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Federal authorities are touting the loosening of regulations governing physician referrals to outside services.

Calling the applicable regulations “outdated” and the move “historic,” federal officials are touting the most significant changes made to the Physician Self-Referral Law, better known as the “Stark Law,” since its passage in 1990.

Put simply, the law prohibits physicians from making referrals to any entities for certain healthcare services if the physicians have any form of a financial relationship with such entities. But the Centers for Medicare & Medicaid Services (CMS), after first outlining concerns last year, said the industry’s ultimate move toward value over volume meant the law ultimately burdened providers with unnecessarily added administrative costs while inhibiting progress in the transition.

“The old federal regulations that interpret and implement this law were designed for a healthcare system that reimburses providers on a fee-for-service basis, where the financial incentives are to deliver more services,” the agency said in a press release. “However, the 21st-century American healthcare system is increasingly moving toward financial arrangements that reward providers who are successful at keeping patients healthy and out of the hospital, where payment is tied to value rather than volume.” 

CMS noted that the provisions of the Stark Law constituted one of the top concerns voiced by providers when the agency held listening sessions in 2017 as part of its “Patients over Paperwork” initiative, adding that healthcare executives bemoaned the “millions of dollars and hundreds of hours of time spent complying with the administrative burden of the rule,” saying it impeded patient care. But with providers taking on accountability for the total cost of care for their patients, the risks regarding self-referral have changed, officials suggested.

“Ambiguities in the Stark Law have frozen many providers in place, fearful that even beneficial arrangements might violate the law, which can come with dire and costly consequences,” CMS’s press release read. “This has resulted in healthcare providers spending millions of dollars complying with arcane regulations instead of putting those dollars toward patient care. It has also impeded the move toward value, not just in Medicare, but across all payors, including Medicaid and private health plans.”

“When we kicked off our Patients over Paperwork initiative in 2017, we heard repeatedly from front-line providers that our outdated Stark regulations saddled them with costly administrative burden and hindered value-based payment arrangements,” CMS Administrator Seema Verma added in a statement. “That sound you hear is the mingled cheers and exclamations of relief from doctors and other healthcare professionals across the county as we lift the weight of our punishing bureaucracy from their backs.”

With a final rule, CMS said its hope is that the accompanying changes will “help modernize the healthcare system” as a whole. Specific changes written into the final rule include (text as it appears in the CMS press release, including bolded wording):

  • Finalizing new,permanent exceptions for value-based arrangementsthat will permit physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the physician self-referral law. This supports CMS’s broader push to advance coordinated care and innovative payment models across Medicare, Medicaid, and private plans.
  • Finalizing additional guidance on key requirements of the exceptions to the physician self-referral lawto make it easier for physicians and other healthcare providers to make sure they comply with the law.
  • Finalizing protection for non-abusive, beneficial arrangementsthat apply regardless of whether the parties operate in a fee-for-service or value-based payment system – such as donations of cybersecurity technology that safeguard the integrity of the healthcare ecosystem.
  • Reducing administrative burdens that drive up costs by taking money previously spent on administrative compliance and redirecting it to patient care.

Most of the changes are to take effect 60 days after final approval of the Final Rule.

“Overall, this rule will result in better access and outcomes for patients by creating clearer paths for the providers that serve them to do so through enhanced coordinated care arrangements. We have crafted the exceptions to this rule to be narrowly tailored to allow for value-based care coordination,” CMS said. “At this time, we have retained the strong patient protections from the original law to clearly prohibit referrals that are based solely on financial incentives to the provider. This means patients can be assured that any referrals for care their provider recommends should be based solely on what is in the best interest of the overall health of the patient, and not what is most lucrative for the provider.”

More information on the Final Rule can be found online at https://www.federalregister.gov/public-inspection/2020-26140/medicare-program-modernizing-and-clarifying-the-physician-self-referral-regulations.

To review a fact sheet on the changes, go online to: https://www.cms.gov/newsroom/fact-sheets/modernizing-and-clarifying-physician-self-referral-regulations-final-rule-cms-1720-f


Mark Spivey

Mark Spivey is a national correspondent for RACmonitor.com, ICD10monitor.com, and Auditor Monitor who has been writing and editing material about the federal oversight of American healthcare for more than a decade.

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