August 24, 2018 marked a busy day for the U.S. Department of Health & Human Services’ (HHS) self-designated “Regulatory Sprint to Coordinated Care,” an initiative aimed at dismantling the regulatory barriers to providers structuring their financial relationships to align with a system of integrated, cost-effective, value-based healthcare. As healthcare industry stakeholders rushed to finalize public comments to the Centers for Medicare & Medicaid Services’ (CMS) Request for Information (RFI)1 on reforming cumbersome aspects of the Stark Law, HHS’ Office of Inspector General (OIG) released its own much-anticipated RFI soliciting similar feedback on desired changes to the federal Anti-Kickback Statute (AKS) and beneficiary inducement provisions of the Civil Monetary Penalties Law (CMPL).2

With the comment period for CMS’ RFI closed, and the comment period for the OIG’s RFI kicking off, a strong consensus has emerged among stakeholders that modification of the fraud and abuse laws is key to facilitating the collaboration, integration and financial incentives necessary to support CMS’ emerging alternative payment models (APMs) and coordinated care more broadly. The proposed changes submitted in response to CMS’ RFI could, if accepted by CMS, not only resolve some of the most confounding aspects of the Stark Law, but also potentially alleviate the burden on providers seeking to comply with the law while transitioning away from a fee-for-service model. As these developments continue to unfold, providers are encouraged to review and understand the reforms that have been proposed to the Stark Law and may consider submitting comments to OIG’s RFI, which are due by October 26, 2018.

Response to CMS’ Request for Information on Modernization of the Stark Law

Against a backdrop of increasing congressional interest in reforming the Stark Law, CMS published its RFI on June 25, 2018.3 In efforts to better assess and respond to providers’ concerns about the challenges of complying with the Stark Law in the context of the transformation to value-based care, CMS sought feedback through the RFI on 20 discrete aspects of the Stark Law. These topics included the need for exceptions for arrangements designed to promote integration and care coordination, both within and outside APMs; the utility of certain existing exceptions, including the exception for risk sharing arrangements; possible amendments to key regulatory definitions; the role of transparency in the context of the Stark Law; and compliance costs for regulated entities.

Not surprisingly, CMS’ RFI generated significant interest across the healthcare industry: a total of 391 public comments have been submitted for CMS’ consideration. These comments include nearly 100 submissions from hospitals, health systems and their affiliated associations; roughly 130 submissions from physicians and physician organizations; approximately 60 submissions from other provider types (e.g., physical therapy groups, dialysis providers, home health agencies); 10 submissions from vendors, device manufacturers and related organizations; and more than 30 submissions from industry coalitions, consumer advocacy organizations and third-party consultants. The vast majority of commenters applauded CMS’ commitment to addressing the obstacles, whether real or perceived, that the Stark Law presents to implementation of new healthcare payment and delivery models.

Stakeholders generally agreed that the Stark Law has not kept pace with the changing healthcare environment and is not well-suited to a system that pays based on value rather than volume. Commenters overwhelmingly stated that, unlike a fee-for-service model in which inherent financial incentives exist to increase the volume of services provided, value-based care models alleviate the risk of overutilization by instead incentivizing providers to avoid unnecessary services and collaborate in the delivery of quality care. Many hospital systems, physician organizations and industry coalitions described the Stark Law as an antiquated, inscrutable and inflexible law made all the more perilous for providers due to the lack of bright line rules, the strict liability standard for violations, and the potential for massive False Claims Act (FCA) liability as a result of an opportunistic whistleblower. Some commenters asserted that the need for Stark Law waivers to protect aspects of the Medicare Shared Savings Program (MSSP) and other CMS-sponsored models demonstrates the Stark Law’s fundamental incompatibility with value-based care arrangements.

Despite the consensus regarding the need for reform, commenters had varying perspectives – both across and within segments of the industry – on the best approach to achieving it. Only a minority of commenters advocated for a complete repeal of the statute or portions of it. The majority of respondents instead urged CMS to take a targeted, thoughtful approach to modernizing the Stark Law that would encourage the proliferation of APMs while eliminating the regulatory uncertainties and red tape that have chilled providers’ willingness and ability to participate in value-based care arrangements. Several commenters, including the National Association of Accountable Care Organizations, urged the importance of measured, careful adjustment to the Stark Law in order to ensure key safeguards remain in place against current and potentially unforeseen fraud and abuse risks.

With some targeted exceptions, commenters did not specifically advocate for loosening the Stark Law’s restrictions on physicians’ ability to refer designated health services to entities in which they hold an ownership interest. Most submissions were instead focused on easing the limitations on physicians’ compensation arrangements or adopting broader protections for APMs that would cover all types of financial relationships. Commenters also offered several suggestions as to how CMS can provide increased predictability, clarity and certainty to the provider community, including through its guidance and enforcement activities.

Key Stark Law Reform Priorities for CMS’ Consideration

Creation of New APM and Care Coordination Exceptions or Permanent Waivers

Many commenters expressed appreciation for the fraud and abuse waivers that HHS has issued for the MSSP and other payment and service delivery models tested by the Centers for Medicare and Medicaid Innovation (CMMI), such as waivers to protect the sharing of pooled program savings among hospitals and physician groups. However, commenters frequently observed that these waivers are issued on a piecemeal (i.e., program-by-program basis); can be complicated to navigate; do not cover many of the innovations providers seek to implement; and have not been timely released to the provider community, thereby, creating uncertainty. Several commenters expressed that the HHS-issued waivers have not provided sufficient protection to providers due to the following factors:

  1. their lack of permanency, which can disincentivize long-term investments in care coordination
  2. their inapplicability to patients covered by other payors (e.g., Medicaid, commercial insurers, self-insured plans).

To resolve these shortcomings, many commenters encouraged CMS to develop a single new exception for value-based payment arrangements that is sufficiently broad and flexible to accommodate both existing APMs and future innovative models. Several commenters, led by organizations such as the American Hospital Association, proposed an exception based not on the structure of the arrangement but rather on whether it aims to achieve one or more of the following three pillars of coordinated care:

  1. promoting accountability for quality, cost and overall care for patients
  2. managing care for patients across and among other providers
  3. encouraging investments in infrastructure and redesigned care processes.

Commenters urged that this exception should shield any remuneration exchanged between or among parties to a clinical integration arrangement, including incentive payments, shared savings derived from actual cost savings, and infrastructure payments or in-kind assistance reasonably related to and used in the arrangement’s implementation.

Not all commenters favored a one-size-fits-all approach, with some stating that multiple exceptions or waivers may be necessary to protect the varying features of current and future APMs. In addition, commenters had differing perspectives on the degree to which participants should be required to take on risk for purposes of any new exceptions or waivers. Some commenters cautioned that crafting the scope of the exception or waiver too narrowly would not further the goal of encouraging broad-based participation in APMs, while at least one commenter opined that CMS should only provide increased flexibility under the Stark Law for providers actively participating in APMs with two-sided risk. Many commenters expressed support for additional Stark Law exceptions that would cover legitimate care integration, coordination and management activities outside an accountable care organization (ACO), CMS-sponsored demonstration project or other formal APM.

Clarification of Fundamental Definitions

Many commenters noted that the Stark Law has drifted substantially from its founder, Representative Pete Stark’s, goal of providing bright line rules for providers to ensure compliance. The vast majority of commenters emphasized that one of the primary actions CMS must take is to clarify or revise the definitions of certain key terms that appear routinely throughout existing Stark Law exceptions. These include the concepts of “fair market value,” “commercial reasonableness,” and what it means to “take into account the volume or value of referrals.”

Commenters stressed the extraordinary burden that providers face in establishing the “fair market value” of physician arrangements. Several health systems stated that they may spend upwards of $20,000 on external review of a single arrangement and hundreds of thousands of dollars per year on such analyses, with no guaranteed assurance of protection if the government or a relator later challenges the arrangement. A number of commenters expressed concern about the lack of reliable data on fair market value outside the context of service hours, work RVUs and other volume-driven metrics. In addition, commenters brought up the difficulty of squaring the concept of fair market value with value-based arrangements wherein a health system or hospital may wish to provide certain items and services (e.g., care coordinators, educational programming) for free or at no cost to local physicians to enhance coordination.

The commenters” proposed solutions would clarify and/or revise the definition of fair market value. Several organizations proposed that CMS adopt a rebuttable presumption that arrangements meeting delineated criteria suffice to show fair market value – including, for example, satisfaction of a test similar to the “reasonable compensation” standard under the Internal Revenue Code or receipt of a favorable third-party opinion. Dozens of commenters recommended that CMS decouple fair market value from the volume-or-value element of the Stark Law by eliminating the requirement that the parties not be in a position to generate business for one another. Still other commenters encouraged CMS to develop standards for determining and documenting fair market value in a value-based environment.

As to commercial reasonableness, commenters often remarked that this separate and distinct concept has created considerable confusion within the provider community. Health systems expressed particular concern about the position that the Department of Justice has taken in recent FCA enforcement actions (contrary to CMS’ rulemaking and policy) that losses associated with the acquisition of a physician practice per se show an arrangement was commercially unreasonable. Several commenters noted that healthcare providers engage in transactions for a variety of reasons apart from financial gain, including to satisfy a community need, promote increased access to or quality of care, fulfill licensure or regulatory requirements, meet charity care obligations, or satisfy call coverage needs. Some commenters, including the Federation of American Hospitals, advocated removing this element from existing Stark Law exceptions entirely on grounds that the fair market value and other standards provide sufficient protection from a fraud and abuse perspective. At minimum, many commenters advocated that CMS do the following:

  1. affirm the commercial reasonableness standard is intended to focus on the non-economic aspects of a transaction
  2. clarify that practice losses are not alone evidence of commercial unreasonableness
  3. adopt a definition of “commercial reasonableness” focusing on whether the arrangement has a valid business purpose.

Many commenters honed in on the problems posed by the lack of clarity around what it means for compensation to “take into account the volume or value of referrals.” Commenters highlighted that this requirement presents an especially high barrier in the context of coordinated care since incentive compensation, gainsharing or quality bonus payments designed to encourage practitioner behavior change could be interpreted to take into account the volume or value of a physician’s referrals. Commenters encouraged CMS to affirm that a fixed payment per service will not trigger the “takes into account” prong of various exceptions if the methodology used to determine the payment and any subsequent adjustments are not based on referrals. Invoking recent FCA enforcement actions, many commenters also pushed CMS to clarify that the volume or value requirement will not be implicated where payment is based on a physician’s personally performed services, even if those services generate a corresponding facility fee.

Expansion of Protections for Donation of EHR & Cybersecurity Technology

Commenters ranging from health systems and physician groups to group purchasing organizations and health IT companies emphasized the critical role of data exchange in improving care coordination, achieving better outcomes and lowering costs. Toward that end, commenters noted that the Stark Law exception for the donation of interoperable electronic health records (EHR) software or services has been essential to spurring adoption of EHR technologies among smaller providers.4 However, commenters generally recommended that CMS consider the following:

  1. making the exception, which is currently slated to expire on December 31, 2021, permanent
  2. expanding the exception to cover other types of non-EHR assistance, such as population health management software, data sharing and data analytics tools
  3. removing or clarifying the requirement that the physician must pay 15% of the donor’s cost for the EHR-related items and services
  4. eliminating the increasingly impractical requirement that the donated items or services not replace a similar technology

The American Medical Association, Healthcare Information and Management Systems Society, and other commenters urged CMS to develop a Stark Law exception allowing for the donation or subsidization of cybersecurity hardware, software, training, and operational support. Commenters emphasized the increasing frequency and sophistication of cyberattacks and data breaches in the healthcare sector, as well as the demonstrable harm such incidents can present to patients. Piggybacking off of a recommendation from the Health Care Industry Cybersecurity Task Force, established by HHS pursuant to the Cybersecurity Act of 2015, commenters stressed that an exception is necessary to ensure larger healthcare organizations can address vulnerabilities in the cybersecurity ecosystem by providing assistance to smaller physician practices that may be unable to afford up-to-date technology.

Increased Flexibility for Group Practices

In recognition of the sweeping changes ushered in by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), several physician organizations and other stakeholders pushed for specific reforms geared toward ensuring group practices of all specialties can meaningfully participate in APMs going forward. The Medical Group Management Association and other commenters encouraged CMS to revisit some of the technical requirements to qualify as a group practice and, in turn, to take advantage of the in-office ancillary services (IOAS) exception.5 In particular, commenters urged CMS to consider the following:

  1. revising the restrictions on how profits may be distributed to individual physicians within a group practice
  2. modifying the overly prescriptive “location test” dictating where services must be performed to qualify under the IOAS exception
  3. clarifying that productivity bonuses may be paid to physicians in the group based on services personally performed by other members of the group.

Some commenters observed that, under the Merit-based Incentive Payment System, practices have been able to formally or informally converge to develop agreed-upon clinical protocols in the interest of helping all virtual group participants achieve high-performing scores. Commenters noted that, while virtual groups may bear some characteristics of a group practice, regulatory action is needed to account for the fact that they may not precisely meet certain requirements (e.g., organization as a single legal entity) needed to take advantage of those protections. Additionally, a handful of health systems noted the increasingly important role that midlevels play in the group practice setting, urging CMS to consider clarifying language that would factor in their involvement.

Modified Approach to Stark Law Guidance and Enforcement

Commenters repeatedly emphasized that the Stark Law’s strict liability framework, steep per-claim penalties, and apparent ambiguities discourage hospitals, health systems, physicians, and other parties from participating in value-based arrangements. For example, one large health system stated that hospitals are often wary of entertaining innovative arrangements with physicians that could improve patient outcomes, promote the efficient use of resources, and decrease costs because of the potential ramifications if a Stark Law exception is not precisely satisfied. Several institutional providers stated that the vast majority of their resources spent on compliance are to prevent, detect and remediate wholly technical violations of the statute, including untimely signatures, missing documentation or lapsed agreements. In light of the foregoing, commenters offered a number of creative suggestions for CMS to help alleviate the unduly punitive nature of the Stark Law and otherwise provide greater predictability to parties acting in good faith to advance care coordination goals.

For example, several commenters noted the paucity of advisory opinions issued by CMS over the years. These commenters suggested that CMS revamp its process to make it more useful to providers by implementing the following, among other revisions:

  1. permitting general questions of interpretation and hypotheticals, as CMS does with any other payment statute
  2. creating a truncated advisory opinion process for certain types of “yes/no” inquiries
  3. setting deadlines (i.e., 90 days) for CMS to respond to questions received through the advisory opinion process, after which time the provider would be deemed to have received a favorable determination pending CMS’ formal reply.

Additionally, to address the backlog, considerable delays, and lack of predictability that providers experience when entering CMS’ Self-Referral Disclosure Protocol, some health systems suggested that CMS develop an expedited process for entities to self-disclose technical violations of the Stark Law using an abbreviated form and resolve the matter by paying a stipulated penalty calculated according to a tiered system.

OIG’s RFI Addressing Reform of the AKS and CMPL

Consistent with HHS’ efforts to ease the regulatory obstacles to care coordination, the OIG’s RFI seeks feedback on ways in which its own fraud and abuse authorities might be supplemented or modified so as to foster arrangements that advance the delivery of value-based care. In particular, the OIG has expressed interest in hearing from the provider community and other stakeholders about new or modified safe harbors to the AKS, as well as exceptions to the definition of “remuneration” under the beneficiary inducement provision of the CMPL, that may be necessary to protect APMs and other novel financial arrangements designed to foster efficient, well-coordinated patient care. The seven categories for which the OIG has specifically invited feedback are as follows:

  1. Promoting Care Coordination and Value-Based Care. Similarly to CMS, the OIG is interested in hearing about the following:
    • the structure, terms and other details of potential innovative arrangements the industry would like to pursue
    • what, if any, additional or modified AKS safe harbors or exceptions to the CMPL’s definition of “remuneration” may be warranted to protect such arrangements, including the key provisions and safeguards that should be included to shield against fraud and abuse
    • how the concept of “value” should be defined and measured
    • definitions for 21 critical terms, such as “risk” and “clinical integration”
    • whether the OIG could provide sufficient clarity and protection through guidance (e.g., a law enforcement policy statement) as opposed to regulation in certain instances.
  2. Beneficiary Incentives. The OIG is soliciting input with respect to the following:
    • the types of beneficiary incentives providers, suppliers and others wish to provide and how doing so would contribute to or improve quality of care, care coordination and patient engagement
    • recent studies evaluating the impact (positive or negative) of beneficiary incentives on patient care and engagement
    • any particular risks, benefits and potential safeguards that could be adopted with respect to certain types of remuneration, including cash equivalents, gift cards, in-kind items and services, and nonmonetary remuneration
    • whether the OIG should increase its “nominal value” threshold of $15 per item or $75 in the annual aggregate per patient under the CMPL and consider adopting a similar policy under the AKS.
  3. Cost-Sharing Obligations. The OIG is requesting thoughts on how relieving or eliminating beneficiaries’ cost-sharing responsibilities might improve care delivery, enhance value-based arrangements, and promote quality of care, as well as any corresponding financial impact on providers, risks to beneficiaries and the federal healthcare programs, and potential safe harbor protections that could be incorporated to mitigate such risks.
  4. Current Fraud and Abuse Waivers. The OIG seeks input about the experiences participants in CMMI models and the MSSP have had implementing the corresponding waivers. In particular, the OIG welcomes feedback on any waiver requirements – including the key safeguard of having the ACO’s governing body authorize each arrangement – that have been challenging; unduly burdensome to the point of impeding the program’s goals; or, by contrast, worked well for participants.
  5. Cybersecurity-Related Items or Services. Responding to the clear interest within the provider community in donating or subsidizing cybersecurity-related items or services, the OIG is soliciting information about, among other topics, the types of items and services (e.g., hardware, training and monitoring) that would be involved; the likely parties to the arrangement; how the items or services would reduce cybersecurity risks, including to patients and nonparties; any technical or legal barriers that could preclude or limit the arrangements; and any unintended harms (e.g., information blocking, anti-competitive practices) that would need to be addressed.
  6. ACO Beneficiary Incentive Program and Telehealth. Sections 50341(b) and 50302(c) of the Bipartisan Budget Act of 2018 authorized the following provisions:
    • a new statutory exception to the AKS for certain incentive payments made to Medicare fee-for-service beneficiaries by an ACO under an ACO Beneficiary Incentive Program
    • a new exception to the CMPL’s definition of “remuneration” for certain “telehealth technologies” provided to end-stage renal disease patients receiving home dialysis under Medicare Part B.

The OIG is inviting input on regulatory implementation of these provisions, including the definition of “telehealth technologies.”

  1. Intersection of the Stark Law and AKS. Finally, the OIG is interested in feedback about the degree to which Stark Law exceptions, including those in furtherance of care coordination or value-based care, should have a parallel AKS safe harbor.

These twin developments reflect a demonstrated commitment on the part of HHS to holistically assess and potentially provide relief from those outdated aspects of the fraud and abuse laws that stand in the way of a transformation to value-based care. Providers should continue to monitor CMS’ response to the extensive feedback received on its RFI. In the meantime, entities interested in obtaining assistance with preparing comments in response to the OIG’s RFI by the October 26, 2018 deadline may contact attorneys in our Healthcare Practice Group.


1 Centers for Medicare & Medicaid Services, Request for Information Regarding the Physician Self-Referral Law, 83 Fed. Reg. 29,524 (June 25, 2018). (2018).

2 Office of Inspector General, Request for Information Regarding the Anti-Kickback Statute and Beneficiary Inducements CMP, 83 Fed. Reg. 43,607 (Aug. 27, 2018).

3 On July 17, 2018, the U.S. House of Representatives Ways and Means Committee, Subcommittee on Health expressed its commitment to modernizing the Stark Law during a hearing at which industry and government witnesses shared their concerns about the statute’s stifling impact on the development of value-based care initiatives. The President’s FY 2019 budget also calls for legislative establishment of a new exception to the Stark Law for arrangements that arise due to participation in advanced APMs. Office of Management and Budget, An American Budget: Major Savings and Reforms, at 153 (Feb. 2018).

4 42 C.F.R. § 411.357(w).

42 C.F.R. §§ 411.352, 411.355(b).