[Senate Hearing 114-668]
[From the U.S. Government Publishing Office]
S. Hrg. 114-668
EXAMINING THE STARK LAW:
CURRENT ISSUES AND OPPORTUNITIES
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
JULY 12, 2016
__________
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COMMITTEE ON FINANCE
ORRIN G. HATCH, Utah, Chairman
CHUCK GRASSLEY, Iowa RON WYDEN, Oregon
MIKE CRAPO, Idaho CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas BILL NELSON, Florida
JOHN THUNE, South Dakota ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada MARK R. WARNER, Virginia
TIM SCOTT, South Carolina
Chris Campbell, Staff Director
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
WITNESSES
Barsky, Troy A., partner, Crowell and Moring, LLP, Washington, DC 6
Paulus, Ronald A., M.D., president and chief executive officer,
Mission Health System, Asheville, NC........................... 7
Mancino, Peter B., deputy general counsel, The Johns Hopkins
Health System Corporation, Baltimore, MD....................... 9
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Barsky, Troy A.:
Testimony.................................................... 6
Prepared statement........................................... 25
Hatch, Hon. Orrin G.:
Opening statement............................................ 1
Prepared statement........................................... 39
Mancino, Peter B.:
Testimony.................................................... 9
Prepared statement........................................... 40
Paulus, Ronald A., M.D.:
Testimony.................................................... 7
Prepared statement........................................... 42
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement........................................... 45
Communications
Advanced Medical Technology Association (AdvaMed)................ 47
Alliance for Integrity in Medicare (AIM)......................... 52
American Academy of Orthopaedic Surgeons et al................... 54
American College of Cardiology................................... 57
American College of Surgeons..................................... 57
American Physical Therapy Association (APTA)..................... 59
Gundersen Health System.......................................... 61
Horty, Springer, and Mattern, Attorneys at Law................... 62
Physician Hospitals of America (PHA)............................. 66
Taxpayers Against Fraud.......................................... 71
Trinity Health................................................... 72
Withrow, Scott C................................................. 75
(iii)
EXAMINING THE STARK LAW:
CURRENT ISSUES AND OPPORTUNITIES
----------
TUESDAY, JULY 12, 2016
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:12
a.m., in room SD-215, Dirksen Senate Office Building, Hon.
Orrin G. Hatch (chairman of the committee) presiding.
Present: Senators Grassley, Burr, Coats, Heller, Scott,
Wyden, Stabenow, Cardin, Bennet, and Casey.
Also present: Republican Staff: Chris Campbell, Staff
Director; Kimberly Brandt, Chief Oversight Counsel; and Jill
Wright, Detailee. Democratic Staff: Joshua Sheinkman, Staff
Director; Elizabeth Jurinka, Chief Health Advisor; and Beth
Vrabel, Senior Health Counsel.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
UTAH, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The committee will come to order. As members
of the Senate Finance Committee, we have a wide range of
duties. In addition to drafting laws and overseeing their
enforcement and implementation, we are also called on to assess
the impact of existing laws to determine their effectiveness at
achieving their intended goals.
When it comes to that last part, there is a quote from a
well-known American business leader that applies--quote: ``Good
intentions often get muddled with very complex execution.''
Today we are here to talk about the Stark Law, an important
yet extremely complicated health-care fraud law that prohibits
physician referrals under certain circumstances. This law is
the embodiment of good intentions muddled with complex
execution.
At its most basic level, the Stark Law prohibits doctors
from referring Medicare patients to hospitals, labs, and other
physicians for health-care services if the referring doctor has
any direct or indirect financial relationship with that entity.
The sweeping nature of that prohibition makes vast swaths
of medicine performed in the current health-care system
potentially illegal. Anyone caught violating the law must give
back all the Medicare reimbursements paid to the doctor,
hospital, or lab under the tainted arrangement, even if the
violations were unintentional, because the Stark Law is a
strict liability statute that is indifferent to motive,
knowledge, or state of mind.
When the Stark Law passed in 1989, the lawmakers believed
that, given a bright-line rule, providers would self-police
their arrangements with physicians. And despite this original
intent, the Stark Law has become increasingly complex and
created more and more challenges for legitimate health-care
arrangements.
Today the health-care world is populated by scores of legal
experts who strive to keep up with the sprawling compendium of
statutes, regulations, and Federal advisories known
collectively as the Stark Law.
The Federal Register contains hundreds, if not thousands,
of pages of regulatory text drafted by the Department of Health
and Human Services to improve compliance with and
implementation of the Stark Law. Through these regulations, HHS
has come up with more than 30 exceptions to the law, each of
which carries its own detailed requirements. Even the original
sponsor, the namesake of the legislation, Representative
Fortney ``Pete'' Stark, recently lamented the Byzantine turn
that the statute has taken, stating, quote, ``It gave every
shyster and promoter a loophole. We now have to keep rewriting
the laws like the tax code.''
Because it regulates physicians' financial relationships,
the Stark Law has a significant impact on the structure and
operation of the health-care delivery system. Therefore, as we
have collectively worked to transition our Federal health
programs towards more value-based payments and systems and away
from fee-for-service models, one question keeps coming up. In
its current form, is the Stark Law still necessary?
Last December, in an effort to answer this question and
address long-standing concerns about the Stark Law, the Finance
and Ways and Means Committees convened a roundtable discussion
with stakeholders and legal experts to discuss these issues.
All three of the witnesses here today were part of that
discussion. We received feedback on a number of issues related
to the Stark Law, including the barriers it places on the
implementation of health reform laws, stakeholders'
frustrations with the difficulty and expense associated with
compliance, and the problems created by the Centers for
Medicare and Medicaid Services' limited authority to create
exceptions and to issue advisory opinions.
Following the roundtable, we issued a broader call for
comments by industry leaders, and we received almost 50
responses suggesting a variety of changes, including additional
or expanded waivers or exceptions, enhanced authority for CMS
to address specific needs on an ongoing basis, and repeal of
the compensation arrangement prohibition.
In addition, some suggested that we repeal the law in its
entirety. Commentators across the board expressed concern about
the ambiguous way certain terms are defined under the Stark
Law--terms like ``fair market value,'' ``volume and value of
referrals,'' and ``commercial reasonableness.'' They all have
decisive impact on the application of the law, yet they are not
clearly defined. And finally, virtually every one we heard from
believes that technical violations of form rather than
substance of the law should be subject to separate sanctions
and limited liability.
If the aim of the Stark Law is to prevent physicians from
inappropriately referring patients for medically unnecessary
treatments, it does so in a rather roundabout way, at least
under the current structure.
If we really want to prevent inappropriate self-referrals
and address the culture of overutilization, we have to do more
than target specific relationships and practices prone to
abuse. We must also realign the financial incentives created by
our current payment mechanisms.
If, as some have claimed, the Stark Law is impeding the
implementation of recently passed health reforms like the
Medicare Access and CHIP Reauthorization Act and preventing
better integration in the delivery of medical treatment, we
should address that as well.
As a committee, we have a responsibility to explore
potential changes to make the law more workable in terms of
enforcement and compliance, in both fee-for-service and value-
based payment models, as both are likely to be around for years
to come.
We are here today to examine these issues and hopefully
hear some potential answers to the questions that have come up.
And I look forward to hearing the testimony of our witnesses
and getting their input on all of these important issues today.
And with that, I will turn to Senator Wyden for any opening
remarks.
[The prepared statement of Chairman Hatch appears in the
appendix.]
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you, Mr. Chairman; and, Mr. Chairman,
thank you for scheduling a hearing on an important topic. Our
country is beginning a major transformation in the way health
care in America is paid for. We are moving away from an old
system, fee-for-service medicine, which in effect opened the
financial till for every visit, every test, and every procedure
that was done in a doctor's office or a hospital.
Now, American health care is going to have a new focus:
paying for the quality of care that our people receive, rather
than the quantity. Even though the sea change is in the early
days, already 30 percent of Medicare payments are going through
the new system, focused on value and efficiency. Certainly that
number is going to rise in the years ahead.
In my view, when you make a health-care transformation,
particularly when you are talking about the system that we have
where one out of every six dollars in the American economy goes
to health care, there is no question that you are going to bump
up against some very significant challenges, and one of those
challenges is what we are looking at this morning.
Now, in my judgment, what this is all about is trying to
balance two important priorities. On one hand, there is a drive
toward bringing doctors and specialists together, promoting
coordination, and making American health care as efficient as
possible.
On the other hand, there is a longstanding protection that
comes from what is known as the Stark Law. It says that
financial relationships between providers must not influence a
patient's medical care.
Some health-care providers in our country are concerned
that parts of the Stark Law date back years or even decades and
could be an impediment to treatment. For example, when fee-for-
service was king, a jump in referrals from a doctor to a
physical therapist would have probably raised red flags, if
there were some financial ties.
Today, it is common for doctors and physical therapists to
work in the same medical practice or hospital system, and the
science has demonstrated that physical therapy is often exactly
the right choice to keep a lifelong golfer with a bad shoulder
or an older woman with a knee replacement healthy and out of
the emergency room.
That means that in this day and age, an uptick in referrals
for physical therapy in one medical practice should not
automatically be declared a violation of the Stark Law. In
effect, we are going to be looking at a variety of cases,
because certainly different cases present different challenges.
In my judgment, the two important priorities--promoting
coordination of care and upholding the principles of the Stark
Law--should not automatically come into conflict.
As long as there are clear guidelines about what is fair
game when it comes to patient referrals and the relationship
between doctors, it ought to be possible to guarantee that
patients are getting the care that is right for them and not
just right for somebody else's pocketbook. In certain ways, it
could be as simple as revisiting the rules that are already on
the books.
So I look forward, Mr. Chairman, to having a productive
discussion. I want to commend the staff on both sides for their
effort to look at these questions. We appreciate our witnesses
and look forward to hearing their testimony.
Thank you.
The Chairman. Thank you, Senator.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Our first witness today will be Mr. Troy
Barsky, a partner at Crowell and Moring in the firm's health-
care group. Mr. Barsky counsels hospitals, group practices, and
health plans on the Stark Law. He represents clients seeking
reprieve from government health-care program overpayment
issues, as well as fraud and abuse matters.
Prior to joining Crowell and Moring, he served in various
positions, providing legal counsel and helping draft and
implement policy at the Department of Health and Human Services
and the Centers for Medicare and Medicaid Services for 11
years.
He provided counsel to his agency clients on a wide range
of Medicare and health-care issues and managed Stark Law issues
and those relating to Medicare payments, as the director of the
Division of Technical Payment Policy.
Senator Burr will introduce our second witness, Dr. Ronald
Paulus.
Senator Burr?
Senator Burr. Thank you, Mr. Chairman, for allowing me to
introduce Dr. Ronald Paulus from Mission Health in Asheville,
NC. My colleagues know I am not shy when it comes to
highlighting the great health care that we have in North
Carolina, so I am pleased that one of our leaders is here with
us today.
Dr. Paulus, thank you for traveling here and for your
willingness to share your thoughts and your expertise. I know
that today's discussion will be improved by Dr. Paulus's
participation.
Dr. Paulus is the president and CEO of Mission Health, a
health-care system with an impressive footprint in western
North Carolina and, I would add, one of the most beautiful
parts of North Carolina.
Mission Health Care has a network of more than 500
physicians, six acute hospitals, a rehabilitation hospital,
inpatient and home hospice programs, a PACE program, and an
Accountable Care Organization. In other words, under Dr.
Paulus's leadership, Mission Health is meeting a range of
health-care needs for a significant number of North
Carolinians.
Prior to his work with Mission Health, Dr. Paulus was the
executive vice president for clinical operations and CIO for
Geisinger Health System, where he was responsible for managing
the group practice of over 800 physicians as well as the
system's hospital.
He is also the co-founder, president, and CEO of
CareScience, Inc., a company that provided a web-based platform
to improve quality and efficiency in health care, a product
that is now used in health-care systems across the country.
As if this was not impressive enough, Dr. Paulus earned
both his MBA and doctorate of medicine from the University of
Pennsylvania.
I will end with taking the opportunity to publicly
congratulate Mission Health for being recognized as one of the
Nation's top 15 health systems for 4 years in a row. Dr. Paulus
is a testament to the incredible work he and his colleagues at
Mission Health do, day-in and day-out.
I thank you and look forward to hearing your thoughts on
the challenges and opportunities we see for improving quality
of care for patients in North Carolina and around the Nation,
today and in the future.
And, Mr. Chairman, if I could say to the ranking member,
his analogy of a golfer--a good golfer would never go to the
emergency room, because I can assure you there is a doctor in
their foursome. [Laughter.]
Thank you, Mr. Chairman.
The Chairman. Well, with that wisdom, I will finish
introducing. Thank you, Senator Burr.
Our third witness is Mr. Peter Mancino, the deputy general
counsel of the Johns Hopkins Health System Corporation. He
serves as secretary to the boards of trustees for Johns Hopkins
Medicine, the Johns Hopkins Health System Corporation, and for
the Johns Hopkins Hospital.
He is responsible for the administrative management and
supervision of the legal department of the Johns Hopkins Health
System. He further manages legal matters involving the
Community Hospital Division and Children's Hospital. He was
previously a partner at a prominent New York law firm,
Garfunkel Wild, and specialized in health law.
I want to thank all three of you for coming. We will hear
the witness testimonies in the order that they have been
introduced.
Mr. Barsky, we will ask you to proceed with your statement.
STATEMENT OF TROY A. BARSKY, PARTNER,
CROWELL AND MORING, LLP, WASHINGTON, DC
Mr. Barsky. Thank you, Chairman Hatch, Ranking Member
Wyden, and distinguished Senators of this committee. I am
honored and grateful for this invitation to speak to you about
an issue of vital importance to the Medicare program and its
millions of beneficiaries throughout the United States.
I am here today to share my past experiences as a CMS
official who administered the Stark Law for 4 years and now is
a partner at the law firm of Crowell and Moring, advising
clients who must comply with this law.
I hope to provide my insight into current challenges posed
by the Stark Law and how this law can be modernized to
facilitate a new era of health-care reform.
The Stark Law came about from a simple concern that
physicians with a financial interest in their referrals will
corrupt medical decision-making. This law has evolved from this
simple premise into a tortured web of confusing standards,
ambiguous and conflicting definitions, exceptions to the rule--
even exceptions to those exceptions--and volumes of regulations
that require lawyers and valuation experts just to comply.
The problem is that the Stark Law is a strict liability
statute. Intent to violate the law is not required. Therefore,
as a health-care entity, if you fail to meet any of the
technical requirements, you will inadvertently violate the law,
exposing you to millions of dollars or potentially tens of
millions of dollars in payments and penalties, program
exclusion, and potentially False Claims Act liability as well.
As the committee is well aware and as has already been
mentioned, even before the Affordable Care Act and MACRA, the
health-care system has been rapidly changing. Health-care
providers are focused on coordinated care, improved outcomes,
and lower overall costs. The Affordable Care Act and MACRA have
only accelerated this effort.
The goals of these new payment systems are diametrically
opposed to the goals of the Stark Law. The new health-care
payment models are designed to integrate providers clinically
and financially, while the Stark Law is designed to keep
parties financially separated.
So here are some suggested solutions and pathways to reform
the law.
First, as we move away from a fee-for-service world, the
need and utility of the Stark Law continues to diminish. Repeal
in whole or in part of the Stark Law should not be off the
table in these discussions. Instead, existing fraud and abuse
laws that have an intent requirement, like the Anti-Kickback
Statute and the False Claims Act, already exist to prohibit
financial arrangements that incentivize referrals.
Next, absent full or partial repeal, there are other
common-sense reforms that may be implemented.
First, change the proportionality of the penalty to the
nature of the violation. The Stark Law has so many confusing
technical requirements, either remove the technical
requirements completely or impose a fixed monetary penalty for
these violations, rather than requiring a full refund of all
overpayments related to prohibited referrals.
Second, establish bright-line rules in the Stark Law that
providers can follow and give CMS greater authority to provide
guidance through advisory opinions and regulations.
Third, remove barriers to health-care reform. The
Affordable Care Act allowed HHS to issue broad Stark waivers,
and they have taken advantage of that authority. I recommend
giving greater authority to HHS to continue and expand these
waivers to encourage innovative payment models and allow for a
unified approach to the provision of all fraud and abuse
waivers related to alternative payment models, rather than the
piecemeal approach that we now see developing.
Fourth, for those entities that are not yet participating
in these alternative payment models but aspire to, we need to
help them to innovate as well. They cannot be protected by
Affordable Care Act waivers, and CMS does not have existing
authority to create regulatory exceptions to protect these
providers. Only Congress can create this pathway to innovation.
Last, limit loopholes that are contrary to health-care
reform efforts. For example, the in-office ancillary services
exception continues to incentivize in-office referrals and
overutilization, making it less likely that the self-referring
physicians will move to an integrated delivery model. Closing
this exception will incentivize physicians to move to these new
models.
Because the Stark Law has served to protect against
overutilization and unnecessary services for Medicare patients,
I recognize that this committee must move forward carefully and
thoughtfully. But modernizing the Stark Law to allow and
encourage innovation in the Medicare program and the entire
health-care system will best serve the patients that this law
was originally designed to protect.
I am happy to answer any questions that this committee has
on this very important issue.
Thank you.
[The prepared statement of Mr. Barsky appears in the
appendix.]
STATEMENT OF RONALD A. PAULUS, M.D., PRESIDENT AND CHIEF
EXECUTIVE OFFICER, MISSION HEALTH SYSTEM, ASHEVILLE, NC
Dr. Paulus. Mr. Chairman, Ranking Member Wyden, and members
of the committee, thank you for the opportunity to testify
today.
I am the CEO of Mission Health, and we serve the 18 most
western counties in North Carolina. We are the region's only
safety-net system, and our patients, more than 900,000, are
older, poorer, sicker, and less likely to be insured than State
and national averages.
More than 75 percent of all of our patients are Medicare or
Medicaid beneficiaries or uninsured, and 10 percent of our
babies are born addicted to narcotics.
Upon arriving 6 years ago, we began to transform Mission by
establishing a culture of physician and clinician leadership
and emphasizing value-based care. Why? Because it benefits our
patients and local employers and it has the potential to
provide needed financial stability, not only for Mission, but
for the U.S. health-care system more broadly.
We have made real progress, including reducing an already
better than average mortality rate by more than 50 percent, and
achieving the lowest Medicare readmission rate of any general
acute care hospital in the Nation.
But our crucial responsibility as the region's only safety-
net system demands that we avoid unnecessary risk, and some of
our most significant risks are the unclear boundaries in our
fraud and abuse laws.
As a physician executive, I am absolutely convinced that it
is simply not possible to transform health care without a
strong partnership between health systems and physicians. The
Stark Law makes this remarkably difficult, both by creating a
thick fog of uncertainty and, at times, directly causing
patient harm.
The committee's recently released Majority Staff Report
provides an excellent summary of important comments, the weight
of which makes clear that Stark has largely outlived its
usefulness, given the broad reimbursement changes and the
existing protections of the Anti-Kickback Statutes.
Stark has multiple problems that cannot be fixed just by
tinkering around the edges, and a full repeal would not only
help systems do what we need to do, but do precisely what you
have asked us to do: focus on what is best for patients while
leading the transformation of our antiquated fee-for-service
system.
Let me describe a typical pay-for-performance problem at
Mission. As you know, Stark prohibits linking payments to,
quote, ``the volume or value of referrals.'' So any Stark-
compliant incentive program must be structured to distribute
payments equally to all physicians, regardless of the effort or
outcome.
A key focus for Mission and CMS is eliminating all
hospital-
acquired infections. Stark unnecessarily constrains what we can
do in our hospitals because they include many physicians who
are not part of our ACO. Under Stark, we have to reward a
physician who had a dramatic increase in his infection rate
exactly the same as a physician who eliminated all of her
infections.
In most industries, shareholders and watchdogs are
demanding outcome-based pay for performance. In health care,
Stark specifically prohibits it.
As noted, under Stark payment to physicians must be, quote,
``fair market value,'' unrelated to volume or value of
referrals. Sounds all right, but those terms are not clearly
defined, and they are fact-specific, meaning we can never ever
be sure that any program will pass muster if scrutinized. And
our risk of guessing wrong? All reimbursement from those
physicians who are not employed by Mission is subject to
repayment.
Beyond pay for performance, Stark also impacts patient care
in significant and at times negative ways. Here is a real
example.
For a number of years, a Mission geneticist has met with
expectant mothers who have recently learned that the child they
are carrying will die shortly after birth. The geneticist helps
the mothers and fathers understand the child's fatal condition
and what to expect during and after delivery. Our geneticists
strongly desire to have this no-charge conversation with
parents at the Ob-Gyn office so they can support them
immediately and in a comfortable and familiar environment.
However, when brought to the attention of Mission's
attorneys, they quickly and understandably became concerned
that the service could be seen as providing something of core
financial value to the Ob-Gyn's practice and, given no Stark
exception, they rejected it.
Had we been only subject to Anti-Kickback, the service
could have been provided, as the obvious intent is helpful and
not abusive. Unfortunately, Stark's strict liability makes it
so that we cannot take that risk, even during this difficult
time in these families' lives.
Now, some have argued that Stark can be managed by CMS
without action by Congress, and while improvements have been
made, CMS simply does not have the legislative authority to go
further, and they cannot resolve all the fundamental issues in
Stark. It is too complex and too cumbersome.
Because of the extraordinary penalties involved, it freezes
health systems in their place and impairs patient care. The
stakes are simply too high and the need for health-care reform
too great for our patients, our businesses, and, frankly, our
Nation. Only Congress can remove those barriers.
I want to thank you truly for being willing to take on this
very important issue. It has been an honor and privilege to
share these thoughts with you. I appreciate your leadership,
and I know together we can make the changes necessary to remedy
these problems and succeed in the needed transition to a high-
quality, efficient, and effective value-based system.
If I can answer any questions or provide any information, I
would be delighted to do so.
The Chairman. Well, thanks, Dr. Paulus. That was a very
good statement.
[The prepared statement of Dr. Paulus appears in the
appendix.]
The Chairman. Mr. Mancino, we will take your testimony now.
STATEMENT OF PETER B. MANCINO, DEPUTY GENERAL COUNSEL, THE
JOHNS HOPKINS HEALTH SYSTEM CORPORATION, BALTIMORE, MD
Mr. Mancino. Chairman Hatch, Ranking Member Wyden, and
members of the committee, thank you for the opportunity to be
here today to discuss the important subject of the Stark Law.
Given the recent MACRA legislation, we believe that now is
the ideal time to re-examine the Stark Law to ensure that it
does not impede the goals of MACRA and health-care reform.
The Johns Hopkins Health System views the Stark Law as our
top compliance risk, because it is so easy to violate Stark and
the penalties are so substantial. I would like to highlight
three reforms in particular that would greatly improve the
Stark Law.
Number one, eliminate ambiguities in key Stark terms;
number two, make Stark penalties more reasonable; and number
three, reform Stark to allow for innovative payment
arrangements.
First, eliminate Stark ambiguity. When the Stark Law was
created, the goal was to create a bright-line test to address
overutilization of health-care services. The problem is that
this bright-line test has been transformed over time into a
complex, ambiguous, and highly technical rule that includes
over three dozen exceptions. As a result, there is considerable
confusion about basic Stark terms like ``fair market value.''
As a health law attorney for 20 years, I have been
confronted with numerous transactions that raise Stark
questions. No matter how much time, money, or effort is
expended in analyzing the issues, there are often no clear or
100-percent safe answers. Subjective judgment calls are often
required when entering into physician arrangements, contrary to
Stark's original design as a bright-line test.
Further, the Stark Law is so rooted in a fee-for-service
environment that it has become very difficult to adapt Stark to
value-based health care. Stark's fair market value
requirements, for example, have been applied to allow physician
compensation based on productivity and work effort, but there
are barriers to compensation based on value, clinical
efficiencies, cost savings, and quality outcomes. We believe
that the Stark Law should be modernized to make it easier to
apply in a value-based industry.
Second, make Stark penalties more reasonable. The Stark
Law's complexity and ambiguity have made it very difficult for
even diligent health-care providers to comply. Failure to
satisfy even one of its technical requirements can result in a
violation, and, despite the best compliance efforts,
unintentional mistakes occur.
Liability under the Stark Law can be staggering, even for
minor violations. The potential liability associated with an
alleged Stark violation creates an enormous barrier to a
provider's ability to defend against a claim, even when there
are valid defenses.
Most health-care providers want to be compliant and are
willing to be accountable for mistakes. However, accountability
should not entail ruinous penalties. Recent judicial decisions
have had a chilling effect on the health-care industry, causing
clients to be reluctant to try creative arrangements at a time
when innovation is most needed. Accordingly, potential
penalties associated with Stark violations should be more
reasonable.
Third, innovative payment arrangements. Hospitals and
physicians must work together like never before to reduce
health-care costs, become more efficient, and improve patient
quality and outcomes. Unfortunately, Stark is an impediment to
this collaboration, because it has created an overly rigid
structure for hospital-
physician relationships.
For example, Stark restricts a hospital's ability to create
gain-sharing arrangements with physicians to incentivize cost-
efficient, quality-promoting behaviors. It can also prevent
hospitals from providing care coordination resources to keep
chronically ill patients out of the hospital.
These types of team-based arrangements between hospitals
and physicians are often problematic under Stark. However,
these are the types of arrangements that Congress should
support, because they promote the purposes of MACRA.
Therefore, we support reforming Stark to allow hospitals
the ability to enter into innovative relationships with
physicians.
Now is the time for Congress to modernize the Stark Law to
promote fairness and further the goals of MACRA. Health-care
providers have a reputation of being too slow to change and too
expensive. The reality is that providers want to change, but we
need the freedom and the tools to do so.
Stark has created an atmosphere that is antithetical to
change. We urge Congress to act quickly to address our concerns
so that the health-care industry can transform itself to meet
today's challenges and the goals of MACRA.
I appreciate the committee's interest and look forward to
answering any questions.
The Chairman. Thanks to all three of you.
[The prepared statement of Mr. Mancino appears in the
appendix.]
The Chairman. Let me just start the question period by
asking this question.
With the current Stark Law, based on your experience under
the current waiver processes, either through the ACA or as set
forth for new models developed under CMMI's authority, is there
sufficient, quote, ``safe space'' for innovation in the
development and implementation of alternative payment models?
And which better promotes innovation--the current waiver-based
system where the waivers are issued on a case-by-case basis, or
a regulatory exception system where exceptions would be
applicable to any organization that meets the requirements?
Let me start with you first, Mr. Barsky.
Mr. Barsky. Yes. First, it was an honor for me to work on
some of those initial waivers when I worked at CMS, and we were
given the authority to exercise very broad waiver authority.
It is remarkable that for any new innovative payment model
that was designed by CMS or mandated by Congress, in every
single case the Stark Law needed to be waived in order for
those programs to be successful.
So from my perspective, the waivers as currently drafted
have provided that safe space, have provided and allowed for
innovation within specific models, whether they be Accountable
Care Organizations, bundled payment models, or many new and
innovative payment models that are coming out of CMS.
The only danger that I see that is now developing is that
with every new program that comes out, a new waiver comes out.
So what we now find is that there are many different waiver
authorities that are being developed, and health-care providers
are forced to operate under multiple waiver regimes at the same
time.
But overall, this is a successful effort, and I encourage
Congress to continue to think about how this might be expanded
to allow for innovation.
The Chairman. Dr. Paulus?
Dr. Paulus. Thank you. I do not disagree with my colleague.
On the other hand, I would note that despite the overlapping
waiver scenarios, which absolutely, undeniably have been
helpful, there is still a very large amount of uncertainty that
permeates and is always present in any of our dialogue.
We do not have a single program worth thinking about where
we do not go through a Stark analysis to figure out how we can
do it, whether we can do it--look at the waiver, look at an
exception, look at the pattern. And I think that is just too
onerous.
And then I would add, and repeat from the testimony that I
just provided, there are circumstances like our goal to reduce
hospital-acquired infections where, because it does not fit
into a waiver and because it includes physicians who are not
part of the ACO, there is no way to manage that program.
So yes, it has been helpful. Is it sufficient? Not in my
opinion.
The Chairman. Mr. Mancino?
Mr. Mancino. So I would echo what was said, but I would
also just add that, number one, given the impending MACRA
deadlines, I do not think that the waiver process is going to
be quick enough to implement the changes that need to be made
in physician practices.
I would also say that the waivers do not cover enough,
because they only cover Medicare. They do not cover Medicaid,
commercial payers, and certain physician specialties.
And then finally I would say that, while the waivers are
helpful, the problem is that again we have so many Stark
exceptions, and then you layer onto that specific Stark
waivers, and it creates all sorts of confusion in the industry
about what you can do and what you cannot do, as Dr. Paulus
suggested.
The Chairman. Well, thank you. I thank all three of you.
Let me just ask you this question, Mr. Barsky. Does HHS
currently have the authority to create waivers, or to waive the
Stark Law for alternative payment models, absent a statutory
mandate?
Mr. Barsky. I think the answer is, they do partially, but
they do not have the authority to go far enough. As was already
stated, they do have the authority to waive the law within
certain Affordable Care Act-mandated programs. They do not
currently have the authority to go farther and protect
alternative payment models that are mandated by MACRA.
Further, there are many types of innovative programs that
were already mentioned by my colleagues, both in Medicaid and
especially in the commercial market, that still trigger Stark
Law scrutiny.
And right now, CMS does not have either waiver authority or
even the authority to create adequate regulations in order to
fully protect innovative payment models.
Back in 2008, CMS did try, under their existing regulatory
authority, without waiver authority, to issue exceptions to
protect innovative payment models. This exception had 16
different requirements, with additional subsections, because
they needed to meet their statutory mandate, which is to not
create regulations that would cause any risk of program or
patient abuse.
So CMS itself has proven that, without further authority,
they do not have the ability to allow for innovation. They are
getting part of the way there, but the statute prevents them
from going any further.
The Chairman. Well, thank you. And my time is up.
Senator Wyden?
Senator Wyden. Gentleman, thank you, and this has been an
excellent panel. I think if one were to listen in, you would
say, boy, this is just about as fascinating as having prolonged
root canal work. [Laughter.]
But the reality is the stakes here are enormously high,
because what you are talking about is striking the right
balance between encouraging these alternative payment models,
which are so important in care coordination, and at the same
time maintaining protections against the financial incentives
for providing large volumes of unnecessary care, which is what
Stark was all about.
I would be interested in having the three of you, because
we have a number of members here, tell us in something
resembling English what you think would be the best way for us
to go about, in effect, modernizing how you strike that balance
between two important causes.
Mr. Barsky?
Mr. Barsky. I will make an attempt to speak in plain
English. I think--a few specific recommendations. First, if you
are not going to repeal the Stark Law completely, at least
consider eliminating the compensation component of Stark.
Stark Law eliminates, or prohibits, both ownership
relationships and compensational relationships. Keep the
ownership prohibition, but remove the compensation prohibition.
There are very clear anti-fraud statutes--the Anti-Kickback
Statute, the False Claims Act--that protect against bribes and
kickbacks in the health-care marketplace. So there are still
protections, getting to your point about balancing allowing for
innovation and also protecting patients in the Medicare
program.
I also would say, when you look at these new innovative
payment models, the incentives within those models are
completely different from the fee-for-service world, as you
mentioned. So there is no incentive in those models to
overutilize.
If you overutilize care, if you are providing unnecessary
care, too much care, you will not be successful. Health systems
will not make as much money as they otherwise would if they
provide high-quality care, necessary care, but not too much
care, which was incentivized in the old fee-for-service world.
So I would say removing compensation, allowing for the
Anti-Kickback Statute and the False Claims Act to protect you,
and allowing these new systems with the change in incentives to
protect patients and to protect the program.
Senator Wyden. Dr. Paulus?
Dr. Paulus. Well, I guess as a physician and someone
testifying on this complex of a law, I do not know if it is
possible to speak in plain English. But with that caveat aside,
I agree with Mr. Barsky that getting rid of the compensation
arrangement components is the most important thing.
And I will note, and Chairman Hatch mentioned this, in 2007
Pete Stark wrote that he believed that, on balance, the law may
have done more harm than good. And when you look at how much
has changed in terms of payment models and the shift that is
occurring, I think we have to ask ourselves, how do we do more
good than harm in eliminating the compensation arrangements,
getting rid of that strict liability component?
And historically, courts were originally challenged to
enforce the Anti-Kickback Statute because of the intent
requirement. But now there are a series of cases and other
factors that I think already provide belt and suspenders for
the program.
Senator Wyden. Mr. Mancino, let me modify the question a
little bit, because time is short, and you and your colleagues
made important points already.
Could you give us some specific examples of something your
organization would like to do with respect to physician
compensation that you believe you are not allowed to do because
of Stark? Some specific examples and, I think, that plus the
thoughts I heard earlier about striking the balance is about
what I was hoping to pick up.
Mr. Mancino. Sure. Literally every week I get questions
from my clients about how we can do gain-sharing arrangements
with physicians in our community hospitals and in our academic
medical centers. And the answer is that Stark puts great
barriers on our ability to do that.
So what I would recommend is that there be an ability to
give bonuses and incentives to physicians to change their
practices, to reduce costs--the types of devices they order,
the types of products in the emergency room, et cetera.
And then I think also that quality metrics are important.
We need to incentivize them to reduce infections, things like
that. These are the types of programs that we need to be able
to do and that Congress has been telling us to do with MACRA
and other laws, and I think gain-sharing is an important tool
in that regard.
Senator Wyden. Thank you, Mr. Chairman.
The Chairman. Senator Stabebow?
Senator Stabenow. Thank you, Mr. Chairman and Ranking
Member, for holding this really important hearing, and thank
you to all of you.
As we are making these shifts, as we have done from the
Affordable Care Act and from the legislation that we passed in
2015, these are really important discussions. And I think for
nearly 30 years the Stark Act has been focused on rooting out
fraud and preventing overutilization and protecting the
Medicare program financially--important things. And I think for
equally long I have heard concerns, legitimate concerns, about
stifling innovation and the kinds of things you are talking
about today. And I think, as we are going to these new models,
there is even more of a conflict.
So the question is, how do we address that? And so I think
we have challenges and opportunities, depending on how we want
to look at it right now, as we evolve and figure out how to
address these issues.
Let me start with Mr. Barsky though and ask you, and then
anyone--you are all welcome to respond. But when we look at the
two payment models, one of the questions that I have is--we
have two different approaches here now. We have MIPS, the
Merit-based Incentive Payment System, which continues fee-for-
service, and then we have the alternative payment models.
When this fully takes effect, the change that we made, in
2019, as we know, we are looking at 4, 5, 6 percent of
practitioners in that new alternative payment model. So we
still have fee-for-
service; we know where we want to go, but we will not be there
yet.
So the question I have really relates to your thoughts on
each of the payment systems and how we can, over time, bridge
that gap. Because it seems that if we are suddenly saying we
are not concerned about fee-for-service any more in terms of
these issues, but yet most physicians are still on fee-for-
service, I am not sure that that makes sense in terms of
repeal. But at the same time, there is no question that we want
collaboration, we want the incentives changed, we want
innovation, we want all the things you are talking about to be
able to happen.
So I wonder if you might provide your thoughts as to,
overall, how we get there--in 2019, we are still not going to
be there yet--and how we mesh those two.
Mr. Barsky. Thank you for the question. It is challenging
in that we want to encourage everyone to get all the way there,
to get to these alternative payment models, but we will not be
there for some time, and we will continue to have this fee-for-
service world with the same incentives that the Stark Law was
designed to prevent.
So if you are ultimately going to conclude that we are not
going to repeal Stark at this point, I would make two different
points here.
One is to allow for waivers, give CMS greater authority to
create exceptions. When you do move to alternative payment
models, when you see physicians trying to move to innovative
payment arrangements, either inside or outside of MACRA, you
are providing a carrot for physicians to have waiver authority
if they move to these new programs.
But for those physicians, those health systems that are
going to remain in this fee-for-service world for a few years
to come until we move to a fully population-based payment
model, I would say that we at the very least need to provide
greater clarity for those hospital systems, for those
physicians who are operating in this environment of Stark.
As we had mentioned, strict liability applies. False Claims
Act liability applies in an environment where there are very
few clear rules. So I would say----
Senator Stabenow. If I might just interrupt to ask, are you
saying that the prohibitions on self-referral under Stark
should continue under the MIPS system, or are you saying, are
you arguing that they should not?
Mr. Barsky. So to be clear, if you are operating under
MIPS, which is still a fee-for-service system with incentive
payments, as I said before, I would advocate to eliminate the
compensation part of Stark but allow for the ownership
prohibition to remain.
Senator Stabenow. I see. All right.
Mr. Barsky. If you move to an alternative payment model,
then I think Stark is not necessary at all and that you should
eliminate it, provide for a waiver completely.
Senator Stabenow. Quickly, I do not know if anyone else
wants to respond to this. I am about out of time here, but--
yes?
Dr. Paulus. If I could just add briefly--and I truly
appreciate the concern that you have. And I would agree that
the ownership restriction should stay in the fee-for-service
world.
But again, you also need, I believe, to think about the
balancing act. So just for example, for us to provide teaching
for our medical students and our residents, we have over 90
contracts that have to be specified and arranged and renewed
every single year. We spend millions of dollars just complying
with all these technical restrictions that are not adding any
incremental value that Anti-Kickback and False Claims do not
already provide.
Senator Stabenow. Thank you so much.
Thank you, Mr. Chairman.
The Chairman. Senator Burr?
Senator Burr. Thank you, Mr. Chairman.
You know, what I have found is this issue is just as
confusing as it was 22 years ago when I started on it.
[Laughter.]
But I think what is different is that the health-care world
has changed significantly since then, so let me ask the same
question a different way.
Not repealing Stark will do what, Dr. Paulus, to Mission's
ability in the future as it starts to transform to that future
model of a health-care system?
Dr. Paulus. I appreciate that. And the main concern, the
main impairment, relates to how we can partner with our
physicians who have chosen or understandably want not to be
employed by us, right? So with our employed physicians, we have
broad latitude. But we do not live in a fully employed world,
and the majority of our physicians are not employed by us.
So with those individuals, each and every time we want to
do something to improve care quality, we face barrier after
barrier after barrier.
Number one, as I mentioned, all of the rewards have to be
equal, no matter your performance. That does not make any sense
to me. I should reward the people who perform and not reward
the people who do not perform. That is not allowed.
And every single time we want to do something to improve
the delivery, the compassion, the effectiveness of care, we
have to do this Stark algorithm. And just like with the
geneticists who are unable to go to the Ob-Gyn's office, and
just like our neonatal palliative care physician who cannot do
the things that he would like to do, we are impaired and held
back every step of the way.
And when we look at the challenges that we face and the
amount of improvement in quality and efficiency we have to
create, we do not need these barriers.
And I will reiterate that the Anti-Kickback Statute and the
False Claims Act, with a remaining ownership restriction, cover
the bases.
Senator Burr. So in essence, what I hear is, we are
spending a tremendous amount of money to have the comfort of
knowing that this self-referral process is not going to take
place, though we are spending a multiplier times an additional
cost that is not going into the delivery of quality health care
for this assurance of knowing we have this provision out there.
Forget for the moment that the provision is written in a way
that is very difficult to understand; it is a moving target.
So I guess my point to my colleagues is, we are sacrificing
the planning we need to do for the future as to how health-care
systems should transform and what the relationship between
physicians and systems are to keep a law in place, a statute in
place, that really has been replaced with the Anti-Kickback
Statute and other pieces that give us the same assurance that
that same self-referral will not get out of control.
Mr. Barsky, I want to go to you just very quickly. Your
testimony talked about Stark Law waivers, where the current
workaround for alternative payment plans under the Stark Law is
a waiver from HHS.
My question is this: even if a payment model is being
tested and it demonstrates superior care and decreased cost,
once the waiver expires, what happens?
Mr. Barsky. That is an excellent question. And the law
specifically says--the Affordable Care Act, which is what HHS
uses to waive the Stark law--HHS does not have the authority
right now to extend that waiver to protect those providers and
those programs.
So you have an experiment that goes on for a few years, and
at the end of that experiment, because there is no other waiver
authority, everyone needs to unwind all of the good things that
they did.
Senator Burr. So we do this tremendous workaround to find a
successful route only to find out you cannot continue it
without Stark being eliminated?
Mr. Barsky. Exactly.
Senator Burr. Mr. Mancino, as Medicare payments move from
volume-based to value-based care, will it be possible for
health-care systems like Johns Hopkins to comply with Stark
while utilizing the innovative payment models? And what
barriers need to be removed to make this transition occur more
easily?
Mr. Mancino. Well, I echo what my colleagues here have
said. I believe that the compensation aspect of Stark should be
eliminated. I think that that would give a lot more clarity to
the Stark Law.
I think that it really needs to be emphasized, the chilling
effect the Stark Law has had on the industry. People are
frightened; after the major judicial decisions that have
occurred over the last few years, they are frightened to do
anything, really, outside of employment arrangements. You are
seeing a lot more employment than I think you would normally
see because of it.
So I think that--I echo what has been said, and I think
that that is the best way to go.
Senator Burr. Great. Thank you.
The Chairman. Thank you, Senator.
Senator Casey?
Senator Casey. Thank you, Mr. Chairman. I want to thank the
panel for this informative hearing, because this is
complicated, and we are grateful that you bring your own
experience and scholarship to this.
Dr. Paulus, we are certainly grateful that you went to Penn
for--how many degrees, three degrees? We are not grateful that
you left, so we are going to try to recruit you back. But
thanks for your testimony.
I guess I want to start with one of the basic problems
here, as you have outlined, that when we consider the interplay
between Stark and this new so-called MACRA set of policies,
part of what we are trying to do with MACRA is to encourage, on
the part of physicians, both more collaboration and also the
opportunity to modify your practice behaviors. And those
efforts are obviously running into the problem that you
highlight.
I was struck, Doctor, by your testimony starting on the
bottom of page 5 going onto 6, about the geneticists and that
conversation they would like to have with expectant mothers who
have just learned that the child they are carrying will die
shortly after birth, and the desire to have that conversation
in both a comfortable and familiar setting, and that they would
not charge--not charge--the patient or the physician's
practice.
So that is about as good an example as you can get for the
problem here. I guess I want to know exactly what you hope we
would do. Is it your testimony that we need to substantially
modify the law, or would you hope we just repeal Stark?
Dr. Paulus. From my lens, I believe that Stark should be
repealed, perhaps retaining the ownership limitation.
Senator Casey. Right.
Dr. Paulus. It is the compensation arrangements that are
problematic. If you think about any business wanting to align
compensation with the outcomes that are desired, we cannot
align compensation with the outcomes that are desired unless
the physician is employed.
And as a physician myself, why do we want to mandate that
all physicians need to be employed? It is fine for them to
remain in private practice. They would still need to have those
interdigitated relationships with the organizations that they
are taking care of patients with.
And Stark is just an extraordinary barrier, not intended.
It was well-intended, understandably. But I would completely
repeal the compensation-related components of Stark.
Senator Casey. I guess if you are kind of living in the
real world you have to live in, you have a physician practice
hoping to take advantage of these new alternative payment
models that have been enacted in the law. How does that
practice reward or penalize their physician for using the new
tools or techniques that are deemed to result in cost savings?
How do they do that and then also improve patient outcomes
without running afoul of the Stark Law violations which, in
many ways, run counter to this value-over-volume determination
that we made?
Mr. Mancino, do you have anything to add on this part of
it?
Mr. Mancino. Well, I agree with everything you said. And I
think that, again, I believe that Stark as it is currently
structured right now does not work in today's environment. It
does not allow the incentives that you want to have under
MACRA. So it needs to change.
I believe that the suggestion about eliminating the
compensation section of Stark is the best way to go at this
time if we are not going to repeal it altogether. I think the
ownership requirements under Stark would be more easily
applied. So I think that is the way to go, but I defer to the
committee.
Senator Casey. Mr. Barsky, anything before we conclude?
Mr. Barsky. The only thing I would add is, whether you are
in an alternative payment model or not, the question about
volume and value of referrals that you have mentioned is one
that I think challenges every health system that is trying to
comply with Stark in today's health-care economy.
Right now, the standard is subjective in nature. If you
think about referrals at all, you may be subject to Stark Law
liability, whereas the regulations indicate that instead, it is
an objective standard. It does not matter what you think; it
matters what you do. Do you pay based on the volume and value
of referrals?
Just as an added recommendation, regardless of what we do
with regard to MACRA and reform, there definitely needs to be
clarity that the agencies do not seem to be capable of
providing.
Senator Casey. Thanks very much.
The Chairman. Well, thank you, Senator.
Senator Coats?
Senator Coats. Thank you, Mr. Chairman.
Mr. Chairman, I am pleased that both you and the vice chair
and many of us here understand that there is a way to address
this issue. It can be done in a bipartisan fashion. There has
been some good testimony which I have looked through. I
apologize for having to step out for another matter.
But I cannot go anywhere in Indiana and talk to hospital
administrators or others without this issue coming up, saying,
you make a little technical mistake in the back room and so
forth, and there is this complex process of trying to work your
way through this, and you become subject to massive fines and
so forth.
Clearly, the intent of the bill is not being exercised
here, and so I really want to thank you that I can have the
opportunity to go back to our hospital administrators and
others and simply say, yes, we are working on doing this,
achieving the right goals. Practices are changing.
I thought your opening statement hit the nail right on the
head in terms of how we can go forward. So I really hope the
committee can go forward on that basis and finally deal with
this issue that has just run amok relative to how it is
implemented, not necessarily the motive behind it, but how it
has been implemented and over-regulated to the point where it
is just driving everybody crazy.
I apologize for not being here earlier. I do not want to be
duplicative from the time standpoint of what you might have
already addressed, but tell me, just the three of you--you have
outlined a path forward, made suggestions as to how we can go
forward.
Is there anything that any of you disagree with that the
others have said that might be a contentious issue that is more
difficult to resolve than what has already been talked about?
And I will start here and go right down the line.
Mr. Barsky. So I think one issue that has not been raised
but I raised in my opening testimony is the issue of in-office
ancillary services and that exception which allows for
physicians to make referrals in their own offices. There is a
specific exception within the law itself that allows for in-
office referrals.
So now physicians are allowed to bring in very expensive
equipment into their offices, refer to themselves, and increase
utilization. GAO has found numerous times over the past few
years that this has indeed increased overutilization.
I will admit that that is a contentious issue. I do not
know whether it is contentious amongst the panelists here, but
I do recognize that there are differing opinions within the
health industry as to how to tackle that problem.
But I will say that, from an overutilization standpoint--
which is everything we have talked about today that we are
trying to combat--that is one issue that I would recommend that
the committee should also consider, even though it is probably
a tougher issue than maybe some of the other issues that we
have discussed.
Senator Coats. Dr. Paulus?
Dr. Paulus. I actually agree with that, and I would add
that there is a specific exception, as we are getting
technical, for radiation oncologists, the theory being that
they do not refer patients to themselves, which makes perfect
sense, but some groups have begun to employ other physicians
through those radiation oncologists, like neurologists and
others, who then refer and are in this safe harbor exception
but for this sort of structure that is a workaround.
But I would agree with Troy and also just say that those
issues are more contentious. If we could just get the basic,
simple stuff done, that would be terrific. And there is always
another day.
Senator Coats. And, Mr. Barsky, is there anything you want
to add to that?
Mr. Barsky. I agree with everything that was said, and I
think that Dr. Paulus is exactly right. We need to hit the core
issues. There are definitely peripheral issues, like the in-
office ancillary exception.
But I think that we seem to have agreement here about what
we need to do on the core issues.
Senator Coats. Very good.
Mr. Chairman, thank you.
The Chairman. Well, thank you, Senator.
We are happy to have all three of you here.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman, and I thank the
panelists. You probably will not find a bigger supporter of
changing to a value-based way of paying for health care than
myself, and I think that is because I represent a State that
has definitely pursued that model, for a variety of reasons,
and has delivered better outcomes because of it.
And so we would love the rest of the country to pursue
that, and that is why we authored some of the language that was
in the Affordable Care Act and worked on the doc fix and some
of that language. I would have been much more aggressive at
moving the market than what was in that bill.
But I am also a big believer in bright lines, and to me,
this discussion this morning is a little bit--I mean, there are
a couple of things here that I keep thinking about. We are
really talking about reward versus abuse. We are really talking
about paying physicians and rewarding them for good outcomes
versus somebody who is doing something perverse in the system
and not necessarily producing good outcomes, but just paying
them for whatever they are doing.
When I think about this from the energy market perspective,
we went from a more regulated market to a deregulated energy
market, but that did not mean that we still did not have laws
to police the energy markets. I mean, we wrote a new anti-
manipulation law that FERC just used today to fine BP for
manipulating markets.
So to me, this is not an issue of trading one in for the
other, and so I do not know what you think that bright line is
that we are really trying to articulate here today.
But we need to move forward, and we need physicians to be
rewarded for good behavior, but we have to have something that
tells us when they have been abusive of that behavior.
And so what do you think that bright line is?
Mr. Barsky. So, as we have been discussing today the Stark
Law, the bright line that the Stark Law creates is in a system
of fee-for-service. So if you are paying based on volume, the
Stark Law is necessary to protect payments based on incentives
based on volume.
But as we move to this new value-based payment system, I
think the bright line changes. What you are worried about is
not overutilization but potentially underutilization and harm
to patients, that you might do better if you provide less care.
At least, when you are thinking about fraud in the
program----
Senator Cantwell. No, I think of it more in the context of
somebody doing something like the same kind of practices or
abuse you would be concerned about under Stark now, but
accentuated, and then saying, oh well, the reason why we did
not get the outcomes or the reason why we did not do this is
because it was a scam.
Mr. Barsky. Sure.
Senator Cantwell. So I think what we are all dancing around
here on the back and forth is that, even if we want to move to
value-based payment systems because that is a better way to
deliver health care--it is proven--then what do we need to do
to make sure there are penalties for people who are abusive of
that system for other reasons?
So I do not think any of you are saying, no, no, no, like,
just in the energy markets. So we went from a regulated market
to a less-regulated market. We did not say that there are no
rules.
For markets to function--even Alan Greenspan had to admit,
oh, he was wrong. They are not always self-adjusting. Sometimes
people do bad things. So what are you going to do to catch the
bad activity here? And that is, I think, what people on our
side of the aisle are going to want to understand about this
before they are going to say, oh, just throw out this rule.
What are we going to do to catch the abusive behavior?
Mr. Barsky. I think the existing waivers that HHS has
issued are a good model for that. What they have said
specifically is that the laws, Stark, Anti-Kickback, False
Claims Act, are not waived completely. Instead, if you are
engaged in the right activities, if you are working towards
quality, the Stark Law is waived.
If you are engaged in an activity, as you have mentioned,
which is a sham, it is really to try to enrich physicians
without helping patients, the waiver does not apply to you, and
the Stark Law will continue to apply.
So what I am saying is that there is a safety valve within
these waivers--not a complete blanket waiver, but a safety
valve--that if there are defrauding actors, the protections
will not exist and the government will still have the ability
to prosecute.
Mr. Mancino. I would just add that nobody here is
recommending that we eliminate the Anti-Kickback Statute or the
False Claims Act. Those remain in place, and those, in and of
themselves, I think prevent fraud.
And I think that it is important to remember that Stark,
while it is intended to be a bright-line test, is actually not.
I mean, it is really rather dark. Nobody knows what it really
means. And regarding commercial reasonableness and fair market
value, you can talk to a million experts and get a million
different theories about what they actually mean. So that is
the problem with Stark. But I think you are protected by the
Anti-Kickback Statute and the False Claims Act.
Senator Cantwell. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman. I welcome all of
our witnesses. I am sorry I was not at the hearing earlier. I
am ranking member on the Senate Foreign Relations Committee and
had to be there.
As I listen to people talk about the Stark rules, I am just
reminded of my service in the House of Representatives with
Chairman Stark and being lectured--being educated--by him as to
the importance of these rules. [Laughter.]
We are now in a different era. And first, I want to welcome
Mr. Mancino to our committee. We are very proud of the work
that he does at Johns Hopkins and the work that Johns Hopkins
does, not just in Maryland and our Nation but globally, on
health-care issues. So it is nice to have all of you here, but
it is nice to have the person from Maryland.
I want to go a little parochial for one moment, if I might,
and say that Maryland has an all-payer rate structure for
hospital reimbursement that requires us to have an integrated
way to deal with hospital care in our State, where you have to
have arrangements between the hospitals and other providers in
order to reduce overall costs in our State on hospital care. It
is a requirement. Otherwise, we lose our all-payer rate waiver.
Our all-payer waiver is important so that we do not have
charity hospitals. At our Maryland hospitals, you get basically
the same reimbursement regardless of the payer, whether it is
Medicare or whether it is a private insurance company, for the
services that are performed at the hospital.
But the trade-off on that is that we have to show that we
are saving the government money, and we have done that
historically on a per-unit cost. We have always been lower. But
where Maryland was not doing as well as it needed to do was in
its overall per capita cost of hospital care.
So 2 years ago we entered into a new arrangement with CMS
where our hospital community has agreed that it will work with
an overall global budget on hospital costs, which means they
have to work with non-hospital providers in order to reduce
readmissions, et cetera.
So it seems to me that the Stark rules could present
challenges to our community in achieving those targets. Could
you just give me your view as to what modifications may be
necessary in a State like Maryland that is trying to look at
overall cost issues and results when there is responsibility on
one provider to do more than just that particular service?
Mr. Mancino. In Maryland, more than any other State really,
because of that system that you are talking about, it is really
important for us to be able to team with physicians and nursing
homes, et cetera, to keep patients out of the hospital and out
of high-cost settings.
And so Stark is an even bigger problem for us. We cannot,
for example, provide a physician assistant to a practice to be
able to keep a chronically ill patient out of the hospital, and
we cannot provide a PA to help in discharge to keep the patient
all right. The problem is that Stark prevents us from doing
these things, in many cases, because it is considered
remuneration.
And so the suggestion that has been floated here, which is
to eliminate the compensation requirements of Stark and just
have it as an ownership conflict-of-interest statute, I think
would be an excellent solution in Maryland.
Senator Cardin. Of course, one of the things that we
recognize is that budgets are going to be tight in health care.
We know that. That is a given. So we are all looking for ways
that we can do more integrative, collaborative care models in
which we look at provider groups working together in order to
reduce overall costs. It seems to me that, as has been pointed
out, some of the Stark provisions make that very difficult to
achieve.
Dr. Paulus. If I could add to your excellent comments on
the situation in Maryland--even beyond Maryland, although
Maryland is sort of the poster child. We think about how CMS
has penalties now for hospital readmissions if you go above a
certain amount, and the question is, what are the mechanisms to
reduce those readmissions? They involve care coordination and a
bunch of out-of-hospital things that keep people from needing
to come back. Most of those things are not paid for.
So if we were to try to set up a system where, let us say,
we wanted to embed a care management nurse in a physician
practice or we wanted to pay based upon our lower readmission
rate, we cannot do those things because of the quote-unquote
``volume of referrals.''
We are actually specifically trying to reduce the volume of
readmissions because it adds something of, quote, ``economic
value'' to the practice.
Senator Cardin. Thank you.
Thank you, Mr. Chairman. I appreciate it.
The Chairman. Well, thank you, Senator.
I want to thank the three of you for being here. You have
been excellent. Each one of you has added a great deal to our
understanding of this, and we are going to try to do something
about this before the end of the year.
This is a very active committee. We move a lot of things
out of here and, hopefully, we can do this for the medical
profession as well. But to the extent that we can, it is going
to be largely because of the testimony of the three of you. So
we just really appreciate you being here with us. And I
appreciate the questions of my fellow colleagues.
So with that, we will recess until further notice.
[Whereupon, at 11:27 a.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Troy A. Barsky,
Partner, Crowell and Moring, LLP
Mr. Chairman, Ranking Member Wyden, and members of this
distinguished committee, it is an honor for me to participate in this
hearing and to provide my thoughts and insights regarding the Stark
Law. I am a partner at the law firm of Crowell and Moring, where I
provide advice and counsel to health care entities engaged in new
health care delivery models. Prior to joining Crowell and Moring, I
spent 11 years working at the U.S. Department of Health and Human
Services (``HHS''). I served as the Director of the Division of
Technical Payment Policy at CMS for my last 4 years at HHS where I was
responsible for Stark Law policy and other Medicare payment issues,
including those related to the implementation and creation of new
value-based payment models created by the Patient Protection and
Affordable Care Act of 2010 (``ACA'').\1\ I am here today in my own
capacity and not on behalf of my firm. My views do not represent those
of any client or other organization.
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\1\ My full biography may be found at https://www.crowell.com/
Professionals/troy-barsky.
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i. stark law reform is overdue and necessary
The fundamental question at issue here is whether the Stark Law as
it is currently drafted is precisely tailored to minimize unwarranted
utilization resulting from certain financial relationships and is a net
positive to patients/taxpayers. And if not, what reform is necessary to
remove extraneous aspects that unnecessarily drive up health care
industry, and ultimately, patient costs. As I will discuss in greater
detail below, the Stark Law has evolved from the simple objective of
removing certain financial incentives from medical decision-making into
a tortured web of confusing standards, ambiguous and conflicting
definitions, and volumes of regulations that require countless lawyers
and valuation experts to ensure compliance.
Compliance then is not only excessively costly, but unachievable as
a practical matter. And because Stark is a strict liability statute,
there is no need to intend to violate the law. If you fail to meet any
of its technical requirements even inadvertently, a health care entity
is subject to millions or tens of millions of dollars in payments and
penalties, program exclusion, and False Claims Act (``FCA'') \2\
liability. And yet compliance with many of the elements of the Stark
Law--such as requiring a signature on every written arrangement--have
nothing to do with fraud, high quality service for patients, or
protection of the Medicare program.
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\2\ 31 U.S.C. Sec. Sec. 3729-3733; see, e.g., United States ex rel.
Drakeford v. Tuomey Healthcare Sys., Inc., No. 13-2219 (4th Cir. July
2, 2015); U.S. Department of Justice Settlement Announcement (October
16, 2015): https://www.justice.gov/opa/pr/united-states-resolves-237-
million-false-claims-act-judgment-against-south-carolina-hospital;
United States ex rel. Baklid-Kunz v. Halifax Hospital Medical Center,
et al., No. 09-cv-1002 (M.D. FL.); U.S. Department of Justice
Settlement Announcement (March 11, 2014): https://www.justice.gov/opa/
pr/florida-hospital-system-agrees-pay-government-85-million-settle-
allegations-improper.
With the passage of the ACA \3\ and the Medicare Access and CHIP
Reauthorization Act of 2015 \4\ (``MACRA''), the Stark Law is now also
an obstacle to the implementation of health care delivery and
reimbursement reform. The goals of new payment models emanating from
the ACA and MACRA are diametrically opposed to the requirements of the
Stark Law. New health care payment models are designed to integrate
providers clinically and financially and compensate physicians on value
and quality care, while the Stark Law is intended to keep parties
financially separated. Further, this shift from volume-based (fee-for-
service) to value-based payment systems reduces the underlying
financial incentives believed to negatively impact medical decision-
making for which the Stark Law was initially enacted to combat. As we
move away from the fee-for-service world, the need and utility of the
Stark Law continues to diminish. Therefore, Congress should consider
repealing, in whole or in part, and replacing the law. For example, a
balance of harms analysis would support keeping the ownership
prohibition, but removing the compensation prohibition.
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\3\ The Patient Protection and Affordable Care Act (Pub. L. No.
111-148) and the Health Care and Education Reconciliation Act of 2010
(Pub. L. No. 111-152) are collectively known as the ``Affordable Care
Act.''
\4\ Pub. L. No. 114-10.
Absent repeal, there are common-sense reforms that should be
implemented to minimize the Stark Law's unjustified, onerous burden.
First, the overwhelming vast majority of providers want to comply with
the law, but struggle because of ambiguous critical terms. Making
bright line rules that providers can follow and expanding CMS's
authority to provide guidance through advisory opinions will greatly
assist providers in complying. Second, limit the consequences of purely
technical violations of the Stark Law. Either remove the technical
requirements completely, or ascribe only a monetary penalty for
technical violations rather than conditioning Medicare payment and
exposing providers to FCA liability based on mere technicalities.
Third, lower CMS's heightened standard of ``no program or patient
abuse'' for promulgating new regulatory exceptions to the general
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prohibition.
Stark Law reform is also necessary to remove barriers to
implementing health care reform. The ACA allowed for broad Stark
exceptions under the law. Give greater authority to the Secretary to
expand this waiver authority in a unified manner to allow for more
innovative payment models as opposed to the piecemeal, constrained
approach that is now developing. Additionally, Congress should amend
the statute to limit loophole exceptions that are contrary to health
care reform efforts. For example, the in-office ancillary services
exception continues to allow for in-office referrals and
overutilization making it less likely these practices will move to an
integrated care model. I recommend closing this exception to incent
providers to move to value-based payment models. The Stark Law will
continue to be a barrier if we do not modernize the law to reasonably
protect against patient and program abuse while allowing for
innovation.
ii. the basic construction and history of the stark law
A. Broad Prohibition on Referrals
The Physician Self-Referral Law, or the Stark Law, found in section
1877 of the Social Security Act,\5\ consists of a 30-year series of
statutory and regulatory enactments reflecting the complexity of the
area for which it applies. Unless an exception applies, the Stark Law
provides that if (1) a physician (or an immediate family member of a
physician) has a direct or indirect financial relationship with an
entity, the physician may not make a referral to the entity for the
furnishing of designated health services (``DHS'') for which payment
may be made under Medicare, and (2) the entity may not present (or
cause to be presented) a claim to the Federal health care program or
bill to any individual or entity for DHS furnished pursuant to a
prohibited referral.\6\
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\5\ Section 1877 of the Social Security Act.
\6\ See section 1877(a)(1) of the Social Security Act; 42 CFR
Sec. 411.353(a).
The Stark Law is applicable when each of the following are
involved: a physician (or a family member of a physician), a
``financial relationship,'' and a ``referral.'' Determining the
existence of a ``financial relationship'' or a ``referral'' are complex
inquiries. A financial relationship is defined as any direct or
indirect (a) ownership or investment interest or (b) compensation
arrangement by or between a physician (or an immediate family member of
the physician) in the entity providing the DHS.\7\ Indirect ownership,
for example, brings entire chains of ownership into the province of
Stark.
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\7\ Section 1877(a)(2) of the Social Security Act.
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B Exceptions to the Broad Prohibition
There are numerous statutory and regulatory exceptions to this
general prohibition, which can be grouped into the following general
categories:
General Exceptions to the Ownership and Compensation
Arrangements Prohibitions; \8\
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\8\ Several exceptions apply to both ownership or investment
arrangements and compensation arrangements, e.g., physicians' services
provided by a physician in the same group practice as the referring
physician are exempted by section 1877(b)(1) of the Social Security
Act.
Permitted Ownership and Investment Interests; \9\
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\9\ For example, ownership of investment securities purchased on
terms available to the general public and listed on certain recognized
exchanges that exceed a specific level of average shareholder equity
over 3 fiscal years are exempted under section 1877(b)(2) of the Social
Security Act.
Permitted Compensation Arrangements; \10\
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\10\ For example, rental of equipment under certain circumstances
is exempted by section 1877(e)(1)(B) of the Social Security Act.
The Innocent Entity Exceptions and Related State-of-Mind
Issues; and \11\
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\11\ For example, an exception applies when the entity did not have
actual knowledge or act in reckless disregard of deliberate ignorance
of the identity of the referring physician, and the claim complies with
all other Federal and State laws under 42 CFR Sec. 411.353(e).
Waivers for Accountable Care Organizations (``ACOs'') in
connection with Shared Savings Program \12\ and other Center
for Medicare and Medicaid Innovation (``CMMI'') Models.\13\
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\12\ For example, waivers under the Patient Protection and
Affordable Care Act apply to arrangements within ``accountable care
organizations.'' See 80 Fed. Reg. 66726.
\13\ All available fraud and abuse waivers for CMS models and
programs, including those administered by CMMI, are listed here:
https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/
Fraud-and-Abuse-Waivers.html. To date, the HHS Secretary has
established waivers for the following programs:
Pioneer Accountable Care Organization (``ACO'') Model;
Bundled Payment for Care Improvement (``BPCI'') Model;
Health Care Innovation Awards (``HCIA'') Round Two;
Comprehensive ESRD Care Model;
Comprehensive Care for Joint Replacement (``CJR'') Model;
Next Generation ACO Model;
Oncology Care Model; and
Medicare Shared Savings Program (``MSSP'').
C. The Stark Law Was Enacted to Address Possible Overutilization Due
to Financial Interests
At its core, the Stark Law was intended to address the concern that
physicians paid on a fee-for-service basis will perform or refer more
or unnecessary services to earn more income.\14\ The impetus behind the
Stark Law was a documented positive correlation between physicians'
financial ties and increased utilization of services.\15\ As such,
Congress sought to prohibit referrals to entities with which physicians
or physicians' family members had a financial relationship in order to
minimize or remove the possible impact of a financial incentive.
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\14\ 66 Fed. Reg. 856, 859 (January 4, 2001) (describing the
correlation found between financial ties and increased utilization as
the basis for the Stark Law).
\15\ See 66 Fed. Reg. 856, 859 (January 4, 2001).
As the issue of physician self-referral was gaining attention in
the 1980s, the HHS Office of Inspector General (``OIG'') and the
Government Accountability Office (``GAO'') engaged in separate studies
examining the relationship between physician ownership and referrals.
Both the OIG and GAO studies examined the occurrence of self-referral
involving various types of medical services, and both agencies
determined that physician self-referral most significantly increased
utilization of clinical laboratory services.\16\ Congress concluded
that such overutilization was undesired, though neither agency's study
examined the medical necessity, or lack thereof, of the specific tests
ordered.\17\
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\16\ The OIG surveyed utilization patterns of physician owners of
independent clinical laboratories, independent physiological
laboratories, and durable medical equipment suppliers. The OIG found
that physician self-referral related to laboratory tests was associated
with a 45% increase in utilization, though the increased utilization
with the other entity types was less significant. OIG--Office of
Analysis and Inspections, Report to Congress, Financial Arrangements
Between Physicians and Health Care Businesses 3 (1989). The GAO found
that physician owners tended to order more, and more costly, laboratory
services while ordering fewer, but more costly, imaging services.
Medicare, Referring Physicians' Ownership of Laboratories and Imaging
Centers, Hearings on H.R. 939 Before the Subcommittee on Health of the
House Committee on Ways and Means, 101st Cong. 9 (1989).
\17\ OIG--Office of Analysis and Inspections, Report to Congress,
Financial Arrangements Between Physicians and Health Care Businesses 3
(1989); Medicare, Referring Physicians' Ownership of Laboratories and
Imaging Centers, Hearings on H.R. 939 Before the Subcommittee on Health
of the House Committee on Ways and Means, 101st Cong. 9 (1989).
1. Stark I Only Addressed Financial Relationships With
Clinical Laboratory Services' Entities
In response, Stark I was created by the Omnibus Budget
Reconciliation Act of 1989,\18\ which became effective January 1, 1992.
Stark I prohibited a physician (or an immediate family member) who had
a financial relationship with a clinical laboratory services entity
from referring Medicare beneficiaries to the entity, unless an
exception applied. In addition, it prohibited the lab from billing for
any services furnished pursuant to such referrals.
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\18\ Pub. L. No. 101-239, 103 Stat. 2106 (1989) (Stark I was
enacted in the Ethics in Patient Referrals Act).
Congress actively decided \19\ against applying the ban of
physician self-referral beyond clinical laboratory services to a broad
array of medical services for which there was no evidence of
overutilization resulting from self-referral.\20\ Since the agency
reports indicated overutilization of only clinical laboratory services,
this first legislative enactment targeted financial relationships with
only those entities.
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\19\ The original Federal bill prohibiting self-referrals would
have applied to a broad array of health-related goods and services.
H.R. 5198, Sec. 2(a) 100th Cong., 2d Sess. (1988). The bill was
introduced by Representative Fortney (Pete) Stark (D-CA). Id.
\20\ Physician Ownership/Renewal Arrangements, Hearing Before the
Subcommittee on Health and the Subcommittee on Oversight, House
Committee on Ways and Means, 102nd Cong. 6 (1991) (statement of
Representative Pete Stark, Chairman, Subcommittee on Health, House
Committee on Ways and Means).
2. Stark II's Statutory Amendments Broadened the Self-
Referral Ban to a Wide Array of Health Services
Only a few years later, in the second legislative enactment \21\
Congress expanded the clinical laboratory prohibition to a number of
``designated health services'' (DHS). This expansion was based on the
latest studies which associated overutilization of several additional
services with self-referral \22\ as well as former Representative Pete
Stark's ongoing efforts to prevent ``turning a physician's decision to
refer a patient into a marketable commodity.'' \23\
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\21\ Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66,
107 Stat. 312 (1993).
\22\ See, e.g., Jean M. Mitchell and Elton Scott, Physician
Ownership of Physical Therapy Services, 268 Journal of the Am. Med.
Ass'n 2055 (1992); Jean M. Mitchell and Jonathan Sunshine, Consequences
of Physicians' Ownership of Health Care Facilities--Joint Ventures in
Radiation Therapy, 327 The New England Journal of Med. (1992).
\23\ See Physician Ownership and Referral Arrangements and H.R.
345, ``The Comprehensive Physician Ownership and Referral Act of
1993,'' Hearings Before the Subcommittee on Health, House Committee on
Ways and Means, 103rd Cong. (1993); Physician Ownership/Renewal
Arrangements, Hearing Before the Subcommittee on Health and the
Subcommittee on Oversight, House Committee on Ways and Means, 102nd
Cong. 6 (1991).
Stark II, as part of the Omnibus Budget Reconciliation Act of
1993,\24\ expanded the physician self-referral ban to the following
DHS: \25\
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\24\ Pub. L. No. 103-66, 107 Stat. 312 (1993).
\25\ Section 1877(h)(6) of the Social Security Act.
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Clinical laboratory services (Stark I);
Physical therapy services;
Occupational therapy services;
Radiology or other diagnostic services, including MRI, CAT
scans, and ultrasound services;
Radiation therapy services;
Durable medical equipment;
Parenteral and enteral nutrients, equipment, and supplies;
Prosthetics, orthotics, and prosthetic devices;
Home health services;
Outpatient prescription drugs; and
Inpatient and outpatient hospital services.
3. CMS Has Created a Complex and Ever-Growing Body of
Regulations to Implement the Stark Law
The Centers for Medicare and Medicaid Services (CMS) is responsible
for interpreting the Stark Law and issuing regulations and other
guidance. The regulatory definition and exception framework and
interpretation thereof is ever-changing. The final rules are codified
at 42 CFR Sec. Sec. 411.350-411.389.\26\ Below, we provide a list of
the most substantive regulatory promulgations, but there are many
others. All of these regulatory and other preamble guidance must be
read, studied, and understood in order to comply with the Stark Law.
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\26\ See Significant Regulatory History, Physician Self-Referral,
Centers for Medicare and Medicaid Services, https://www.cms.gov/
Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Significant-Regulatory-
History.html.
Stark I regulations, August 14, 1995.\27\ The first round of
regulations was promulgated in connection with Stark I.
However, since Stark II maintained the same general
prohibitions and some of the exceptions of Stark I, the
regulations implementing Stark I were applied by CMS to the
other DHS subject to Stark II.
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\27\ 60 Fed. Reg. 41914, 41916 (August. 14, 1995).
Stark II Phase I regulations, January 9, 1998 (proposed
rule).\28\ These proposed regulations focused on applying many
of the existing provisions of the 1995 rule to additional DHS
as well as updating others in accordance with the changes to
the Stark Law enacted in the Omnibus Budget Reconciliation Act
of 1993 and the Social Security Act amendments from 1994. It
also provided additional explanation of CMS's views on the
appropriate application of the various exceptions and the scope
of the referral prohibition.
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\28\ 63 Fed. Reg. 1659 (January 1, 1998).
Stark II Phase I regulations, January 4, 2001 (interim final
rule).\29\ These regulations specifically interpreted and
implemented Stark II and offered guidance concerning its
interpretation and application to a wide range of arrangements
and relationships. Because the 1998 proposed rules introduced
restrictive interpretations, the 1998 proposed rules were
received critically and received extensive comments that CMS
interpretation was too conservative. These regulations provided
guidance regarding the service-based exceptions that apply to
both the ownership or investment interests and compensation
arrangements, like the in-office ancillary services exception.
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\29\ 66 Fed. Reg. 856 (January 4, 2001).
Stark II Phase II regulations, March 26, 2004 (interim final
rule).\30\ This regulation addressed remaining portions of the
statute not covered under Phase I, including reporting
requirements and sanctions. CMS attempted to clarify the
exceptions to compensation arrangements and added additional
exceptions for financial relationships that posed no risk of
fraud and abuse. In particular, CMS added a ``fair market
value'' exception.
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\30\ 69 Fed. Reg. 16054 (March 26, 2004).
Stark II Phase III regulations, September 5, 2007.\31\ Phase
III regulations interpreted provisions relating to direct and
indirect compensation arrangements. CMS indicated that all
three phases of Stark II regulations ``are intended to be read
together as a unified whole.''
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\31\ 72 Fed. Reg. 51012 (September 5, 2007).
Stark II, Inpatient Prospective Payment System (``IPPS'')
regulations, August 19, 2008.\32\ These regulations expanded
the definition of the term ``entity'' to include those actors
that ``perform'' services billed as DHS. Further, the
regulations limited the ability of entities to utilize
percentage and per-click compensation formulas for equipment
and space lease arrangements.
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\32\ 73 Fed. Reg. 48434 (August 19, 2008).
Stark II, IPPS regulations, October 30, 2015.\33\ These
regulations clarified the definition of ``remuneration'' and
the writing requirements of compensation exceptions.
Furthermore, CMS created an exception for timeshare leases.
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\33\ 80 Fed. Reg. 70885 (October 30, 2015).
Despite the amount of time and money that goes into development,
interpretation, implementation, and verifying compliance with the
exceptions, sometimes it remains unclear whether the intended purpose
of an exception was achieved, e.g., the ``whole hospital'' exception.
The ``whole hospital'' exception, since Stark I's passage, exempted
arrangements where physicians have an interest in an entire hospital--
whether a general acute care or specialty hospital.\34\ Since DHS
includes inpatient and outpatient hospital services, absent an
exception, referrals by a physician retaining an interest in a hospital
would be prohibited. Over many years, some constituents sought to
restrict this particularly broad exception, especially given a
perception that specialty hospitals appropriate high-margin surgeries
from general acute care hospitals. As a result of such efforts, in
2003, Congress imposed an 18-month moratorium prohibiting physicians
from referring a Medicare patient to any specialty hospital in which
the physician had an ownership interest. Later, the ACA limited the
whole hospital exception's application to only those hospitals that are
``grandfathered'' in, i.e., hospitals with physician ownership and an
effective Medicare provider number before December 31, 2010.\35\
Further, to avoid circumvention by increasing physician-ownership of
exempted hospitals, the law and the regulations strictly limit the
expansion of space or service of any grandfathered hospitals.\36\ And
still, constituents on both sides of this issue continue to debate
whether this exception and the imposed limitations on the exception
effectively achieve their intended goals.
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\34\ Section 1877(d)(3)(A) of the Social Security Act; 42 CFR
Sec. 411.356(c). The exception requires (1) the ownership or investment
interest must be in the hospital itself and not merely in a
``subdivision'' of the hospital; (2) the referring physician must be
``authorized'' to perform services at the hospital.
\35\ ACA Sec. 6001(a)(3) added section 1877(i)(1) of the Social
Security Act which sets out conditions that a facility must meet to
continue to use the whole hospital exception.
\36\ 42 CFR Sec. 411.362 (b)(2).
D. Strict Liability for Stark Law Violations Creates Staggering
Consequences
Any proposed arrangement that involves a financial relationship
with a physician who refers DHS that are payable by Medicare must be
evaluated for compliance with every aspect of an exception to ensure
the referral complies with Stark. Most exceptions have very detailed
and technical requirements, including signatures on agreements and
written contracts. Failure to comply with any of these requirements
means an automatic violation of the Stark Law. Given the difficult and
lengthy processes necessary to make a Stark Law compliance
determination compared with the practical demands and structure of the
health care industry, non-compliance is inevitable even for the best
intentioned providers. This is troublesome for a number of reasons,
such as the steep consequences for non-compliance.
The Stark Law is a condition of Medicare payment: failure to comply
with the Stark Law means a denial of Medicare payment for any claims
submitted pursuant to the prohibited referral. In addition, sanctions,
including civil monetary penalties and potential program exclusion, may
be imposed against any person that submits or causes such claims to be
submitted or fails to make a timely refund of any amounts collected. It
is now well-established that a violation of the Stark Law can lead to
FCA liability. This liability for submitting a false claim or causing a
person or entity to submit a false claim is the most significant risk
that health care providers face under the Stark Law. A violation of the
FCA results in potential treble damages and civil penalties for every
``tainted'' claim.
The penalties under the Stark Law can be much higher than the
penalties for other billing issues resulting in a Medicare overpayment.
To illustrate, if a hospital has a non-compliant financial arrangement
with a physician, all Medicare payments for all inpatient or outpatient
services referred by that physician are overpayments and must be
returned, regardless of the nature and the amount of the tainted
transaction.\37\ This impact is further compounded because the Stark
Law is also a strict liability statute. So if a physician and hospital
violate the Stark Law, the entity must refund the payment amount, is
subject to civil monetary penalties, and potential FCA liability even
if there was no intent to unlawfully incent the referral and the
referral was, in fact, warranted and medically necessary.
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\37\ Senate Committee on Finance, ``Why Stark, Why Now? Suggestions
to Improve the Stark Law to Encourage Innovative Payment Models,'' p. 5
n. 10 (June 30, 2016) (using this example to illustrate the higher
penalties for a Stark violation.)
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iii. stark law deficiencies and recommended resolutions
A. The Stark Law Creates Unnecessary Impediments to Healthcare Reform
1. Overview of Reforms Creating Value-Based Payment Models
and Incentives
The ACA encourages a fundamental shift away from traditional Fee-
for-Service (``FFS'') payment models that reward providers based on the
quantity of services administered to patients--to value-based and
population-based payment models that reward providers based on the
quality and efficiency of care delivered. Value-based payment models
significantly and, in many cases, entirely eliminate the risk of health
care resource overutilization, which is the risk the Stark Law was
designed to address. When health care providers earn their margin not
by the volume of services they provide, but by the efficiency of their
services and the excellence of the treatment outcomes, their economic
self-interest aligns with the interest of law enforcement seeking to
protect patients from unnecessary services. This is especially critical
in an environment where health systems are earning an ever-increasing
proportion of their income (Medicare and otherwise) outside FFS.
The ACA chiefly promotes the use of value-based payment models
through the creation of integrated care delivery models. Under the
ACA's authority, the Center for Medicare and Medicaid Innovation
(``CMMI'') has created and continues to oversee a number of
demonstration projects under section 1115A of the Social Security Act
that are changing health care payment and delivery by offering value-
based and population-based payments to providers.\38\ Similarly, the
Centers for Medicare and Medicaid Services (``CMS'') administers the
Medicare Shared Savings Program (``MSSP''),\39\ which is the permanent
ACO program for CMS. Of note, the MSSP offers financial incentives
under which ACOs--groups of doctors, hospitals, and other health care
providers who come together voluntarily to provide coordinated care to
their Medicare patients--can share a percentage of their achieved
savings with Medicare, if the ACOs meet quality and savings
requirements.\40\
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\38\ CMMI, https://innovation.cms.gov/. Three of these models
include the BPCI, the CJR, the Pioneer ACO Model, and the Next
Generation ACO Model.
\39\ Section 1899 of the Social Security Act.
\40\ As of January 2016, when accounting for participating
providers in the MSSP, the Next Generation ACO Model, Pioneer ACO
Model, and the Comprehensive ESRD Care Model administered by CMS and
CMMI, nearly 8.9 million Medicare beneficiaries are served through a
total of 477 ACOs, 64 of which utilize two-sided risk-bearing models.
CMS Press Release, ``New Hospitals and Health Care Providers Join
Successful, Cutting-Edge Federal Initiative that Cuts Costs and Puts
Patients at the Center of Their Care'' (January 11, 2016), available at
http://www.hhs.gov/about/news/2016/01/11/new-hospitals-and-health-care-
providers-join-successful-cutting-edge-federal-initiative.html; see
also CMS, ``Accountable Care Innovation Models,'' available at https://
innovation.cms.gov/initiatives/index.html#views=models&key=accountable
care (last visited July 11, 2016).
Building upon innovative payment models promoted under the ACA,
Congress created a new framework to incent physicians to continue to
engage in collaborative relationships to provide coordinated care to
patients by enacting MACRA. MACRA ended the Sustainable Growth Rate
(``SGR'') formula that previously dictated payment amounts for
physicians enrolled as Medicare providers. In its stead, MACRA
establishes the new Merit-Based Incentive Payment System (``MIPS'')
that uses a combination of existing health care quality reporting
programs to provide positive or negative payment adjustments based on
value-based metrics. In addition, MACRA gave CMS the authority to
provide incentive payments to clinicians who engaged in certain
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Alternative Payment Models (``APMs'').
APMs are defined under MACRA as: (1) section 1115A models being
tested by CMMI (except health care innovation awards); (2) the MSSP;
(3) a demonstration under section 1866C of the Social Security Act
(establishing the Health Care Quality Demonstration Program); and (4)
other demonstrations ``required by Federal law.'' \41\ According to the
law and CMS's proposed rule implementing MACRA, beginning in 2019, if
an ``eligible clinician'' participates in what CMS has deemed an
``Advanced APM'' \42\ and receives a certain percentage of payments set
in advance by CMS from delivering care to certain classes of Medicare
beneficiaries through the Advanced APM, these clinicians may become
``Qualifying APM Participants'' (``QPs'') and be eligible for incentive
payments from CMS equal to 5 percent of their prior year's payments
from Medicare Part B as well as higher payment updates under the
annually issued Physician Fee Schedule (``PFS''). Starting in 2021,
eligible clinicians may also become QPs by participating in a
combination of Advanced APMs and APMs with other payers, including
commercial payers (defined as ``Other Payer Advanced APMs'').\43\ By
2024, the incentive payments will phase out, and the same will occur
with the enhanced PFS updates. Overall, the incentives for
participation in Advanced APMs and Other Payer Advanced APMs are
intended to accelerate the transition from Medicare fee-for-service
payments to value-based models.
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\41\ Id. 81 Fed. Reg. 28161. According to the MACRA proposed rule,
CMS would impose three criteria for the fourth category, including
that: (1) the demonstration must be compulsory under the statute, not
just a provision of statute that gives the agency authority, but one
that requires the agency to undertake a demonstration; (2) there must
be some ``demonstration'' thesis that is being evaluated; and (3) the
demonstration must require that there are entities participating in the
demonstration under an agreement with CMS or under a statute or
regulation.
\42\ As further explained in the MACRA proposed rule from CMS, an
APM must meet all three of the following criteria defined under section
1833(z)(3)(D) of the Social Security Act to be deemed an ``Advanced
APM:''
1. Require participants to use certified electronic health records
technology (``CEHRT'');
2. Provide for payment for covered professional services based on
quality measures comparable to those in the quality performance
category under MIPS; and
3. Either require that participating APM Entities bear risk for
monetary losses of a more than nominal amount under the APM, or be a
Medical Home Model expanded under section 1115A(c) of the Act. 81 Fed.
Reg. 28297.
\43\ Section 1833(z)(2)(B)(ii) of the Social Security Act.
2. The Incomplete Protection of Existing Waivers for
Innovative Payment
Models
Both the ACA and MACRA premise health care reform on the
coordination of multiple health care providers to provide better care
at lower cost. In other words, one of the main goals of the ACA and
MACRA is to drive health care entities together, both clinically and
financially. Yet, the goals of the Stark Law are diametrically opposed
to this goal, having been designed to keep health care entities
financially apart.
a. The Fraud and Abuse Waivers Under the ACA
In enacting the ACA, Congress recognized Federal ``fraud and
abuse'' laws are increasingly incompatible with these innovative
payment and integrated care models. Thus, the ACA authorized the
Department of Health and Human Services (``HHS'') Secretary to issue
regulatory waivers for innovative payment and service delivery models
under MSSP, CMMI's authority, and the Health Care Quality Demonstration
Program.\44\ Using that authority, the Secretary issued waivers from
the requirements of the Stark Law as well as other fraud and abuse laws
for participants in the MSSP,\45\ and has exercised that authority as
well for participants in the BPCI, the CJR and other demonstration
programs at CMMI. Because of these waivers, providers can meaningfully
participate in innovative payment models without being subject to the
Stark Law. However, the waivers under the MSSP and under the CMMI
programs operate very differently and provide incomplete protection, as
described below.
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\44\ Section 1899 of the Social Security Act (42 U.S.C. 1395jjj);
section 1115A of the Social Security Act (42 U.S.C. 1315a); and section
1866C of the Social Security Act (42 U.S.C. 1395cc-3).
\45\ CMS and OIG, ``Final Waivers in Connection With the Shared
Savings Program,'' 80 Fed. Reg. 66726 (October 29, 2015).
(i) The MSSP Waivers Are Broad, But May Be Out of
Reach for Commercial Entities
Under the MSSP, CMS and OIG collaborated to create five waivers
that would provide collective protection from enforcement under the
Stark Law as well as from other selected anti-fraud and abuse
statutes.\46\ The broadest waivers available under the MSSP protect
arrangements protect ``start-up'' and continuing the operations of an
ACO as well as distributions and uses of shared savings payments earned
under the MSSP.\47\
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\46\ Id.
\47\ Id. (specifically, the ACO Pre-Participation Waiver, the ACO
Participation Waiver, and the ACO Shared Savings Distribution Waiver).
All of the waivers provide simple requirements regarding the
parties eligible for the waivers, the arrangements to which the waivers
could apply, the terms during which the arrangements would receive
protection under the waiver, and requirements for parties' governing
bodies to fulfill in order to memorialize the adoption of the waivers
at their respective organizations. Most importantly, however, these
waivers are generally available to participants in the MSSP as well as
entities that arrange to provide items or services that support the
MSSP participants, so long as the governing boards have determined that
the arrangements are ``reasonably related'' to the MSSP. The MSSP
waivers have allowed health care systems to engage in innovative care
coordination and payment arrangements and ACOs find them relatively
easy to adopt and apply to their operations. But despite these
benefits, the MSSP waivers are not broad enough to protect arrangements
that may involve commercial arrangements that still trigger the Stark
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Law, as I describe in section III.A.3 below.
(ii) The CMMI Waivers Are Too Narrow and Time-Limited
for Long-Term Results
In contrast, the waivers applicable to CMMI initiatives are
extremely program-specific. As CMMI implements more models, the waiver
requirements have gotten more prescriptive and extremely narrow. These
waivers are too program-specific and too numerous to keep track of to
facilitate continued progress toward health reform, especially when a
health care entity or system is participating in multiple programs
simultaneously. More importantly, however, the waivers related to
CMMI's programs offer only temporary protection for participants
because they are only available during the time they are being tested
by CMMI. Thus, once the program related to the specific waiver is over,
there is little incentive to continue the arrangement it previously
protected because the parties to the arrangement would have to make it
comply with applicable exceptions and safe harbors under the fraud and
abuse laws. More likely than not, this means that an arrangement that
could have immense cost-efficiencies for the health care system would
have to end with the termination of the CMMI program. And given the
short-term nature of the CMMI programs (they generally last for 3 to 5
years), many health systems will not want to invest in infrastructure
redesign only to have to unwind such arrangements to comply with
existing Stark Law restrictions.
b. New APMs Under MACRA
Similarly, MACRA is a landmark shift toward value-based payment
systems in the U.S. health care system, but falls short in addressing
the still-existing barriers presented by the fraud and abuse laws,
including the Stark Law, that were not remedied in the ACA. Although
Congress established the HHS Secretary's authority to waive certain
requirements including the payment-related requirements imposed by the
Stark Law within specific provisions of the ACA, no such authority
exists in MACRA. Thus, providers must rely on the authorities granted
in the ACA to find relief from the fraud and abuse laws, even though
MACRA opened the door to the creation of additional government-based
and non-government based programs to support the transition to value-
based payment for services to Medicare beneficiaries.\48\ But having to
``bootstrap'' the waivers available under the ACA to new programs under
MACRA still provides incomplete protection from the fraud and abuse
laws in the following situations:
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\48\ Of note, however, Congress has requested a report ``with
options for amending existing fraud and abuse laws in, and regulations
. . . through exceptions, safe harbors, or other narrowly targeted
provisions, to permit . . . arrangements between physicians and
hospitals [] that improve care while reducing waste and increasing
efficiency.'' MACRA Sec. 512(b). I welcome the opportunity to respond
and provide comment to this report whenever it is available to the
public.
In CMMI programs where the HHS Secretary elects to not
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create waivers from the fraud and abuse laws;
In APMs from the ``demonstration programs required by
federal law'' category where Congress did not provide the HHS
Secretary authority to establish waivers; or
In APMs that are not specified in MACRA, such as Other Payer
APMs and Other Payer Advanced APMs.
3. Examples of the Incomplete Nature of Fraud and Abuse
Waivers
Currently, in order to use the waivers from fraud and abuse laws,
particularly the Stark Law, health care providers or payers must
undergo the following steps: (1) choose to participate in a program
where a potential waiver exists, (2) examine the requirements of the
waiver established by the HHS Secretary to determine the requirements,
and (3) fulfill the requirements of the waiver, sometimes without
certainty that the waiver provides complete protection against
potential enforcement under the Stark Law. As a result, the health care
system requires providers and payers to engage in a piecemeal,
patchwork approach to conforming to the requirements of the fraud and
abuse laws, and prevents a centralized approach to fraud and abuse
compliance. Where waivers from the fraud and abuse laws are available
only in certain programs, in the absence of a mechanism to allow for
application of similar waivers to multiple programs, health care
providers are deterred because they do not have the time, money, or
staff resources to structure arrangements to address the requirements
of each and every program's waivers.
Finally, while the Stark Law is an impediment to the full success
of MACRA, it is also a significant barrier to those providers who
engage in innovative payment models outside of the MSSP ACOs, CMMI
models, and APMs. These arrangements, often found in the commercial
market, create the same financial relationships found in Medicare
innovative payment models and therefore trigger the Stark Law's
application. While some of these relationships will fit within existing
Stark Law exceptions, many others do not. It is not clear how broadly
HHS has exercised its waiver authority to protect these commercial
arrangements, and it has failed to provide definitive guidance on the
application of their waivers to these new relationships. This issue is
vitally important to the success of MACRA and other CMS innovative
payment models, because many of these new non-Medicare models are an
``on-ramp'' towards more sophisticated payment arrangements. In other
words, as physicians and health care providers move towards new payment
arrangements, some are not ready to move immediately into a Medicare
model. Instead, they are moving at a slower pace, with the intention of
moving towards these new models within the next few years. Without
specific protection from the Stark Law's application to these
intermediate models, these health care providers will never be able to
move to more sophisticated models that are being offered by CMS.
Removing the Stark Law as a barrier to these partially integrated
entities will allow them to leave behind the fee-for-service payment
model and begin accepting value based payment without the risk of Stark
Law enforcement.
4. Recommendations for Removing Barriers to Reform
For the reasons set forth above, unfortunately, the following quote
from Timothy Jost and Ezekiel Emanuel's article 2008 still applies:
``[t]he current legal environment has created major barriers to
delivery system innovation. Innovation will not occur if each novel way
to organize and pay for care needs to be adjudicated case-by-case or is
threatened with legal proceedings.'' \49\ Thus, without Congressional
intervention, the fraud and abuse laws will still prevent providers
from pursuing collaborative, non-abusive relationships that would
support value-based payment.
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\49\ Timothy S. Jost and Ezekiel J. Emanuel, Legal Reforms
Necessary to Promote Delivery System Reform Innovation, 299 JAMA 2561,
2561 (2008).
CMS's most recent attempt at such a comprehensive approach occurred
8 years ago, when it proposed a new ``Exception for Incentive Payment
and Shared Savings Programs'' to the Stark Law in the proposed 2009 PFS
Rule.\50\ It was intended to permit incentive payments between
physicians and entities furnishing DHS, conditioned on the fulfillment
of 16 conditions. Similar to the issue raised in the prior section,
this exception would protect all incentive-based payment arrangements
regardless of whether they exclusively focused on Medicare patients.
CMS never finalized the exception, but the enactment of ACA and MACRA
has accelerated the growth of these models to a point where it is
necessary to explore the possibility of a global exception once again.
Rather than take the prescriptive, element-by-
element approach that CMS attempted in the proposed Stark Law
exception, however, I would recommend that Congress provide broad
waiver authority for the HHS Secretary to use the same approach
employed to establish waivers for the MSSP.
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\50\ CMS, ``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. 38502, 38548-
38558 (July 7, 2008).
As described above in section III.A.2.a(i), CMS and OIG's joint
waivers provide collective protection from enforcement under the Stark
Law as well as from other selected anti-fraud and abuse statutes.\51\
These waivers are generally available so long as the arrangements at
issue are ``reasonably related'' to the MSSP. Congress should
legislatively provide the framework for CMS to employ a similarly
flexible approach for any arrangement that is ``reasonably related'' to
APMs under MACRA, and make it clear that CMS can permit health care
entities that operate in the commercial marketplace to enjoy waiver
protection as well, as long as they are engaged in integrated delivery
models paid through a value-based payment methodology. As noted above,
while it is clear that CMS needs broader waiver authority for MACRA to
succeed, equally as important is waiver authority or a broader
statutory exception that allows for innovative payment models that
operate outside of the ACA and MACRA, but still violate the Stark Law.
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\51\ CMS and OIG, ``Final Waivers in Connection With the Shared
Savings Program,'' 80 Fed. Reg. 66726 (October 29, 2015).
I recommend that in addition to modeling any new exception after
the MSSP waivers, that the committee also review and use portions of
the managed care safe harbors under the Anti-Kickback Statute (``AKS'')
that provide fraud and abuse protection.\52\
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\52\ See section 1128B(b) of the Social Security Act and 42 CFR
Sec. 1001.952(t) and (u).
B. Penalties for Technical Non-Compliance Far Exceed Possible Harm
The Stark Law has a strict liability penalty scheme, in which even
inadvertent violations can trigger enormous repayment obligations.
Compensation arrangements between a referring physician and a DHS
entity are typically considered to be ``substantive'' Stark Law
violations if the compensation (1) is not Fair Market Value (``FMV'');
(2) takes into account the value or volume of referrals or other
business generated; or (3) is commercially unreasonable.
In addition to these substantive rules, the Stark Law requires
compliance with a number of technical, non-substantive requirements.
For example, to qualify under the commonly used ``fair market value
compensation'' exception, compensation resulting from an arrangement
between an entity and a physician for the provision of items or
services is excepted under the law, if the arrangement meets certain
substantive requirements and is ``in writing, signed by the parties,
and covers only identifiable items or services, all of which are
specified in writing.'' \53\ The writing must specify the timeframe of
the arrangement and the compensation to be provided.\54\ Under Stark
Law's strict liability scheme, any missing element--such as a signature
by one of the parties to the agreement--pulls the entire arrangement
out of compliance. The compensation could be set at fair market value,
not determined in a manner that takes into account the volume or value
of referrals or other business generated by the referring physician,
and be commercially reasonable--yet still violate Stark Law due to a
technical error.
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\53\ 42 CFR 411.357(l)(1).
\54\ Id.
Under the Stark Law, all Medicare payments for DHS furnished
pursuant to a prohibited referral are disallowed.\55\ In the above
example, failure to include a required signature could result in the
disallowance of Medicare payments for DHS, requiring a hospital to
repay tens of millions of dollars, depending on the size of the
hospital and the length of the unsigned agreement--an enormously
disproportionate penalty given the triviality of the violation and lack
of resulting harm to patients or to the Medicare program.
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\55\ 42 CFR 411.353(c).
There is a general consensus in the industry and among regulators
that the unintentional failures to satisfy such documentation
requirements are ``technical'' and do not impact the proclivity of
providers to make referrals. Compliance with the law's technical
requirements does not reduce the overutilization of medical items and
services. Likewise, failure to comply with the technical requirements
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does not increase the overutilization of medical items and services.
The technical requirements were designed as a means for parties to
evidence adherence to the substantive requirements of the Stark Law.
For example, signatures provide proof that two parties mutually entered
an agreement--a premise necessary to establish that an arrangement is
commercially reasonable, set at fair market value, and does not take
into account the volume or value of referrals. However, a signature is
only one means to evidence mutual assent. The rendering of services,
invoices, and a payment trail are other means by which by both mutual
assent and compliance with the substantive requirements can be shown.
Recognizing some of the challenges posed by the technical
requirements, CMS recently clarified aspects of the technical elements
(e.g., allowable duration of noncompliance with the ``signature
requirement'').\56\ While the clarification provided by CMS relaxes the
technical requirements to a degree, it does not provide reprieve from
the severe penalties for technical noncompliance. Further, because
these technical requirements are based in statute, CMS does not have
the authority to revise or remove these requirements. Congress must do
so. The technical requirements under Stark Law are unnecessary and
result in both high compliance costs and excessive penalties for
hospitals and providers. Congress could eliminate these technical
requirements with no harm to patients or to Medicare.
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\56\ CMS, ``Medicare Program; Revisions to Payment Policies Under
the Physician Fee Schedule and Other Revisions to Part B for CY 2016,''
80 Fed. Reg. 70885, 71300-71341 (November 16, 2015).
If Congress chooses not to eliminate the technical requirements
under Stark Law, I recommend removing compliance with technical
requirements as a condition of Medicare payment and granting authority
to CMS to impose a simple monetary penalty per arrangement. Currently,
CMS has the authority to reduce the amount due and owing under the
Stark Law through its Medicare self-referral disclosure protocol
(``SRDP''), a process by which health care entities can voluntarily
disclose actual or potential violations of the Stark Law. Yet, CMS does
not have clear congressional authority to settle such cases on a per-
penalty basis. As part of the disclosure, entities must provide copious
amounts of referral data to CMS--which is often extremely time and
resource intensive for both the health care entity in its data
collection efforts and for CMS in its review and assessment of the data
to determine the overpayment amount. Providing specific legislative
direction to settle these technical non-compliance matters on a per-
penalty basis would remove any doubt as to the limited importance of
technical violations and would provide for greater efficiency in
administration of the Stark Law.
C. The Stark Law's Complexity and Lack of Clarity Raises Costs and
Yields Inconsistent Application in the Health Care Industry
The Stark Law was intended to provide a bright line test limiting
physician self-referral. As applied, the Law's structure, breadth, and
complexity have yielded few bright lines, in part, due to unclear and
ambiguous critical terms: ``fair market value,'' ``taking into account
the volume or value of referrals,'' and ``commercial reasonableness.''
For example, despite the general lack of case law interpreting the
Stark Law, the determination of fair market value has reached judicial
review several times.\57\ As a result, the health care industry incurs
significant costs for legal interpretation from counsel, which, in
turn, yields a myriad of differing and sometimes conflicting opinions.
Thus, depending on the interpretation adhered to by an entity, an
arrangement deemed non-compliant by one institution may be deemed
compliant by another.
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\57\ See United States ex rel. Kosenske v. Carlisle HMA Inc., 554
F.3d 88 (3d Cir. 2009); United States ex rel. Goodstein v. McLaren
Reg'l Med. Ctr., 202 F. Supp. 2d 671 (E.D. MI. 2002); United States ex
rel. Singh v. Bradford Reg'l Med. Ctr., 752 F. Supp. 2d 602 (W.D. PA.,
2010).
To achieve greater clarity and certainty, I recommend the following
changes to the statute: (1) modify the definitions of the terms
identified pursuant to the criteria below, and (2) expand CMS's
authority to issue advisory opinions and regulatory exceptions.
1. Define Critical Terms in an Objectively Verifiable
Manner
Fair Market Value.\58\ Determining what constitutes fair market
value is not clear under existing CMS guidance. Further, recent case
law has conflated and combined the definition of fair market value and
the volume or value standard. To remedy this confusion, I recommend
that Congress set forth a clear statutory standard. At the very least,
I recommend the establishment of a ``safe harbor'' for compensation to
a physician from a DHS entity that is at or anywhere below the 75th
percentile for national compensation for physicians in the same
specialty in any national survey designated by the Secretary. The 75th
percentile is considered fair market value according to the valuation
expert relied on by the government in several recently litigated cases.
This ``safe harbor'' approach builds on a proposal by CMS raised in the
Stark II rulemaking that was not adopted. This safe harbor approach
should be revisited. While it would not address all physician
arrangements, it would provide certainty on the FMV standard in the
vast majority of them.
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\58\ 42 CFR Sec. 411.351.
Taking Into Account Volume or Value of Referrals.\59\ Under current
law, there is confusion over whether the ``takes into account the
volume or value of referrals'' is an objective standard (i.e., did the
compensation actually vary based on referrals) or a subjective standard
(i.e., did the entity think about potential referrals even if it did
not set the compensation using them). I recommend a ``safe harbor'' for
all compensation arrangements that are initially established at a fair
market value rate and do not change or vary during the term of the
arrangement based on the value or volume of referrals (or other
business generated where applicable). This is similar to the approach
taken by CMS with respect to only certain per unit of service payments.
Because the Stark Law is a strict liability statute, examining a
party's intent or frame of mind should be irrelevant. Instead, only an
objective, verifiable standard should be applied.
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\59\ This phrase is used in fair market value definition cited
above, as well as the definitions of ``remuneration'' and the special
rules on compensation relationships defined at 42 CFR Sec. 411.354(d),
and the regulatory exceptions at 42 CFR Sec. 411.355(e) (academic
medical centers), 42 CFR Sec. 411.357(a) (rental of office space), (b)
(rental of equipment), (c) (bona fide employment), (d) (personal
service arrangements), (e) (physician recruitment), (f) (isolated
transactions), (g) (certain arrangements with hospitals), (h) (group
practice arrangements), (j) (charitable donations by a physician), (l)
(fair market value compensation), (m) (medical staff incidental
benefits), (p) (indirect compensation arrangements), (r) (obstetrical
malpractice arrangements), (s) (professional courtesy), (t) (retention
payments in underserved areas), (v) (electronic prescribing items and
services), (w) (electronic health records items and services), (x)
(assistance to compensate a nonphysician practitioner), and (y)
(timeshare arrangements).
Commercial Reasonableness.\60\ While a number of important
exceptions have a requirement that the arrangement be commercially
reasonable without taking into account Medicare referrals, the term
``commercial reasonableness'' is not clearly defined anywhere. Under
current law, there is confusion over whether a hospital's subsidy of a
physician's practice is commercially reasonable even where the
physician's compensation is in the range of FMV. I recommend either
that this standard be removed completely or that the statute be amended
to add a definition of commercial reasonableness e.g., that the items
or services are of the kind and type of items or services purchased or
contracted for by similarly situated entities and are used in the
purchaser's business, regardless of whether the purchased items or
services are profitable on a standalone basis.
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\60\ This term is used in the exceptions at 42 CFR Sec. 411.357(a)
(rental of office space), (b) (rental of equipment), (c) (bona fide
employment), (e) (physician recruitment), (f) (isolated transactions),
(l) (fair market value compensation), (n) (risk-sharing arrangements),
and (y) (timeshare arrangements).
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2. Expand CMS's Advisory Opinion Authority
While the Stark Law authorizes CMS to issue advisory opinions to
the industry,\61\ CMS's advisory opinion regulations are unduly
restrictive.\62\ CMS modeled its advisory opinion regulations on the
OIG's advisory opinion regulations for the Federal health care
programs' AKS.\63\ For example, CMS regulations prohibit CMS from
issuing advisory opinions to a party if the same or similar arrangement
is under investigation by another government agency, and prohibit
advisory opinions on hypothetical arrangements. While these
restrictions may be appropriate for advisory opinions addressing a
criminal statute, they are inappropriate where the regulated community
needs to know how to comply as a condition of payment. The Stark Law is
a strict liability statute where the regulations are complex,
technical, and ambiguous in crucial areas. The regulated community is
entitled to clear, timely guidance on how to structure such
arrangements in order to qualify for Medicare reimbursement.
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\61\ Section 1877(g)(6) of the Social Security Act.
\62\ 42 CFR Sec. Sec. 411.370-411.389.
\63\ 42 CFR part 1008; see also OIG, ``Advisory Opinions,'' https:/
/oig.hhs.gov/compliance/advisory-opinions/index.asp (last visited July
10, 2016).
I recommend that CMS advisory opinion authority be modified to
expressly (a) permit CMS to advise on existing, proposed, or
hypothetical compensation or ownership arrangements; and (b) prohibit
the agency from declining to issue an opinion on the grounds that a
similar arrangement between other parties is under investigation or the
subject of a proceeding involving another government agency.
3. Relax the Standard for CMS to Promulgate New Regulatory
Exceptions
The Secretary may only create additional exceptions where she
determines an arrangement ``does not pose a risk of program or patient
abuse.'' \64\ CMS has interpreted this language to constrain its
ability to create exceptions if there is any theoretical risk, however
small. This stance is significantly more restrictive than the
Secretary's ability to create safe harbors to the AKS.\65\
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\64\ Section 1877(b)(4) of the Social Security Act.
\65\ Section 1128D(a)(2) of the Social Security Act.
The constraint prevents CMS from creating exceptions for
arrangements that pose small or minimal risks. For example, it
significantly affected efforts by CMS to create a value-based or
innovative payment exception. It also requires CMS to impose more
safeguards than necessary, which limits the usefulness of the
exceptions it does create. For example, each of the Stark Law's
regulatory exceptions included a requirement that the arrangement not
violate the AKS. Since compliance with the AKS depends on intent and
requires a case-by-case investigation, compliance with the Stark
exception will also require an investigation into intent and the
specific facts. Such limitations are unworkable and unnecessary for a
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payment regulation.
I recommend that the statute be modified, at a minimum, to allow
CMS to create new exceptions to the self-referral prohibition so long
as the Secretary determines the exception does not pose a significant
risk of program or patient abuse.
D. Abuse of the In-Office Ancillary Exception is Contrary to the Stark
Law's Intent
Since its enactment in 1989, the Stark Law has provided a statutory
exception for ``in-office ancillary services'' (``IOAS''),\66\
supplemented by requirements in subsequent regulations.\67\ Despite its
early adoption and incorporation into the law's regulatory framework,
many stakeholders have singled out the IOAS exception as one of the
most abused in the law, because it ultimately promotes the very conduct
that the Stark Law was intended to prevent--overutilization of services
and unnecessary self-referrals of health care services.
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\66\ Section 1877(b)(2) of the Social Security Act.
\67\ 42 CFR Sec. 411.355(b).
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1. Background of the IOAS
The IOAS exception was adopted under the guise of promoting patient
convenience by allowing physicians to self-refer patients for services
that could be provided by other practitioners in the same group
practice. The original intent was to allow for limited diagnostic
testing such as lab services and x-rays to assist in determining the
proper course of treatment.
But over the years, it has become clear that the IOAS exception is
being used and abused well beyond its original intent. For example, as
evidenced by GAO reports, the use of the IOAS exception has increased
dramatically with specific service lines, including radiation therapy,
advanced imaging, anatomic pathology services, and physical and
occupational therapy. Specifically, ``[p]hysician self-referral of
ancillary services leads to higher volume when combined with fee-for-
service payment systems, which reward higher volume, and the mispricing
of individual services, which makes some services more profitable than
others.'' \68\ A GAO report determined that ``[s]elf-referring
providers in 2010 generally referred more anatomic pathology services
on average than those providers who did not self-refer these services,
even after accounting for differences in specialty, number of Medicare
FFS beneficiaries seen, patient characteristics, or geography.'' \69\
In addition, a 2013 GAO report focusing on a high-cost prostate cancer
radiation therapy found that ``[s]elf-referring providers referred
approximately 52 percent of their patients who were newly diagnosed
with prostate cancer in 2009'' for that therapy, in contrast with the
34 percent of patients referred for the same procedure by non self-
referring providers.\70\ The self-referring providers were also less
likely to refer patients for other, potentially less costly
treatments.\71\
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\68\ Medicare Payment Advisory Commission (``MedPAC''), ``Report to
the Congress: Medicare and the Health Care Delivery System,'' 27 (June
2011) (hereafter, ``MedPAC Report'').
\69\ GAO, GAO-13-445 ``Action Needed to Address Higher Use of
Anatomic Pathology Services by Providers Who Self-Refer'' (June 24,
2013).
\70\ GAO, GAO-13-525 ``Higher Use of Costly Prostate Cancer
Treatment by Providers Who Self-Refer Warrants Scrutiny'' (July 19,
2013).
\71\ Id.
2. Remedying the Incompatibility of IOAS With Health
Reform
As stated by the Medicare Payment Advisory Commission, ``under an
alternative payment structure in which providers are rewarded for
constraining volume growth while improving the quality of care, the
volume-increasing effects of self-referral would be mitigated.'' \72\
Yet, until we move to a fully integrated payment system, the incentives
to abuse the IOAS exception remains. Further, because of the
significant financial incentives that the IOAS exception affords,
providers engaged in in-office referrals have less incentive to shift
to innovative payment models. While some providers have argued that the
IOAS exception is a type of integrated delivery, referring from one
service line to a second service line is not integrated care as the
concept is defined under the ACA and MACRA.
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\72\ MedPAC Report at 27.
Because of the statutory structure of the exception, CMS cannot
reform the IOAS exception by regulation to solve this problem. Instead,
Congress must provide additional authority. Thus, in order to promote
and support the goals of health care reform, I recommend limiting
certain service lines from the IOAS exception's protection that have a
history of abuse. Yet, in order to further the goals of health reform,
I also recommend allowing the IOAS to continue to apply to those group
practices that are participating in APMs under MACRA and other value-
based payment systems. By doing so, Congress would stop the increasing
rate of unnecessary utilization due to IOAS and promote value-focused
arrangements among providers that further the goals of higher quality
health care at lower cost and better patient outcomes.
iv. conclusion
The Stark Law issues I have outlined above are not exhaustive but
are issues for which I believe there is the most pressing need to
address. Once these concerns are addressed, Medicare patients and the
Medicare program will be better off than under the current system.
Thank you again for this opportunity to testify on the Stark Law
and recommended reforms. I am happy to answer any questions that the
committee has.
______
Prepared Statement of Hon. Orrin G. Hatch,
a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah)
today delivered the following opening statement at a hearing to examine
ways to improve and reform the Stark Law:
As members of the Senate Finance Committee, we have a wide range of
duties.
In addition to drafting laws and overseeing their enforcement and
implementation, we are also called to assess the impact of existing
laws to determine their effectiveness at achieving their intended
goals.
When it comes to that last part, there is a quote from a well-known
American business leader that applies: ``Good intentions often get
muddled with very complex execution.''
Today we are here to talk about the Stark Law, an important yet
extremely complicated, health care fraud law that prohibits physician
referrals under certain circumstances. This law is the embodiment of
good intentions muddled with complex execution.
At its most basic level, the Stark Law prohibits doctors from
referring Medicare patients to hospitals, labs and other physicians for
healthcare services if the referring doctor has any direct or indirect
financial relationship with that entity. The sweeping nature of that
prohibition makes vast swaths of medicine performed in the current
healthcare system potentially illegal.
Anyone caught violating the law must give back all the Medicare
reimbursements paid to the doctor, hospital, or lab under the tainted
arrangement, even if the violations were unintentional, because the
Stark Law is a strict liability statute that is indifferent to motive,
knowledge, or state of mind.
When the Stark Law passed in 1989, lawmakers believed that, given a
bright line rule, providers would self-police their arrangements with
physicians. Despite this original intent, the Stark Law has become
increasingly complex and created more and more challenges for
legitimate health care arrangements.
Today, the healthcare world is populated by scores of legal experts
who strive to keep up with the sprawling compendium of statutes,
regulations, and legal advisories known collectively as the Stark Law.
The Federal Register contains hundreds, if not thousands, of pages
of regulatory text drafted by the Department of Health and Human
Services to improve compliance with and implementation of the Stark
Law.
Through these regulations, HHS has come up with more than 30
exceptions to the law, each of which carries its own detailed
requirements.
Even the original sponsor and namesake of the legislation,
Representative Fortney ``Pete'' Stark, recently lamented the Byzantine
turn that the statute has taken, stating: ``It gave every shyster and
promoter a loophole. . . . We now have to keep rewriting the laws like
the tax code.''
Because it regulates physicians' financial relationships, the Stark
Law has a significant impact on the structure and operation of the
healthcare delivery system. Therefore, as we've collectively worked to
transition our Federal health programs toward more value-based payment
systems and away from fee-for-service models, one question keeps coming
up: In its current form, is the Stark Law still necessary?
Last December, in an effort to answer this question and address
long-standing concerns about the Stark Law, the Finance and Ways and
Means Committees convened a roundtable discussion with stakeholders and
legal experts to discuss these issues. All three of the witnesses here
today were part of that discussion.
We received feedback on a number of issues related to the Stark
Law, including: the barriers it places on the implementation of health
reform laws; stakeholders frustrations with the difficulty and expense
associated with compliance; and the problems created by the Center for
Medicare and Medicaid Services' limited authority to create exceptions
and to issue advisory opinions.
Following the roundtable, we issued a broader call for comments
industry leaders and received almost 50 responses suggesting a variety
of changes, including: additional or expanded waivers or exceptions;
enhanced authority for CMS to address specific needs on an ongoing
basis; and repeal of the compensation arrangement prohibition. In
addition, some suggested that we repeal the law in its entirety.
Commenters across the board expressed concern about the ambiguous
way certain terms are defined under the Stark Law. Terms like ``fair
market value,'' ``volume and value of referrals,'' and ``commercial
reasonableness'' all have a decisive impact on the application of the
law, yet they are not clearly defined. And, finally, virtually everyone
we heard from believed that technical violations (of form rather than
substance) of the law should be subject to separate sanctions and
limited liability.
If the aim of the Stark Law is to prevent physicians from
inappropriately referring patients for medically unnecessary
treatments, it does so in a rather roundabout way, at least under the
current structure.
If we really want to prevent inappropriate self-referrals and
address the culture of overutilization, we have to do more than target
specific relationships and practices prone to abuse. We must also
realign the financial incentives created by our current payment
mechanisms.
If, as some have claimed, the Stark Law is impeding the
implementation of recently passed health reforms like the Medicare
Access and CHIP Reauthorization Act and preventing better integration
in the delivery of medical treatment, we should address that as well.
As a committee, we have a responsibility to explore potential
changes to make the law more workable in terms of enforcement and
compliance in both fee-for-service and value-based payment models, as
both are likely to be around for years to come
We're here today to examine these issues and, hopefully, hear some
potential answers to the questions that have come up. I look forward to
hearing the testimony of our witnesses and getting their input on all
of these important issues.
______
Prepared Statement of Peter B. Mancino, Deputy General Counsel,
The Johns Hopkins Health System Corporation
Chairman Hatch and members of the Senate Committee on Finance,
thank you for the opportunity to submit testimony on the timely and
important subject of the ``Stark Law.'' \1\
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\1\ Section 1877 of the Social Security Act, 42 U.S.C. Sec. 1395nn.
The Johns Hopkins Health System Corporation is a non-profit
organization affiliated with The Johns Hopkins University School of
Medicine. We serve as the parent to three academic medical centers,
three community hospitals, and several physician groups. On the payor
side, our health system includes a Medicaid managed care plan, a
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Medicare managed care plan, and other related businesses.
Since we are active on both the payor and provider sides and on
both the academic medical center and community hospital sides, our
health system has a unique perspective on the Stark Law. We view the
Stark Law as the top compliance risk of our health system, because it
is very easy to inadvertently violate Stark and the penalties are
substantial. As a result, we have a keen interest in promoting common-
sense revisions that will make Stark more understandable and less
burdensome to providers.
We estimate that our health system currently spends over $600,000
per year just on Stark compliance. Our compliance program includes
regular Stark audits, training programs, and various contract and other
tracking programs. Our compliance office includes a full-time Stark
attorney, and we routinely seek outside counsel and consultant
assistance with difficult Stark issues and fair market value reviews.
We believe that an updated Stark Law could foster the Triple Aim while
reducing the costs of compliance.
To be clear, we have no interest in facilitating overutilization of
health care services or promoting health care fraud. Our health plan
experience has demonstrated to us the importance of supporting the
Triple Aim and high quality, cost-effective health care. However, our
provider experience also has shown us how difficult and unfair the
Stark Law can be.
This testimony will focus on three dimensions in particular that
would greatly improve the Stark Law and allow health care providers to
partner with physicians to improve quality and reduce costs.
1. eliminate the ambiguity of key stark terms
When the Stark Law was originally enacted by Congress,\2\ the goal
was to create a bright line test to address the overutilization of
health care services resulting from inappropriate physician referrals.
The problem is that this bright line test has been transformed over
time into a complex and highly technical rule that includes over three
dozen statutory and regulatory exceptions. Each exception contains a
number of technical requirements, many of which are ambiguous and
counterintuitive. In some cases, the exceptions have been redefined and
reinterpreted on multiple occasions by the Centers for Medicare and
Medicaid Services (``CMS''), and the advisory opinion process and
recent judicial decisions have not provided needed clarity. Further,
recent CMS Stark regulations, while helpful, have not addressed the
core issues. As a result, considerable confusion remains in the
provider community about Stark requirements.
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\2\ Section 6204 of the Omnibus Budget Reconciliation Act of 1989
(OBRA 1989)--Pub. L. 101-239, December 19, 1989--adding section 1877 to
the Social Security Act prohibiting physician referrals for clinical
laboratory services. This provision, known as Stark I, became effective
January 1992. Section 13562 of Omnibus Budget Reconciliation Act of
1993--Pub. L. 103-66, August 10, 1993--expanded the prohibition to ten
designated health services (DHS) in addition to clinical laboratory
services. This provision, known as Stark II, became effective January
1995.
Most notably, the terms ``commercial reasonableness,'' ``fair
market value,'' and ``varies with or takes into account '' the ``volume
or value'' of referrals each lack the clear definition necessary for
providers to be certain of compliance despite their best efforts. As a
health law attorney for 20 years, I have been confronted with numerous
physician recruitments and other transactions that raise questions
about the meaning of these terms, and no matter how much time, money or
effort is expended in analyzing the issues, I have often had the
unpleasant duty of informing a client that there are no clear or 100%
safe answers. Given that Stark was intended to be an easy bright line
test, we believe that the Stark Law should be amended to clarify key
terms. Further, there should be a workable process for hospitals and
other health care providers to obtain clear and timely compliance
guidance.
2. make stark penalties more reasonable
The Stark Law's complexity and ambiguity has made it extremely
difficult for even diligent health care providers with robust
compliance programs to comply with Stark. Failure to satisfy even one
of its technical requirements can result in a violation, and despite
the best compliance efforts, unintentional mistakes occur.
Liability under the Stark Law can be staggering even for minor
violations. For example, a provider may be required to refund any
Medicare reimbursement received from impermissible physician referrals
even when the violation concerns a low value contract, and additional
penalties or treble damages may be assessed. The potential liability
associated with an alleged Stark violation creates an enormous barrier
to a provider's ability to defend against a claim, even when a provider
has valid defenses. When faced with potential Stark liability,
providers are often forced to settle. A Federal appellate court judge
recently highlighted this troubling result in a concurring opinion to a
decision upholding a $237 million dollar judgment against Tuomey
Healthcare System, stating, ``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\
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\3\ United States ex rel. Drakeford v. Tuomey Healthcare Sys.,
Inc., No. 13-2219, 2015 U.S. App. LEXIS 11460 at *56, *69 (4th Cir.
July 2, 2015) (Wynn, J., concurring).
Most health care providers want to be compliant and are willing to
be accountable for mistakes. However, accountability should not entail
ruinous penalties. Recent judicial decisions like the Tuomey case have
had a chilling effect on the health care industry causing clients to be
reluctant to try creative arrangements (e.g., gainsharing, physician
alignment strategies for population health, etc.) at a time when
innovation is most needed. Accordingly, the Stark Law should be amended
to make the potential penalties associated with Stark violations more
reasonable.
3. reform the stark law to permit innovative payment methodologies
The Stark Law imposes substantial limits on a hospital's ability to
participate in innovative payment arrangements with physicians. For
example, gainsharing and value-based payment arrangements are often
problematic under Stark, because they are not susceptible to fair
market value assessment and may take into account the volume or value
of physician services. However, these types of arrangements promote
care coordination, enhance quality, improve patient care experience and
control costs. Given the changing face of medicine, including the
recent enactment of MACRA,\4\ innovative payment arrangements are
needed.
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\4\ Medicare Access and CHIP Reauthorization Act of 2015 (MACRA),
Pub. L. No. 114-10 (2015).
Therefore, we support reforming Stark to allow hospitals to make
incentive payments to physicians based on the physicians' achievement
of quality metrics and cost-reduction targets. This change would be
consistent with MACRA and the Triple Aim and would give hospitals an
important tool in their efforts to enhance quality and reduce health
care costs. We also support providing the health care community the
ability to create other value-based payment arrangements that meet the
same goals.
conclusion
Now is the time for Congress to modernize the Stark Law to promote
fairness and further the goals of MACRA and the Triple Aim. MACRA
requires providers to innovate, but we need the tools and the freedom
to do so. We urge Congress to act quickly to address our concerns so
that the health care industry can transform itself to meet today's
challenges.
Thank you for your consideration of this important topic.
______
Prepared Statement of Ronald A. Paulus, M.D., President and
Chief Executive Officer, Mission Health System
Mr. Chairman, Ranking Member Wyden, and members of the committee,
thank you very much for the opportunity to testify about essential
reforms to the Physician Self-Referral Law (``Stark Law'' or
``Stark''). I am the Chief Executive Officer of Mission Health System
(``Mission Health''), the largest health care system in western North
Carolina and the region's only safety net health system. We care for
nearly 900,000 people across our State's 18 most western counties. Our
patients are older, poorer, sicker and less likely to be insured than
State and national averages. More than 75% of our care is provided to
Medicare or Medicaid beneficiaries or to the uninsured; 10% of our
babies are born addicted to narcotics.
Even in the face of these significant demographic challenges,
Mission Health has received numerous national awards, had the Nation's
lowest Medicare readmission rate for any general acute care hospital
and has been named a Top 15 Health System for 4 consecutive years,\1\
the only health system in the Nation to ever achieve this recognition.
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\1\ Thomson Reuters in 2012; successor firm Truven Health Analytics
(http://truvenhealth.
com/) in 2013-2015.
As a senior executive at Geisinger Health System, I saw first-hand
the impact that a value-based system can have on its patients and
region before coming to Mission in 2010. Upon my arrival, I began to
lead a transformation to create a value-based health system including:
establishing a culture of physician and clinician leadership, creating
a Medicare Shared Savings Program Accountable Care Organization (``MSSP
ACO'')--now the largest in North Carolina and one of the largest in the
Nation--and joining the joint replacement bundled payment program. More
broadly, Mission Health is proactively funding quality performance
incentives for our ACO and employed physicians and we are implementing
nearly 100 care process models that rely upon evidence-based care,
consumer engagement and activation and which incorporate numerous
virtual care technologies. Presently, we are evaluating which of the
alternative payment models (``APMs'') in the Medicare and CHIP Re-
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Authorization Act (``MACRA'') we will adopt as a system.
We are actively trying to push our market to a value-based payment
framework because it offers great promise for patient care and our
local employers while also providing needed financial stability for
Mission Health and the U.S. health care system. However, our crucial
responsibility as the region's only safety net health system demands
that we avoid unnecessary risks. Some of the most significant risks we
face originate from the unclear legal boundaries in our fraud and abuse
laws. In the current environment, health systems cannot responsibly
make the long term human and capital commitments necessary to truly
align incentives for the system and physicians to truly transform care.
As a physician executive and someone who has both contributed to
and extensively read the literature on healthcare performance and
innovation, I am convinced that it is simply not possible to transform
healthcare without a strong, aligned, shared partnership between health
systems and physicians. Physician decisions drive the overwhelming
majority of all healthcare spending and of course, patient outcomes.
The Stark Law creates a choking fog of uncertainty and not uncommonly
creates truly absurd outcomes that directly cause patient harm. It also
fails to add any important protections for the Medicare and Medicaid
programs beyond those already in place under the Anti-Kickback Statute
(perhaps with the exception of ownership restrictions, which are
admittedly important).
Mission Health submitted comments on Stark Law reform to this
committee in January 2016. Our comments focused on the need for new
exceptions to: (1) remove obstacles to APMs; and (2) facilitate
``gainsharing'' between physicians and hospitals. The recently released
Senate Finance Committee Majority Staff Report \2\ (``Report'') is an
excellent summary of the submitted comments and it includes these ideas
and many more. The weight of those comments makes it clear that Stark
has largely outlived its usefulness and has multiple problems that make
it unlikely to be ``fixed'' with simple tinkering around the edges.
Rather than rehash our earlier comments or focus on the tremendous cost
burden that technical compliance induces, I will use my time today to
build upon the Report's indictment of Stark and explain how a total
Stark repeal would not only help health systems do what we need to do,
but precisely what you've asked us to do: focus on what's best for
patients and transform our outdated fee-for-service system to a value-
based care system.
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\2\ Senate Finance Committee Majority Staff Report, ``Why Stark,
Why Now? Suggestions to Improve the Stark Law to Encourage Innovative
Payment Models'' (July 7, 2016).
To explain how the repeal of Stark is critical to enable payment
reform, I will describe a typical issue for Mission Health as we
implement our pay for performance programs. Stark regulations prohibit
linking payments to the ``volume or value of referrals'' \3\ while the
Anti-Kickback Statute does not contain this requirement.\4\ Under
Stark, any incentive program must be structured to distribute payments
to all participating physicians regardless of a particular physician's
level of effort. The result is that underperforming physicians have no
financial incentive to change their practices.\5\ If the government
relied only on the Anti-Kickback Statute, with its focus on illegal
intent to induce referrals, we could target incentives to the
physicians who actually achieve congressional, CMS and patients'
quality goals, thus improving the impact and cost-effectiveness of
those incentives. Let me ask you this: if you wanted to achieve a
particular goal, would you reward everyone equally no matter what their
performance, or would you reward those who actually achieved the
desired goal?
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\3\ See, for example, the exception for rental of office space at
fair market value found at 42 U.S.C. section 1395nn(e)(1)(A)(ii)(2006).
\4\ While the statute itself does not contain this provision, some
safe harbors do. See 42 CFR Sec. Sec. 1001.952(b)-(d).
\5\ U.S. Government Accountability Office, GAO 12-355, ``Medicare:
Implementation of Financial Incentive Programs Under Federal Fraud and
Abuse Laws,'' at 21 (2012).
Let me make this point real and tangible. Our system and many
others use the Centers for Medicare and Medicaid Services (``CMS'')
data on various patient care issues to develop quality measures. One of
CMS's quality indicators and a focus for Mission Health is to decrease
(and ultimately eliminate) hospital-acquired infections. Under the
current Stark regime, Mission's ACO could include that measure in a
quality incentive program since Stark does not apply to the ACO and
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there are Anti-Kickback Statute waivers available.
However, in our many other contractual relationships with
physicians outside of the ACO, the Stark Law significantly and
deleteriously constrains what we can do. We can only offer incentives
to employed physicians but not to the independent physicians who
comprise the majority of practice at our hospitals. Furthermore, we
have to reward all physicians equally if we achieve our infection-
reduction goal rather than rewarding those physicians who specifically
achieved their goal. In fact, we would have to reward a physician who
had a dramatic increase in his or her infection rate exactly the same
as a physician who eliminated all infections. That literally makes no
sense and in any other industry, would be laughable. In most
industries, shareholders and watchdogs are demanding outcome-based pay
for performance linkages; in healthcare, Stark specifically prohibits
us from using them.
These limitations result from Stark requirements that any payments
to physicians be at ``fair market value'' and unrelated to the volume
or value of referrals made by the physician to the hospital.\6\ These
terms are not clearly defined in the regulations and are ``fact
specific,'' meaning that we can never be sure in advance that any
quality incentive program will pass muster if scrutinized. The risk of
our guessing wrong is that all hospital reimbursement attributable to
referrals from those non-employed physicians is subject to repayment, a
catastrophic penalty.
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\6\ 42 U.S.C. section 1395nn(e)(2)(B)(ii) (2006).
Aside from the many ways the Stark Law affects Mission Health's
ability to fully implement pay for performance programs, the law also
impacts our day to day patient care in very significant and let me
emphasize, negative ways. A real example will illustrate one way that
Stark prevents us from providing the kind of care our patients deserve.
For a number of years, a geneticist with Mission Health has met with
expectant mothers who have just learned that the child they are
carrying will die shortly after birth. The geneticist helps the mothers
and fathers understand their child's fatal condition and what to expect
during the delivery. The geneticists strongly desire to have this
conversation with the parents at the obstetrician's office so they
could share this devastating information in a comfortable, familiar
environment that is calm and supportive. They would not charge the
patient or the physician's practice. However, when this compassionate
suggestion was brought to the attention of Mission Health's attorneys,
they immediately became concerned that the service could be seen as
providing ``something of financial value'' to the obstetrician's
practice. Since there is no Stark exception to cover this circumstance,
they rejected the suggestion of having the conversation in the
obstetrician's office at no charge, despite the fact that the
geneticists' motivation was solely to help these women--often
indigent--at an extraordinarily difficult time in their lives. If we
had only been subject to the Anti-Kickback Statute, this service could
be provided as the intent behind the program is clearly not abusive.
Unfortunately, since Stark is a strict liability statute, we could not
take that risk. In a very similar situation, a Mission employed
neonatologist focused on palliative care desired to offer similar, free
services to support babies born with very significant life challenges.
Again, we had to decline. These are just two examples of incredibly
harmful impacts on patient care, dignity and support. I assure you
Mission and other health systems could provide hundreds of similar
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patient-centered initiatives that are deemed problematic under Stark.
Although I desperately hope for the contrary, I do recognize that
Congress may not be ready to take the step of repealing the Stark Law,
so I will spend a few moments explaining how some of the less
comprehensive reforms described in the report could help health care
providers move to value based care. If you are unwilling to eliminate
Stark entirely, I urge you to consider the many possible revisions to
Stark described in the Majority Staff Report. In particular, I believe
that a waiver program similar to the MSSP ACO waiver program or an
exception for APMs would be valuable. ACOs are able to avoid many of
the problems I described because they can apply for certain fraud and
abuse waivers. Allowing entities other than ACOs to invoke waivers if
they are using APMs would provide at least some relief from the
unnecessary burden of Stark.
The rationale for the current ACO waivers is that the many
statutory requirements to become an ACO and the public scrutiny
involved in posting the waivers on an ACO's website assure that the ACO
is focused on meeting Medicare's patient care and financial goals. A
similar waiver program for Stark would give a health care system that
wanted to create a quality incentive important flexibility. Any system
would have to fully describe its program to CMS and on the
organization's website, thus protecting the Medicare and Medicaid
programs from abuse, while allowing it to reward physicians who
actually meet the measures. One of the comments described in the Report
offers an interesting twist on applying a waiver regime to APMs; it
suggests creating an exception that would use the kinds of conditions
present in the ACO waivers.\7\ Either a waiver approach or an exception
using similar requirements would give health care providers a much
clearer path toward APMs than exists today.
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\7\ Report at 10.
Some have argued that CMS can make any necessary Stark reforms
without action by Congress. Indeed, in the most recent round of Stark
regulations released October 30, 2015, CMS made a number of changes to
address the issue of unintentional lapses in contracts.\8\ These new
regulations have helped to prevent many self-disclosures of harmless
failures to comply with the absurdly strict language of Stark. As a
side note, we had several very small facilities that we acquired self-
disclose such minor findings after our acquisition due diligence. They
spent nearly 2 years pending review and paid significant (though
markedly reduced) penalties for relationships where both the payment
for services and physician work performed continued. No harm, no foul,
just a technical error and a large penalty payment.
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\8\ Stark II Phase V, IPPS regulations, October 30, 2015.
But CMS simply does not have the legislative authority to go much
further in addressing problems. In 2012, the Government Accountability
Office (``GAO'') issued a report on the changes needed in fraud and
abuse laws to facilitate health care reform.\9\ While the report is now
4 years old, sadly, its major points have yet to be addressed. That
report stated that:
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\9\ GAO 12-355 at 22-23.
CMS has acknowledged that existing Stark Law exceptions may not
be sufficiently flexible to encourage a wider array of non-
abusive and beneficial incentive programs that both promote
quality and achieve cost savings. CMS can create additional
exceptions as long as the exception does not pose a risk of
program or patient abuse. According to CMS officials, this ``no
risk'' requirement is high and limits their ability to create
new regulatory exceptions to the Stark Law. In 2008 CMS
attempted to use its authority to propose a new exception
covering financial incentive programs. However, the ``no risk''
requirement necessitated a narrow exception with many
structural safeguards in light of the risk that financial
incentive programs could be used to disguise payments for
referrals or adversely affect patient care. In its proposed
rule, CMS noted that the design of the proposed exception
created a challenge in providing broad flexibility for
innovative, effective programs while at the same time
protecting the Medicare program and patients from abuses. The
agency solicited comments, and many of the comments it received
criticized the number and complexity of safeguards needed to
achieve the ``no risk'' standard. To date, the agency has taken
no further action to finalize this regulatory exception, and
CMS officials told us the agency has no plans to do so in the
near future.\10\
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\10\ Id. (citing 42 U.S.C. Sec. 1395nn(b)(4) and ``Medicare
Program; Revisions to Payment Policies Under the Physician Fee Schedule
and Other Revisions to Part B,'' 73 Fed. Reg. 38502, 38604 (proposed
July 7, 2008)).
CMS cannot solve the fundamental problems in the Stark Law: it is
very complex and requires no intent whatsoever to violate the law. It
sets up barriers to the necessary alignment between hospitals and
physicians that is absolutely essential to transform our delivery
system. Because of the extraordinary penalties involved, it often
``freezes'' health systems in place and absolutely impairs patient
care, performance improvement and the shift to value-based payment. The
stakes are simply too high and the need for healthcare reform too
great--for our patients, our businesses and our Nation. Only Congress
can remove those barriers. Thank you for being willing to take on this
very important issue. It's been an honor and privilege to share these
thoughts with you, and I truly appreciate your interest in this very
important topic. With you leadership, we can make the changes necessary
to remedy these problems and succeed in our transition to a high
quality, efficient and effect value based health care system. If I can
answer any questions or provide any additional information on this
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topic, I would be delighted to be of help.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
The U.S., over the last few years, has seen the beginning of a
major transformation in the way medical care is paid for. This country
is moving away from an old system--fee for service--which opened the
till for every visit, every test, and every procedure in a doctor's
office or hospital. Today the focus is on paying for the quality of
care rather than the quantity--and getting more bang for the buck. Even
though this sea change is in its early stages, already 30 percent of
Medicare payments are going through the new system focused on value and
efficiency. That number is only going to rise in the years ahead.
In my view, when you make this kind of transformational change in
our health care system--which makes up one out of every $6 in the
American economy--you're going to run into challenges. One of those
potential challenges is the subject of today's hearing.
There's a question, in my judgement, as to how you balance two
important priorities. On one hand, there's a drive toward bringing
doctors and specialists together, promoting coordination, and making
health care more efficient whenever possible. On the other hand,
there's a longstanding protection that comes from what's known as the
Stark Law. It says that financial relationships between providers must
not influence a patient's medical care.
Some providers are concerned that parts of the Stark Law that date
back years or even decades might be an impediment to treatment. For
example, when fee-for-service was king, a jump in referrals from a
doctor to a physical therapist would have raised red flags if they had
financial ties. Today it's common for doctors and physical therapists
to work in the same medical practice or hospital system. And the
science has demonstrated that physical therapy is often the right
choice to keep a lifelong golfer with a bad shoulder or an older woman
with a knee replacement healthy and out of the emergency room. That
means that in this day and age, an uptick in referrals for physical
therapy in one medical practice shouldn't automatically be branded a
violation of the Stark Law. When it comes down to it, every case is
different.
In my judgement, those two important priorities--promoting
coordination, and upholding the Stark Law--do not have to come into
conflict. As long as there are clear guidelines around what's fair game
when it comes to patient referrals and the relationships between
doctors, it will be possible to guarantee that patients are getting the
care that's right for them--not for somebody else's pocketbook. In
certain ways, it could be as simple as revisiting the rules that are
already on the books.
I'm hopeful that the committee is able to have a productive,
bipartisan discussion of these issues today. I want to thank our
witnesses for being here, and I look forward to hearing your testimony.
______
Communications
----------
Advanced Medical Technology Association (AdvaMed)
701 Pennsylvania Avenue, NW, Suite 800
Washington, DC 20004-2654
Tel: 202-783-8700
Fax: 202-783-8750
http://www.advamed.org/
The Advanced Medical Technology Association (AdvaMed) Supports the
Transition of Health Care Delivery to Value-Based Payments and a Legal
Framework That Protects Patients From Fraud and Abuse.
The Advanced Medical Technology Association (AdvaMed) appreciates the
opportunity to provide a statement for the record for the Senate
Finance Committee's July 12, 2016 hearing entitled, ``Examining the
Stark Law: Current Issues and Opportunities.'' We applaud the Senate
Finance Committee for addressing concerns with the federal fraud and
abuse legal framework that are impeding a broader, more integrated
transition to value-based health care delivery.
AdvaMed is a trade association that represents nearly 300 members,
consisting of the world's leading innovators and manufacturers of
medical devices, diagnostic products, and health information systems.
Together, our members manufacture much of the life-enhancing health
care technology purchased annually in the United States and globally.
Our members are committed to the development of new technologies that
allow patients to lead longer, healthier, and more productive lives.
The devices AdvaMed members make help patients stay healthier longer
and recover more quickly after treatment, allow earlier detection of
diseases, and treat patients as effectively and efficiently as
possible.
AdvaMed supports the transformation of health care to value-based
delivery and payments. Medtech manufacturers are key collaborators with
providers and payers to improve outcomes, enhance the patient
experience, and reduce costs. Medtech companies develop and heavily
invest in technologies and services that are vital to realizing
quality, clinical outcomes, patient satisfaction, and cost savings
goals.
We stress that AdvaMed supports a legal framework that protects
patients and the federal health care reimbursement programs from fraud
and abuse. Our member companies further recognize the importance of
ensuring ethical interactions between medtech companies and providers
so that medical decisions are centered on the best interests of the
patient. That is why AdvaMed developed a Code of Ethics \1\ (also known
as the ``AdvaMed Code'') to distinguish beneficial interactions from
those that may inappropriately influence medical decision-making.
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\1\ Available at: http://www.advamed.org/CodeOfEthics.
The Current Fraud and Abuse Laws Contemplate a Volume-Based Payment
System (Fee-for-Service) and Are Ill-Suited for Innovative Value-Based
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Payment Arrangements.
The existing fraud and abuse laws seek to prevent inappropriate medical
decision-making and overutilization by ensuring that the financial
interests of parties involved in the provision of care are not
structured in a manner that creates inappropriate incentives to provide
unnecessary services, leading to increased costs. Value-based payment
arrangements generally lack overutilization concerns since payments are
not directly tied to the volume of services provided. Instead
frameworks such as risk-sharing, shared savings, and/or capitated
payments are inherently designed to limit overall costs to the system
with strong measurable quality goals to safeguard against
underutilizing or withholding medically necessary services and limiting
patient choice. Value-based arrangements align the financial interests
of providers, industry, and payers to achieve clinical quality goals
and manage costs. However, this alignment creates tension under the
current fraud and abuse legal framework.
The federal Anti-Kickback Statute proscribes the ``knowing and willful
offer, payment, solicitation, or receipt of any remuneration (directly
or indirectly, overtly or covertly, in cash or in kind) in return for
or to induce a referral of services or goods payable by Medicare or
Medicaid.'' \2\ Congress enacted the Anti-Kickback Statute in 1972, in
the context of Medicare's then-retrospective reimbursement system. In a
fee-for-service environment, the Anti-Kickback Statute was intended to
discourage overutilization of Medicare-reimbursed items and services by
prescribers motivated by their own financial interest.\3\ Congress was
further concerned with: (1) possible harm to beneficiaries; (2)
increased Medicare and Medicaid costs; and (3) the potential of
kickbacks to freeze competing suppliers from the system, mask the
possibility of government price reductions, and misdirect program
funds.\4\ The Anti-Kickback Statute originally prohibited only ``bribes
and kickbacks,'' \5\ but Congress extended its reach in 1977 by
substituting ``any remuneration'' for the ``bribes and kickbacks''
language \6\ and increasing the severity of the penalties from a
misdemeanor to a felony.\7\
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\2\ 42 U.S.C. Sec. 1320a-7b(b); AdvaMed's commentary on the federal
Anti-Kickback Statute serves to inform the discussion regarding its
interplay with the Stark Law as reforms to the fraud and abuse laws are
considered to advance value-based health care delivery.
\3\ 59 Washington and Lee Law Review, March 1, 2002 (The Medicare
Anti-Kickback Statute: In Need of Reconstructive Surgery for the
Digital Age), citing Jost and Davies, ``The Law of Medicare and
Medicaid Fraud and Abuse'' 100 (2001-02 ed. 2000) (listing concerns
that ``patients will suffer, program funds will be unnecessarily
depleted, and taxpayer dollars will be wasted'' if kickbacks are
permitted).
\4\ See 56 Fed. Reg., 35952 (July 29, 1991) (original safe harbors,
citing United States v. Ruttenberq, 625 F.2d 173, 177, n.9 (7th Cir.
1980)).
\5\ Social Security Amendments of 1972, Pub. L. No. 92-603,
Sec. 242(b), 86 Stat. 1329, 1419 (1972) (codified as amended at 42
U.S.C. Sec. 1320a-7b (1994)).
\6\ Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977,
Pub. L. No. 95-142, 91 Stat. 1175 (1977).
\7\ See Pub. L. 95-142, 91 Stat. 1175 (1977).
Congress recognized that the expansive reach of the Anti-Kickback
Statute created uncertainty as to which routine commercial arrangements
are permitted,\8\ and it excluded certain types of payments from
consideration by the statute, including discounts.\9\ However, when the
Office of Inspector General (OIG) promulgated final implementing
regulations, the ``safe harbor'' for discounts/rebates was very
narrowly drawn. For example, the regulation directs that supplying one
good or service without charge or at a reduced charge to induce the
purchase of a different good or service is not permitted unless the
goods and services are reimbursed by the same federal health care
program using the same methodology.\10\ This has the potential to
significantly restrict a value-based bundled offering of services and
product if the reimbursement methodology for all discounted items or
services is not the same.\11\ Further, there is ambiguity around
protection for discounts linked to and/or premised on the performance
of personal services since the safe harbor regulation excludes from the
definition of a protected discount ``services provided in accordance
with a personal or management services contract.'' \12\
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\8\ See S. Rep. 100-109, 27, 1987 U.S.C.C.A.N. 682, 707-08 (``It is
the understanding of the Committee that the breadth of this statutory
language has created uncertainty among health care providers as to
which commercial arrangements are legitimate, and which are proscribed.
The Committee bill therefore directs the Secretary, **708 in
consultation with the Attorney General, to promulgate regulations
specifying payment practices that will not be subject to criminal
prosecution under the new section 1128B(b) and that will not provide a
basis for exclusion from participation in Medicare or the State health
care programs under the new section 1128(b)(7).'')
\9\ 42 U.S.C. Sec. 1320a-7b(b)(3).
\10\ 64 Fed. Reg. 63518, 63554 (November 19, 1999).
\11\ Id.
\12\ 42 CFR Sec. 1001.952(h)(5)(vi).
The OIG adopted similarly narrow safe harbors in other areas, also
intended to protect Medicare from overutilization of reimbursable
items/services.\13\ In promulgating the warranty safe harbor, the OIG
explained:
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\13\ Note 3, supra.
``It is in the public interest to have companies offer
warranties as an inducement to the consumer to purchase a
product.'' The OIG declined to protect broader warranties,
including those relating to competitive warranties on other
products, stating ``We believe that safe harbor protection is
proper where a replacement program honors the original
manufacturer's warranty and the agreement provides remuneration
on the same terms as the original manufacturer's warranty
without providing additional incentives or shifting additional
costs to the Medicare and Medicaid programs.'' \14\
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\14\ Id.
Under value-based payment arrangements, this restriction on competitive
warranties to ``terms equal to the agreement that it replaces'' \15\
limits collaboration options that would add value. Another constraining
element of the Warranties Safe Harbor is that to qualify for safe
harbor protection a ``manufacturer or supplier must not pay any
remuneration to any individual (other than a beneficiary) or entity for
any medical, surgical, or hospital expense incurred by a beneficiary
other than for the cost of the item itself.'' \16\ This deters the
formation of value-based arrangements that would include services and
items among different manufacturers, as warranty remuneration between
manufacturers is not protected.
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\15\ 42 CFR Sec. 1001.952(g) (``the term warranty means either an
agreement made in accordance with the provisions of 15 U.S.C. 2301(6),
or a manufacturer's or supplier's agreement to replace another
manufacturer's or supplier's defective item (which is covered by an
agreement made in accordance with this statutory provision), on terms
equal to the agreement that it replaces.)
\16\ 42 CFR Sec. 1001.952(g)(4).
The Personal Services and Management Contracts Safe Harbor includes the
requirements that: (1) the agreement specifies exactly the schedule of
service intervals, their precise length, and the exact charge for such
intervals; \17\ (2) the term of the agreement be at least one year;
\18\ and (3) the aggregate compensation paid over the term of the
agreement be set in advance.\19\ These requirements do not account for
risk-sharing, cost-savings, and performance-based payment models.
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\17\ 42 CFR Sec. 1001.952(d)(3).
\18\ 42 CFR Sec. 1001.952(d)(4).
\19\ 42 CFR Sec. 1001.952(d)(5).
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AdvaMed's Priority Concerns in Advancing Value-Based Care are:
(1) The limitations in the Anti-Kickback Statute safe harbors for
discounts, warranties, and personal services to provide protection for
bona fide value-based arrangements among collaborating providers,
payers, and medtech manufacturers;
(2) The current off-label promotion enforcement framework, which
may aggressively construe the sharing of scientific and health care
economic information to develop and operationalize value-based
arrangements as implied off-label claims; and
(3) Ensuring that the emphasis on value-based care does not create
perverse incentives for hospitals and providers that compromise patient
access to necessary care.
Medtech manufacturers want to comply with the fraud and abuse laws.
However, there is no direct guidance from the government regarding the
application of the fraud and abuse laws to value-based collaborations
between manufacturers and providers and/or payors. Currently, value-
based arrangements between medtech manufacturers and providers and/or
payers are structured by cobbling together constructs within the
discounts, warranties, and personal services safe harbors. However,
this analysis necessitates the commission of immense resources, both in
terms of time and legal costs. Because of the current regulatory
limitations, these costs may be expended by all stakeholders without
ultimately moving forward with a value-based collaboration given the
uncertainty and concern for enforcement applying historic fee for
service reimbursement principles as a framework. In short, regulatory
uncertainty concerning the application of the criminal Anti-Kickback
Statute chills value-based/outcomes-based collaborations.
Medtech company contributions to value-based health care arrangements
can range from integrating data analytics infrastructure and services
(to optimize care to achieve quality goals) to services that streamline
the supply chain to reduce costs. These collaborations might involve
bundling services, data collection and analytics, and medtech products
to deliver high quality care, improved patient satisfaction, and cost
reductions. Safe harbor protection is arguably afforded only to those
arrangements that meet all of the conditions set forth in the safe
harbor regulations. Unfortunately, as stated above, the Safe Harbor
constructs are narrowly fashioned around fee-for-service payment models
and no longer match the reality of value-based health care delivery and
payment models. This serves to inhibit value-based frameworks designed
around quality care, which have the potential for greater impact. For
example, the Discount Safe Harbor includes the limitation that the
bundled good or service be reimbursed by the federal health care
program using the same methodology and the additional limitation that
for cost-reporting entities, the discount must be earned based on
purchases of that same good or service within a single fiscal year.\20\
The ``same methodology'' limitation can materially restrict the range
of possible devices and services that may be integrated to deliver the
best value. Uncertainty exists around what items or services would be
considered to fall under the ``same methodology.'' Finally, the single
fiscal year limitation may prevent bundling items and/or services that
are critical to supporting health care delivery frameworks which
measure clinical outcomes and economic value over periods of time
extending beyond the same fiscal year or that measure outcomes over
multi-year periods that capture the long-term value of a value-based
health care program, device or service. This is a major limitation of
potential value-based care arrangements.
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\20\ 42 CFR Sec. 1001.952(h).
Integral to developing and executing value-based arrangements is the
need for manufacturers to be able to communicate with providers, payors
and other stakeholders on establishing clinical goals, efficiency
measures, and economic performance terms. Starting points for these
goals, measures, and terms may originate from economic and clinical
data (with varying levels of support) that may not be specified in the
approved or cleared label of the device. This scientific and health
care economic information will be needed to both establish and optimize
---------------------------------------------------------------------------
the clinical and economic goals of the value-based collaboration.
Medtech manufacturers support delivery reform models and their goals to
achieve lower cost and higher quality health care. At the same time, we
are concerned that the financial incentives inherent in the various
delivery reform/alternative payment models can have the inadvertent
effect of discouraging providers from (1) considering the full array of
treatment options, due to concerns regarding exceeding ``benchmark''
threshold costs, or (2) using innovative treatments, technologies, and
diagnostics that may bring value to the health care system over the
longer term, but are more costly in the short run. The potential
negative impact of the financial incentives of these models is
magnified by the short payment windows used in the programs to compare
actual spending against benchmarks in order to determine the level of
savings that may be shared among providers. This is particularly
concerning because many medical devices and technologies provide
benefits over a long period of time spanning multiple years.
Additionally, gainsharing and other similar arrangements have created a
major shift in incentives that have significant and potentially
negative ramifications for patient care. AdvaMed continues to believe
that ``gainsharing'' arrangements pose a risk of patient abuse and may
violate the civil monetary penalty law prohibiting hospitals from
offering remuneration to physicians for limiting medical care to their
patients, Sec. 1128A(b) of the Social Security Act (the ``Act''). The
federal anti-kickback statute and the ``Stark'' physician self-referral
law also prohibit certain financial relationships such as those created
in gainsharing arrangements. As such, we recommend that alternative
payment arrangements be implemented in a way that makes their operation
transparent and that these arrangements be evaluated and assessed to
determine their impact on patient access to necessary care.
Recommendations to Advance Value-Based Care
In light of the challenges noted above, AdvaMed offers the following
recommendations for consideration:
Create a new Risk-Sharing Safe Harbor for value-based
arrangements between manufacturers and providers and/or payers that
incentivize and reward improvements in clinical outcomes and/or
reductions in cost.
This safe harbor should allow for:
- Sharing value-based rewards (e.g., ACOs sharing some of
the benefits received from meeting benchmarks with a medtech
manufacturer if its products contributed to meeting that goal);
- Shifting of risk over the course of an engagement so
long as such risks are set in advance (e.g., the initial phases of a
bundled device and services program are paid for by a manufacturer, but
as benchmarks are reached, efficacy is shown and savings recognized,
the hospital would share a portion of the savings generated with the
manufacturer);
- Multiple entities to engage in a complex study where
costs may shift from one company to another and then potentially to the
hospital, as efficacy is proven.
Prior to proving that a system is efficient, the
manufacturer would be in a better position to invest in the R&D of the
engagement. However, once savings and efficiencies are proven, the
manufacturer would also be able to share in the net benefit.
While there may be ways to construct these
engagements currently, they do not offer the fluidity that is possible
with a single agreement with benchmarks and shifting fees. The freedom
and efficiencies afforded by a Risk-Sharing Safe Harbor would permit
greater investments into value-based solutions.
The applicability of the Medicare Secondary Payer
Statute to performance-based payments under this safe harbor should be
clarified as well.
Create a new Safe Harbor for Bundling Services, Data Collection
and Analytics, and Medtech Products in Value-Based Arrangements (e.g.,
to determine whether clinical outcomes and cost savings metrics have
been met, medical technologies are bundled with services to collect and
monitor data, analytics, monitoring equipment, and IT infrastructure);
Create a new Safe Harbor for Outcome Warranties that
specifically addresses warranting an outcome instead of a product
failure and protects payments for bundled products and services
provided when an outcome is not met.
For example, this would provide a targeted
approach to addressing scenarios where a medical device company agrees
to reimburse a hospital not only its aggregate purchase price for the
implant device acquisition costs, but also unreimbursed wound care
products and services if a patient is readmitted to the hospital within
90 days following the surgical procedure because the surgical site is
infected or a revision surgery is needed. Currently, when this occurs,
there is arguably protection under the safe harbor warranty for only
the device cost when the device fails. This may lead to litigation over
whether there was a product failure. Litigation adds substantial costs,
may not resolve in a timely manner, and may be upsetting to the
patient. Permitting manufacturers to warrant the outcome, instead of
against product failure, through the protection of a safe harbor would
allow for more coordinated and timely management of post-operative
complications.
Issuing guidance that expressly delinks the provision of
scientific and health care economic information supporting the value-
based health care goals to providers and payors from any regulated
product promotional or labeling restrictions. This guidance should
include:
Clarification that communications on efficiency
(e.g., performance/throughput claims), population outcomes/cost, and
economics that are not specifically part of the product labeling are
necessary and permissible to develop and operationalize value-based
arrangements and that varying levels of supportive data are acceptable
(e.g., case study, big-data analytics).
Clear guidelines for industry to rely on in
providing appropriate medical information to Health Care Professionals
regarding medical technologies with only general claims in the product
labeling; and
Clarification on the scope of what may be
discussed with payors and sophisticated providers about medical
technologies and drugs undergoing review (e.g., 510(k) review) to
facilitate planning.
Consider directing the creation of a Fast Track Guidance Process
(that is less formal than the advisory opinion process) that would
apply across all safe harbors for value-based considerations.
If there was a preference to work within the existing Anti-
Kickback Statute Safe Harbors, we offer the following for consideration
to advance value-based payment models:
Discount Safe Harbor--We recommend that OIG issue
guidance on the Medicare secondary payer statute's applicability to
performance-based payments.
Warranties Safe Harbor--With regard to the
Warranties Safe Harbor, we recommend:
- Expanding warranty coverage in value-based arrangements
to permissibly include other direct costs, associated products,
associated services, service as a product, and replacement outsourcing
costs, which are all means of making the provider whole;
- Expanding competitive warranties to permit exceeding
competitor's terms; and
- Permitting warranty remuneration between manufacturers
to allow for bundled items among different manufacturers to provide
care.
Personal Services Safe Harbor--With regard to the
Personal Services Safe Harbor, we recommend:
- Allowing the parties to set the compensation formula in
advance (e.g., percentage of savings or capitation), instead of being
required to set the aggregate compensation paid over the term in
advance;
- Removing the limitation that the term is for not less
than one year (e.g. percentage of savings or capitation);
- Removing the interval schedule, length, and charge
specificity requirement for services (e.g. percentage of savings or
capitation);
- Expanding and revising the definition of fair market
value to account for services/arrangements tied to new value based
payment models that incentivize improved quality of care and cost
effectiveness; and
- Issuing guidance that permits utilizing publicly
available health care professional salary surveys as an acceptable
methodology to determine fair market value.
Conclusion
In closing, we would like to reiterate our appreciation to Chairman
Hatch, Senator Wyden, and the Senate Finance Committee for their work
on this issue, and to also emphasize AdvaMed's support for a legal
framework that protects patients and the federal programs from fraud
and abuse. We believe that targeted reforms to our fraud and abuse laws
for value-based arrangements will maintain the protections for patients
and the federal health care programs while allowing for greater
involvement and investment in value-based payment models. AdvaMed
welcomes opportunities to collaborate on advancing value-based care,
especially where medtech may offer unique contributions to the value
equation.
______
Alliance for Integrity in Medicare \1\ (AIM)
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\1\ Alliance for Integrity in Medicare, c/o Francesca Fierro
O'Reilly, Vice President, Government Relations, ACLA, 1100 New York
Avenue, NW, Suite 725W, Washington, DC 20005.
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1100 New York Avenue, NW, Suite 725W
Washington, DC 20005
http://aimcoalition.com/
The Alliance for Integrity in Medicare (AIM) is pleased to submit a
Statement for the Record for the Committee on Finance Hearing entitled
``Examining the Stark Law: Current Issues and Opportunities,'' held on
July 12, 2016. We commend Chairman Hatch, Ranking Member Wyden, and all
other members of the Committee on Finance for holding this bipartisan
hearing to examine the urgent need to reform the physician self-
referral law in greater detail. AIM, a broad coalition of medical
specialties committed to ending the practice of inappropriate physician
self-referral in Medicare, is pleased to share our recommendations with
the Committee for vitally-needed reforms so that beneficiaries and
program integrity may be better protected than under current law.
Even though implementation of the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA) continues alongside that of other
novel physician payment models, such as accountable care organizations
(ACOs), AIM strongly believes there remains a moral imperative to
narrow the in-office ancillary services (IOAS) exception to the Stark
Law. Despite all the progress made and still forthcoming in the area of
alternative physician payment models, fee-for-service (FFS) has not
been eliminated from the Medicare program. Thus, FFS will continue to
exist for the foreseeable future, in addition to the financial
incentive for clinicians to take advantage of the IOAS exception. AIM
strongly recommends that anatomic pathology, physical therapy,
radiation oncology, and advanced diagnostic imaging should be removed
from the list of designated health services protected under the IOAS
exception, for which physicians can self-refer and bill Medicare.
However, in situations where a practice truly is clinically integrated
or participating in a federally approved alternative payment model,
which improves quality and value, the IOAS exception should continue to
apply. Restricting use of the IOAS exception in this manner will drive
greater participation in alternative payment models, consistent with
the goals of MACRA.
Note that the intent of the IOAS exception was to allow for the
provision of certain non-complex services, such as x-rays or simple
blood tests, deemed necessary by the clinician to help inform the
diagnosis and treatment of a beneficiary during an initial office
visit, primarily for beneficiary convenience. But in most instances,
advanced diagnostic imaging, anatomic pathology, physical therapy, and
radiation therapy services cannot be provided to beneficiaries during
an initial or single office visit. Allowing these more complicated
services to be protected under the IOAS exception does not facilitate
greater patient convenience. Rather, the IOAS exception only bolsters
the continuation of questionable utilization patterns of these services
under FFS. Narrowing the IOAS exception will realign provider
incentives to help ensure appropriate utilization. The ability of all
providers to render the highest quality, safest, and most clinically
appropriate care to all patients will be maintained, while eliminating
the lure of personal financial gain.
The Government Accountability Office, the Office of the Inspector
General of the U.S. Department of Health and Human Services, the New
England Journal of Medicine, and Health Affairs, among others, also
have called attention to the fact that the IOAS exception has
substantially diluted the self-referral law and its policy objectives.
Current law allows Medicare providers to avoid the Stark Law's
prohibitions by structuring arrangements for advanced diagnostic
imaging, anatomic pathology, physical therapy, and radiation therapy
services that meet the IOAS exception's technical requirements but
otherwise violate the true intent of the exception.
The Administration has advocated specifically for this policy change in
the last four Department of Health and Human Services Budgets in Brief,
Fiscal Years 2014-2017. Most recently, the Centers for Medicare and
Medicaid Services (CMS) lamented the ongoing conflicts of interest for
physicians referring beneficiaries to entities with which they had
financialties in the Calendar Year 2017 Physician Fee Schedule Proposed
Rule (CMS-1654-P). ``[R]ecent studies by GAO indicate that financial
self-interest continues to affect physicians' medical decision
making:'' \2\ Later in the Proposed Rule, CMS went on to state: ``when
physicians have a financial incentive to refer a patient to a
particular entity, this incentive can affect utilization, patient
choice, and competition. Physicians can overutilize Medicare resources
by ordering items and services for patients that, absent a profit
motive, they would not have ordered. A patient's choice is diminished
when physicians steer patients to less convenient, lower quality, or
more expensive providers of health care, just because the physicians
are sharing profits with, or receiving remuneration from, the
providers. And lastly, where referrals are controlled by those sharing
profits or receiving remuneration, the medical marketplace suffers if
new competitors cannot win business with superior quality, service, or
price.'' \3\
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\2\ Page 761, accessed here: https://s3.amazonaws.com/public-
inspection.federalregister.gov/2016-16097.pdf.
\3\ Page 762-3, accessed here: https://s3.amazonaws.com/public-
inspection.federalregister.gov/2016-16097.pdf.
CMS has long said that it does not have the statutory authority to
address abuse of the IOAS exception. Reforming the IOAS exception
through remedial legislation is long overdue, and we urge Congress to
act. AIM's recommended changes to the IOAS exception will prevent
unnecessary utilization of resources by providers, protect Medicare
patients from unnecessary care, promote effective gainsharing
arrangements, and further the goals of higher quality health care at
lower cost, resulting in improved clinical outcomes for beneficiaries.
Furthermore, the realignment of financial incentives for Medicare
providers would save the program at least $3.3 billion over 10 years,
---------------------------------------------------------------------------
as scored by the Congressional Budget Office.
In conclusion, the AIM coalition strongly encourages the Senate Finance
Committee to include in any Stark Law reform legislation language to
narrow the IOAS exception by removing anatomic pathology, advanced
diagnostic imaging, physical therapy, and radiation therapy from the
list of permitted designated health services under the exception.
Accountable Care Organizations and other alternative payment models
will not be successful if overutilization continues to be incentivized
in any element of the Medicare program. Closing the loophole supports
the original intent of the Stark Law and the cornerstone goals of the
ACA and MACRA to improve patient care and reduce overutilization.
Protecting both Medicare beneficiaries and program integrity from
misaligned financial incentives is in the best interests of taxpayers,
patients, and the American health care system overall.
______
American Academy of Orthopaedic Surgeons Et Al.
July 22, 2016
Senator Orrin Hatch Senator Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
104 Hart 221 Dirksen
Washington, DC 20510 Washington, DC 20510
Re: Senate Finance Committee Hearing: ``Examining the Stark Law:
Current Issues and Opportunities''
Dear Chairman Hatch and Ranking Member Wyden:
The American Academy of Orthopaedic Surgeons (AAOS), the American
Association of Orthopaedic Executives (AAOE), and the OrthoForum would
like to thank you for the opportunity to submit comments regarding the
recent Senate Finance Committee hearing, ``Why Stark, Why Now?
Suggestions to Improve the Stark Law and Encourage Innovative Payment
Models.'' We appreciate the need to improve and modify the Physician
Self-Referral Law (``Stark Law'') in light of the shift from Medicare
fee-for-service to alternative payment models. The structure of the
Stark Law has not been updated statutorily for more than two decades
and is now an anachronistic hindrance to the 21st century delivery of
health care and limits the full potential envisioned by Congress when
it enacted MACRA. Additionally, the overly complex regulatory
restrictions have negatively impacted the efficiency of patient care
while serving to drive many private practice physicians into hospital
employment.
Two issues we would like to emphasize are the importance of protecting
the In-
Office Ancillary Services Exception (IOASE), which allows for an
integrated continuum of care, and the need to lift the physician-owned
hospital (POH) ban on expansion and new construction, which increases
access to quality care. These issues will be addressed further.
What changes need to be made to the Stark Law to implement the Medicare
Access and CHIP Reauthorization Act (MACRA, 2015) and Accountable Care
Organizations (ACOs)/Medicare Shared Savings Program (MSSP)?
Issue of continued relevance: The wide-range of regulations governing
physician financial incentives are an impediment to the transition to
value-based Medicare reimbursement. The U.S. Department of Health and
Human Services (HHS) set a goal to tie at least 30 percent of the fee-
for-service Medicare payments to quality/value through Alternative
Payment Models (APMs) by 2016 and to 50 percent of payments by the end
of 2018. CMS announced in March 2016 that the agency was ahead of
schedule in the realization of its 30 percent goal. However, a
significant portion of that goal was accomplished through demonstration
initiatives such as the Bundled Payments for Care Improvement (BPCI)
initiative in which multiple waivers were required to allow physician
groups and hospitals to work in concert to lower costs and improve
quality. BPCI along with the more recently implemented Comprehensive
Care for Joint Replacement (CJR) model reveal weaknesses in current
Stark Law which is structured to have some control over volume of
referred services. Rewarding providers for the value of care and not
the volume of services, such as in these current initiatives, renders a
driving intent of the Stark Law obsolete.
Costs for compliance: As MACRA is implemented, regulations should make
it less burdensome for physicians to participate in APMs and earn
incentives through the Merit-based Incentive Payment System (MIPS). The
costs of compliance and disclosures required per the Stark Law can be
prohibitive for small and medium-sized physician practices. We are
concerned that this cost will lead to a drop of specialty providers in
the Medicare program as the cost of compliance continues to grow.
Recommended waivers: Existing Stark Law requirements are highly
technical and the waivers can get very complex. For example, physician
referrals in Accountable Care Organizations (ACOs) are theoretically
exempt from the Stark Law requirements through fraud and abuse waivers.
There should be similar exceptions/protections to physicians
participating in APMs. However, we anticipate that as MACRA provisions
are implemented, such waivers will become more complex. An alternative
to waivers may be a statutory exception modeled on the Medicare pre-
paid plan enrollees under Section 1877(b)(3) of the law. On the whole,
regulatory agencies such as CMS should have greater flexibility to
refine the regulations as the health care policy and delivery
environment changes.
Other recommendations
The complexities of the Stark Law regulatory infrastructure make it
burdensome for clinicians to comply. The ``group practice'' definition
places strict limits on the ways that a physician practice may
compensate its owners. Agreements with physician contractors must
satisfy seven distinct regulatory conditions, making them prone to
technical infractions. Unlike other laws that regulate healthcare, the
Stark Law does not require demonstration of intentional offers of
remuneration to induce referrals or any risk to patient care. Current
waivers are skewed toward primary care and financial relationships with
hospitals. It is critical to incorporate protections for independent
specialty groups. Finally, the Stark Law impedes care coordination
needed to quality for alternative payment models in MACRA due to the
Law's consideration of ``other business generated'' in its limitations
on referrals. There are five fundamental revisions that we would like
to see in order to align the law with MACRA:
Revise the definition of ``group practice'' by removing the
current ``volume'' or ``value'' standard so that physicians who are
part of a group practice may be paid on the basis of furnishing care
without violating the Stark Law.
Provide the same protections from the Stark Law for physicians
operating in an Alternative Payment Model for those provided waivers
through Accountable Care Organizations eligible for the Medicare Shared
Savings Program.
Permit physician compensation for providing high-quality and
efficient care without violating the Stark Law's ``fair market value''
standard even if the compensation is related to the volume or value of
the referrals.
Define Stark Law ``technical violations'' as compensation
arrangements that do not otherwise violate the Anti-Kickback statute.
Empower CMS to create new regulatory exceptions to the Stark Law
now and in the future for purposes of promoting non-fee-for-service
payment structures.
Quality- and value-based physician reimbursements may violate
the Stark Law fair market value or reasonableness standards. Under the
current delivery and payment system, these standards should be repealed
by Congress or CMS should be able to issue new and relevant standards.
Stark Law technical violations vs. more serious violations_where is the
line?
We would like to point out that the Stark Law is a liability statute
unlike other health care legislation. Thus, the physician's actual
intent to improperly refer services is not pertinent to the liability.
Thus, unintentional and technical errors of physicians and their staff
may lead to heavy penalties. Such liability statutes are not
encouraging of physicians to participate in new demonstrations and
payment models. These requirements are also not helpful toward
developing coordinated care models such as the CJR, led by hospitals
but coordinated by several stakeholders including physicians.
Lifting the moratorium on new construction for physician-owned
hospitals
The Whole Hospital Exception to the Stark Law allows for a physician to
have an ownership or investment interest in a hospital to which the
physician refers designated health services when the physician is
authorized to perform services at the hospital and the ownership or
investment interest is in the hospital itself. The Affordable Care Act
(ACA) amended the Whole Hospital Exception to impose additional
restrictions on physician-owned hospitals (POHs). The ACA restricted a
POH from new construction or facility expansion after March 23, 2010.
There are approximately 250 POHs operating in 34 states across the
country. These hospitals have a long history of providing the highest
quality care for affordable prices. They are often the most efficient,
state-of-the-art facilities in the country, which is the result of a
doctors' desire to be involved in making detailed decisions. In CMS's
Value Based Purchasing Program results, 7 of the top 10 hospitals, and
40 of the top 100 hospitals, receiving quality bonuses in FY 2016 were
POHs. A POH has been the top bonus recipient in each of the 4 years of
the program. This is impressive, considering that POHs represent less
than 5% of the 5,700 hospitals nationwide. Likewise, more than 40% of
POHs earned CMS's top 5-star rating for patient satisfaction in October
2015, while less than 4% of non-physician-owned hospitals received that
distinction.
POHs treat similar patient populations as other hospitals. A 2015
British Medical Journal study, published by a Harvard University
researcher, found that there is no ``clinically or statistically
significant differences in patient mix between POHs and non-POHs.'' The
study found that ``POHs and non-POHs admitted similar proportions of
Medicare patients . . . Medicaid patients . . . Black patients . . .
and Hispanic patients,'' as well as patients with ``comparable numbers
of comorbidities . . . and similar predicted mortality scores.''
Despite the strong track-record of superior performance, POHs serving
Medicare and Medicaid patients have been restricted from growing and
expanding through the ACA's change to the Stark Law Whole Hospital
Exception. The restrictions have limited POHs from developing or
expanding services in numerous rural and urban communities where
additional care is desperately needed. In many instances, local
community hospitals are simply not able to handle the caseload and
patients do not have access to the care they need.
We strongly believe that the ACA change to the Whole Hospital Exception
is detrimental to the U.S. healthcare system, and Medicare and Medicaid
beneficiaries. POH's are a model that encourage the move from volume to
value and are therefore consistent with the current trends in physician
reimbursement.
Maintenance of current exceptions for in-office ancillary services
We would like to conclude by stressing the importance of maintaining
current exceptions. For orthopaedic surgeons, current exceptions such
as the IOASE, are absolutely essential for providing necessary care.
For example, in high shortage and low resource rural areas, having
magnetic resonance and other imaging services in the physician's office
is often the only way that our surgeons can deliver and their patients
can get timely diagnoses and care. The IOASE provision has enabled our
practices to provide convenient, integrated and less expensive high-
quality care.
Several recent studies have made it clear that utilization of ancillary
services in physician practices does not lead to overutilization. In a
study published by Health Economics Review found that there was no
statistically significant difference between physicians who self-refer
for Magnetic Resonance Imaging (MRI) and those who do not. A June 2015
study by Milliman Inc.--commissioned by the American Medical
Association and the Digestive Health Physicians Association--showed
utilization of ancillary services in physician practices is a small
percentage of total spending on ancillary services and is declining or
growing more slowly than in hospital settings. Additionally, a study by
Braid-Forbes Health Research, LLC found that financial ownership was
not related to MRI referral rates for practices that owned MRI
equipment during the period of the study. A 2014 Government
Accountability Office (GAO) study on physician-owned physical therapy
services showed that physicians owning physical therapy services
utilize the services less than physical therapy provided in non-
physician owned settings. Finally, in a June 2011 report to Congress,
the Medicare Payment Advisory Commission (MedPAC) recommended against
limiting the Stark Law exception for ancillary services, citing
potential ``unintended consequences, such as inhibiting the development
of organizations that integrate and coordinate care within a physician
practice.'' Any effort to repeal the In-Office Ancillary Services
Exception should be rejected.
We sincerely appreciate your endeavor in updating the Stark Law
requirements and regulations and should you have any questions, please
feel free to get in touch with AAOS's Senior Manager of Government
Relations, Ms. Julia Williams, at [email protected], or AAOE's
Government Affairs Manager, Mr. Bradley Coffey, at [email protected], or
Joel James, OrthoForum Advocacy Committee member at
[email protected].
Sincerely,
Gerald Williams, M.D.
American Association of Orthopaedic Surgeons
Eric Worthan
Chair, Advocacy Committee
The OrthoForum
Jan Vest, MBA
President
American Association of Orthopaedic Executives
______
American College of Cardiology
2400 N Street, NW
Washington, DC 20037-1153
202-375-6000
800-253-4636
Fax: 202-375-7000
http://www.acc.org/
The American College of Cardiology supports the following principles
related to the Stark Law and believes they must guide any policy
changes in this area:
Changes must improve access to/quality of care, especially for
vulnerable patient populations.
Revisions must actually simplify the law to reduce the
exorbitant legal fees and administrative burdens imposed on clinicians.
As we transition to paying for quality vs. quantity, changes
must allow clinicians to be compensated appropriately for the work they
do/quality of care they provide.
Modifications must allow and encourage collaboration between
clinicians themselves, as well as between clinicians and hospitals,
across private practices and multiple health systems, to provide
coordinated care in an appropriate manner.
Modifications to the law should reflect an emphasis on quality
measurement, the use of outcome-based clinical data registries such as
the National Cardiovascular Data Registry, the importance of
collaborative, team based care models, and other innovative payment
structures that underscore best practices.
Changes must allow for the evolution of clinical practice and
future flexibility in the structure of the Medicare program.
Revisions must allow clinicians the ability to offer their
patients both the best care and easy access to care, particularly in
regard to clinical and diagnostic testing in an appropriate setting of
their choice.
Revisions must distinguish between willful and inadvertent
violations of the law.
______
American College of Surgeons
On behalf of the more than 80,000 members of the American College of
Surgeons (ACS), we welcome the opportunity to comment and provide
information on long overdue and much needed modifications to the
Physician Self-Referral Law, commonly referred to as the Stark Law. The
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) has
created great opportunity to improve patient care coordination through
development of new alternative payment models (APMs) but has also
increased the urgency to modernize the Stark Law to take into account
the way that care is delivered today and will hopefully be delivered in
the future. Even before passage of MACRA, ACS has been working to
develop APM options for our members to help achieve the goal of
improving the quality, experience, and value of care to the patient and
the health care system. While these efforts are still in the early
stages of development, it is clear that coordinating care throughout
the five phases of surgical care (pre-operative, peri-operative, intra-
operative, post-
operative and post-discharge) will be key to their success.
Removal of real or perceived barriers inherent in the Stark Law will
help to speed adoption of newly developed APMs. Furthermore, the
definition of the fair market value (FMV) of the services provided in
APMs and other models that have perhaps not yet been developed will
need to be revisited, since the role of the surgeon in such a model may
go beyond simply providing high quality surgical interventions to
playing a role in coordinating care that helps to avoid or delay the
need for surgery.
Technical violations vs. more serious or problematic violations--where
is the line?
The Stark Law is a strict liability statute, meaning that a physician's
actual intent to improperly refer services is irrelevant to the
imposition of liability and damages. Thus, inadvertent errors
(including technical errors) of physicians provide grounds for harsh
penalties. Consequently, whereas MACRA seeks to encourage physicians to
provide quality care and to be innovative and efficient through APMs,
the Stark Law with its strict liability and severe financial penalties
can dissuade physicians from innovating their care delivery models. It
can also deter physicians from adopting best practices that require
integration unless the penalties under the Stark Law are eliminated or
substantially reduced, especially in the case of technical errors. The
lack of an intent requirement also diverges substantially from the
related Federal Anti-Kickback Statute, which creates a ``knowingly and
willingly'' standard. Congress should also require that some level of
intent on the part of physicians to improperly refer patients to
designated health services (DHS) be found in order to establish grounds
for a violation of the Stark Law. The Stark Administrative
Simplification Act (H.R. 776), introduced by Rep. Charles Boustany,
represents one potential step in the right direction of addressing the
laws inflexibility. This bill provides for an alternative sanction in
the case of technical noncompliance with the Stark Law. In cases where
noncompliance is due solely to the arrangement not being set forth in
writing, not having been signed by one or more parties, or where a
prior arrangement expired, the parties involved could disclose this
technical noncompliance, fix the cause of the noncompliance, or
terminate the arrangement and pay an alternative sanction in the form
of a single civil monetary penalty. Changes such as these would help
reduce uncertainty and the fear of liability and potentially large
monetary damages, increasing the chances that providers will be
comfortable to move into innovative payment arrangements.
What changes need to be made to the Stark Law to implement MACRA
(Medicare Access and CHIP Reauthorization Act of 2015) in its current
form and ACOs/shared savings programs?
The existing Stark Law exceptions do not provide sufficient protection
or guidance for physicians to make fully informed decisions about
participating in innovated care delivery models. More clarity is needed
as to whether reimbursement models under MACRA would be protected under
a current Stark Law exception or whether their payment arrangements,
including risk/reward sharing and delivery of services in an integrated
care delivery model, violate Stark or other fraud and abuse laws. If no
exception applies, we recommend that CMS consider a statutory exception
for any models approved as eligible APMs. At a minimum, the current
fraud and abuse waivers applicable to the Medicare Shared Savings
Program (MSSP), the Centers for Medicare and Medicaid Innovation (CMMI)
Accountable Care Organizations (ACOs), and bundled payment programs
should be codified in statute and extended to services furnished under
a potential MACRA APM, where the same requirements for innovation,
quality of care, efficiency, and care coordination are part of the care
delivery model.
Other--Fair Market Value Issues
Basing payments to physicians on their performance on clinical quality
and cost measures may violate the Stark Law fair market value or
commercial reasonableness standards, which are requirements of many of
the Stark Law exceptions. These standards were logical at the time the
Stark Law was devised. But given that Congress has specifically enacted
policies intended to incentivize physicians and other providers of
services to deliver quality care, the fair market value requirement as
a part of Stark Law exceptions should either be repealed or modified to
permit physicians to participate in these types of payment incentive
programs without fear of running afoul of the Stark Law.
Other--Preservation of the Current Exception Categories
Improving coordination of care to patients, especially those with
complex conditions, is a major goal of our health care system in
general and of the recently enacted MACRA law. We believe that in
addition to changes in the law, it is important that Congress maintain
the current exceptions to provide the flexibility needed to deliver
care in the new health care system's delivery environment. In
particular, we believe that preservation of the Stark Law In-Office
Ancillary Services Exception (IOASE) is crucial to ensuring physicians
can provide coordination of care for patients. This provision permits
physician practices to provide critical services in an integrated and
coordinated fashion within their respective practices. Eliminating this
provision could prevent patients from receiving these services with
their preferred provider, in hospital settings, thereby reducing access
and increasing costs.
Again, we thank you for taking the initiative to begin the process of
modernizing the Physician Self-Referral Law and we look forward to
working with you in efforts to remove unnecessary barriers to the
provision of high quality, high value, and coordinated care.
______
American Physical Therapy Association (APTA)
1111 North Fairfax Street
Alexandria, VA 22314-1488
703-684-2782
703-684-7343 fax
http://www.apta.org/
On behalf of more than 93,000 physical therapists, physical therapist
assistants, and students of physical therapy, the American Physical
Therapy Association (APTA) is pleased to provide this statement to the
Senate Finance Committee on ``Examining the Stark Law: Current Issues
and Opportunities.''
APTA's vision is to transform society by optimizing movement to improve
the human experience. Physical therapists diagnose and manage
individuals across the lifespan who have conditions that limit their
ability to move or function in their daily lives. We are committed to
protecting and preserving resources within the health care system, and
we continue to strive for the highest levels of ethics,
professionalism, and evidence-based practices for our members. APTA's
own Integrity in Practice campaign is aimed at educating not only
current and future physical therapists on methods and reasons to
prevent fraud, but also educating the public on questions they should
ask to make wise decisions on care. APTA applauds the committee's
interest in improving the Stark Laws. As the committee continues to
look at ways to reform these laws to make them stronger and less prone
to abuse, we strongly urge you to consider reform of the in-office
ancillary services (IOAS) exception.
The IOAS exception to the Stark Laws was intended to improve
coordination of care and promote patient convenience by allowing
physicians to self-refer for designated health services integral to
their primary care that are furnished in their group practices.
Unfortunately, the current use of this exception goes well beyond its
original intent. This is evident in MedPAC's June 2010 report to
Congress. MedPAC found that physical therapy services were provided on
the same day as the initial appointment only 3% of the time, clearly
illustrating that these are not services that are provided for a
patient's convenience.
Abuse of the IOAS exception has been examined by the Government
Accountability Office, the Office of the Inspector General of the U.S.
Department of Health and Human Services (HHS), and the New England
Journal of Medicine (NEJM), among others. MedPAC also raised questions
about abuse under the IOAS exception in the aforementioned June 2010
report while the Centers for Medicare and Medicaid Services (CMS) asked
for feedback from stakeholders in its 2008 notice of proposed
rulemaking. Both MedPAC and CMS found that the existing IOAS exception
has substantially diluted the self-referral law and its policy
objectives, allowing Medicare providers to avoid the law's prohibitions
by structuring arrangements meeting the technical requirements for
physical therapy services while violating the true intent of the
exception. Based on the NEJM study and the government reports, the
abuse of the IOAS exception has also led to overutilization of several
services. For these reasons, APTA strongly urges Congress to remove
physical therapy as a designated health service (DHS) permissible under
the in-office ancillary services exception to the federal physician
self-referral laws.
The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA)
required HHS to submit a report to Congress in April 2016. This report,
which has not been made public, should contain ``. . . options for
amending existing fraud and abuse laws in, and regulations related to,
titles XI and XVIII of the Social Security Act (42 U.S.C. 301 et seq.),
through exceptions, safe harbors, or other narrowly targeted
provisions, to permit gainsharing arrangements that otherwise would be
subject to civil money penalties . . . or similar arrangements between
physicians and hospitals, and that improve care while reducing waste
and increasing efficiency.'' (Pub. L. 114-10 Sec. 512.) We believe that
closing the IOAS exception loophole would surely fall under this
mandate. Since Medicare fee-for-service is still in place, it should
remain a priority to close the loophole by removing physical therapy,
advanced diagnostic imaging, anatomic pathology, and radiation oncology
as designated health services, which will eliminate unnecessary care
for patients and stop abuse. Furthermore, we believe the promulgation
of laws to end the unintended abuses under the IOAS exception are
essential to the success of alternative payment models such as
accountable care organizations and bundled payment. Congress should
make clear that the flexibilities afforded under the IOAS exception
apply only to physician group practices participating in alternative
payment models that demonstrate true clinical integration evidenced
through participation in quality reporting and improved outcomes
initiatives. APTA also advocates for the very narrow use of the IOAS
exception in rural and underserved areas, and we urge Congress to
direct the secretary of HHS to delineate these limited circumstances in
regulatory rulemaking.
APTA asserts that care furnished under the IOAS exception is often
degraded, raising serious quality concerns. There is evidence that
beneficiaries may actually receive higher-quality care--and therefore
better outcomes--when self-referral is not involved. A recent study on
low back pain episodes of care, published in the July 2015 issue of the
Forum for Health Economics and Policies by Jean Mitchell, Ph.D., of
Georgetown University, found that non-self-referred episodes of care
were far more likely to provide ``active,'' or hands-on, services than
self-referral episodes--52% compared with 36%. This, according to the
study's authors, suggests the care delivered by physical therapists in
non-self-referred episodes is more tailored to promote patient
independence and a return to performing routine activities without
pain. It is important to note that ``passive'' treatments, which are
more likely found in self-referring episodes, can be performed by a
person who is not a licensed physical therapist. The authors of this
paper also cite evidence that these passive physical therapy modalities
are ``ineffective'' in treating low back pain.
Of note, the study highlights the difference in overall expenditures
for episodes of care provided by self-referring vs. non-self-referring
physicians. The study examines the total insurer allowed amounts for
low back pain episodes of care and parses out expenditures on physical
therapy only. On average, spending for self-referring providers was
$144 as opposed to only $73 for non-self-referring providers. This is a
significant difference for a very common episode of care. Even more,
when the expenditures for the entire episode of care are calculated--
not just physical therapy but all care for the episode--self-referral
episodes averaged $889 compared with only $602 for non-self-referral
episodes. The implication is clear: not only is this a problem for
physical therapy, it has spread far beyond.
Another study published in February of this year in Health Services
Research, also by Jean Mitchell, Ph.D., examined the use of physical
therapy following total knee replacement (TKR) surgery. This population
consisted of Medicare beneficiaries. Patients that were treated by an
orthopedic surgeon who had an ownership interest in the physical
therapist that treated the patient after the surgery received 8.3 more
physical therapy visits as well as 6.6 fewer PT service units per
episode than patients who had surgery from an orthopedic surgeon with
no ownership interest in the subsequent physical therapy. Since
patients were under Medicare, the study was also able to examine the
codes billed for these episodes. It found that episodes directed by a
self-referring orthopedic surgeon consisted of billing for 8.2 percent
fewer therapeutic exercise codes, but higher billing for group therapy
and manual therapy, the latter of which consists mainly of joint
massage and mobilization to reduce swelling.
This second study, which mirrors findings of the first, shows patients
treated by physicians with a financial self-interest in the follow-up
physical therapy receive less active, hands-on, and one-on-one care
than those patients who are treated by physicians who have no financial
interest in the follow up therapy. The incentive exists to extend care
for more visits while billing less intensive therapy codes that do not
necessarily expedite patient recovery.
APTA would like to thank Chairman Hatch and Ranking Member Wyden for
looking into this important policy issue and allowing APTA to share its
recommendation. We look forward to being a partner in rooting out
Medicare fraud and abuse and establishing an efficient, patient-
centered health care system. APTA strongly encourages the committee to
support the original intent of the IOAS exception for same-day services
by removing physical therapy, anatomic pathology, advanced diagnostic
imaging, and radiation therapy services. This reform is in the best
interests of taxpayers, patients, and the American health care system
overall.
______
Gundersen Health System
Gundersen Lutheran Medical Center, Inc. | Gundersen Clinic, Ltd.
External Affairs Department
1900 South Ave., Mailstop: H02-009
La Crosse, WI 54601
E-mail: [email protected]
Phone: (608) 775-1400
July 26, 2016
The Honorable Orrin Hatch The Honorable Ron Wyden
Chairman Ranking Member
U.S. Senate U.S. Senate
Committee on Finance Committee on Finance
219 Dirksen Senate Office Building 219 Dirksen Senate Office Building
Washington, DC 20510 Washington, DC 20510
Re: Examining the Stark Law: Current Issues and Opportunities
Dear Chairman Hatch and Ranking Member Wyden:
On behalf of Gundersen Health System, we write to provide testimony in
response to the Senate Committee on Finance recent hearing ``Examining
the Stark Law: Current Issues and Opportunities.'' Overall, we are very
supportive of the committee's focus on reforming the barriers presented
by the existing Stark Law.
Gundersen Health System provides integrated care for patients in
predominantly rural areas along the Mississippi River in western
Wisconsin, northeast Iowa, and southeast Minnesota. As the largest
employer in the La Crosse, Wisconsin region with over 7,000 employees,
Gundersen provides a range of services including: clinical care, level
II trauma care, medical education, and air and ground ambulance
services. In addition, Gundersen has maintained a five-star rated
Medicare Advantage insurance plan for the past 5 consecutive years.
Gundersen has consistently achieved top national rankings in many areas
of medical excellence including being named as a Healthgrades Top 50
hospital in overall care, many clinical specialty services, and patient
experience.
We believe value-based payment policies can drive better quality, lower
cost of care, and reduce overall costs for the Medicare program.
Gundersen Health System is a leader in efforts to reduce healthcare
costs and improve quality, but certain outdated statutory and
regulatory barriers hinder opportunities to further develop and expand
new models of care. As a founding member of the Healthcare Quality
Coalition (HQC), we strongly support continued implementation of
payment systems that reward value
Alleviating Statutory Barriers Through Stark Law Reform
Gundersen Health System supports developing and advancing legislation
for reforming the antiquated Stark Law. The Stark Law's oversight of
compensation arrangements is anchored in a fee-for-service environment,
and enacted during a time where physicians were predominately self-
employed, hospitals were separate entities, and both billed for
services on a piecemeal basis. The Stark Law is outdated and not suited
to the new models and should not be the locus of oversight for these
new arrangements. The statute and its complex regulatory framework are
designed to keep hospitals and physicians apart--the antithesis of the
new models and certainly not an aspect integrated healthcare at
Gundersen Health System.
Increasingly, public and private payers are holding hospitals
accountable for reducing costs and improving quality, and using
financial incentives, which we strongly support. Achieving Congress's
goals for value-based care and innovative community delivery models can
be accomplished only through teamwork among hospitals, physicians and
other health care providers across sites of care. Existing Stark Laws
are significant barriers to developing innovative community-based care
models to help patients recover faster and stay out of the hospital,
ultimately reducing readmissions and healthcare costs.
Policy Solutions
We recommend legislative solutions in the Senate be developed in tandem
with the committees of jurisdiction in the House of Representative.
Introducing bipartisan, bicameral legislation would establish a strong
signal to the healthcare community that policymakers are working
diligently across both Congressional Chambers to enact laws to improve
quality and population health, increase collaboration, and lower the
cost of care.
At minimum, Congress should adopt legislation that provides a single,
broad exception for integrated healthcare delivery systems. An
integrated healthcare organization exception should cut across the
Stark Law, the anti-kickback statute and relevant civil monetary
penalties for financial relationships designed to foster collaboration
in the delivery of health care and incentivize and reward efficiencies
and improvements in care. We recommend the exception be created under
the anti-kickback statute and arrangements protected under the
exception be deemed compliant with the Stark Law. Addressing this
barrier will help with the implementation of the Medicare Access and
CHIP Reauthorization Act by developing new alternative payment models,
reducing hospital readmissions, increasing coordinated care, and
improving population health programming.
Conclusion
In sum, we are strongly supportive of the Senate Committee on Finance's
focus on exploring policy solutions to remove legal barriers in the
advancement of new, alternative payment models. We are pleased with the
bipartisanship that has encompassed these early hearings. The released
white paper titled Why Stark, Why Now? is an excellent step at
identifying potential solutions. We look forward to continue working
with you to provide input and help move the issue forward to
legislation.
Sincerely,
Michael D. Richards
Executive Director of External Affairs
Gundersen Health System
______
Horty, Springer, and Mattern, Attorneys at Law
4614 Fifth Avenue, Pittsburgh, PA 15213
Telephone: (412) 687-7677
Facsimile: (412) 687-7692
https://www.hortyspringer.com/
July 11, 2016
U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200
Re: Examining the Stark Law: Current Issues and Opportunities--July 12,
2016 Hearing
To the Members of the Committee:
This letter is submitted for inclusion in the hearing record in
connection with the above hearing. The law firm of Horty, Springer and
Mattern, PC. devotes its practice exclusively to hospital and health
care law. We work with health care providers throughout the country,
consulting with hospital boards, management, medical staff leaders and
other attorneys. We are intimately familiar with regulatory
implications of the financial relationships between physicians and
hospitals, especially those arising out of the Physician Self-Referral
Act, 42 U.S.C. Sec. 1395nn, also known as the ``Stark Law.'' We
routinely draft hospital-physician arrangements, advise our clients
about them, and represent clients in False Claims Act litigation when
such arrangements are challenged based on alleged violations of the
Stark Law. We also represent clients who have made self-disclosures to
CMS and the OIG involving Stark Law and similar violations. In
submitting these comments, we are not acting on behalf of any client.
We appreciate the opportunity to submit these comments.
Hospitals must enter into a wide variety of compensation arrangements
with physicians in order to carry on their day-to-day operations.
Nonprofit charitable hospitals have additional needs for physician
relationships essential to carry out their charitable mission. The
Stark Law, as it has been implemented by CMS in its regulations and
regulatory commentary, applied by the Department of Justice and
relators in False Claims Act cases, and interpreted by the courts,
presents very real barriers to achieving clinical and financial
integration of physicians and hospitals required to achieve the
``triple aim'' of health care reform--reducing cost, improving quality
and enhancing access. The Stark Law has also imposed significant
expenses on health care organizations in the form of legal and
compliance costs.
In our opinion, the Stark Law should be repealed in its entirety, or at
least be substantially amended by repealing the prohibitions against
compensation arrangements that fall outside the statutory and
regulatory exceptions. In lieu of that, we would offer the following
comments on specific provisions in the Stark Law.
1. Volume or Value Standard
As CMS has repeatedly stated, the requirement that compensation not
vary with or take into account the volume or value of physician
referrals, which appears in a number of statutory or regulatory
exceptions, should be uniformly interpreted wherever it appears. Such
uniform interpretation is essential. However, other agencies and some
courts have interpreted the volume or value standard to consider the
subjective intent of the parties, rather than applying an objective
``bright line'' test as Congress intended, making compliance with the
statute much more difficult and uncertain. In addition, prior CMS
commentary has added to this confusion by applying the volume or value
standard to other exception criteria, such as the definition of fair
market value, thereby conflating two standards that were intended to
stand on their own. The Committee should consider amending the Stark
Law to address this confusion.
(a) Objective vs. Subjective Interpretation
A number of recent court cases have stated that if a hospital discusses
or analyzes the potential referrals, it ``takes referrals into
account'' thereby tainting an otherwise compliant arrangement, even one
that pays a fixed fee. This introduces an element of subjective intent
into an ostensibly ``bright line'' statutory and regulatory scheme.
The volume and value standard says that the compensation cannot
``take'' into account the volume or value of referrals--not ``took.''
This distinction is crucial. What the parties to an arrangement may
have intended to achieve is irrelevant for the purposes of the self-
referral law. As CMS pointed out in the Phase 1 regulations: ``a
compensation arrangement does not take into account the volume or value
of referrals or other business generated between the parties if the
compensation is fixed in advance and will result in fair market value
compensation, and the compensation does not vary over the term of the
agreement in any manner that takes into account referrals.'' 66 Fed.
Reg. 877-878 (January 4, 2001) (emphasis added). This is also supported
by the legislative history of the self-referral law. Congress said that
compensation simply could not ``fluctuate during the contract period
based on the volume or value of referrals between the parties to the
lease or arrangement.'' H.R. Rep. No. 103-111, at 545 (1993), reprinted
in 1993 U.S.C.C.A.N. 378, 779 (emphasis added). What the parties may
have wanted to accomplish through the arrangement is not relevant to
the legality of the compensation arrangement under the Stark Law.
Unlawful intent is to be addressed by the Medicare Anti-Kickback
Statute, 42 U.S.C. Sec. 1320a-7b.
Congress should therefore amend the Stark Law to clarify that the
intent of the parties to an arrangement is completely irrelevant to the
application of the Law or the eligibility to fit within any of the
exceptions.
(b) Circular Definitions
The definitions of ``fair market value'' and ``not take into account
the volume or value of referrals'' (the ``volume or value standard'')
as used in the regulations to the Stark Law are completely circular.
The regulations, at 42 CFR Sec. 411.351, define ``fair market value''
as follows:
Fair market value means the value in arm's-length transactions,
consistent with the general market value. ``General market
value'' means the price that an asset would bring as the result
of bona fide bargaining between well-informed buyers and
sellers who are not otherwise in a position to generate
business for the other party, or the compensation that would be
included in a service agreement as the result of bona fide
bargaining between well-informed parties to the agreement who
are not otherwise in a position to generate business for the
other party, on the date of acquisition of the asset or at the
time of the service agreement. Usually, the fair market price
is the price at which bona fide sales have been consummated for
assets of like type, quality, and quantity in a particular
market at the time of acquisition, or the compensation that has
been included in bona fide service agreements with comparable
terms at the time of the agreement, where the price or
compensation has not been determined in any manner that takes
into account the volume or value of anticipated or actual
referrals (emphasis added).
On the other hand, the volume or value standard, while not defined m
the body of the regulations, has been described in CMS commentary as
follows:
A compensation arrangement does not take into account the
volume or value of referrals or other business generated
between the parties if the compensation is fixed in advance and
will result in fair market value compensation, and the
compensation does not vary over the term of the arrangement in
any manner that takes into account referrals or other business
generated (emphasis added).
66 Fed. Reg. 877-878 (January 4, 2001).
In other words, to comply with the fair market value standard, a
compensation arrangement must not take into account the volume or value
of referrals, but the compensation arrangement will not take into
account the volume or value of referrals only if it results in fair
market value compensation. This definition is circular and is not
consistent with the statute. The statute defines ``fair market value''
as ``the value in arm's-length transactions, consistent with the
general market value, and, with respect to rentals or leases, the value
of rental property for general commercial purposes (not taking into
account its intended use) and, in the case of a lease of space, not
adjusted to reflect the additional value the prospective lessee or
lessor would attribute to the proximity or convenience to the lessor
where the lessor is a potential source of patient referrals to the
lessee.'' 42 U.S.C. Sec. 1395nn(h)(3). There is no mention of the
volume or value standard in this definition, nor should there be, since
these are two separate and independent concepts. Congress should amend
the law to make it clear that the volume or value and fair market value
standards are independent of one another, and that compliance with one
does not depend on compliance with the other.
(c) Correlation of Professional Services to Technical Fees
CMS has repeatedly stated that a physician's compensation can always be
based on personally performed services--69 Fed. Reg. 16054, 16067
(March 26, 2004)--even if the payment is ``linked to a facility fee.''
Id. at 16088-89. Unfortunately, at least one court has misinterpreted
or ignored this guidance and held that if an employed physician
eligible for productivity compensation personally performs a
professional service in a hospital and the hospital also bills a
technical fee to Medicare, the physician's compensation varies with his
or her referrals and thus fails to comply with the volume or value
standard. The vast majority of hospitals and health systems in the
country pay doctors on a productivity basis linked to their personally
performed professional services performed in the hospital. Without
further statutory clarification affirming that this would not violate
the volume or value standard, hospitals and physicians will be faced
with grave uncertainty about whether their compensation arrangements
are compliant.
2. Definition of Referring Physician
The statute provides: ``. . . the request or establishment of a plan of
care by a physician which includes the provision of the designated
health services constitutes a `referral' by a `referring physician.' ''
42 U.S.C. Sec. 1395nn(h)(5)(B). However, the regulations go on for over
250 words in defining the term ``referral'' which creates confusion.
Furthermore, the Government has been allowed to prove referrals by
simply offering into evidence summaries of UB-04 claims forms that
identify ``attending'' or ``operating'' physicians and which were never
intended to identify referring physicians. This has also allowed the
Government to claim damages equal to the entire payment for inpatient
claims when the physician in question is simply listed anywhere on the
claim form, even if he or she did not admit the patient. This has
resulted in wildly inflated damage awards and settlements. To address
this problem, we would suggest limiting the definition of ``referring
physician'' to the physician who actually ordered an outpatient service
or inpatient admission, and require proof from the medical record
rather than from the claims forms.
3. Physician Compensation
The majority of physicians are now employed by hospitals and health
systems. Having those employment arrangements micromanaged by CMS and
DOJ through the Stark Law not only stifles innovation, but flies
directly in the face of the Prohibition Against Federal Interference
set forth in the very first section of the Medicare statute: ``Nothing
in this subchapter shall be construed to authorize any Federal officer
or employee to exercise any supervision or control over the practice of
medicine or the manner in which medical services are provided, or over
the selection, tenure, or compensation of any officer or employee of
any institution, agency, or person providing health services; or to
exercise any supervision or control over the administration or
operation of any such institution, agency, or person.'' 42 U.S.C.
Sec. 1395. Absent repealing the Stark Law or its prohibition against
compensation arrangements falling outside its exceptions, or creating
an all-encompassing statutory carve-out for employment arrangements as
there is in the Anti-kickback Statute, there are several changes to the
Stark Law that should be considered.
(a) Value-Based Purchasing and Alternative Payment Models
Hospitals and health systems need immediate guidance concerning the
ability of a hospital to compensate physicians who assist the hospital
under Medicare's Value-Based Purchasing Program (``VBP'') or who
participate in Alternative Payment Models (``APM'') under the proposed
MACRA regulations. It is difficult, if not impossible, for a hospital
to achieve the desired goals under VBP or APM without physician input
and cooperation. However, the fair market value of that input and
cooperation is difficult to determine and hourly payment rates are
often not reflective of the fair market value of the services actually
being provided to the hospital by the physicians.
Hospitals need to be assured that utilizing a payment methodology that
is based, in whole or in part, on the amount of the payment that the
hospital or physician receives under VBP or APM will satisfy an
exception to the Stark Law.
In addition, since 2001, the Office of Inspector General for HHS has
provided Advisory Opinion Guidance on gainsharing arrangements. (See,
OIG Supplemental Compliance Program Guidance for Hospitals, Part C
``Payments to Reduce or Limit Services: Gainsharing Arrangements,'' 70
FR 4869-4870 (January 31, 2005).) However, CMS has failed to issue any
type of formal guidance on gainsharing. The Stark Law should be amended
to state unambiguously that a hospital that complies with the OIG's
published guidance on gainsharing will satisfy the personal services
exception to the Stark Law.
(b) Personally Performed Services
Hospitals would also benefit from further statutory clarification as to
what constitutes ``remuneration in the form of a productivity bonus
based on services performed personally by the physician (or immediate
family member)'' when a hospital employs a physician directly. 42 CFR
Sec. 411.357(c)(4) (emphasis added).
For example, many physician groups use an incentive compensation model
that is based on the group achieving certain goals. The bonus earned is
then often divided equally between and among the physicians in the
group. What is unclear is whether a hospital that employs physicians
directly pursuant to 42 CFR Sec. 411.357(c) is permitted to have a
similar incentive compensation model that permits the employed
physicians to share in the professional revenue generated by all of the
physicians in a particular specialty. Such group-based specialties are
common in physician organizations and encourage common goals. However,
CMS has never provided guidance as to whether such a group-based
incentive compensation model would be ``based on services performed
personally by the physician'' for purposes of complying with 42 CFR
Sec. 411.357(c)(4).
(c) Non-Physician Practitioner
More and more care is being delivered by non-physicians such as nurse
practitioners and physician assistants. However, these providers always
must practice in collaboration with or under the supervision of
physicians. Present law is unclear as to whether a hospital that
directly employs physicians pursuant to Sec. 411.357(c) and bills for
the services of non-physician practitioners who are supervised by those
employed physicians under the Medicare ``Incident to Rules'' is
permitted to include that revenue in the hospital's compensation of the
supervising physician. Such an arrangement is specifically permitted in
a physician group that is organized and operated in a manner described
in 42 CFR Sec. 411.352. See 66 Fed. Reg. 876 (January 4, 2001).
However, despite the increase in the utilization of non-physician
practitioners since 2001, when the Phase 1 rules were published, CMS
has not updated the statement in the Preamble to the Phase 1 rules that
stated that such payments are limited to physicians in a group practice
organized and operated pursuant to 42 CFR Sec. 411.352 or to physicians
in solo practice (see 66 Fed. Reg. 891) and would not constitute
``services performed personally by the physician'' in the incentive
compensation model of a hospital-employed physician for purposes of 42
CFR Sec. 411.357(c)(4).
Therefore, we would recommend that the Stark Law should clarify that
employed physician compensation may include credit for time spent for
supervision of or collaboration with non-physician practitioners as
well as credit for services performed by such practitioners.
(d) Fair Market Value Issues
Finally, hospitals and health systems recruit physicians in a national
market. Hospitals often employ physicians in needed specialties, even
if the patient population served by that hospital will not financially
support that service. Such professional services are often needed to
further the charitable purposes of the hospital regardless of the
profitability of that service.
Hospitals that employ physicians also have limited ability to control
the amount that they are paid by various third-party payors for the
professional services provided by the employed physicians. As a result,
it is not uncommon for a hospital to pay a physician more in
compensation than the hospital will be reimbursed for the professional
services that are provided by that physician. In many types of value-
based and bundled payment models, it is difficult, if not impossible,
to even determine if the hospital is losing money on the professional
services being provided by the hospital.
While CMS mentioned ``compensation arrangements involving `mission
support payments' and `similar payments' (`support payments')'' in the
Preamble to the Phase 4 Rules (73 Fed. Reg. 48691 (August 19, 2008)),
the Stark Law should be amended to make it clear that there is no
presumption that a hospital or hospital-affiliated entity that
compensates a physician an amount in excess of the reimbursement that
is paid to the employer for that physician's professional services is
compensating the physician in a manner that is based on, or takes into
account, the volume or value of the physician's referrals to the
hospital.
CMS should also make it clear that while salary surveys are excellent
benchmarks, they are intended to be nothing more than a benchmark. No
salary survey (or any specific percentile within a salary survey)
should dictate the fair market value of a physician's services.
4. Conclusion
In his introductory remarks to the Comprehensive Physician Ownership
and Referral Act of 1993, Congressman Stark stated that ``the only way
to protect health care consumers from unnecessary referrals is to
impose a `bright line rule.' '' 139 Cong. Rec. E84-01 (January 6,
1993). While Representative Stark's intent was to create a bright line
rule, the current state of the law is anything but that.
We believe that the Stark Law has outlived its usefulness and should be
repealed, or at least substantially amended to repeal its prohibitions
against compensation arrangements. In lieu of that, we would
respectfully request that the Committee consider the above suggestions.
Our recommended changes are provided in the hope that they will restore
the ``bright line'' rules that were originally intended by the Law's
drafters and permit hospitals and physicians to care for patients
without federal interference and make the Stark Law less of a ``booby
trap rigged with strict liability and potentially ruinous exposure.''
Sincerely,
Daniel M. Mulholland III
[email protected]
______
Physician Hospitals of America (PHA)
Dear Chairman Hatch, Ranking Member Wyden, and Members of the
Committee,
On behalf of the Physician Hospitals of America (PHA) and the more than
250
physician-owned hospitals (POHs) across the country, thank you for the
opportunity to submit a statement for the record regarding reforms to
the Stark Law. PHA offers support, advocacy, and educational services
to the POH industry, reflecting at all times the best interests of the
patients, physicians and other specialty providers who play an
inextricable and essential role in the provision of health care
services.
Currently, the Stark Law prevents POHs from competing on a level
playing field with other hospitals, subjecting them to an onerous
moratorium which prohibits their ability to expand to treat the growing
population of Medicare and Medicaid patients in their communities. If
POHs are able to fairly compete in the health care marketplace,
patients will benefit through greater access to quality and affordable
care, while the Medicare program will benefit through paying less for
better outcomes. POHs are an important component of the health care
system--ensuring competition, preserving physician autonomy, and
promoting innovation. This anti-competitive moratorium is bad for our
health care system, bad for the Medicare program, and bad for patients.
Multiple independent, peer-reviewed studies and government quality
ratings programs have demonstrated that POHs are centers of excellence,
leading the way in quality, patient satisfaction, and cost. The facts
so clearly point to the high performance of POHs that the authors of a
study in BMJ, titled ``Access, Quality and Costs of Care at Physician-
Owned Hospitals in the United States,'' concluded that there is ``a
need to re-examine existing public policies that target all hospitals
with physician owners.'' \1\
---------------------------------------------------------------------------
\1\ BMJ 2015, 351: h4466.
Based on these facts and the need for greater competition, higher
quality outcomes, and reduced costs in the health care marketplace,
Congress should allow POHs to compete on a level playing field with
every other hospital in the country by enacting the reasonable, common-
sense provisions included in H.R. 2513. This bipartisan legislation,
introduced by Rep. Sam Johnson (R-TX), will improve and sustain the
Medicare program by allowing existing POHs to expand to meet their
communities' demand for high-quality, low-cost health care services.
Background
Physician ownership of hospitals has a long and distinguished history
in this country. Physicians and surgeons often opened the first
hospitals in communities and many of these POHs evolved into important
medical centers that set new standards of excellence. The contemporary
interest in POHs is the result of the physician's desire to return
decisions regarding medical care back to healthcare providers and their
patients.
In some cases, physicians have found themselves to be the buyers of
last resort for hospitals that have been abandoned due to low profit
margins, even though the community needed such a facility. Physicians
are no longer allowed to save hospitals that are being abandoned by the
very opponents of our industry.
Physicians have invested in a wide array of hospitals, including full-
service community, rural, multi-specialty, surgical, rehab, orthopedic,
cardiac, children's, psychiatric, and long-term acute hospitals. POH
business models are equally diverse and include joint ventures with
non-profit or for-profit community hospitals, joint ventures with
development/management companies or other investors, and hospitals that
are 100% physician-owned.
POHs provide high-quality care to millions of patients throughout the
United States and bring many benefits to the communities in which they
are located. Many POHs operate in Medically Underserved Areas (MUAs),
serving as refuges for patients with otherwise limited options for
healthcare services.
Government Ratings Programs
Hospital Value-Based Purchasing Program
Beginning in FY 2013, CMS established the Hospital Value-Based
Purchasing (VBP) program to award and penalize hospitals across the
country for quality of care. Medicare payments to the more than 3,500
participating hospitals are increased or reduced based upon performance
in measured domains for care quality, including patient experience,
outcomes, process of care and efficiency.
POHs consistently outperform their non-POH competition in the VBP
program. In FY 2016, 7 of the top 10 hospitals in the program were
POHs. Seventy-nine percent of POHs received a bonus payment adjustment,
compared to only 58% of non-POHs.\2\
---------------------------------------------------------------------------
\2\ FY 2016 Final Rule, Correction Notices, and Consolidated
Appropriations Act of 2016 Tables.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Readmissions Reduction Program
Effective on October 1, 2012, CMS reduces payments to hospitals
participating in the Readmissions Reduction (RR) program for excessive
readmissions of patients to a hospital within 30 days of a discharge.
As with the VBP program, POHs consistently outperform their non-POH
counterparts. In FY 2016, 55% of POHs received no penalty for
readmissions, compared to only 18% of non-POHs.\3\
---------------------------------------------------------------------------
\3\ 2016 Hospital IPPS Final Rule and Correction Notices Impact
Public Use File.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Star Ratings for Patient Satisfaction
In 2015, CMS began issuing summary star ratings for hospitals' patient
satisfaction scores. The star ratings allow patients to compare
performance between nearly 3,500 Medicare-certified hospitals on a wide
array of metrics evaluated in the Hospital Consumer Assessment of
Healthcare Providers and Systems (HCAHPS) survey, including
communication with nurses and doctors, pain management, staff
responsiveness, care transition, hospital cleanliness and quietness,
etc.
These star ratings are issued quarterly, beginning with April 2015. In
each of the reported quarters thus far, POHs have displayed
unparalleled patient satisfaction through their consistently high star
ratings. The charts below demonstrate the superior performance of POHs
in the April 2015 reporting period.\4\
---------------------------------------------------------------------------
\4\ CMS Hospital Compare website.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Academic Studies
``Cherry Picking'' Myth
There are many unfounded myths about POHs that have been employed as
reasons to restrict patient choice. One of the most commonly cited
accusations is that POHs ``cherry pick'' healthier, more profitable
patients. Recent research, however, shows that POHs treat similar
patient populations as other hospitals. An independent, peer-reviewed
2015 British Medical Journal study found there are no ``clinically or
statistically significant differences in patient mix between POHs and
non-POHs.'' The study found that ``POHs and non-POHs admitted similar
proportions of Medicare patients . . . Medicaid patients . . . Black
patients . . . and Hispanic patients,'' as well as patients with
``comparable numbers of comorbidities . . . and similar predicted
mortality scores.'' \5\
---------------------------------------------------------------------------
\5\ BMJ 2015, 351: h4466.
---------------------------------------------------------------------------
Low Costs
Beyond debunking the ``cherry picking'' myth, this study also asserted
that POHs perform as well or better than non-POHs in terms of cost. The
study states, ``Costs and Medicare payments at POHs were similar to, or
lower than, those at non-POHs. Taken together, our findings suggest
that most POHs are not outliers in terms of patients served, the
quality of care provided, or their costs to the healthcare system.''
\6\
---------------------------------------------------------------------------
\6\ Ibid.
---------------------------------------------------------------------------
High Quality
Another recent academic study published in the Journal of Hospital
Medicine further validated that POHs are high-quality facilities. The
study, titled ``Hospital Characteristics and 30-Day All-Cause
Readmission Rates,'' found that ``Physician partial or full ownership
was significantly associated with lower readmission rates (P = 0.00);
hospitals partially or fully owned by physicians had adjusted
readmission rates 0.36 percentage points lower than non-physician-owned
hospitals.'' The study's authors asserted, ``Ownership aligns
physicians' incentives with hospital performance and is therefore
likely to be associated with better readmission rates.'' \7\
---------------------------------------------------------------------------
\7\ Al-Amin, M. (2016), Hospital characteristics and 30-day all-
cause readmission rates. J. Hosp. Med. doi: 10.1002/jhm.2606.
---------------------------------------------------------------------------
The Stark Law and the ACA
Despite this strong track-record of superior performance, POHs serving
Medicare and Medicaid patients have been restricted from growing and
expanding through a dramatic overhaul of the Stark Law Whole Hospital
Exception, via adoption of the ACA in 2010. PHA strongly believes that
the newly-revised Whole Hospital Exception is detrimental to the U.S.
healthcare system, and Medicare and Medicaid beneficiaries most
seriously. The following troubling aspects of the Whole Hospital
Exception were neither necessary nor beneficial nor constitutional:
1. The prohibition in the newly modified Whole Hospital Exception,
set forth at 42 CFR Sec. 411.362(b), prohibiting billing and collecting
for services referred by physician owners in a POH that did not have
both Medicare certification and physician ownership prior to enactment
of the ACA on March 23, 2010; and
2. The prohibition on the ability of POHs to expand their
critically necessary operating rooms, procedure rooms, and bed
capacities except in extremely limited circumstances that are rarely
applicable.
The foregoing restrictions have limited POHs from developing or
expanding services in numerous rural and urban communities around the
country where additional care is so desperately needed. In many
instances, local community hospitals are simply not picking up the
slack to provide the much needed services such that a great chasm
exists in these communities where patients simply do not have access to
the care they need. In most instances, if the Whole Hospital Exception
did not include these two most troubling aspects, physicians who are so
vested in the community would step in to purchase a failing hospital,
or expand their existing hospitals, thereby bettering healthcare in the
area and allowing the community to experience the acclaimed care that
existing POHs provide. For these reasons, PHA strongly urges Congress
to adopt legislation removing these troubling provisions of the Whole
Hospital Exception.
H.R. 2513
Introduced by Rep. Sam Johnson (R-TX) with bipartisan support, H.R.
2513--the Promoting Access, Competition and Equity (PACE) Act of 2015--
is an important, patient-centric piece of legislation that would
improve patients' access to some of the highest quality, lowest cost
hospitals in the country: POHs.
H.R. 2513 would address the most egregious aspects of the ACA
moratorium on POHs by providing a reasonable pathway for higher quality
POHs to apply for an exception to expand facility capacity and allow
hospitals that missed the arbitrary deadline for Medicare certification
as a POH to be grandfathered under the law.
Specifically, H.R. 2513 would:
Allow POHs to apply for expansion if they receive at least 3
stars from CMS in the new Summary Star Ratings program for hospitals
over 3 consecutive years. While the policy is common sense and is good
public policy--tying expansion to quality outcomes and the overall
patient experience--it should apply for all hospitals. Why should
Congress allow a hospital that treats Medicare patients to expand if
they provide poor quality of care? Hospitals that are 1- and 2-star
facilities invariably are hurting patients physically as well as
financially. They certainly cost Medicare more money. Why does Congress
allow them unfettered expansion? Hospitals with physician ownership
have offered to be held to a higher standard for quality of care, but
all hospitals should submit to this concept as it would increase
quality for all. This patient-first idea is indicative of the POH
industry and we challenge those that disparage POHs to apply this
requirement to themselves.
Grandfather two hospitals that were under development as POHs
when the ACA was passed but were unable to meet the arbitrary Medicare
certification deadline.
Patients should be able to seek treatment at the hospital of their
choice and Medicare should embrace hospitals that provide high quality
care and that save the system money. H.R. 2513 will move us towards
this goal by holding POHs to a high standard, ensuring the best
outcomes for patients and thereby setting an example for the entire
system.
Summary
Patients throughout the nation know the benefits of POHs firsthand.
They choose to go to POHs because they know they will receive excellent
care and have a stellar experience. Patients deserve the choice of a
high-quality, low-cost facility, and that is what PHA and the POH
industry are fighting to protect.
As POHs treat similar patient populations with higher quality outcomes,
better patient experience, and lower costs of care, it is time for
Congress to remove the onerous restrictions on POH expansion and give
patients more freedom of choice in where they receive care. As the
authors of the BMJ study stated, Congress should ``re-examine existing
public policies that target all hospitals with physician owners'' and
enact common sense reforms. To not act would be to perpetuate an
unsound policy that is bad for patients and bad for Medicare.
Thank you again for the opportunity to submit this statement for the
record. PHA looks forward to working with the Committee to allow POH
expansion.
Sincerely,
R. Blake Curd, M.D.
CEO, Sioux Falls Specialty Hospital
President, Physician Hospitals of America
______
Taxpayers Against Fraud
The False Claims Act Legal Center
1220 19th Street, NW, Suite 501
Washington, DC 20036
phone (202) 296-4826
fax (202) 296-4838
Internet: http://www.taf.org or [email protected]
July 25, 2016
U.S. Senate Committee on Finance
Hon. Orrin Hatch, Chairman
Hon. Ron Wyden, Ranking Member
Dirksen Senate Office Bldg.
Washington, DC 20510
RE: Hearing: ``Examining the Stark Law: Current Issues and
Opportunities''
Date: July 12, 2016
Dear Chairman Hatch, Ranking Member Wyden, and Finance Committee
Members:
I am writing to urge the Committee embrace a go-slow approach as
regards to the overhaul of Stark Law.
On July 12, several witnesses before your Committee suggested that the
rules governing the federal anti-kickback statute (AKS) and the Federal
False Claims Act (FCA) were adequate to keep doctors and hospitals
walking the straight-and-narrow when it comes to medical procedures and
billing.
I wish it were so.
The anti-kickback statute has numerous safe-harbor provisions which,
absent the Stark Law, would allow hospitals to incentivize doctors in
such a way as to create naked conflicts of interest which would
inexorably lead to overutilization of expensive procedures done by
specialized surgical centers.
If the Stark Law is gutted, the result will not just be bad economics
and bad policy; it will also be bad medicine for patients.
It is worth reminding this Committee that it was its own investigations
in the area of medical billing by physician-owned labs and centers that
first illuminated the scope and nature of the problems that the Stark
Law sought to address when it was passed by Congress in 1989.
Sadly, the rapacious nature of people and companies has not changed.
While the federal anti-kickback statute (AKS) and the Federal False
Claims Act (FCA) are strong laws, they alone will not stop the core
conduct that the Stark Law is designed to discourage, because they do
not explicitly prevent the bundling of unreasonable compensation for
services and tie them to incentives for doctor referrals and the number
of procedures being performed.
One need only look at recent cases involving Stark Law violations tied
to increased utilization of spinal implants and heart stents to see
that if the Stark Law is swept away, billions of dollars will be lost
in fraud, and scores of thousands of unnecessary and medically
dangerous procedures are likely to be performed. How can this be done
in the interest of patients and taxpayers? It cannot.
Yes, the world of health care is changing, and the future appears to be
in some form of alternative payment system, but now these systems will
work in the real world is not yet fully understood. One thing seems
clear: so long as fee-for-service Medicare exists, U.S. taxpayers and
patients are going to need Stark Law protection.
To be clear, no one is against increased efficiency in the health care
arena, and no one is opposed to sweeping away unnecessary or redundant
regulation. That said, the Stark Law is not one of those unnecessary or
redundant regulations
In fact, it is because hospitals and doctors are so eager to enter into
increasingly complicated remuneration arrangements that the Stark Law
is needed now more than ever. As we have learned time and again in the
False Claims Act arena, ``in the complexity is the fraud.'' By
mandating a simple bright line standard, the Stark Law prevents a great
deal of chicanery, and forces doctors and hospitals to review their
contracts, their billing, and their relationships with an eye towards
turning square corners.
We believe CMS is capable of reviewing, drafting, and updating rules
governing Stark Law implementation with an eye towards ironing out
problem areas where major fraud schemes are unlikely to be implicated
or become established.
We urge this Committee to not throw out the baby with the bath water by
moving too quickly or changing too much.
The private profit and corporate market forces that drive and encourage
fraud, and which caused the Stark Law to be embraced in the first
place, have not abated.
An ounce of caution at this juncture may be worth many billions in
fraud prevented down the road--and many unnecessary and dangerous
surgeries and procedures as well.
Sincerely,
Patrick Burns
Acting Executive Director
cc: Rep. Sander Levin, Ranking Member, and Rep. Kevin Brady, Chair of
the Committee on Ways and Means
______
Trinity Health
20555 Victor Parkway
Livonia, MI 48152
tel 734-343-1000
http://www.trinity-health.org/
Thank you for the attention the Committee has devoted to examining the
effect the Stark Law has on the health care industry, in particular as
it relates to the movement to alternative payment models (APMs). In
this time of transformative change--in the way in which health care is
paid for and delivered--we believe the thoughtful exploration by
Congress of the issues is important for achieving the goals of
delivering better health and better care at a lower cost, while
protecting the health care industry from potentially devastating
penalties.
Trinity Health is one of the largest multi-institutional Catholic
health care delivery systems in the nation. It serves people and
communities in 22 states from coast to coast with 91 hospitals, and 120
continuing care locations--including home care, hospice, PACE and
senior living facilities--that provide nearly 2.5 million visits
annually. Trinity Health employs more than 95,000 people, including
5,300 employed physicians. Trinity Health has committed to having 75
percent of its billings in value-based payment models by 2020, and is
bringing this commitment to life as a participant in more than a dozen
Medicare Shared Savings Program accountable care organizations (ACOs),
a Next Generation ACO and deep involvement with the Bundled Payment for
Care Improvement (BPCI) program.
The movement away from fee-for-service payments toward models that pay
for better health, better care at lower cost naturally results in the
need and motivation for hospitals and physicians to become financially
connected. These alignments facilitate collaboration on quality
improvement and efficient care coordination, the adoption of clinical
best practices, and the achievement of better patient outcomes.
Trinity Health agrees that there are significant obstacles to
accomplishing these goals within the current fraud and abuse legal
structure, and the Stark Law is specifically hindering Trinity Health's
progress towards achieving 75 percent of its billings in value-based
models by 2020. As the Committee recognizes in its white paper, Why
Stark, Why Now?, the Stark Law was enacted to combat behavior in a fee-
for-service health care world. The Stark Law has become increasingly
unnecessary for--and is a significant impediment to--value-based
payment models that Congress, the Centers for Medicare and Medicaid
Services (CMS), and commercial health insurers have now promoted. We
generally agree with many of the suggestions that roundtable panelists
offered to address the Stark Law and would like to highlight a few
suggestions we think have critical importance.
A. Create an APM Exception
Within the Stark Law's existing structure, Congress could create an
exception specifically addressing the new population-based /alternative
payment model (APM) system. This exception would apply to the financial
relationships between any provider or supplier that participates in an
APM. Providers and suppliers that willingly participate in an advanced
payment model should be entitled to relief from the regulatory burdens
imposed by Stark. The exception could require certain criteria such as
being a Qualifying APM Participant provider, which is a provider that
receives a percent of their payments or patients through an eligible
alternative payment entity (a QP). If the provider is a QP, then any
financial relationship between two or more QPs would satisfy the
exception.
This new exception is needed because, under the current law, any
compensation relationship between a Designated Health Services (DHS)
entity and a physician needs to meet an exception. When the APM payment
bundles both the hospital's facility and the physicians' professional
services reimbursement, it is unclear whether any of the current Stark
Law exceptions apply to protect the financial arrangements between the
hospital and physicians (as well as potentially other providers and
suppliers) that are necessary to divide up the APM payment.
Furthermore, under the potentially applicable exceptions, the Stark Law
requires that the compensation be fair market value and limited to the
physician's personally performed services. The most common method for
calculating physician compensation now is using Work-RVU (Relative
Value Unit) values for their personally performed services. As payment
models change to APMs, however, physicians will likely see a decrease
in their Work-RVU performance over time. As APMs become predominate,
health systems and hospitals will face uncertainty as to how to
continue to pay physicians when those services do not directly
translate into a Work-RVU. It is unclear about how to measure the fair
market value of services when those services involve meeting quality
outcome goals to enable the hospital to qualify for incentive payments.
Even more unclear is how to calculate the value of services not
provided by a specialty physician because a population's health has
been better managed through better preventative or primary care.
For example, one way for an integrated delivery system to manage
population health and preventive care is greater use of non-physician
professionals, such as nurse practitioners and physician assistants.
Historically physicians often resist greater use of non-physician
professionals because that results in a decrease in the number of
services that the physician performs, which in turn impacts physician
compensation. Yet, team-based care is becoming more common and more
essential from a clinical integration/population health perspective. To
ensure high-quality and coordinated care, it is desirable for a primary
care physician to work closely with multiple non-physician
professionals. Under the Stark Law's existing structure, the
professional's productivity could not be a factor in the compensation
arrangement with the physician even though the physician is required to
oversee the care delivered by the non-physician professional. Yet,
encouraging this team approach would greatly expand access and lower
the cost of delivering care without diminishing quality.
Conclusion: Creating an APM exception could provide protection for the
financial relationships between hospitals, physicians, and other
providers and suppliers that are necessary to coordinate care and
allocate compensation within the construct of an APM. The exception
could apply to payments from an entity concerning cost savings, quality
measure achievement, and other population health management goals.
Having a clear exception that applies to employed and independent
physicians would enable hospitals and integrated delivery systems to
have uniform compensation models with their physicians and facilitate a
team approach to patient care delivery.
In order for this APM exception to work, it would need to (1) eliminate
any fair market value requirement (for the reasons discussed above);
and (2) permit payments that reflected or varied with the volume or
value of DHS. For example, cost savings per admission would be a
reasonable compensation metric to include in an arrangement
implementing an APM with a physician, even though the payment amount
would naturally vary depending on the physician's admission volume or
value. The gainsharing civil monetary penalty law already prohibits
payments to reduce medically necessary services and should provide
sufficient incentives for the providers and suppliers to structure the
relationships in compliance with that law. We believe that the statute
should permit flexibility in designing the standards or matrix for
achieving the savings. Clinical practice and evidence-based medicine is
ever-evolving. The exception could require providers maintain clear
documentation of the standards used and their application in
calculating payment amounts to ensure transparency to the government.
But, too strictly prescribing what standards can be used could result
in an unworkable rule.
B. Remove or Clarify the Meaning of Commercial Reasonableness
In recent cases, the Department of Justice (DOJ) appears to have taken
the position that commercial reasonableness relates to the economic
terms of an arrangement, such as whether there is a ``practice loss''
because the physician's professional collections do not cover the
physician's compensation. This position has created considerable
concern among hospital/health systems regarding their employment of
physicians. This position seems inconsistent with the legislative
intent.
To illustrate this concern, a system may decide to acquire a physician
practice for a variety of reasons, such as to ensure that the system
has a physician network which satisfies the network adequacy
requirements applicable to Medicare Advantage plans. In other words, if
a hospital system desires to have a contract with a Medicare Advantage
plan then it often needs to have a network of providers that is
attractive to the plan and that meets applicable adequacy requirements.
The Medicare Advantage plan then pays the hospital network a capitated
payment. In this context, it is difficult to determine whether the
hospital system is ``subsidizing'' the acquired physician practice. As
we move further toward capitated payment arrangements and bundled
payments in both the commercial and federal context, distinguishing
between professional and technical revenue loses relevance in the
actual operation of a system, especially when new payment methodologies
eliminate these categories.
``Losses'' on physician practices are so commonplace that the leading
survey company, Medical Group Management Association (MGMA), tracks
data on the average practice loss from hospital-owned practices by
specialty.\1\ Simply put, the position that any ``loss'' from a
physician practice violates the Stark Law is not reasonable or
realistic, and could expose many hospitals to enormous penalties.
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\1\ MGMA survey data for 2014 reported a median loss of $176,153
per physician for integrated delivery/health system owners of
multispecialty practices (primary and specialty care).
The better reading of the employment exception's language \2\ suggests
that the purpose of this requirement relates to the non-economic or
non-payment aspects of the arrangement; in other words, that the
``arrangement'' be commercially reasonable, not the ``remuneration.''
Examining an employment arrangement for commercial reasonableness
involves ensuring the employment was bona fide and that the employer
needed the services of the employee, separate from whether the employee
made referrals to the employer. Whether the compensation amount is
appropriate is addressed in the separate fair market value and volume/
value requirements.
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\2\ The statute's phrasing is slightly different than the
regulation, but also consistent with the above interpretation that the
requirement speaks to the non-payment aspects of the relationship.
Compare ``the remuneration is provided pursuant to an agreement which
would be commercially reasonable even if no referrals were made to the
employer'' (emphasis added) (42 U.S.C. Sec. 1395(e)(2)) with ``the
remuneration provided under an arrangement that would be commercially
reasonable even if no referrals were made to the employer'' (emphasis
added) (42 CFR Sec. 411.357(c)(3)).
Conclusion: Congress should remove the commercial reasonableness
requirement from the Stark Law, or clarify that commercial
reasonableness is connected to analyzing the bona fide nature of the
arrangement and not the remuneration. An affirmative statement in the
Stark Law that states operating losses in a physician practice owned by
a DHS-entity are not commercially unreasonable, would be helpful as
well.
C. Expand CMS Authority to Create Waivers and Exceptions
As roundtable participants noted, the current authority of CMS to
create waivers and exceptions is limited and should be expanded to
provide CMS with greater flexibility to address APMs, regardless of how
they are created. In addition, the statutory authority of CMS to create
new regulatory exceptions is limited to arrangements that do ``not pose
a risk of program or patient abuse,'' 42 U.S.C. Sec. 1395nn(b)(4).
Because this standard is so strict, CMS cautiously creates exceptions
that are narrowly drafted, and thus not truly useful for the health
care industry.
Conclusion: To aid CMS in achieving its goal of shifting a greater
percentage of revenue to APMs, Congress should adjust the Stark Law to
provide CMS expanded authority to create waivers and exceptions for
arrangements that do not pose a significant risk of program or patient
abuse.
D. Sunset the Stark Law
At its most basic level, the Stark Law is incompatible with APMs. The
intended purpose of the Stark Law was to limit Medicare over-
utilization caused by financial incentives rather than the medical
needs of the patient. These financial incentives were based on a fee-
for-service system where physicians and other providers made more money
by ordering or providing more DHS. APMs alter that system and those
incentives entirely, which may be more effective to controlling the
over-utilization risk with which Congress was concerned and the Stark
Law was enacted.
Conclusion: We recommend that the Stark Law sunset entirely once a
certain percentage of Medicare payments are made through APMs.
We truly appreciate the opportunity to engage in this discussion on
this critical topic, and hope that our perspective is helpful in your
important work. We encourage the Committee to take action to reform the
Stark Law in ways recommended herein, and stand ready to provide
additional information if helpful to the Committee's work. Please
contact Tonya Wells, Vice President, Federal Public Policy and
Advocacy, at (734) 343-0824 or [email protected] if you have
any questions.
______
Statement for the Record by Scott C. Withrow
July 15, 2016
U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200
Hon. Orrin Hatch, Chairman
Hon. Ron Wyden, Ranking Member
Re: Full Committee Hearing--``Examining the Stark Law: Current Issues
and Opportunities''
Dear Chairman Hatch, Ranking Member Wyden, and Members of the
Committee:
Thank you for your interest in examining the Stark Law. I respectfully
submit this statement on the Stark Law for your consideration and for
the hearing record. I am a founding partner of the law firm of Withrow,
McQuade and Olsen, LLP and have practiced healthcare law for 32 years.
I authored two books entitled Managing Healthcare Compliance (1999) and
Managing HIPAA Compliance (2001), both published by Health
Administration Press, a division of the American College of Healthcare
Executives. I have nationally recognized expertise in the areas of the
federal anti-kickback and physician self-referral laws (``Stark'') and
I speak frequently on those subjects. My views are my own and not on
behalf of my law firm, any client or organization.
Chairman Hatch posed the ultimate question in his opening statement:
``Is the Stark Jaw still necessary?'' The answer is an emphatic YES!
The Stark Law Remains Necessary to Regulate Risks of Program and
Patient Abuse
The Stark Law was first adopted in 1989 to regulate physician ownership
of clinical laboratories and was expanded in 1993 to regulate referrals
of designated health services. The Stark Law addressed overutilization
of services by physicians who stood to profit from referring patients
to facilities or entities in which they had a financial interest. The
Stark Law was enacted in the wake of several reports suggesting that
physicians with a financial interest in referrals tended to provide
excess care. For example, in 1989 the Office of the Inspector General
for the Department of Health and Human Services (``HHS'') issued the
results of a study that found that ``patients of referring physicians
who own or invest in independent clinical laboratories received 45%
more clinical laboratory services than . . . Medicare patients in
general.'' \1\ Later studies showed significant increases in referrals
by physicians with financial interests (either due to ownership or
receipt of bonuses) for such things as X-rays (16%), physical therapy
and rehabilitation (39-45%), MRI scans (54%) and CT scans (27%).\2\
---------------------------------------------------------------------------
\1\ Steven D. Wales, The Stark Law: Boon or Boondoggle? An Analysis
of the Prohibition on Physician Self-Referrals, 27 Law and Psychol.
Review 1, 5 (2003).
\2\ Id. at 6.
While federally reimbursed healthcare is undergoing a gradual shift to
value-based and other alternative payment mechanisms, roughly 70% of
Medicare payments remain fee-for-service.\3\ Fee-for-service
reimbursement will continue to comprise a major portion of Medicare
payments for many years to come. The Stark Law remains needed in fee-
for-service reimbursement to regulate the risks of Medicare program
abuse whenever physicians have financial interests tied to referrals.
---------------------------------------------------------------------------
\3\ http://www.hhs.gov/about/news/2016/03/03/hhs-reaches-goal-
tying-30-percent-medicare-payments-quality-ahead-schedule.html (last
viewed July 13, 2016).
Advances in medical technology and procedures may have actually
increased the risks of patient abuse whenever physicians have financial
interests tied to referrals. Disturbing evidence of overutilization of
invasive procedures such as spinal fusions \4\ and cardiac stents \5\
is mounting. This Committee has recently examined the dangers of
physician-owned distributorships (``PODs'') that derive revenue from
selling implantable medical devices ordered by their physician owners
and are prevalent in the field of spinal surgery.\6\ This Committee's
Majority Staff Report summarized the dangers of physicians' financial
interests:
---------------------------------------------------------------------------
\4\ https://allmedmd.com/landing-pages/Spinal-Fusion-WP.pdf (last
viewed July 14, 2016); http://www.cbsnews.com/news/tapping-into-
controversial-back-surgeries (last viewed July 14, 2016).
\5\ https://allmedmd.com/collaboration/articles/allmed-articles-1/
addressing-overutilization-in-interventional-cardiology-
catheterization-stent-placement (last viewed July 14, 2016); http://
www.usnews.com/news/articles/2015/02/11/are-doctors-exposing-heart-
patients-to-unnecessary-cardiac-procedures (last viewed July 14, 2016);
http://www.nytimes.com/2015/01/30/business/medicare-payments-surge-for-
stents-to-unblock-blood-vessels-in-limbs.html (last viewed July 14,
2016).
\6\ Senate Finance Committee Majority Staff Report, Physician Owned
Distributorships: An Update on Key Issues and Areas of Congressional
Concern, http://www.finance.senate.gov/imo/media/doc/
Combined%20PODs%20report%202.24.16.pdf (last viewed July 14, 2016).
Surgeons have a unique and powerful role in influencing both
patient and medical practice decisions. When a surgeon
recommends surgery, patients are strongly inclined to follow
their doctor's recommendation. Within the field of spinal
surgery, spinal fusions are among the most serious and costly
types of back surgery, and are typically only recommended for
patients with the most serious back problems. Spinal implants
are generally ``physician preference,'' meaning hospitals
typically purchase the devices recommended by their surgeons.
Spinal surgeons therefore have significant influence over both
the frequency of spinal fusion surgeries and the devices used
---------------------------------------------------------------------------
in those surgeries.
Unchecked, this position of power can give POD spinal surgeons
the opportunity to grant themselves a steady stream of income
by increasing the use of the products supplied by their POD.
PODs present an inherent conflict of interest that can put the
physician's medical judgment at odds with the patient's best
interests.\7\
---------------------------------------------------------------------------
\7\ Id., at 1 (internal footnotes omitted).
The Committee's Majority Staff Report also exposed troubling findings
---------------------------------------------------------------------------
of overutilization of spinal fusion procedures, including:
1. POD surgeons saw significantly more patients (24% more) than
non-POD surgeons.
2. In absolute numbers, POD surgeons performed fusion surgery
on nearly twice as many patients (91% more) than non-POD
surgeons.
3. As a percentage of patients seen, POD surgeons performed
surgery at a much higher rate (44% higher) than non-POD
surgeons.
4. In absolute number, POD surgeons performed nearly twice as
many fusion surgeries (94% more) as non-POD surgeons.\8\
---------------------------------------------------------------------------
\8\ Id., at 14-15.
Overall, the Committee's Majority Staff Report found that POD surgeons
performed nearly 15 percent of spinal fusions billed to Medicare while
making up only 8 percent of the total spinal fusion surgeons who billed
to Medicare in 2011.\9\ The Committee's Majority Staff Report
recommended that HHS OIG and law enforcement should investigate
potential violations of the Stark Law.\10\ Thus, the Stark Law remains
a critical tool for protecting patients from possible abuse when
physician
decision-making may be compromised by the physician's personal
financial interests.
---------------------------------------------------------------------------
\9\ Id., at 15.
\10\ Id., at 25.
Stark Law Should Continue to Provide Important Regulation of Physician
---------------------------------------------------------------------------
Compensation
The three hearing witnesses quickly retreated from recommending full
Stark Law repeal and admitted that Stark Law should continue to
regulate physician ownership arrangements. However, the witnesses
recommended the elimination of all Stark Law regulation over physician
compensation arrangements because regulation provided by the federal
anti-kickback statute (``AKS'') and the Federal False Claims Act
(``FCA'') would be adequate. I strongly disagree with this
recommendation because Stark Law provides important regulation of
physician compensation that is not present under AKS and FCA alone.
AKS, which was first enacted in 1972 well before the Stark Law, is a
criminal statute that prohibits the exchange (or offer to exchange), of
anything of value, in an effort to induce (or reward) the referral of
federal health care program business, whether a physician is involved
or not. Congress mandated in 1987 that the regulators adopt safe harbor
regulations to give healthcare providers assurance that normal
arrangements would not fall within the broad reach of AKS. In
particular, regulators adopted a very generous AKS safe harbor for
employees which permits ``any amount paid by an employer to an
employee, who has a bona fide employment relationship with the
employer.'' \11\ Under this AKS safe harbor for employees, the hospital
can pay an employed neurosurgeon ``any amount'' including amounts or
bonuses that might incentivize the neurosurgeon to overutilize spinal
fusions.
---------------------------------------------------------------------------
\11\ 42 CFR Sec. 1001.952(i) (2016).
Medicare fee-for-service reimbursement provides hospitals with strong
motivation to employ high-producing neurosurgeons because Medicare
rewards hospitals with lucrative facility fees for inpatient spinal
fusions. For example, when a neurosurgeon performs a spinal fusion
under CPT code 22633 (``lumbar spine fusion combined'') as the lead
surgeon, Medicare Part B would allow a total reimbursement for the
facility-based physician service of $1,864.92 (54.79 RVUs $34.0376--
geographically unadjusted) in fiscal year 2012. Medicare Part A would
also pay the hospital a facility fee for the inpatient spinal fusion
procedure. For example, in fiscal year 2012, Medicare paid Mission
Memorial Hospital in Asheville, North Carolina average Medicare
payments of $22,805.62 for each of 286 instances of Diagnosis-Related
Group (``DRG'') 460--Spinal Fusion Except Cervical without Major
Complication/
Comorbidity for facility fees on a fee-for-service basis.\12\ Mission
Memorial Hospital received from Medicare a total of $6,522,407.32 in
facility fees for spinal fusions under one DRG code, DRG 460, in one
fiscal year.
---------------------------------------------------------------------------
\12\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/
Inpatient2012.html (last viewed July 14, 2016). In fiscal year 2012,
Mission Memorial Hospital billed Medicare for DRG 460 more often than
any other hospital in the State of North Carolina and 4th most in the
entire United States.
The Stark Law provides regulation focused on physician financial
relationships to protect against the risks of program and patient abuse
when an inherent conflict of interest is present that can put the
physician's medical judgment at odds with the patient's best interests.
Like AKS, the Stark Law allows compensation arrangements between
hospitals and employed physicians, but with three critical and
additional regulatory protections. The amount of the remuneration under
---------------------------------------------------------------------------
the employment must be:
1. Consistent with the fair market value of the services; \13\
---------------------------------------------------------------------------
\13\ 42 CFR Sec. 411.357(c)(2)(i) (2016).
2. Not determined in a manner that takes into account (directly
or indirectly) the volume or value of any referrals by the
referring physician; \14\ and
---------------------------------------------------------------------------
\14\ 42 CFR Sec. 411.357(c)(2)(ii) (2016).
3. The remuneration is provided under an arrangement that would
be commercially reasonable even if no referrals were made to
the employer.\15\
---------------------------------------------------------------------------
\15\ 42 CFR Sec. 411.357(c)(3) (2016).
HHS regulators have previously and rightly determined that these three
regulatory protections are necessary to protect against the risks of
program and patient abuse when an inherent conflict of interest is
present that can put the physician's medical judgment at odds with the
patient's best interests. These three regulatory protections do not
exist under AKS and FCA alone. The recommendation to limit the Stark
Law to ownership arrangements only would expose taxpayers and patients
to abuse resulting from inappropriate compensation arrangements. The
Stark Law should continue to provide these three important regulatory
protections on physician compensation arrangements.
Stark Compliance Costs Are Justified and Affordable
Dr. Ronald A. Paulus, President and Chief Executive Officer of Mission
Health System, complained during the hearing about spending
``millions'' for Stark compliance and review of physician contracts
which provide no more protections than kickback law already provides. I
question whether Mission Health really spends ``millions'' on Stark
compliance, but even if it did the risk of program and patient abuse
justifies the expense. As noted above, Stark Law most definitely
provides three important regulatory protections on employed physician
compensation that are not provided by AKS and FCA alone.
Healthcare entities such as Mission Health and Johns Hopkins Health
System can easily afford Stark compliance costs. Many healthcare
entities, including Mission Health and Johns Hopkins Health System, are
exempt from federal taxes in the first place. Moreover, these entities
have amassed huge treasure chests during the era of fee-for-service
reimbursement. For example, Mission Health, which provides 75% of its
care to Medicare or Medicaid beneficiaries or to the uninsured,
accumulated $940 million in cash and investments as of September 30,
2015.\16\ Johns Hopkins Health System had cash and investments totaling
$2.792 billion as of March 31, 2016.\17\ Healthcare entities can easily
afford the Stark Law compliance costs which are necessary to provide
taxpayers and patients with reasonable protections against abuses
resulting from conflicts of interests inherent in physician financial
arrangements.
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\16\ Mission Health System, Inc, Annual Continuing Disclosure per
Loan Agreement section 5.06, Selected Utilization and Financial
Information, http://emma.msrb.org/EP906235-EP702606-EP1104565.pdf (last
viewed July 14, 2016).
\17\ The Johns Hopkins Health System Corporation and Affiliates,
Quarter End Report, Three and Nine Months Ended March 31, 2016 and
2015, http://emma.msrb.org/ER962785-ER752998-ER1154544.pdf (last viewed
July 14, 2016).
The Stark Law Exception for In-Office Ancillary Services (``IOAS'')
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Should Be Retained
I oppose the recommendation of Troy A. Barsky to limit the IOAS
exception to the Stark Law due to abuse well beyond the original intent
of the exception. The IOAS exception itself contains a number of
regulatory protections limiting the exception based on who \18\ and
where \19\ the service is performed and how the service is billed.\20\
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\18\ 42 CFR Sec. 411.355(b)(1) (2016).
\19\ 42 CFR Sec. 411.355(b)(2) (2016).
\20\ 42 CFR Sec. 411.355(b)(3)(2016).
More importantly, the real value of the IOAS exception in the
healthcare industry is in the context of Stark-compliant physician
group practices. The Stark Law provides additional regulatory
protections limiting abuse of the IOAS exception within the definition
of ``group practice,'' including eight regulatory requirements for a
Stark-compliant physician group practice.\21\ In particular, the
definition of a Stark-compliant group practice prohibits a physician
from directly or indirectly receiving compensation based on the volume
or value of his or her referrals unless the compensation arrangement
complies with special rules for profit shares and productivity
bonuses.\22\ Many Stark-compliant physician group practices
appropriately utilize the IOAS exception by designing compensation
arrangements in compliance with the special rules for profit shares and
productivity bonuses. These physician group practice compensation
methods are especially important in states where corporate practice of
medicine doctrine prohibits hospital employment of physicians, such as
California. I believe the existing IOAS exception combined with the
existing definition of a Stark-compliant physician group practice
strike the right balance of allowing flexible and even productivity-
based compensation arrangements while still providing regulatory
protection against program and patient abuse.
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\21\ 42 CFR Sec. 411.352(a)-(h) (2016).
\22\ 42 CFR Sec. 411.352(g) and (i).
Simplify the Existing Stark Exception for Community-Wide Information
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Systems
While not the subject matter of the Stark Law hearing, I would also
like to share with the Committee a recommendation that I made to
regulators at the U.S. Department of Commerce for improving the Stark
Law and removing a barrier to realizing the benefits in healthcare from
the development of the Internet of Things (``IoT'').\23\
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\23\ https://www.ntia.doc.gov/federal-register-notice/2016/
comments-potential-roles-government-fostering-advancement-internet-of-
things (last viewed July 14, 2016).
By 2025, the total global worth of IoT technology could be as much as
$6.2 trillion, with roughly 40% of that value from devices in
healthcare ($2.5 trillion).\24\ IoT value in healthcare will greatly
benefit patients, the Government, and the taxpayers by increasing
healthcare quality and reducing healthcare costs.
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\24\ http://www.intel.com/content/www/us/en/internet-of-things/
infographics/guide-to-iot.html (last viewed May 18, 2016).
AKS and the Stark Law stand as major barriers to the realization of IoT
benefits in healthcare. In 2004, the Centers for Medicare and Medicaid
Services (``CMS'') created a regulatory exception to the Stark Law for
community-wide information systems.\25\ However, the Stark exception
for community-wide information systems has not been useful to date
because there is no corresponding anti-kickback safe harbor for
community-wide information systems. In order to foster IoT development
and deployment in healthcare, the Government should adopt a new anti-
kickback safe harbor for community-wide information systems that
corresponds to the existing Stark exception.\26\
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\25\ 42 CFR Sec. 411.357(u) (2016); adopted at 69 Fed. Reg. 16054,
16112-16113 (March 26, 2004).
\26\ Section 205 of the Health Insurance Portability and
Accountability Act of 1996 requires the Government to annually solicit
recommendations for developing new anti-kickback safe harbors, although
the comment period for the most recent annual solicitation has closed.
80 Fed. Reg. 79803 (Dec. 23, 2015).
The existing Stark exception for community-wide information systems is
fairly straightforward, with only three conditions for the exception to
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apply:
1. The information technology items and services are available
as necessary to enable the physician to participate in the
community-wide health information system, are principally used
by the physician as part of that system, and are not provided
in a manner that takes account of referrals or other business
generated by the physician;
2. The community-wide health information system is available to
all providers, practitioners and residents in the community who
desire to participate; and
3. The arrangement does not violate the anti-kickback statute
or any billing or claims submission laws or regulations.
IoT includes information technology items and services that enable the
physician to participate in information systems. The Stark exception
requires that the information system be ``community-wide'' and
``available to all providers, practitioners and residents in the
community who desire to participate.'' These requirements conflict with
the common concerns in healthcare over privacy and security of
individually identifiable healthcare information. The Stark exception
also requires that the information technology items and services ``are
principally used by the physician,'' which excludes IoT devices
principally used by patients themselves, physician extenders or other
non-human things. The third condition about not violating the anti-
kickback statute is problematic until a corresponding anti-kickback
safe harbor is created. The Stark exception would be even more useful
for IoT if it was further simplified to only one condition:
1. The information technology items and services are available
as necessary to enable the physician to participate in a health
information system, and are not provided in a manner that takes
account of referrals or other business generated by the
physician.
I recommend simplifying the existing Stark exception for community-wide
information systems as suggested above, and then adopting a new
corresponding anti-kickback safe harbor. These simple steps would
remove major barriers to the realization of trillions of dollars in
value from IoT in healthcare.
I appreciate your consideration of these comments. Please feel free to
contact me if I can provide any additional information (404-814-0037 or
swithrow@wmolaw.
com).
Sincerely,
Scott C. Withrow