Proposed Rule Seeks to Promote Value-Based Health Care

Physician reimbursement under a value-based care structure encourages care coordination programs in which providers communicate to streamline services and generate better patient health outcomes.

Seeking to promote the transition to value-based care models, the Centers for Medicare and Medicaid Services (CMS) recently proposed a rule that would protect health care providers engaged in certain care coordination arrangements from liability under the federal Physician Self-Referral Law, commonly called the Stark Law.

The Stark Law prohibits physicians from engaging in self-referrals, cases where a physician refers patients to another provider with which that physician has a direct or indirect financial relationship for services paid for by the federal health insurance program, Medicare. Under this law, physicians may not bill Medicare for services resulting from a self-referral.

Since a fee-for-service structure encourages physicians to increase the quantity of services they perform—as they are paid per service—the Stark Law was designed to prevent abuse of Medicare payments by stopping physicians from referring patients to providers with a financial connection to those physicians.

Although the Stark Law’s structure made sense to prevent fraud under fee-for-service structures, CMS explains that a prohibition on referrals penalizes some new care coordination arrangements and prevents some Medicare providers from entering into value-based care models.

Consequently, CMS proposes to expand the scope of exceptions under the safe harbor provisions of the Stark Law by granting protection from liability to three types of value-based arrangements (VBAs) that would curb fee-for-service models and cap health care costs.

First, this new set of exceptions would protect providers that assume “full financial risk” for the cost of items and services delivered to patient populations under the provider’s VBA. For example, a VBA may use a fixed payment structure in which payers compensate providers for a set period of time for delivering care to a specified population, rather than reimbursing costs per patient or per service.

Second, the proposed rule would protect providers who assume “meaningful downside financial risk” during their participation in a VBA. This protection would include providers who are responsible for at least 25 percent of the value of their compensation under a VBA. Accordingly, physicians would be prospectively accountable for the services delivered to the target population that the payer will ultimately reimburse.

Finally, the proposed rule would apply to VBAs with small downside financial risk or no provider financial obligations at all. CMS reasons that some smaller practices cannot engage in risk-sharing due to the financial burdens such models impose. But to offset the lack of provider financial obligations under this exception, CMS proposes other requirements such as prohibiting remuneration based on the volume or value of any patient referral to the VBA entity.

To be protected from liability, any VBA would have to contain an activity that was performed by a physician within the VBA for a “value based purpose.” A value based purpose seeks to improve, manage, and coordinate quality of care for patients while reducing payer costs.

Although these exceptions would benefit care coordination arrangements, they would also increase provider reporting obligations to CMS.

Providers in a qualified VBA would have to produce a document that describes the network and its care coordination activities. In addition to demanding a report on goals and functioning, the proposed rule would require that providers appoint a governing individual or entity to oversee the finances and operations of the VBA.

The U.S. Department of Health and Human Services, the federal agency of which CMS is a part, explains that the new exceptions for VBA providers “acknowledge that incentives are different in a health care system that pays for value, rather than volume, or services provided.”

By easing the scope of self-referral laws for providers that use value-based models, the proposed rule would encourage providers to enhance quality of health services while maintaining Medicare program integrity, argues CMS.

CMS also reasons that value-based models would remedy some abuses in fee-for-service payment structures, such as unnecessary referrals and competition among competitors to solicit and buy referrals, since payment in a VBA is based on quality of care.

CMS notes, however, that expanded exceptions for VBAs could introduce other abuses to Medicare, such as falsifying patient data to achieve better health outcomes. Despite the unique risks VBAs present, CMS asserts that the proposed rule incorporates mechanisms that protect Medicare program integrity even as the scope of exceptions would expand.

By incorporating program integrity requirements in a VBA’s qualifications, along with limiting exceptions to certain levels of financial risk that inherently deter some fraudulent behavior, CMS contends that its proposed exceptions would maintain appropriate safeguards of the Stark Law.

Some commentators fear that the complexity of the proposed exceptions and the ambiguity concerning what arrangements could qualify for an exception would make it difficult for providers to comply with the new rule. These commentators instead suggest that CMS simplify its rules and create just a single exception for all VBAs.

CMS disagrees, asserting that a single exception would fail to protect against waste, fraud, and abuse of Medicare since it would not distinguish between the distinct risks that various VBAs present.

“We serve patients poorly when government regulations gather dust in the attic: they become ever more stale and liable to wreak havoc throughout the health care system,” said CMS Administrator Seema Verma of the proposed rule.

Administrator Verma’s statements reflect the Trump Administration’s continued deregulatory efforts to ease compliance burdens in existing regulations to promote value-based care.

The public comment period on CMS’s proposed rule closed on December 31, 2019.