Along with proposed Stark Law exceptions designed to accommodate value-based care models, the Centers for Medicare & Medicaid Services (CMS or the agency) proposed additional revisions to the Stark Law regulations (the proposed rule) on October 9, 2019. The proposed revisions, which include extensive clarifications on many Stark Law requirements that have long been viewed as unduly burdensome for compliance-oriented health care providers1 , are part of the Trump administration's goal to reduce regulatory compliance burdens through a "Regulatory Sprint to Coordinated Care." They follow and incorporate feedback from corresponding requests for information the agency issued in summer 2018.

These additional proposals and guidance do not expressly relate to value-based care, but help clarify or reduce some of the more difficult hurdles and technical pitfalls of the Stark Law that hinder greater collaboration among providers and physicians. This alert (part two) summarizes these important Stark Law proposals. Part one of this client alert, available here, focused on the administration's proposals to allow and encourage the shift toward value-based payment under both the anti-kickback statute (AKS) and Stark Law, as well as other key AKS proposals.

Comments on both rules are due by December 31, 2019

Summary of proposed revisions and guidance

  • Commercial reasonableness: not a matter of profit and loss. In recent years, a provider's "profit" (or lack thereof) on a physician's professional services has been a key area of focus in a number of high-profile Stark Law enforcement cases. In particular, enforcement litigation gave rise to a perception that compensation to a physician exceeding the reimbursement that an entity collects for the physician's professional services may presumptively render an arrangement not "commercially reasonable." Describing this view as a "widespread misconception" of the meaning of commercial reasonableness, CMS acknowledges that the Stark Law has never defined "commercially reasonable" and that the agency has issued very little guidance on the term. To clarify this important issue, the proposed rule would specify that an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties. The proposed rule would further refine the focus of the inquiry: an arrangement is commercially reasonable if it furthers the legitimate business purposes of the parties and has similar terms as like arrangements.2

As potential examples of legitimate reasons for providers to enter into arrangements that are not directly profitable, CMS noted several examples cited by commenters, such as community need, timely access to health care services, fulfillment of licensure or regulatory obligations, the provision of charity care, and the improvement of quality and health outcomes.3 In contrast, arrangements failing to meet the commercial reasonableness standard, even if appearing legitimate on the face of an agreement, include duplicate and unnecessary arrangements and those that would violate criminal law.4

  • Volume or value of referrals: objective, mathematical test. The agency proposes to introduce an "objective test" to clarify that compensation "takes into account the volume or value of referrals" only if the formula used to determine compensation includes the physician's designated health services (DHS) referrals to the entity as a variable and there is a positive correlation between referrals and compensation.5 In commentary, the agency explained that "merely hoping for or even anticipating future not enough to show that compensation is determined in a manner that takes into account the volume or value of referrals." 6

The proposed change suggests that there would be no "volume or value" problem in two often-analyzed situations: (a) where there is a mere statistical correlation between compensation and referrals (without referrals being included in the compensation calculations), and (b) where the parties have considered or anticipated a physician's referrals, in a general sense, when entering into an arrangement. In addition, for fixed, nonvariable compensation, the proposed rule specifies that there would be a "volume or value" problem only if there "is a predetermined, direct correlation between the physician's prior referrals to the entity and the prospective rate of compensation to be paid over the entire duration of the arrangement" (such as future salary levels that are predicated on reaching certain referral thresholds in prior years). While CMS seeks comments on these proposals, the guidance accompanying the proposed changes appear to have a clarifying and immediate effect – the agency stated that its commentary should be read to "supersede" prior guidance on the subject.7

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1. Centers for Medicare & Medicaid Services, Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations, 84 Fed. Reg. 55766 (Oct. 17, 2019), available at 17/pdf/2019-22028.pdf. As further background to the wide-ranging proposals, CMS noted that its review of over 1,100 selfdisclosure submissions, most of which involved compensation arrangements, provided additional insight into the degree of risk posed by various financial relationships and circumstances. See proposed rule at 55771.

2. CMS solicits comments on an alternative proposal that would be similar to the agency's limited commentary on the term. Under that alternative, a commercial reasonable arrangement would be defined as one that "makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty."

3. Proposed rule at 55790.

4. Id.

5. Proposed 42 Code of Federal Regulations 411.354(d)(5)(i)(A).

6. Proposed rule at 55794.

7. Proposed rule at 55792.

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