboration in the delivery of health care and incentivize and reward efficiencies and improvements in care (integrated delivery systems, accountable care, team-based care, or value-based arrangements). Special Compensation Rule. Change the fair market value requirement or the fair market value definition to accommodate alternative payment models. One commenter suggested a rule for MACRA alternative payment model financial arrangements that would automatically deem arrangements to (1) not take into account the volume and value of referrals or other business generated between the parties, and (2) constitute fair market value, provided all 3
MACRA alternative payment model programmatic requirements are otherwise met. Modify Existing Exceptions. Modify existing Stark law exceptions to promote integrated care and aligned incentives. Commenters suggested broadening the prepaid plan exception so that the prohibition on referrals would not apply to services rendered by an entity that has a contract with CMS that contemplates the use of alternative payment models. Participants also suggested that the exception could protect DHS furnished to a Medicare beneficiary who is assigned to an MSSP, Pioneer, or Next Generation ACO model established by CMS or tested under CMMI. Other commenters suggested expansion of the risk sharing exception and suggested clarification of the indirect compensation exception and comments also suggested recognition that percentage of savings can be fair market value and commercially reasonable. Expand the Secretary s Authority: Waivers, Exceptions, and Advisory Opinions. Commenters suggested expansion of the Secretary s authority to create waivers, exceptions, and advisory opinions to promote timely agency guidance. III. TECHNICAL VIOLATIONS The Report noted that commenters generally agreed that technical violations should be subject to a separate set of sanctions that would not give rise to FCA exposure or potentially ruinous repayment liability. 7 In regard to distinguishing between technical and substantive violations, roundtable participants made comments that focused on the following areas 8 : Documentation Requirements, and a definition of technical noncompliance included in Representative Charles Boustany s proposed Stark law legislation in 2015; Arrangements That Do Not Incentivize Referrals or Unduly Influence Health Care Decision-Making; Fair Market Value; Compensation Arrangements That Do Not Violate the AKS; Create Bright Line Requirements for Substantive Noncompliance; Clarify Compensation Arrangement Terms; Adding an Intent Requirement; 7 Id. at 13. 8 Id. at 13 17. 4
Create Exception for Technical Noncompliance; Inclusion of Mitigating Factors When Determining Penalties. While the Stark law was created in part to limit the influence of financial relationships on physician referrals, the complexity and breadth, and the challenges for health care providers in determining how to comply with the Stark law have fostered a laissez les bons temps rouler attitude by some health care providers in trying to be compliance providers in the Medicare program. IV. STARK LAW SUMMARY The Stark law prohibits physicians from making referrals for certain designated health services ( DHS ) payable by Medicare or Medicaid to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation), unless an exception applies. The Stark law and also prohibits the entity from filing claims with Medicare (or billing another individual, entity, or third party payer) for the referred services. The Stark law regulations are located in Title 42 of the Code of Federal Regulations 411.350-411.389. 1. Designated Health Services( DHS ) The following items or services are DHS: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) Clinical laboratory services; Physical therapy services; Occupational therapy services; Outpatient speech-language pathology services; Radiology and certain other imaging services; Durable medical equipment and supplies; Parenternal and enteral nutrients, equipment, and supplies; Prosthetics, orthotics, and prosthetic devices and supplies; Home health services; Outpatient prescription drugs; and Inpatient and outpatient hospital services. 5
The Centers for Medicare and Medicaid Services maintain and annually update a List of Current Procedural Terminology (CPT)/Healthcare Common Procedure Coding System (HCPCS) Codes (Code List), which identifies all items and services included within certain DHS categories. The updated Code List is published in the Federal Register as an addendum to the annual Physician Fee Schedule final rule. The DHS categories defined by the Code List are: clinical laboratory services; physical therapy services, occupational therapy services, outpatient speech-language pathology services, radiology and certain other imaging services, and radiation therapy services and supplies. The 2017 Code List is available for download at: Abuse/PhysicianSelfReferral/List_of_Codes.html The following DHS categories are defined at 42 C.F.R. 411.351 without reference to the Code List: durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics, and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services. 2. Exceptions Unless an exception applies, Stark prohibits a physician from making referrals for certain designated health services ( DHS ) payable by Medicare or Medicaid to an entity with which he or she (or an immediate family member) has a financial relationship (ownership, investment, or compensation) and also prohibits the entity form presenting or causing to be presented claims to Medicare for the referred services. Stark establishes specific exceptions, based on whether the physician s financial relationship is one of ownership or compensation. Stark exceptions follow: General Exceptions Related to Ownership/Investment and Compensation Arrangements (411.355) Physician Services In-Office Ancillary Services Services Furnished by an Organization to Enrollees Academic Medical Centers Implants Furnished by an ASC EPO and Other Dialysis-Related Drugs Preventive Screening Tests, Immunizations, and Vaccines 6
Eyeglasses and Contact Lenses Following Cataract Surgery Intra-Family Rural Referrals Exceptions Related to Ownership or Investment Interests (411.356) Publicly-Traded Securities Mutual Funds Specific Providers (Rural Providers, Hospitals in Puerto Rico, Whole Hospitals) Exceptions Related to Compensation Arrangements (411.357) Rental of Office Space Rental of Equipment Bona Fide Employment Relationships Personal Services Arrangements Physician Recruitment Isolated Transactions Certain Arrangements with Hospitals (remuneration unrelated to DHS) Group Practice Arrangements with a Hospital Payments by a Physician Charitable Donations by a Physician Non-monetary Compensation Compensation limits are adjusted each calendar year by increase in the Consumer Price Index-Urban All Item (CPI-U); Calendar Year 2017, $398 Abuse/PhysicianSelfReferral/CPI-U_Updates.html Fair Market Value Compensation 7
Medical Staff Incidental Benefits Compensation limits are adjusted each calendar year by increase in the Consumer Price Index-Urban All Item (CPI-U); Calendar Year 2017, Less than $33 Abuse/PhysicianSelfReferral/CPI-U_Updates.html Risk-sharing Arrangements Compliance Training Indirect Compensation Arrangements Referral Services Obstetrical Malpractice Insurance Professional Courtesy Retention Payments in Underserved Areas Community-wide Health Information Systems Electronic Prescribing Items and Services Electronic Health Records Items and Services Assistance to Compensate a Nonphysician Practitioner Timeshare Arrangements 3. CMS Regulatory Publications CMS has published a number of regulations interpreting Stark. In 1995, CMS published the final rule with comment period incorporating into the regulations the physician self-referral prohibition as it applied to clinical laboratory services. (60 Fed. Reg. 41914) In 1998, CMS published the proposed rule to revise the regulations to cover the additional DHS and Medicaid expansion. (63 Fed. Reg. 1659) Beginning in 1992, CMS published a series of regulations implementing Stark. The following final rules, are codified at 42 C.F.R. 411.350 411.389. Stark I regulations, August 14, 1995 8
Stark II Phase I regulations, January 4, 2001 (interim final rule) Stark II Phase II regulations, March 26,, 2004 (interim final rule) Stark II Phase III, regulations, September 5, 2007 Stark II Phase IV, Inpatient Prospective Payment System (IPPS) regulations, August 19, 2008 Stark II Phase V, IPPS regulations, October 30, 2015 Shortly after CMS s publication of Phase III in 2007, CMS published revisions to the Stark regulation in the Calendar Year 2008 Physician Fee Schedule (72 FR 66222), and in 2008, CMS published revisions to the Stark regulation in the Calendar Year 2009 Hospital Inpatient Prospective Payment System final rule. (73 FR 48434) On September 23, 2010, CMS published the Medicare self-referral disclosure protocol ( SRDP ), which sets forth a process to enable providers of services and suppliers to self-disclose actual or potential Stark violations. The Secretary of HHS has the authority to reduce the amount due and owing for Stark violations. On October 30, 2015, CMS issued final changes to the Stark regulation in the Calendar Year 2016 Physician Fee Schedule. The changes include a new Stark exception for timeshare arrangements and a new Stark exception for assistance to compensate nonphysician practitioners. In the publication, CMS also provided a uniform interpretation for exceptions that use the terminology takes into account, with respect to the volume or value of referrals, rather than the phrase, based on the volume or value of referrals. CMS clarified that the in writing requirement does not require a single agreement and that a collection of documents evidencing the course of conduct between the parties may satisfy the in writing requirement. CMS approved indefinite holdovers under the office space and equipment lease exceptions as well as the personal services arrangements exception, provided certain safeguards are met. The requirement to obtain signatures was extended from 30 to 90 days. CMS, also, clarified and modified the restrictions on physician ownership and investment in hospitals. Stark s regulatory history and corresponding downloads are available at: Abuse/PhysicianSelfReferral/Significant-Regulatory-History.html 4. CMS Advisory Opinions Section 1877(g)(6) of the Social Security Act requires that CMS issue advisory opinions, and CMS publishes Stark advisory opinions on its website. The advisory 9
opinions provide binding opinion concerning the application of section 1877 of the Act to specific factual situations. The advisory opinions are available at: Abuse/PhysicianSelfReferral/advisory_opinions.html The CMS website has available copies of several advisory opinions issued by CMS on the Stark law. Specialty hospital advisory opinions issued by CMS are available at: Abuse/PhysicianSelfReferral/Specialty-Hospital-Advisory-Opinions.html 5. Penalties While intent is a factor considered in relation to the anti-kickback statutes, an entity s or a physician s intent is irrelevant in proving a violation of the Stark statute. Violations can subject a violator to civil money penalties and exclusion from the Medicare and Medicaid programs. If a financial arrangement does not fit into an applicable exception, not only may the services rendered not be billed to Medicare, but all other referrals for DHS from the physician to the entity become tainted as prohibited referrals. In addition, civil money penalties of not more than $15,000.00 for each wrongfully billed claim may be imposed, and the providers may be excluded from the Medicare and Medicaid programs. Circumvention schemes subject the participants to a civil money penalty of not more than $100,000.00 and possible federal health care program exclusion. Claims submitted in violation of the Stark statute and/or the antikickback statute may also form the basis for liability under the Federal Civil False Claims Act. 9 6. Conclusion THREE QUESTIONS TO ASK WHEN ANALYZING STARK: 1. Is there a referral from a PHYSICIAN for a DESIGNATED HEALTH SERVICE? If YES, then go to Question 2. 2. Does the physician (or an immediate family member) have a FINANCIAL RELATIONSHIP with the entity providing the DHS? If YES, then go to Question 3. 3. Does the financial relationship fit in an EXCEPTION? If YES, then there is no Stark Violation. Proceed to Anti-kickback analysis. If NO, PROBLEM! 9 Amendments enacted in 2010 by the Patient Protection and Affordable Care Act (PPACA) stipulated that claims submitted in violation of the anti-kickback statute constitute false claims under the False Claims Act. PPACA, Section 1128J, Pub. L. 111-148. 10