The Implications of the Stark Law As We Shift to Value-Based Care

The Stark Law was enacted in 1989 to prevent physician self-referral. Self-referral is when a physician refers a patient to a hospital, lab or other entity to which he/she has a financial benefit. The intention of the Stark Law was to eliminate any financial motivation for physicians to refer patients for unnecessary testing or other unnecessary designated health services (DHS) in an effort to curb rising healthcare costs. The Anti-Kickback Law, which is technically its own law but is often referred to as part of the Stark Law (as this article does henceforth), prohibits remuneration and punishes offenders criminally, not civilly. In other words, physicians cannot pay or receive anything of value as an incentive to influence the referral of a patient.

The U.S. healthcare system is transitioning from a fee-for-service model to value-based care model and many medical professionals, including the American Hospital Association (AHA), are calling for the repeal of the Stark Law because it hinders care coordination among providers. Vytas Kisielius, CEO of ReferWell, says that “while it was created with the right intentions, the Stark Law has prevented providers from working closely together to improve care coordination, particularly as the U.S. healthcare system is moving from a fee-for-service model to a value-based care model.”  The AHA’s position is that the Stark Law presents “nearly impenetrable roadblocks in the move toward value-based care.”

In order to understand how the Stark Law hinders care coordination, it is important to first understand the current paradigm shift of the U.S. healthcare model. In short, fee-for-service is a payment model where medical services are unbundled and paid for separately. This payment model incentivizes physicians to provide more treatments or services because payment is based on how many procedures, treatments or services are provided. As a result, physicians and medical practices may overlook quality of care in favor of care routes that require a higher quantity of treatments/services that reward the physicians with higher profits. On the other hand, value-based care is a payment model where physicians and medical practices are paid for the quality, not the quantity, of their care. Payment to providers is dependent upon the appropriateness of care, utilization of resources and clinical outcomes.

The Centers for Medicare & Medicaid Services (CMS), which pays nearly 40 percent of the national health expenditure (over $1.2 trillion), is leading the charge toward value-based care.  Recently, CMS announced that it was investigating ways to reduce the burden of the Stark Law. Seema Verma, head of the CMS said that, “to achieve a truly value-based, patient-centered healthcare system, doctors and other providers need to work together with patients. Many of the recent statutory and regulatory changes to payment models are intended to help incentivize value-based care and drive the Medicare system to greater value and quality. The Stark Law and regulations, in its current form, may hinder these types of arrangements.”

Here are a few examples of how the Stark Law can hinder care coordination in a value-based care model.

• The sharing of electronic health records. It is relatively easy to share clinical information across a single EMR. However, in today’s healthcare landscape, most provider networks (including hospital systems) have been built through the acquisition and aggregation of independent practices and thus have multiple EMRs within their network. As such, it is difficult to coordinate care and transmit clinical information across the network. Under the Stark Law, the provider network could not finance bringing all providers onto a single EMR because all providers would be required to bear a portion of the costs without regard to the contribution they otherwise make to the collaborative effort. Moreover, the provider network also cannot pay for data analytics tools to assist physicians in making treatment decisions. The Stark Law prevents provider networks from financially subsidizing technology tools for providers in their networks with the goal of increasing referrals within the network and improving care coordination.
• Incentives for efficiency and effective treatment. Pr.ovider networks want to implement incentive programs to encourage and reward physicians who adhere to industry-wide, evidence-based treatment standards as a method of improving care while reducing costs. However, under the Stark Law, compensation cannot be related to the value of services by a physician. Currently, compensation must be given as a result of productivity, meaning hours worked or resources used. The Stark Law prevents provider networks from monetarily incentivizing or rewarding their providers who adhere to evidence-based treatment standards and provide (or refer to other providers who provide) higher care at a lower cost.
• Incentives for team-based care management. Team-based care management can often yield better outcomes at a lower cost. For example, a care team might include some combination of a dietician, an RN, a social worker, a physical therapist, etc. with the physician overseeing and managing the team and patient care. However, the Stark Law prevents compensating physicians for the additional role of performing and coordinating team-based care management or rewarding them for improved outcomes and/or cost savings achieved from a team based care management approach.
• Collaboration to ensure coordinated care at discharge. Hospital responsibility for patient care no longer begins and ends in the hospital setting. To ensure proper care for the patient upon discharge, hospitals should be able to provide financial support and/or reward the referred care providers for working towards the same goals for the patient’s recovery. However, the Stark Law prevents incentivizing a post-acute facility, team, etc. for proper care management to reduce hospital readmission rates and overall financial burden on the healthcare system.

It is unclear exactly how far CMS will go toward amending or out-right repealing sections of the Stark Law, but it is certainly a step in the right direction that CMS understands that the Stark Law in its current form does not align with the future of healthcare and that changes are needed to improve care coordination. When the Stark Law inevitably changes in the near future, healthcare companies that are focused on improving care coordination, particularly EMR-agnostic solutions, will be poised for success.