To increase the adoption of value-based reimbursement (VBR) models, the Centers for Medicare and Medicaid (CMS) Administrator Seema Verma announced extensive proposed changes to the federal Stark Law. What is the Stark Law? It is a series of federal laws that regulate the financial relationships between health care professionals and provider organizations, with the goal of prohibiting relationships that may influence clinical decisionmaking based on financial incentives.

The first piece of legislation was enacted in 1989, when reimbursement was primarily on a fee-for-service (FFS) basis. Since that time, while the legislation has grown in scope, it has not been adapted in any way for new reimbursement models—including VBR. Under VBR models, incentive payments are made for meeting cost and quality targets. But these arrangements could violate rules of the Stark Law. How? Under the provisions of Stark, physicians delivering care to Medicare or Medicaid beneficiaries are specifically prohibited from referring to an entity performing health services if that physician, or his/her immediate family member, has any financial relationship with that entity. This could mean that several fundamentals of VBR are potential violations of Stark (see AHA: Create Stark Law Exception For Value-Based Reimbursement).

Due to the evolution of the Stark Law over time and the changes to health care from not only reimbursement model changes but also technological innovation, there is ample opportunity for violations. For example, incentive payments to providers based on cost and quality targets may violate the Stark Law if a physician is compensated for meeting targets that are in any way related to volume or value of referrals. Second, shared savings payments to provider organizations based on actual cost savings may be problematic if the way to achieve savings is by reducing medical necessity criteria or substituting a health care product based on cost savings alone. Third, another area under consideration for reform is when infrastructure payments of in-kind assistance occur between a provider organization and a physician. For example, this may include a hospital supplying a physician with televideo equipment for that physician to provide services via televideo that results in a referral to the hospital for health care services, i.e. admission.

Specifically, Ms. Verma has indicated that the current ban on paying physicians for value or volume of referrals will be addressed. CMS had requested and received public comments in 2018. Additionally, she noted that the new regulations will standardize the definition of payments that are commercially reasonable and represent fair market value. These two areas of Stark have hindered the development of more robust care coordination within provider organizations. Ms. Verma has also indicated that documentation issues, electronic health requirements, and cyber security will be addressed in the new regulations (see Providers Hope For Stark Overhaul To Boost Value-Based Payment).

Health care provider organization executives have struggled with seeking legal safety in a mixture of waivers that have been written by CMS to address some of the conflicts of Stark and VBR (see Fraud And Abuse Waivers). The Medicare Shared Savings Program and bundled payment models have the most broadly written waivers with wide applicability to avoid violation of Stark. For health care executives, it is a challenge to navigate compliance with Stark, monitoring which provisions have waivers and which do not, and while making a VBR contract financially viable. Add into this mix the emerging recognition of social determinants of health, and opportunities to offer remedies such as housing, nutrition, and transportation assistance, and it becomes nearly impossible to create a system built on collaboration that is without violations.

As we look forward to a wide range of alternative payment models—models that include more than physicians and hospitals and beyond those currently covered by waivers—clear rules around the Stark Law will be welcomed by health and human service executives. And I think this regulatory relief will speed up adoption of VBR models by the largest of health plans and provider systems. According to a speech given by Ms. Verma in March, CMS is planning to issue updated regulations this year (see CMS “Actively Working” on Stark Law Reforms to be Issued Later this Year; “Regulatory Sprint to Coordinated Care” Continues). We’ll cover the changes to the rules, and their implications, when they are released.

For more on VBR models, check out these resources in the OPEN MINDS Circle Library:

  1. Have You Optimized Your Organization For Value-Based Reimbursement? The OPEN MINDS VBR Assessment
  2. Where Are We On The Road To Value?: The 2019 OPEN MINDS Performance Management Executive Survey
  3. Mapping Performance To Manage Value: The Clinical Data You Need To Manage The Risk Of Value-Based Reimbursement
  4. Are Your Financial Systems Ready For Value-Based Reimbursement? Managing Risk, Data Modeling & Financial Projections For VBR Success
  5. Less Pain, More Gain: Leading A Cost-Saving Plan With Provider-Driven Outcomes
  6. How To Build Your Tech Infrastructure For Value-Based Reimbursement
  7. Can Success With Value-Based Reimbursement Happen Without Analytics?
  8. Are Your IT Systems Ready For Value-Based Reimbursement? Take The Quiz
  9. How To Prepare For Value-Based Reimbursement: Four Key Competencies For Success
  10. Riding The Value-Based Wave

For more on preparing your organization for a continued march towards VBR, join us in New Orleans on June 3 during our 2019 Strategy & Innovation week, where OPEN MINDS Senior Associate Ken Carr will take a deep dive on preparing your organization for value-based reimbursement models in the seminar, Succeeding With Value-Based Reimbursement: An OPEN MINDS Executive Seminar On Organizational Competencies & Management Best Practices For Value-Based Contracting.