Practical Advice to Avoid Arrangement Violations under the Stark Law.

Date posted: May 11, 2018

The Centers for Medicare & Medicaid Services (CMS) recently addressed possible revisions to the Stark Law. The Stark Law is a federal healthcare fraud and abuse law that prohibits physicians from referring patients to any entity in which they have a financial relationship for certain designated health services (DHS) that are paid for by Medicare or Medicaid. The Stark Law has been the subject of CMS review over the past several years, with multiple bills introduced to Congress. In a Congressional hearing on March 21, 2018, the Stark Law was presented again during a discussion concerning the implementation of physician payment policies under the Medicare Access and CHIP Reauthorization Act (MACRA). During the hearing, CMS recommended consideration to reform the Stark Law as the healthcare system moves towards a value-based delivery model. Many in the healthcare industry view the Stark Law as a barrier to meeting new government healthcare initiatives.

Stark Law and Anti-Kickback Statue Key Underpinnings for Enforcement

Notwithstanding potential amendments and modifications in the law, fair market value (FMV) and commercial reasonableness standards will remain the key underpinnings for enforcement of the Stark Law and Anti-Kickback Statute. However, while remuneration in an arrangement can be determined to be at FMV, it may still fail the commercial reasonableness test. FMV represents only one component of determining commercial reasonableness. Commercial reasonableness, on the other hand, is much broader in scope and considers the deal in the aggregate, such as whether an arrangement will accomplish a certain economic or operational objective. Under CMS standards, an arrangement will be considered commercially reasonable if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential DHS referrals. When considering whether a particular transaction is commercially reasonable, an entity may want to consider factors such as, whether the physician’s services are essential to the goals of the hospital or health care system, whether it makes rational sense from a business perspective to have such an arrangement, whether the arrangement will develop a service line of the hospital or health care system, and whether there will be a duplication in another service line provided by the hospital or health care system. Therefore, even when the financial relationship is at FMV, the entirety of the contract must be assessed to determine whether a transaction is commercially reasonable.

CMS has defined commercial reasonableness of an arrangement as a sensible, prudent business arrangement from the perspective of the parties involved, even in the absence of any potential referrals.  Healthcare organizations can use this objective, definitive standard for their compliance efforts.  When entering a financial relationship with healthcare professionals, the parties involved must identify and document specific factors that promote the commercial reasonableness of an arrangement.  In doing so,   the parties should test arrangements with potential referral sources for commercial reasonableness to raise confidence in the arrangement and promote compliance.

Compliance experts provide the following suggestions to avoid potential legal and regulatory violations concerning arrangements with physicians and other referral sources:

  • Define a specific purpose for the contracted services with a potential referral source;
  • Implement policies and procedures to govern the process for development of arrangements;
  • Identify a legitimate need for services that the arrangement will provide;
  • Present objective data to evidence medical necessity for the services;
  • Identify the benefits that will result from the arrangement, absent any business referrals;
  • Explain the business need for the arrangement;
  • Ensure contractual provisions are consistent with accepted business practices;
  • Define key terms such as duration, renewal, termination, and compensation review;
  • Address tasks, duties, and expectations to be performed under the arrangement;
  • Document performance of duties;
  • Evidence full performance under the arrangement;
  • Describe the economic effectiveness of the agreement for both parties;
  • Ensure duties are reasonable and consistent with similar arrangements in the industry;
  • Establish a process to monitor performance under the agreement before payment is made;
  • Verify that there are no duplication of services provided under other arrangements; and
  • Evidence reasonable time and effort expended for the duties outlined in the agreement.

The video of the Congressional hearing on implementation of physician payment policies under MACRA is available at:

https://waysandmeans.house.gov/event/hearing-implementation-macras-physician-payment-policies.

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