On Friday, November 20, 2020, the Centers for Medicare and Medicaid Services (“CMS”) released final regulations to remove certain barriers to the implementation of physician compensation arrangements under value-based payment arrangements posed by the “Stark” Physician Self-Referral law. The new regulations are the first substantive changes to the regulations in two years and the first attempt by CMS to update the regulations specifically to address value-based payment arrangements that have proliferated since the regulations were initially implemented in the early 2000s.
The new rules contain three new exceptions to the Stark law’s general prohibition on physician referrals for designated health services to entities with which the physician has a financial relationship that are specifically targeted at value-based arrangements; one for value-based arrangements involving full financial risk, one for value-based arrangements with meaningful downside risk for physicians, and one for value-based arrangements that involve neither full financial for physicians or meaningful downside risk.
Additionally, and perhaps most importantly, the new rules modify the phrase, “takes into account the volume or value of referrals,” a critical element of several of the Stark exceptions. Under the new rules, a physician’s compensation varies with the volume or value of the physician referrals “only if the formula used to calculate the physician’s (or immediate family member’s) 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 the physician’s referrals to the entity.”
This definitional change is important in the value-based payment context as the very purpose of certain value-based arrangements is to encourage the use of less or lower costs services when medically appropriate to do so. However, the language under the old rules with respect to the critical “varies with the volume or value” standard was, at best, ambiguous as to whether the use of a physician compensation arrangement that has a negative correlation between the amount of compensation that positively correlates with the number or value of the physician’s referrals to the entity would run afoul of the “volume or value” standard. CMS noted that the ambiguity and uncertainty it generated among the provider community may have had an unintended chilling effect on physician compensation arrangements that were actually consistent with the tenets of value-based care.
The final rule will be published in the Federal Register on December 2, 2020 and will be effective January 19, 2021, provided the provisions of the rule relating to profit shares and productivity bonuses used by Group Practices will not be effective until January 1, 2022.