In the last decade, the operation and delivery of healthcare has changed enormously. Healthcare providers and healthcare payors have merged, been acquired and otherwise consolidated. The provision of healthcare has become increasingly integrated both vertically and horizontally. Not only have health insurers, hospital systems and physician groups become much larger, but they have expanded into other services and businesses as illustrated by the Aetna/CVS combination of a payor (Aetna), pharmacy benefit manager (Caremark) and retail drug store (CVS) and UnitedHealthcare’s expansion from the payment for healthcare services into the provision of healthcare services themselves via its OptumCare division which owns and/or manages medical practices across the country including MedExpress, Riverside Medical Group and ProHealth in the New York/New Jersey metropolitan area. Based upon data from the American Medical Association’s 2018 Physician Practice Benchmark Survey, only 45.9% of physicians own their own practices in 2018 as compared to 72.1% in 1988. Similarly, 15% of physicians worked in practices with fifty or more physicians up from 12.2% in 2012. There have been many reasons for this, but one reason is the push toward coordinated healthcare which is considered to be more effective both clinically and from a cost perspective. 

However, many working in the health industry have asserted that they are reluctant to innovate and invest significant resources in new ways to deliver care because  regulatory constraints, which were designed to prevent financially incentivizing referrals that can result in overutilization and impeded medical judgment, have ended up creating barriers to coordination. Care coordination often involves moving patients between providers who may have financial arrangements between them that relate to those patients such as accountable care organization (“ACO”) shared savings arrangements. Other collaborative arrangements that incorporate or potentially incorporate remuneration include patient engagement efforts, technology based infrastructure, shared care coordinators, data systems and outcomes based payments.  

The regulatory constraints to arrangements involving remuneration include the Ethics in Patient Referrals Act of 1989, also known as the Stark Law. The Stark Law was intended to stop physician referrals motivated by financial gain by restricting to referrals to entities in which the physician or a relative had a financial interest. Under the Stark Law, which was named for California Congressman Fortney “Pete” Stark who was the sponsor of the legislation and a long-time leader of the House Ways and Means Committee which has jurisdiction over taxation, revenue and Social Security, bills for certain designated health services are prohibited from being submitted to Medicare or Medicaid if the referring or ordering physician has a financial relationship unless an exception to the law is met. Since the Stark Law is a strict liability statute such that intent to violate the law is not a condition for liability and because the list of designated health services is comprehensive (and includes clinical laboratory services, inpatient and outpatient hospital services, durable medical equipment, radiology and certain other imaging services, physical and occupational therapy, outpatient prescription drugs and speech therapy, prosthetics and orthotics, parenteral and enteral nutrition and supplies and home health services) the impact of the Stark Law is very significant. The Stark Law’s influence on healthcare arrangements is exacerbated by the fact that the exceptions under the Stark Law do not align well with the “safe harbor” regulations under the Anti-Kickback Law.

The Anti-Kickback Law is a Federal statute that prohibits the exchange (or offer to exchange), anything of value, in an effort to induce (or reward) the referral of business reimbursable by federal health care programs. For the purposes of the Anti-Kickback Law, Federal health care programs include not only Medicare and Medicaid but also any plan or program providing health benefits that is funded in whole or in part by the Federal government (other than the Federal Employee’s Health Benefits Program) including block grants, TriCare, the Veterans Administration and the Federal Employees Compensation Act. The Anti-Kickback Law is very, very broad and violation can lead to criminal, civil and administrative penalties. For this reason, “safe harbor” regulations were adopted to immunize certain payment and business practices that are implicated under the statute. However, aside from the fact that the safe harbor regulations under the Anti-Kickback Law do not correspond well to the exceptions under the Stark Law which makes it a challenge to assure that arrangements comply with both as necessary, many arrangements designed to improve patient care coordination and improve quality are prohibited.

On October 17, 2019, proposed regulations were published which amend the exceptions under the Stark Law and the safe harbor regulations under the Anti-Kickback to more readily facilitate care coordination. Certain demonstration programs had previously been carved out but these were limited. 

These proposed regulations, if adopted, would create new, permanent exceptions to the Stark Law for value-based arrangements. These regulations would also create new safe harbors under the Anti-Kickback Law for certain remuneration exchanged between or among eligible participants, specifically for (i) care coordination arrangements aimed at improving quality and outcomes; (ii) value-based arrangements with substantial downside financial risk; and (iii) value-based arrangements with full financial risk. The proposed amendment to the regulations under the Anti-Kickback Law would also amend the definition of “remuneration” to incorporate a new exception for telehealth technologies furnished to in-home dialysis patients, a safe harbor for certain tools and supports furnished to patients to improve quality, outcomes, and efficiency and proposes to modify an existing safe harbor for local transportation.

The amendments also endeavor to address what can be the very draconian result of non-compliance with certain technical requirements of the Stark Law.  While requirements and the impact of failing to comply contained in the Stark Law itself cannot be waived by regulations, the proposed regulations, if adopted, would ease the ability to comply. Provided that the other requirements of an applicable exception can be met, parties would be afforded ninety (90) days to memorialize the transaction and obtain signatures. Also, the regulations propose that arrangements can be set in advance without a writing and confirm that electronic signatures are valid.  

The changes will not be effective until and unless they are adopted. They may also be adopted in revised form. Public comments on the proposed regulations must be delivered to by 5 p.m. (EST) on December 31, 2019. More information regarding these proposed changes as well as information regarding how to submit comments can be accessed at https://www.hhs.gov/about/news/2019/10/09/hhs-proposes-stark-law-anti-kickback-statute-reforms.html. Meanwhile, it is appropriate to anticipate that the push toward greater coordination of healthcare, including the sharing of clinical information and other data, will continue.


©2019 by Lisa D. Taylor. All Rights Reserved. Reproduction without the express written consent of the author is expressly prohibited.

Founding Member, Inglesino, Webster, Wyciskala & Taylor, LLC. 600 Parsippany Road, Suite 204, Parsippany, New Jersey 07054, ltaylor@iwt-law.com, 973-947-7135.