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Stark Law and the Affordable Care Act: Bridging the Disconnect Jennifer Tharp Published online: 10 Sep 2014.
Click for updates To cite this article: Jennifer Tharp (2014) Stark Law and the Affordable Care Act: Bridging the Disconnect, Journal of Legal Medicine, 35:3, 433-444, DOI: 10.1080/01947648.2014.936266 To link to this article: http://dx.doi.org/10.1080/01947648.2014.936266
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Journal of Legal Medicine, 35:433–444 C 2014 American College of Legal Medicine Copyright 0194-7648 print / 1521-057X online DOI: 10.1080/01947648.2014.936266
STARK LAW AND THE AFFORDABLE CARE ACT: BRIDGING THE DISCONNECT Downloaded by [McGill University Library] at 17:30 06 February 2015
Jennifer Tharp* First Prize Hirsh Student Writing Competition 2014
INTRODUCTION Law makers intended for the original terms of the Ethics in Patient Referrals Act, or the Stark law, to prevent unethical physician self-referrals and to reduce corruption within the medical profession. In the new era of the Patient Protection and Affordable Care Act (PPACA) and the Health Information Technology for Economic and Clinical Health Act (HITECH), however, the Stark law is causing concern for healthcare systems, providers, and administrators attempting to transition to an increasingly technical, quality-driven healthcare system. Current Stark language and the complicated limits of exceptions have caused confusion and delayed the incentivizing of pay for performance initiatives and implementation of electronic health records in some organizations. Reform is necessary to simplify Stark and better accommodate beneficial financial relationships that improve patient care quality. The Centers for Medicare and Medicaid Services (CMS) should issue the proposed exception for pay for performance hospital programs as part of a regulation, extend the electronic health record exception from 2006,1 and initiate a waiver program for pay for performance programs similar to the waiver program for accountable care organizations (ACOs).
*Master of Science in Health Care Policy and Management in the H.J. Heinz III College at Carnegie Mellon University. The author would like to acknowledge Pamela Grimm for her guidance as the supervisor of her independent study during the Fall 2013 semester at Carnegie Mellon’s H. J. Heinz III College. Direct correspondence to Ms. Tharp at [email protected]. 1 At the time of this article’s composition, the EHR exception had not yet been finalized. As of December 23, 2013, CMS adopted final rules to extend the sunset date for EHR donation. The date has been extended to December 31, 2021. Molly Gamble, OIG, CMS Release Final Rules for HER Stark Exception, Anti-Kickback Safe Harbor, BECKER’S HOSPITAL REV. (Dec. 26, 2013), http://www.beckershospitalreview.com/legal-regulatory-issues/oig-cms-release-final-rulesfor-ehr-stark-exception-anti-kickback-safe-harbor.html.
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I. PHYSICIAN SELF-REFERRAL LAW
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A. Background The Stark law passed in 1989 due to the efforts of Representative Pete Stark (D-California), and its purpose was to limit overutilization in the healthcare system due to physicians’ financial interests.2 A provider, or members of the provider’s family, may not make referrals to designated health services (DHS) entities that the physician has a financial relationship with unless an exception applies.3 Furthermore, entities may not submit claims to Medicare that result from a prohibited referral regardless of intent.4 In its initial form, Stark I applied only to clinical laboratory services, which were primary suspects of overutilization due to providers’ laboratory ownership roles.5 In 1993, Congress amended the Stark law in the form of Stark II as part of the Omnibus Reconciliation Act of 1993, which extended the boundaries of the law to include a total of 11 categories of designated health services.6 When considering Medicaid referrals, the law indirectly applies, as the federal government could deny a state-federal matching funds for any prohibited referral.7 The Stark law only applies to physician referrals made to a DHS entity with which a physician has a direct or indirect financial relationship.8 In effect, the Stark law serves as a broad prohibition when such a financial relationship exists, unless the provider can meet an exception.9 A referral can be defined as “direct or indirect, meaning that physicians would be considered to have made referrals if they caused, directed, or controlled referrals made by others.”10 Depending on the nature of the professional service, referrals can further be made in any form, including written, oral, and electronic, or be part of a plan of care. If a physician personally performs the DHS services, that scenario is not a referral. According to the original “stand in the shoes” provision, any physician could be deemed to represent his or her organization in regards to Stark compliance if “the only intervening entity between the physician and the 2
The Stark Law Rules of the Road, AM. MED. ASS’N 1, 1 (2011), http://www.ama-assn.org/resources/ doc/psa/stark-law/stark-law.pdf; Healthcare Finance Index: Pete Stark, HEALTHCARE FIN. NEWS, http:// www.healthcarefinancenews.com/directory/pete-stark (last visited Mar. 26, 2013). 3 The Stark Law Rules of the Road, supra note 2, at 1, 10. 4 Id. at 1. 5 Id. 6 American Health Lawyers Association Public Interest Committee, A Public Policy Discussion: Taking the Measure of the Stark Law, AM. HEALTH LAWYERS ASS’N 1, 1, http://www.healthlawyers. org/hlresources/PI/ConvenerSessions/Documents/Stark%20White%20Paper.pdf (last visited Mar. 26, 2014). 7 Robert G. Homchick & Davis W. Tremaine, The Law and Economics of Pay for Performance, Bundled Payments, and Shared Savings, AM. HEALTH LAWYERS ASS’N 1, 1, http://www.healthlawyers.org/Events/ Programs/Materials/Documents/AM11/homchick.pdf (last visited Mar. 26, 2014). 8 See The Stark Law Rules of the Road, supra note 2. 9 See id. 10 Id. at 2.
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DHS entity is his or her physician organization.”11 However, the 2009 Inpatient Prospective Payment System Final Rule limited the scope of the provision to only include individual physicians with an ownership or investment interest in the DHS entity.12
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B. Exceptions If a provider requires an agreement that involves DHS, the arrangement needs to fall under 1 of the more than 30 exceptions to the Stark law.13 Three main types include general, ownership/investment, and compensation.14 After review of literature and legal research, legal counsels tend to recommend exceptions based on fair market value, personal service arrangements, and indirect financial relationships.15 Additionally, there are also exceptions for academic medical centers, bona fide employment relationships, communitywide electronic health records, and intra-family referrals in rural areas.16 To meet an exception, the agreement should contain requisite signatures, outline the terms set in advance, and verify that the arrangement is consistent with fair market value and not reliant on the volume or value of referrals.17 If an agreement does not fall under one of these exceptions, and involves physician referrals, it could be subject to enforcement by the Department of Health and Human Services Office of the Inspector General (OIG) and the Department of Justice (DOJ) and steep penalties.18 II. PAY FOR PERFORMANCE PROGRAMS With the passing of the PPACA in 2009, providers are now eligible for incentive payments or reductions in Medicare funding based on quality of care and certain performance metrics.19 Specific measures for hospitals include reducing readmission rates, decreasing hospital acquired illnesses, meeting value-based purchasing measures, and receiving patient satisfaction scores.20 For fiscal year 2014, 1.25% of Medicare revenue depends upon meeting
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Id. at 9. Id. at 3. 13 Id. at 19. 14 Id. at 20. 15 Id. 16 Id. 17 Id. at 19. 18 Id. at 2. 19 U.S. Efforts to Reduce Healthcare-Associated Infections Before the S. Comm. on Health, Education, Labor & Pensions, 113 Cong. (2013) (statement of Patrick Conway, Chief Medical Officer and Director, Centers for Medicare & Medicaid Services, U.S. Department of Health and Humans Services), http://www.help.senate.gov/imo/media/doc/Conway.pdf. 20 Id. 12
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the value-based purchasing clinical quality measures.21 Considering that Medicare revenues are at stake, hospitals and physician groups may seek to provide physician incentives based upon reducing readmissions or improving quality, instead of basing compensation upon weighted relative value units (RVUs). Medicare determines physician payment for services, procedures, or patient encounter, through the RVU.22 The contention is that the Stark law has not kept pace with policy, and providers may directly violate the law unless the agreement is carefully structured. As part of the 2009 Medicare Physician Fee Schedule, CMS almost added an exception to Stark that would have permitted hospitals to have incentive payment programs, including both pay for performance and shared savings/gainsharing arrangements. The language of the proposed exception acknowledged that “the existing exceptions to the physician self-referral prohibition may not be sufficiently flexible to protect payments to physicians under incentive payment and shared savings programs.”23 However, CMS decided not to finalize the exception and still considers it to be pending.24 That being said, there are several options for an organization’s counsel to consider if the organization still wants to pursue these incentives as part of its policy. A. Methods to Legally Provide Performance Incentives Several potential approaches to structure a pay for performance agreement include following the terms of the proposed exception with a certain degree of risk, complying with an existing Stark exception, avoiding reduction of care incentives, and carving out Medicare participants. Before exploring these potential methods, it is necessary to define the difference between a pay for performance measure and a gainsharing measure. CMS defines pay for performance as a “quality improvement and reimbursement methodology aimed at moving towards payments that create stronger financial support for patient focused, high value care.”25 The Department of Health and Human Services (DHSS) describes gainsharing as an “arrangement in which a hospital [or other provider] gives physicians a percentage share of any reduction 21
See Hospital Value-Based Purchasing Program, CENTERS FOR MEDICARE & MEDICAID SERVS. (Mar. 2013), http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/ MLNProducts/downloads/Hospital VBPurchasing Fact Sheet ICN907664.pdf. 22 The Basics: Relative Value Units (RVUs), NAT. HEALTH POL’Y FORUM 1, 1 (Feb. 12, 2009), http://www. nhpf.org/library/the-basics/basics rvus 02-12-09.pdf. 23 Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2009; and Revisions to the Amendment of the E-Prescribing Exemption for Computer Generated Facsimile Transmissions; Proposed Rule, 73 Fed. Reg. 38,502-01, 38,551 (July 7, 2008) (to be codified at 42 C.F.R. pts. 405, 409, 410, 411, 414, 415, 424, 485, and 486). 24 W. Kenneth Davis, 7th Annual Illinois Chapter ACC Practice Management Symposium: Gainsharing: Is It Still Feasible?, KATTEN MUCHIN ROSENMAN LLP 1, 23 (May 14, 2010), http://www.kattenlaw.com/ files/upload/Gainsharing-is-it-Still-Feasible-5 14 10.pdf. 25 Medicare Program, 73 Fed. Reg. at 38,549.
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in the hospital’s costs for patient care attributable in part to the physician’s efforts.”26
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B. Following the Proposed Exception One possibility is to follow the directives of the proposed exception even though CMS never officially finalized it. The organization would have to incorporate this step as part of its risk analysis and then proceed with caution. Any agreement also would need to observe the requirements of the AntiKickback Law and the Civil Monetary Penalty Law.27 The original proposed exception included 16 requirements for a program to qualify. Several key components are described in the following points. • The incentive payment or shared savings program must be a documented program that seeks to achieve the improvement of quality of hospital patient care services through changes in physician clinical or administrative practices or hospital cost savings. • The rule proposed that patient care quality measures must be listed in CMS’ Specifications Manual for National Hospital Quality Measures. • Eligibility of a physician to participate in the program should not reflect the volume or value of referrals in any way. • Participation in the program should be limited to physicians who are members of the hospital’s medical staff at the commencement of the project. • Patients and physicians should be allowed to use non-indicated procedure/supplies when necessary or requested.28 As an example, a hospital could initiate a pay for performance program that focuses on improving a set of clinical quality measures found in the Specifications Manual for National Hospital Quality Measures. Physicians could receive incentives for meeting all of the measures for acute myocardial infarction care, such as aspirin prescribed at discharge. To provide an instance of a shared savings arrangement, a hospital could analyze the variable costs attributable to each of its orthopedic physicians. Once the hospital assesses the total costs, then it could design a gainsharing model that incorporates measures such as reducing variation in treatments, the use of orthopedic
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Special Advisory Bulletin: Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries, OFF. OF INSPECTOR GEN. (July 1999), https://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm. 27 See Kickback and Physician Self-Referral, OFF. OF INSPECTOR GEN., https://oig.hhs.gov/fraud/ enforcement/cmp/kickback.asp (last visited Mar. 26, 2014). 28 See Growing Support of Gainsharing Arrangements, HEALTH CAP. TOPICS (2008), http://www. healthcapital.com/newsletter/fall/Growing Support of Gainsharing Arrangements.pdf.
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implants, supplies, etc.29 There is support for following this type of proposed exception in several published advisory opinions by the OIG that are only applicable to the specific parties mentioned in the opinions.30 As of August 2012, there were 14 existing opinions, and the majority approved the proposed gainsharing arrangements.31 Specifically, three recurring approved safeguards included: “(1) measures that promote accountability and transparency, (2) adequate quality controls, and (3) controls on payment related to referrals.”32
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C. Meeting Existing Exceptions Another avenue is to meet the requirements of an existing exception and include performance incentives as part of that agreement. Potential exceptions that could be utilized include the risk-sharing exception, the indirect compensation exception, group practice physicians, bona fide relationships, personal service arrangements, fair market value, and academic medical center exceptions. The risk sharing exception can provide the ability to spread risk across providers that are downstream of a managed care organization, although it is based on the distribution of risk and not quality of care. The terms of the agreements can include “withholds, bonuses, and risk pools” for services physicians provide to enrollees of a health plan.33 CMS did not narrowly restrict the definition of a managed care organization, so it can be any health plan, insurance company, health maintenance organization, or independent practice association.34 Compensation for this exception cannot take into consideration the volume or value of referrals. Personal service arrangements can include percentage-based compensation from an existing pool of incentive money, but the percentage compensation cannot apply to office space or equipment leasing.35 In line with other exceptions, the percentage compensation cannot vary on the volume or value of referrals by the physician.36 It is also possible to structure a pay for performance incentive through an indirect compensation exception, as long as the payments center on quality, preventative care, or patient satisfaction.37 Reducing return visits (such as readmissions) or services could be a violation 29
Elyse Gellerman & Daniel Piro, Gainsharing Can Be a Challenging, Yet Valuable Process—Part II, 10 ORTHOPEDIC NETWORK NEWS 9, 10 (1999) http://trauma.orthopedicnetworknews.com/archives/onn102s3. pdf. 30 See Gainsharing, AM. HEALTH LAWYERS ASS’N, http://www.healthlawyers.org/hlresources/Health% 20Law%20Wiki/Gainsharing.aspx (last updated Aug. 18, 2012). 31 Id. 32 Id. 33 Alice G. Gosfield, The Stark Truth About The Stark Law: Part II, 11 FAM. PRAC. MGMT. 41 (2004), http://www.aafp.org/fpm/2004/0200/p41.html. 34 Homchick & Tremaine, supra note 7, at 7. 35 Id. at 5. 36 Id. 37 See id. at 9.
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of the civil monetary penalty. The fair market value exception is not a guaranteed protection in the current legal environment, however, as recent legal cases have shown. Covenant Medical Center in Iowa, for example, chose to pay the federal government $4.5 million in settlements for allegedly violating Stark and the False Claims Act when it paid certain specialists at least $1.8 million.38 Although Covenant argued that the salary was fair market value for the physicians’ productivity, the center still elected to settle. After an analyzing ways to structure an incentive program, it is possible to implement pay for performance incentives despite the lack of clear Stark Law guidance. However, legal counsel must structure agreements to meet existing Stark exceptions and avoid medical care reductions. III. ELECTRONIC HEALTH RECORD EXCEPTIONS A. Introduction As part of the HITECH Act, Medicare and Medicaid both have meaningful use programs for electronic health record (EHR) technology by eligible providers and hospitals. Meaningful use progresses in three stages, and there is the potential for eligible professionals, hospitals, and critical access hospitals to receive up to $44,000 under the Medicare program and $63,750 under the Medicaid program in incentives.39 Organizations that began using EHR technology early in the program are more likely to receive the full amount. Hospital-based physicians, such as radiologists and anesthesiologists, may not participate in the programs. Beginning in 2015, there are disincentives for eligible providers if they do not demonstrate meaningful use of EHR technology. In 2015, the decreased reimbursement rate is one percent of Medicare revenues. Each subsequent year, the percentage deducted increases by one percent.40 Despite the possibility of incentive payments, establishing a functioning EHR is cost prohibitive and time consuming, even for established health systems. Duke University’s Health System, for example, spent $700 million on its EPIC EHR system.41 For small providers and practices, implementing 38
Covenant Medical Center to Pay U.S. $4.5 Million to Resolve False Claims Act Allegations, U.S. DEP’T (Aug. 25, 2009), http://www.justice.gov/opa/pr/2009/August/09-civ-849.html. 39 EHR Incentive Programs, CENTERS FOR MEDICARE AND MEDICAID SERVS., http://www.cms.gov/ Regulations-and-Guidance/Legislation/EHRIncentivePrograms/index.html?redirect=/ehrincentive programs/ (last updated Feb. 18, 2014). 40 Are There Penalties for Providers Who Don’t Switch to Electronic Health Records (EHR)? HEALTHIT.GOV, http://www.healthit.gov/providers-professionals/faqs/are-there-penalties-providerswho-don%E2%80%99t-switch-electronic-health-record (last visited Mar. 26, 2014). 41 Zina Moukheiber, The Staggering Cost of an Epic Electronic Health Record Might Not Be Worth It, FORBES (June 18, 2012), http://www.forbes.com/sites/zinamoukheiber/2012/06/18/ the-staggering-cost-of-an-epic-electronic-health-record-might-not-be-worth-it/. OF JUSTICE
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an EHR requires costly investment, training of staff on new equipment, and lost productivity due to the learning curve. In Health Affairs, a published study included 26 primary care practices in Texas. Incorporating the results from those practices, the study found that it costs approximately $162,000 for a five-physician practice to fully implement an EHR.42 Additionally, there is an average, total additional $85,500 in “maintenance expenses.”43 Considering these costs, it would be expedient for physicians to obtain assistance from more advanced health systems that have already undergone EHR development. However, both parties must consider any such option within the bounds of Stark law. B. Applicable Stark Exceptions There are two Stark exceptions that apply specifically to EHRs, one regarding community-wide EHR systems and another regarding EHR donation. For the community-wide EHR exception, the donated EHR must be available to the entire community and all of its providers. Providers must be able to access and exchange EHRs, and the donated services must be necessary.44 Donations of hardware, software, and all other relevant materials are acceptable as part of this exception as long as the physicians do not already have them. The EHR donation exception is more restrictive, however, and involves donation of EHR software, information technology, training, and maintenance to providers. Hardware, staff, and cash are considered out of the boundaries of this exception. Further requirements include that the donation must be necessary, the software must be interoperable, there should be an electronic prescribing component, the agreement should be in writing, and the parties receiving the donation must contribute at least 15% of the cost.45 There are further requirements on how a hospital or health system can select which providers to donate the software. Although the volume or value of referrals are not acceptable criteria, potential donors can examine criteria including prescriptions written by the physician, the size of the physician’s medical practice, the physician’s overall use of automated technology, and the level of uncompensated care a physician provides, among other criteria.46 42
Neil S. Fleming et al., The Financial and Nonfinancial Costs of Implementing Electronic Health Records in Primary Care Practices, 30 HEALTH AFF. 481, 481 (2011). 43 Id. 44 Medicare Program: Physicians’ Referrals to Health Care Entities with Which They Have Financial Relationships (Phase II), 69 Fed. Reg. 16,054, 16,113 (Mar. 26, 2004) (to be codified at 42 C.F.R. pt. 411 & 424). 45 Medicare Program: Physicians’ Referrals to Health Care Entities with Which They Have Financial Relationships (Phase III), 72 Fed. Reg. 51,012, 51,097 (Sept. 5, 2007) (to be codified at 42 C.F.R. pt. 411 & 424). 46 Linn F. Freedman, The Final Stark Exception and Anti-Kickback Safe Harbor for Electronic Health Records and E-Prescribing, NIXON PEABODY LLC 1, 2 (Oct. 5, 2006), http://www.nixonpeabody.com/ files/HLA 10052006.pdf.
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C. Shortcomings and Complications One of the primary concerns with the EHR exception is the fact that hardware, staff, and software not directly related to EHR technology are not included as acceptable items for donations. The hardware can be one of the most expensive factors in acquiring an EHR system, and some small providers may be unable to afford it without assistance to meet the meaningful use deadlines. In the Health Affairs study, the one-time hardware costs (including Internet switches, cables, and wireless internet) were $25,000 per practice.47 Practices further may require additional staffing to utilize the EHR to its full extent. Finally, software not directly related to the EHR still may be necessary for its successful implementation, such as a claims processing component. The second major concern is that the EHR donation exception is expiring on the “sunset” date of December 31, 2013. CMS did propose an extension in April of 2013 that would keep the exception through 2016, and this concern is evident in health system policy regarding EHR donation.48 For example, Sutter Health CPMC limited its EHR donation program to a three-year timespan to end when the exception expired.49 It is uncertain, however, whether CMS actually will finalize the extension, which is necessary to allow health systems and hospitals to continue to assist providers with implementing EHRs in the era of health reform.50 IV. ACCOUNTABLE CARE ORGANIZATIONS: A BETTER PARADIGM In looking to improve the Stark landscape for pay for performance and EHRs, CMS’ position toward ACOs illustrates a better example of how to enable quality and cost-saving reform measures while still ensuring legal protection. CMS defines ACOs as “groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated, high quality care to their Medicare patients.”51 On the surface, an ACO directly 47
Study Identifies Costs of Implementing Electronic Health Records in Network of Physician Practices, AGENCY FOR HEALTHCARE RES. AND QUALITY (Oct. 2011), http://www.ahrq.gov/news/newsletters/ research-activities/oct11/1011RA15.html. 48 Daniel F. Gottlieb, HHS Extends Sunset Date for Stark Exception and Anti-Kickback Safe Harbor for EHR Donations, MCDERMOTT, WILL, AND EMERY (Apr. 18, 2013), http://www.mwe.com/abc. aspx?xpST=abc&url=http%3a%2f%2fwww.mwe.com%2fpublications%2funi-Entity.aspx%3fxpST% 3dPublicationDetail%26pub%3d8271. 49 CPMC EHR Donation Program Frequently Asked Questions, SUTTER HEALTH CPMC, http://www.cpmc. org/professionals/ehrdonation/faq.html (last visited Mar. 26, 2014). 50 At the time of this article’s composition, the EHR exception had not yet been finalized. As of December 23, 2013, CMS had adopted final rules to extend the sunset date for EHR donation. The date has been extended to December 31, 2021. Gottlieb, supra note 48. 51 Accountable Care Organizations (ACO), Centers for Medicare and Medicaid Servs. (Mar. 22, 2013), http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/.
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could violate the Stark Law due to the bundled payments, integrated care models, and gainsharing features inherent in its structure. However, CMS has the right to grant a waiver for Stark compliance (as well as the anti-kickback law and provisions of the civil monetary penalty) to any ACO that “will improve the quality and efficiency of items and services furnished under the Medicare shared savings program and bundled payment pilot program.”52 At least 250 organizations nationwide are participating in the Medicare Shared Savings Program and benefitting from the waivers.53 An ACO would need to meet the terms of at least one of five different types of waivers: an ACO pre-participation waiver, an ACO participation waiver, a Shared Savings distribution waiver, a compliance with Stark Law waiver, and a patient incentive waiver.54 The remaining risk to the organization would be losing its participation in the Shared Savings Program due to a violation of the waiver terms.55 The waivers only can apply to an institution that is an ACO or that has a bona fide intention to become one within a year.56 One cautionary note is that the waivers only apply to the federal Stark law and do not extend to state laws or the Internal Revenue Service.57 V. MOVING FORWARD: RECOMMENDATIONS Based upon this review of existing Stark law and its relationship to key health reform measures, the author has compiled a series of recommendations to align policy with the actions of healthcare organizations in the coming decade. Before proceeding, it is critical to note that healthcare providers are actively developing incentive programs based on clinical quality standards regardless of the conflicting policy landscape. Alice Gosfield aptly commented that “[e]ven with Stark, you can pay people for quality and value, but you have to make sure the compensation formula in general complies with Stark if you have DHS in your group.”58 The following recommendations drew inspiration from a compilation of research material referenced in the paper’s footnotes and bibliography. 52
ACO and the Stark Law: How to Co-Exist, HEALTH CAP. TOPICS (Jan. 2011), http://www.healthcapital. com/hcc/newsletter/1 11/aco.pdf. 53 Troy Barsky et al., Legal and Policy Issues Related to ACO Formation by Independent Physician Groups, CROWELL MORING 1, 19 (May 15, 2013), http://www.crowell.com/files/ Legal-Policy-Issues-Related-to-ACO-Formation-by-Independent-Physician-Groups.pdf. 54 ACOs Get Broad Policy Waivers from the Fraud and Abuse Laws, MCDERMOTT, WILL, AND EMERY, 1, 2-3 (Nov. 10, 2011), http://www.mwe.com/info/news/wp1111a.pdf. 55 See generally id. 56 Id. at 5. 57 Medicare Program: Final Waivers in Connection with the Shared Savings Program, 76 Fed. Reg. 212, 67994 (proposed Nov. 2, 2011) (to be codified at 42 C.F.R. pt. 3, ch. 5), http://www.gpo.gov/fdsys/pkg/ FR-2011-11-02/pdf/2011-27460.pdf. 58 Stark Law Is Not Obstacle for Providers Shifting to Quality-Based Productive Pay, AISHEALTH (June 25, 2012), http://aishealth.com/archive/rmc062512-02.
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Primarily, CMS should finalize the 2009 proposed exception for pay for performance and shared savings incentives programs that applied to hospitals. This would provide hospitals with enhanced flexibility in initiating pay for performance agreements with physicians and creating incentives to improve clinical pathways. An alternative to finalizing the exception would be to create waivers for pay for performance initiatives. CMS would then review proposed programs and grant waivers based on a set of predetermined requirements. Physicians would need to show proof of value and quality of care added to the organization to obtain approval for a waiver. The complication for this recommendation is that approval for a waiver program would have to progress through one of two avenues. The first would be for CMS to argue that this is a reasonable extension and that the law was unclear with regard to this matter. The inherent risk in this step, however, is that Congress will view this action as an overstepping of the boundaries of the agency. The second avenue would be for Congress to initiate legislation approving of a pay for performance waiver program. For CMS to successfully issue regulations regarding a pay for performance waiver program, the program would need to reasonably fill a gap that Congress left or be a logical extension of existing legislation. This precedent was set by the 1984 case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.59 The Chevron case effectively created a two-step test, in which the court first considers if Congress has directly addressed the matter at hand. If not and the statute is “silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”60 The second option is for Congress to approve of a pay for performance waiver program, just as PPACA contained provisions for a Medicare Shared Savings Program for ACOs. Specifically, Section 3022 of PPACA “added a new section . . . that require[d] the Secretary to establish the Shared Savings Program.”61 Under this section, the Secretary is granted waiver authority for ACOs.62 If such an exception were created by Congress, CMS the could issue regulations implementing the program. An alternative possibility occurs if the program is a federal demonstration project. In that case, CMS has the authority to waive fraud and abuse laws. 59
Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). Id. at 843. 61 Summary of Final Rule Provisions for Accountable Care Organizations under the Medicare Shared Savings Program, CENTERS FOR MEDICARE & MEDICAID SERVS. 1 (Nov. 2012), https://www. cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ACO Sum mary Factsheet ICN907404.pdf. 62 Roy M. Albert et al., CMS and OIG Issue Joint Notice, Solicit Comments Related to Waivers of Fraud and Abuse Provisions for Accountable Care Organizations, HEALTH CARE REFORM ALERT (Apr. 6, 2011), http://www.mintz.com/newsletter/2011/Advisories/1017-0411-NAT-HCR/web.htm. 60
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With regard to EHR technology, the EHR donation exception should be extended through 2016 as proposed by CMS in April of 2013. In addition to the extension, the boundaries of the exception should include the right to donate hardware to physicians proven to be financially unable to support the acquisition on their own. The Department of Health and Human Services and CMS should finally publish an itemized, clear set of guidelines for hospitals and providers with regard to the 35 current acceptable Stark law exceptions and connections to major tenets of health reform. This would provide hospital and physician practice administrators a practical resource to reference that is free of confusing legal jargon before initiating discussions with legal counsel. CONCLUSION The pace of health reform and information technology has advanced beyond what the creators of the Stark law may have envisioned at the time. Programs designed to enhance patient quality and safety in the environment of daily patient care suddenly could become a liability to a healthcare organization when examined under the Stark lens. With the characteristically slow pace of legislation, CMS never finalized a key pay for performance exception, and legal advisors have had to develop workarounds for their healthcare organizations. As it has been four years since the PPACA passed, it is time for CMS to revise Stark law regulations and clarify existing exceptions to eliminate the uncertainty providers face.
Journal of Legal Medicine Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/ulgm20
Stark Law and the Affordable Care Act: Bridging the Disconnect Jennifer Tharp Published online: 10 Sep 2014.
Click for updates To cite this article: Jennifer Tharp (2014) Stark Law and the Affordable Care Act: Bridging the Disconnect, Journal of Legal Medicine, 35:3, 433-444, DOI: 10.1080/01947648.2014.936266 To link to this article: http://dx.doi.org/10.1080/01947648.2014.936266
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Journal of Legal Medicine, 35:433–444 C 2014 American College of Legal Medicine Copyright 0194-7648 print / 1521-057X online DOI: 10.1080/01947648.2014.936266
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Jennifer Tharp* First Prize Hirsh Student Writing Competition 2014
INTRODUCTION Law makers intended for the original terms of the Ethics in Patient Referrals Act, or the Stark law, to prevent unethical physician self-referrals and to reduce corruption within the medical profession. In the new era of the Patient Protection and Affordable Care Act (PPACA) and the Health Information Technology for Economic and Clinical Health Act (HITECH), however, the Stark law is causing concern for healthcare systems, providers, and administrators attempting to transition to an increasingly technical, quality-driven healthcare system. Current Stark language and the complicated limits of exceptions have caused confusion and delayed the incentivizing of pay for performance initiatives and implementation of electronic health records in some organizations. Reform is necessary to simplify Stark and better accommodate beneficial financial relationships that improve patient care quality. The Centers for Medicare and Medicaid Services (CMS) should issue the proposed exception for pay for performance hospital programs as part of a regulation, extend the electronic health record exception from 2006,1 and initiate a waiver program for pay for performance programs similar to the waiver program for accountable care organizations (ACOs).
*Master of Science in Health Care Policy and Management in the H.J. Heinz III College at Carnegie Mellon University. The author would like to acknowledge Pamela Grimm for her guidance as the supervisor of her independent study during the Fall 2013 semester at Carnegie Mellon’s H. J. Heinz III College. Direct correspondence to Ms. Tharp at [email protected]. 1 At the time of this article’s composition, the EHR exception had not yet been finalized. As of December 23, 2013, CMS adopted final rules to extend the sunset date for EHR donation. The date has been extended to December 31, 2021. Molly Gamble, OIG, CMS Release Final Rules for HER Stark Exception, Anti-Kickback Safe Harbor, BECKER’S HOSPITAL REV. (Dec. 26, 2013), http://www.beckershospitalreview.com/legal-regulatory-issues/oig-cms-release-final-rulesfor-ehr-stark-exception-anti-kickback-safe-harbor.html.
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I. PHYSICIAN SELF-REFERRAL LAW
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A. Background The Stark law passed in 1989 due to the efforts of Representative Pete Stark (D-California), and its purpose was to limit overutilization in the healthcare system due to physicians’ financial interests.2 A provider, or members of the provider’s family, may not make referrals to designated health services (DHS) entities that the physician has a financial relationship with unless an exception applies.3 Furthermore, entities may not submit claims to Medicare that result from a prohibited referral regardless of intent.4 In its initial form, Stark I applied only to clinical laboratory services, which were primary suspects of overutilization due to providers’ laboratory ownership roles.5 In 1993, Congress amended the Stark law in the form of Stark II as part of the Omnibus Reconciliation Act of 1993, which extended the boundaries of the law to include a total of 11 categories of designated health services.6 When considering Medicaid referrals, the law indirectly applies, as the federal government could deny a state-federal matching funds for any prohibited referral.7 The Stark law only applies to physician referrals made to a DHS entity with which a physician has a direct or indirect financial relationship.8 In effect, the Stark law serves as a broad prohibition when such a financial relationship exists, unless the provider can meet an exception.9 A referral can be defined as “direct or indirect, meaning that physicians would be considered to have made referrals if they caused, directed, or controlled referrals made by others.”10 Depending on the nature of the professional service, referrals can further be made in any form, including written, oral, and electronic, or be part of a plan of care. If a physician personally performs the DHS services, that scenario is not a referral. According to the original “stand in the shoes” provision, any physician could be deemed to represent his or her organization in regards to Stark compliance if “the only intervening entity between the physician and the 2
The Stark Law Rules of the Road, AM. MED. ASS’N 1, 1 (2011), http://www.ama-assn.org/resources/ doc/psa/stark-law/stark-law.pdf; Healthcare Finance Index: Pete Stark, HEALTHCARE FIN. NEWS, http:// www.healthcarefinancenews.com/directory/pete-stark (last visited Mar. 26, 2013). 3 The Stark Law Rules of the Road, supra note 2, at 1, 10. 4 Id. at 1. 5 Id. 6 American Health Lawyers Association Public Interest Committee, A Public Policy Discussion: Taking the Measure of the Stark Law, AM. HEALTH LAWYERS ASS’N 1, 1, http://www.healthlawyers. org/hlresources/PI/ConvenerSessions/Documents/Stark%20White%20Paper.pdf (last visited Mar. 26, 2014). 7 Robert G. Homchick & Davis W. Tremaine, The Law and Economics of Pay for Performance, Bundled Payments, and Shared Savings, AM. HEALTH LAWYERS ASS’N 1, 1, http://www.healthlawyers.org/Events/ Programs/Materials/Documents/AM11/homchick.pdf (last visited Mar. 26, 2014). 8 See The Stark Law Rules of the Road, supra note 2. 9 See id. 10 Id. at 2.
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DHS entity is his or her physician organization.”11 However, the 2009 Inpatient Prospective Payment System Final Rule limited the scope of the provision to only include individual physicians with an ownership or investment interest in the DHS entity.12
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B. Exceptions If a provider requires an agreement that involves DHS, the arrangement needs to fall under 1 of the more than 30 exceptions to the Stark law.13 Three main types include general, ownership/investment, and compensation.14 After review of literature and legal research, legal counsels tend to recommend exceptions based on fair market value, personal service arrangements, and indirect financial relationships.15 Additionally, there are also exceptions for academic medical centers, bona fide employment relationships, communitywide electronic health records, and intra-family referrals in rural areas.16 To meet an exception, the agreement should contain requisite signatures, outline the terms set in advance, and verify that the arrangement is consistent with fair market value and not reliant on the volume or value of referrals.17 If an agreement does not fall under one of these exceptions, and involves physician referrals, it could be subject to enforcement by the Department of Health and Human Services Office of the Inspector General (OIG) and the Department of Justice (DOJ) and steep penalties.18 II. PAY FOR PERFORMANCE PROGRAMS With the passing of the PPACA in 2009, providers are now eligible for incentive payments or reductions in Medicare funding based on quality of care and certain performance metrics.19 Specific measures for hospitals include reducing readmission rates, decreasing hospital acquired illnesses, meeting value-based purchasing measures, and receiving patient satisfaction scores.20 For fiscal year 2014, 1.25% of Medicare revenue depends upon meeting
11
Id. at 9. Id. at 3. 13 Id. at 19. 14 Id. at 20. 15 Id. 16 Id. 17 Id. at 19. 18 Id. at 2. 19 U.S. Efforts to Reduce Healthcare-Associated Infections Before the S. Comm. on Health, Education, Labor & Pensions, 113 Cong. (2013) (statement of Patrick Conway, Chief Medical Officer and Director, Centers for Medicare & Medicaid Services, U.S. Department of Health and Humans Services), http://www.help.senate.gov/imo/media/doc/Conway.pdf. 20 Id. 12
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the value-based purchasing clinical quality measures.21 Considering that Medicare revenues are at stake, hospitals and physician groups may seek to provide physician incentives based upon reducing readmissions or improving quality, instead of basing compensation upon weighted relative value units (RVUs). Medicare determines physician payment for services, procedures, or patient encounter, through the RVU.22 The contention is that the Stark law has not kept pace with policy, and providers may directly violate the law unless the agreement is carefully structured. As part of the 2009 Medicare Physician Fee Schedule, CMS almost added an exception to Stark that would have permitted hospitals to have incentive payment programs, including both pay for performance and shared savings/gainsharing arrangements. The language of the proposed exception acknowledged that “the existing exceptions to the physician self-referral prohibition may not be sufficiently flexible to protect payments to physicians under incentive payment and shared savings programs.”23 However, CMS decided not to finalize the exception and still considers it to be pending.24 That being said, there are several options for an organization’s counsel to consider if the organization still wants to pursue these incentives as part of its policy. A. Methods to Legally Provide Performance Incentives Several potential approaches to structure a pay for performance agreement include following the terms of the proposed exception with a certain degree of risk, complying with an existing Stark exception, avoiding reduction of care incentives, and carving out Medicare participants. Before exploring these potential methods, it is necessary to define the difference between a pay for performance measure and a gainsharing measure. CMS defines pay for performance as a “quality improvement and reimbursement methodology aimed at moving towards payments that create stronger financial support for patient focused, high value care.”25 The Department of Health and Human Services (DHSS) describes gainsharing as an “arrangement in which a hospital [or other provider] gives physicians a percentage share of any reduction 21
See Hospital Value-Based Purchasing Program, CENTERS FOR MEDICARE & MEDICAID SERVS. (Mar. 2013), http://www.cms.gov/Outreach-and-Education/Medicare-Learning-Network-MLN/ MLNProducts/downloads/Hospital VBPurchasing Fact Sheet ICN907664.pdf. 22 The Basics: Relative Value Units (RVUs), NAT. HEALTH POL’Y FORUM 1, 1 (Feb. 12, 2009), http://www. nhpf.org/library/the-basics/basics rvus 02-12-09.pdf. 23 Medicare Program; Revisions to Payment Policies Under the Physician Fee Schedule and Other Revisions to Part B for CY 2009; and Revisions to the Amendment of the E-Prescribing Exemption for Computer Generated Facsimile Transmissions; Proposed Rule, 73 Fed. Reg. 38,502-01, 38,551 (July 7, 2008) (to be codified at 42 C.F.R. pts. 405, 409, 410, 411, 414, 415, 424, 485, and 486). 24 W. Kenneth Davis, 7th Annual Illinois Chapter ACC Practice Management Symposium: Gainsharing: Is It Still Feasible?, KATTEN MUCHIN ROSENMAN LLP 1, 23 (May 14, 2010), http://www.kattenlaw.com/ files/upload/Gainsharing-is-it-Still-Feasible-5 14 10.pdf. 25 Medicare Program, 73 Fed. Reg. at 38,549.
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in the hospital’s costs for patient care attributable in part to the physician’s efforts.”26
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B. Following the Proposed Exception One possibility is to follow the directives of the proposed exception even though CMS never officially finalized it. The organization would have to incorporate this step as part of its risk analysis and then proceed with caution. Any agreement also would need to observe the requirements of the AntiKickback Law and the Civil Monetary Penalty Law.27 The original proposed exception included 16 requirements for a program to qualify. Several key components are described in the following points. • The incentive payment or shared savings program must be a documented program that seeks to achieve the improvement of quality of hospital patient care services through changes in physician clinical or administrative practices or hospital cost savings. • The rule proposed that patient care quality measures must be listed in CMS’ Specifications Manual for National Hospital Quality Measures. • Eligibility of a physician to participate in the program should not reflect the volume or value of referrals in any way. • Participation in the program should be limited to physicians who are members of the hospital’s medical staff at the commencement of the project. • Patients and physicians should be allowed to use non-indicated procedure/supplies when necessary or requested.28 As an example, a hospital could initiate a pay for performance program that focuses on improving a set of clinical quality measures found in the Specifications Manual for National Hospital Quality Measures. Physicians could receive incentives for meeting all of the measures for acute myocardial infarction care, such as aspirin prescribed at discharge. To provide an instance of a shared savings arrangement, a hospital could analyze the variable costs attributable to each of its orthopedic physicians. Once the hospital assesses the total costs, then it could design a gainsharing model that incorporates measures such as reducing variation in treatments, the use of orthopedic
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Special Advisory Bulletin: Gainsharing Arrangements and CMPs for Hospital Payments to Physicians to Reduce or Limit Services to Beneficiaries, OFF. OF INSPECTOR GEN. (July 1999), https://oig.hhs.gov/fraud/docs/alertsandbulletins/gainsh.htm. 27 See Kickback and Physician Self-Referral, OFF. OF INSPECTOR GEN., https://oig.hhs.gov/fraud/ enforcement/cmp/kickback.asp (last visited Mar. 26, 2014). 28 See Growing Support of Gainsharing Arrangements, HEALTH CAP. TOPICS (2008), http://www. healthcapital.com/newsletter/fall/Growing Support of Gainsharing Arrangements.pdf.
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implants, supplies, etc.29 There is support for following this type of proposed exception in several published advisory opinions by the OIG that are only applicable to the specific parties mentioned in the opinions.30 As of August 2012, there were 14 existing opinions, and the majority approved the proposed gainsharing arrangements.31 Specifically, three recurring approved safeguards included: “(1) measures that promote accountability and transparency, (2) adequate quality controls, and (3) controls on payment related to referrals.”32
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C. Meeting Existing Exceptions Another avenue is to meet the requirements of an existing exception and include performance incentives as part of that agreement. Potential exceptions that could be utilized include the risk-sharing exception, the indirect compensation exception, group practice physicians, bona fide relationships, personal service arrangements, fair market value, and academic medical center exceptions. The risk sharing exception can provide the ability to spread risk across providers that are downstream of a managed care organization, although it is based on the distribution of risk and not quality of care. The terms of the agreements can include “withholds, bonuses, and risk pools” for services physicians provide to enrollees of a health plan.33 CMS did not narrowly restrict the definition of a managed care organization, so it can be any health plan, insurance company, health maintenance organization, or independent practice association.34 Compensation for this exception cannot take into consideration the volume or value of referrals. Personal service arrangements can include percentage-based compensation from an existing pool of incentive money, but the percentage compensation cannot apply to office space or equipment leasing.35 In line with other exceptions, the percentage compensation cannot vary on the volume or value of referrals by the physician.36 It is also possible to structure a pay for performance incentive through an indirect compensation exception, as long as the payments center on quality, preventative care, or patient satisfaction.37 Reducing return visits (such as readmissions) or services could be a violation 29
Elyse Gellerman & Daniel Piro, Gainsharing Can Be a Challenging, Yet Valuable Process—Part II, 10 ORTHOPEDIC NETWORK NEWS 9, 10 (1999) http://trauma.orthopedicnetworknews.com/archives/onn102s3. pdf. 30 See Gainsharing, AM. HEALTH LAWYERS ASS’N, http://www.healthlawyers.org/hlresources/Health% 20Law%20Wiki/Gainsharing.aspx (last updated Aug. 18, 2012). 31 Id. 32 Id. 33 Alice G. Gosfield, The Stark Truth About The Stark Law: Part II, 11 FAM. PRAC. MGMT. 41 (2004), http://www.aafp.org/fpm/2004/0200/p41.html. 34 Homchick & Tremaine, supra note 7, at 7. 35 Id. at 5. 36 Id. 37 See id. at 9.
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of the civil monetary penalty. The fair market value exception is not a guaranteed protection in the current legal environment, however, as recent legal cases have shown. Covenant Medical Center in Iowa, for example, chose to pay the federal government $4.5 million in settlements for allegedly violating Stark and the False Claims Act when it paid certain specialists at least $1.8 million.38 Although Covenant argued that the salary was fair market value for the physicians’ productivity, the center still elected to settle. After an analyzing ways to structure an incentive program, it is possible to implement pay for performance incentives despite the lack of clear Stark Law guidance. However, legal counsel must structure agreements to meet existing Stark exceptions and avoid medical care reductions. III. ELECTRONIC HEALTH RECORD EXCEPTIONS A. Introduction As part of the HITECH Act, Medicare and Medicaid both have meaningful use programs for electronic health record (EHR) technology by eligible providers and hospitals. Meaningful use progresses in three stages, and there is the potential for eligible professionals, hospitals, and critical access hospitals to receive up to $44,000 under the Medicare program and $63,750 under the Medicaid program in incentives.39 Organizations that began using EHR technology early in the program are more likely to receive the full amount. Hospital-based physicians, such as radiologists and anesthesiologists, may not participate in the programs. Beginning in 2015, there are disincentives for eligible providers if they do not demonstrate meaningful use of EHR technology. In 2015, the decreased reimbursement rate is one percent of Medicare revenues. Each subsequent year, the percentage deducted increases by one percent.40 Despite the possibility of incentive payments, establishing a functioning EHR is cost prohibitive and time consuming, even for established health systems. Duke University’s Health System, for example, spent $700 million on its EPIC EHR system.41 For small providers and practices, implementing 38
Covenant Medical Center to Pay U.S. $4.5 Million to Resolve False Claims Act Allegations, U.S. DEP’T (Aug. 25, 2009), http://www.justice.gov/opa/pr/2009/August/09-civ-849.html. 39 EHR Incentive Programs, CENTERS FOR MEDICARE AND MEDICAID SERVS., http://www.cms.gov/ Regulations-and-Guidance/Legislation/EHRIncentivePrograms/index.html?redirect=/ehrincentive programs/ (last updated Feb. 18, 2014). 40 Are There Penalties for Providers Who Don’t Switch to Electronic Health Records (EHR)? HEALTHIT.GOV, http://www.healthit.gov/providers-professionals/faqs/are-there-penalties-providerswho-don%E2%80%99t-switch-electronic-health-record (last visited Mar. 26, 2014). 41 Zina Moukheiber, The Staggering Cost of an Epic Electronic Health Record Might Not Be Worth It, FORBES (June 18, 2012), http://www.forbes.com/sites/zinamoukheiber/2012/06/18/ the-staggering-cost-of-an-epic-electronic-health-record-might-not-be-worth-it/. OF JUSTICE
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an EHR requires costly investment, training of staff on new equipment, and lost productivity due to the learning curve. In Health Affairs, a published study included 26 primary care practices in Texas. Incorporating the results from those practices, the study found that it costs approximately $162,000 for a five-physician practice to fully implement an EHR.42 Additionally, there is an average, total additional $85,500 in “maintenance expenses.”43 Considering these costs, it would be expedient for physicians to obtain assistance from more advanced health systems that have already undergone EHR development. However, both parties must consider any such option within the bounds of Stark law. B. Applicable Stark Exceptions There are two Stark exceptions that apply specifically to EHRs, one regarding community-wide EHR systems and another regarding EHR donation. For the community-wide EHR exception, the donated EHR must be available to the entire community and all of its providers. Providers must be able to access and exchange EHRs, and the donated services must be necessary.44 Donations of hardware, software, and all other relevant materials are acceptable as part of this exception as long as the physicians do not already have them. The EHR donation exception is more restrictive, however, and involves donation of EHR software, information technology, training, and maintenance to providers. Hardware, staff, and cash are considered out of the boundaries of this exception. Further requirements include that the donation must be necessary, the software must be interoperable, there should be an electronic prescribing component, the agreement should be in writing, and the parties receiving the donation must contribute at least 15% of the cost.45 There are further requirements on how a hospital or health system can select which providers to donate the software. Although the volume or value of referrals are not acceptable criteria, potential donors can examine criteria including prescriptions written by the physician, the size of the physician’s medical practice, the physician’s overall use of automated technology, and the level of uncompensated care a physician provides, among other criteria.46 42
Neil S. Fleming et al., The Financial and Nonfinancial Costs of Implementing Electronic Health Records in Primary Care Practices, 30 HEALTH AFF. 481, 481 (2011). 43 Id. 44 Medicare Program: Physicians’ Referrals to Health Care Entities with Which They Have Financial Relationships (Phase II), 69 Fed. Reg. 16,054, 16,113 (Mar. 26, 2004) (to be codified at 42 C.F.R. pt. 411 & 424). 45 Medicare Program: Physicians’ Referrals to Health Care Entities with Which They Have Financial Relationships (Phase III), 72 Fed. Reg. 51,012, 51,097 (Sept. 5, 2007) (to be codified at 42 C.F.R. pt. 411 & 424). 46 Linn F. Freedman, The Final Stark Exception and Anti-Kickback Safe Harbor for Electronic Health Records and E-Prescribing, NIXON PEABODY LLC 1, 2 (Oct. 5, 2006), http://www.nixonpeabody.com/ files/HLA 10052006.pdf.
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C. Shortcomings and Complications One of the primary concerns with the EHR exception is the fact that hardware, staff, and software not directly related to EHR technology are not included as acceptable items for donations. The hardware can be one of the most expensive factors in acquiring an EHR system, and some small providers may be unable to afford it without assistance to meet the meaningful use deadlines. In the Health Affairs study, the one-time hardware costs (including Internet switches, cables, and wireless internet) were $25,000 per practice.47 Practices further may require additional staffing to utilize the EHR to its full extent. Finally, software not directly related to the EHR still may be necessary for its successful implementation, such as a claims processing component. The second major concern is that the EHR donation exception is expiring on the “sunset” date of December 31, 2013. CMS did propose an extension in April of 2013 that would keep the exception through 2016, and this concern is evident in health system policy regarding EHR donation.48 For example, Sutter Health CPMC limited its EHR donation program to a three-year timespan to end when the exception expired.49 It is uncertain, however, whether CMS actually will finalize the extension, which is necessary to allow health systems and hospitals to continue to assist providers with implementing EHRs in the era of health reform.50 IV. ACCOUNTABLE CARE ORGANIZATIONS: A BETTER PARADIGM In looking to improve the Stark landscape for pay for performance and EHRs, CMS’ position toward ACOs illustrates a better example of how to enable quality and cost-saving reform measures while still ensuring legal protection. CMS defines ACOs as “groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated, high quality care to their Medicare patients.”51 On the surface, an ACO directly 47
Study Identifies Costs of Implementing Electronic Health Records in Network of Physician Practices, AGENCY FOR HEALTHCARE RES. AND QUALITY (Oct. 2011), http://www.ahrq.gov/news/newsletters/ research-activities/oct11/1011RA15.html. 48 Daniel F. Gottlieb, HHS Extends Sunset Date for Stark Exception and Anti-Kickback Safe Harbor for EHR Donations, MCDERMOTT, WILL, AND EMERY (Apr. 18, 2013), http://www.mwe.com/abc. aspx?xpST=abc&url=http%3a%2f%2fwww.mwe.com%2fpublications%2funi-Entity.aspx%3fxpST% 3dPublicationDetail%26pub%3d8271. 49 CPMC EHR Donation Program Frequently Asked Questions, SUTTER HEALTH CPMC, http://www.cpmc. org/professionals/ehrdonation/faq.html (last visited Mar. 26, 2014). 50 At the time of this article’s composition, the EHR exception had not yet been finalized. As of December 23, 2013, CMS had adopted final rules to extend the sunset date for EHR donation. The date has been extended to December 31, 2021. Gottlieb, supra note 48. 51 Accountable Care Organizations (ACO), Centers for Medicare and Medicaid Servs. (Mar. 22, 2013), http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/ACO/.
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could violate the Stark Law due to the bundled payments, integrated care models, and gainsharing features inherent in its structure. However, CMS has the right to grant a waiver for Stark compliance (as well as the anti-kickback law and provisions of the civil monetary penalty) to any ACO that “will improve the quality and efficiency of items and services furnished under the Medicare shared savings program and bundled payment pilot program.”52 At least 250 organizations nationwide are participating in the Medicare Shared Savings Program and benefitting from the waivers.53 An ACO would need to meet the terms of at least one of five different types of waivers: an ACO pre-participation waiver, an ACO participation waiver, a Shared Savings distribution waiver, a compliance with Stark Law waiver, and a patient incentive waiver.54 The remaining risk to the organization would be losing its participation in the Shared Savings Program due to a violation of the waiver terms.55 The waivers only can apply to an institution that is an ACO or that has a bona fide intention to become one within a year.56 One cautionary note is that the waivers only apply to the federal Stark law and do not extend to state laws or the Internal Revenue Service.57 V. MOVING FORWARD: RECOMMENDATIONS Based upon this review of existing Stark law and its relationship to key health reform measures, the author has compiled a series of recommendations to align policy with the actions of healthcare organizations in the coming decade. Before proceeding, it is critical to note that healthcare providers are actively developing incentive programs based on clinical quality standards regardless of the conflicting policy landscape. Alice Gosfield aptly commented that “[e]ven with Stark, you can pay people for quality and value, but you have to make sure the compensation formula in general complies with Stark if you have DHS in your group.”58 The following recommendations drew inspiration from a compilation of research material referenced in the paper’s footnotes and bibliography. 52
ACO and the Stark Law: How to Co-Exist, HEALTH CAP. TOPICS (Jan. 2011), http://www.healthcapital. com/hcc/newsletter/1 11/aco.pdf. 53 Troy Barsky et al., Legal and Policy Issues Related to ACO Formation by Independent Physician Groups, CROWELL MORING 1, 19 (May 15, 2013), http://www.crowell.com/files/ Legal-Policy-Issues-Related-to-ACO-Formation-by-Independent-Physician-Groups.pdf. 54 ACOs Get Broad Policy Waivers from the Fraud and Abuse Laws, MCDERMOTT, WILL, AND EMERY, 1, 2-3 (Nov. 10, 2011), http://www.mwe.com/info/news/wp1111a.pdf. 55 See generally id. 56 Id. at 5. 57 Medicare Program: Final Waivers in Connection with the Shared Savings Program, 76 Fed. Reg. 212, 67994 (proposed Nov. 2, 2011) (to be codified at 42 C.F.R. pt. 3, ch. 5), http://www.gpo.gov/fdsys/pkg/ FR-2011-11-02/pdf/2011-27460.pdf. 58 Stark Law Is Not Obstacle for Providers Shifting to Quality-Based Productive Pay, AISHEALTH (June 25, 2012), http://aishealth.com/archive/rmc062512-02.
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Primarily, CMS should finalize the 2009 proposed exception for pay for performance and shared savings incentives programs that applied to hospitals. This would provide hospitals with enhanced flexibility in initiating pay for performance agreements with physicians and creating incentives to improve clinical pathways. An alternative to finalizing the exception would be to create waivers for pay for performance initiatives. CMS would then review proposed programs and grant waivers based on a set of predetermined requirements. Physicians would need to show proof of value and quality of care added to the organization to obtain approval for a waiver. The complication for this recommendation is that approval for a waiver program would have to progress through one of two avenues. The first would be for CMS to argue that this is a reasonable extension and that the law was unclear with regard to this matter. The inherent risk in this step, however, is that Congress will view this action as an overstepping of the boundaries of the agency. The second avenue would be for Congress to initiate legislation approving of a pay for performance waiver program. For CMS to successfully issue regulations regarding a pay for performance waiver program, the program would need to reasonably fill a gap that Congress left or be a logical extension of existing legislation. This precedent was set by the 1984 case of Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc.59 The Chevron case effectively created a two-step test, in which the court first considers if Congress has directly addressed the matter at hand. If not and the statute is “silent or ambiguous with respect to the specific issue, the question for the court is whether the agency’s answer is based on a permissible construction of the statute.”60 The second option is for Congress to approve of a pay for performance waiver program, just as PPACA contained provisions for a Medicare Shared Savings Program for ACOs. Specifically, Section 3022 of PPACA “added a new section . . . that require[d] the Secretary to establish the Shared Savings Program.”61 Under this section, the Secretary is granted waiver authority for ACOs.62 If such an exception were created by Congress, CMS the could issue regulations implementing the program. An alternative possibility occurs if the program is a federal demonstration project. In that case, CMS has the authority to waive fraud and abuse laws. 59
Chevron U.S.A., Inc. v. Natural Resources Defense Council, 467 U.S. 837 (1984). Id. at 843. 61 Summary of Final Rule Provisions for Accountable Care Organizations under the Medicare Shared Savings Program, CENTERS FOR MEDICARE & MEDICAID SERVS. 1 (Nov. 2012), https://www. cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Downloads/ACO Sum mary Factsheet ICN907404.pdf. 62 Roy M. Albert et al., CMS and OIG Issue Joint Notice, Solicit Comments Related to Waivers of Fraud and Abuse Provisions for Accountable Care Organizations, HEALTH CARE REFORM ALERT (Apr. 6, 2011), http://www.mintz.com/newsletter/2011/Advisories/1017-0411-NAT-HCR/web.htm. 60
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With regard to EHR technology, the EHR donation exception should be extended through 2016 as proposed by CMS in April of 2013. In addition to the extension, the boundaries of the exception should include the right to donate hardware to physicians proven to be financially unable to support the acquisition on their own. The Department of Health and Human Services and CMS should finally publish an itemized, clear set of guidelines for hospitals and providers with regard to the 35 current acceptable Stark law exceptions and connections to major tenets of health reform. This would provide hospital and physician practice administrators a practical resource to reference that is free of confusing legal jargon before initiating discussions with legal counsel. CONCLUSION The pace of health reform and information technology has advanced beyond what the creators of the Stark law may have envisioned at the time. Programs designed to enhance patient quality and safety in the environment of daily patient care suddenly could become a liability to a healthcare organization when examined under the Stark lens. With the characteristically slow pace of legislation, CMS never finalized a key pay for performance exception, and legal advisors have had to develop workarounds for their healthcare organizations. As it has been four years since the PPACA passed, it is time for CMS to revise Stark law regulations and clarify existing exceptions to eliminate the uncertainty providers face.
