Health Law & Business News

Hospitals Eyeing Efficiency Get Wish List in Fraud Law Proposals

Oct. 10, 2019, 9:33 AM

Hospitals scored an initial win when many of their long-sought exemptions to federal anti-corruption laws showed up in new proposed rules to speed the adoption of patient-centered care.

The proposed changes would carve out new exemptions to the Stark law, which prohibits physician self-referrals, and the federal anti-kickback statute, which bars efforts to reward business referrals in federal health programs. Critics have long complained that both laws hamper efforts to pay doctors based on patient outcomes and cost efficiency rather than a fee for each service they provide.

Each law aims to keep the personal financial considerations of providers from influencing medical decisions, but doctors say their strict provisions have become outdated and are slowing efforts to coordinate patient care.

Proposed rules announced Oct. 9 by the Centers for Medicare & Medicaid Services and the Department of Health and Human Services’ Office of Inspector General would provide new exceptions, or “safe harbors,” under both laws for value-based payment arrangements within and outside federal health programs like Medicare.

Both proposals will undergo a notice-and-comment period before being finalized, and attorneys warn that the final rule could look very different from the proposal.

Still, the hospital industry welcomed the potential changes. The American Hospital Association said current regulations are out of date and have created unnecessary roadblocks to the kind of collaboration that enables caregivers to meet all of their patients’ health-care needs, whether in the hospital, the doctor’s office, or their own homes.

“The changes proposed should help to supplant numerous waivers of these same regulations needed to experiment with collaborative and innovative programs to provide cost-effective comprehensive care through new value-based models,” Rick Pollack, AHA’s president and CEO, said in a statement.

The Stark proposal would also allow hospitals to “donate” software to physician practices in order to safeguard patient and financial information from cyberattacks and hackers.

Chad Brooker, an associate principal at Avalere Health, said smaller practices may not have the resources to purchase the necessary software to accommodate electronic health records and to safeguard data. The cybersecurity safe harbor would give hospitals assurances that data they share with doctors is safe without running afoul of self-referral laws.


The proposed exceptions to the Stark law are designed to offer more flexibility to encourage caregivers to take on financial risk for the cost and quality of patient care. They include value-based arrangements in which one entity in the arrangement assumes the full financial risk of the treatment as well as those that carry a meaningful downside risk to the physician if the care doesn’t work as planned. The broadly written rules allow for other types of collaboration as long as the arrangements meet certain criteria.

The safe harbors proposed under the anti-kickback statute are structurally the same. One difference is that they would not apply to pharmaceutical manufacturers; manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics or supplies; and laboratories from being part of arrangements that qualify for the safe harbors. The CMS said it could address those groups in the future.

Aside from those exclusions, attorneys say the government has broadly defined value-based arrangements in both proposals.

“The breadth and scope of the proposed new safe harbors to the anti-kickback statute are really remarkable,” said Jennifer Michael, a health-care attorney at Epstein, Becker, Green, who formerly served as chief of the Industry Guidance Branch at HHS’s Office of Inspector General.

But that doesn’t mean health-care providers will get everything the rule has proposed. The OIG said in the proposal that crafting the safe harbor was challenging, signaling that the protections it proposed are not guaranteed to be in the final rule, Michael said.

“I think the crux of the problem is the challenge of distinguishing between referral arrangements, which would not be protected, and legitimate care coordination arrangements that naturally and inherently involve referrals across provider settings, but also include beneficial activities,” she said.

‘Greatly Concerned’

The proposals have already met with some industry pushback. Some groups argue the administration is trying to further complicate rules that are already overly technical.

“This rule adds layers upon layers to a regulatory scheme that was originally intended to provide bright-line guidance for medical practices but never has,” Anders Gilberg, senior vice president of government affairs at the Medical Group Management Association, said in a statement to Bloomberg Law. “The new proposal fails to clarify fundamental issues related to group practices and confirms our longstanding position that Congress needs to change the law.”

Consumer advocates are wary of tweaking laws that police the multi-billion dollar health-care industry. Matthew Smith, director of government affairs and general counsel of the Coalition Against Insurance Fraud, said he is “greatly concerned,” by proposed changes to the Stark law.

“The proposed rule changes fail to contain any provision for increased supervision to deter fraud nor any allocation of resources to protect American consumers from medical fraud. The Stark Act has long been recognized as a great vehicle for protecting against insurance fraud in America’s medical insurance marketplace, and its provisions should remain in place to protect consumers,” he said.

Eagan Kemp, health-care policy advocate at Public Citizen, said the proposals will lead to more industry consolidation and higher prices for consumers.

“It’s terrifying because right now the Stark law is one of the few things that prevent some of the worst abuses,” he said. “If anything, they should be strengthened as we’re seeing more consolidation.”

To contact the reporters on this story: Lydia Wheeler in Washington at lwheeler@bloomberglaw.com; Tony Pugh in Washington at tpugh@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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