The Devil’s in the Details of Two New Proposed Rules

More than 700 pages of text make up proposed changes to the federal Stark and anti-kickback statutes.

On Wednesday, Oct. 9, federal healthcare officials announced two new proposed rules. 

While the main focus of both proposals is to remove perceived legal barriers to various value-based reimbursement models and facilitate care coordination, the changes have the potential to have a broader impact. You may find the Centers for Medicare & Medicaid Services (CMS) web page that has the press releases for the two rules, and links to the full text of each proposal, online here. 

The first proposed rule, from the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG), makes changes to the safe harbors provided under the Medicare anti-kickback statute, while the second, from CMS, changes some definitions and creates new exceptions under the Stark law. Together, the proposed regulations and commentary are more than 700 double-spaced pages, so this article won’t examine all, or even most, highlights.  But here are a few key points: 

First, these rules are only proposed. That’s critical to understand. Until the rules are finalized, nothing changes, and that finalization could be years in the future. In fact, some proposed rules are never adopted. Since the government has been talking about these proposals for some time, it is reasonable to predict that at some point, a version of the rules will be finalized. But don’t bet your life on it. Because there will be a great deal of discussion about the proposal, remember that nothing in either proposal changes the law just yet. We can comment on the proposed rules for 75 days after they’re published in the Federal Register. Formal publication will happen in the coming days, so assume the comment period will end right around the beginning of 2020.

I recommend focusing much more on the anticipated changes to the Stark statute than the proposed additions to the anti-kickback safe harbors. On one level, the anti-kickback statute seems more significant. It’s a criminal statute, meaning you can spend time in jail for violating it. However, it is also intent-based. The government has to prove that a transaction was motivated at least in part by a desire to influence referrals in order to obtain a conviction, under this law. The proposed changes create new safe harbors, but you are not required to fit within a safe harbor. In other words, if you were to engage in the activity described in the proposed safe harbors right now, unless you had improper intent under the statute, your actions are legal even if the safe harbors are never finalized. 

While the Stark changes would create new exceptions for arrangements that facilitate value-based healthcare delivery, perhaps the more significant proposed changes are to the definitions of “fair market value” and “commercially reasonable,” and also some changes to several of the key exceptions. An area we will want to watch closely is the definition of what it means for compensation to “take into account” the volume or value of referrals or other business generated between the parties.

It is clear that the proposed Stark rule is very much a work in progress. It is almost like a rough draft. As an example, consider something that isn’t the most important part of the rule, but demonstrates why this proposal is not ready for prime time: CMS proposes creating the new term “value-based entity.” Stark already defines the word “entity,” and CMS is asking whether it would be confusing to use the same word in the regulations, with a different definition for each usage. The obvious answer to that question is “yes.” When you use a defined term, use it consistently to mean the same thing. That is Drafting 101. 

One of the most important discussions about the proposed rules involves the interpretation of the phrase “takes into account the volume and value of referrals.” At the bottom of page 111 and top of page 112, CMS explains that it will define compensation as taking into account the volume and value of referrals if “compensation includes the physician’s referrals to the entity as a variable, resulting in an increase or decrease in the physician’s (or immediate family member’s) compensation that positively correlates with the number or value of referrals.” (Underlining in the original.) 

That sentence is incredibly frustrating to me because it suggests that the authors don’t understand mathematical terminology. A “variable” and a “correlation” are totally different. It’s like the difference between causation and correlation. When something “correlates,” you don’t know if it is a cause, while a variable has a predictable, mathematical impact on the calculation. Consider the gender pay gap. When we say women earn 79 cents on the dollar, we are saying there is a correlation between gender and pay. Gender is not a variable in the compensation equation. If you think back to algebra, a variable is “X” or “Y” in an equation. For an hourly worker, the variables would be the hourly rate and the number of hours. Statistically, women may have a lower hourly rate on average, so gender may correlate with hourly rate, but gender is not a variable in the mathematical calculation. To determine someone’s compensation, you don’t “take the number of hours, multiplied by the hourly rate, multiplied by $0.79 if the person is a woman.” By conflating the term “variable” with “correlation,” the preamble suggests that the authors don’t understand these very different mathematical terms. 

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