As part of HHS’ Regulatory Sprint to Coordinated Care, CMS recently published a proposed rule that, if finalized, would fundamentally change and alleviate the manner in which the Stark Law regulatory framework has traditionally been applied. CMS’ proposals come over a decade after the last significant Stark Law rulemaking, and purport to be responsive to a shifting reimbursement environment in which health care providers are increasingly reimbursed for the value of their services rather than the volume of their services. According to CMS, this environment differs radically from the reimbursement environment in place when the Stark Law was enacted, and as economic incentives have shifted, so must the Stark Law. When the first three phases of the Stark Law’s (second) Final Rule were promulgated, Medicare’s volume-based reimbursement environment generated a concern that entities providing certain services might enter into financial relationships with referring physicians to induce volumes of referrals of the services for which they would be paid, again on a volume-basis. This concern, which fundamentally shaped the Stark Law and its implementing regulations, is being rapidly alleviated by both Federal health care program and commercial reimbursement structures that no longer reward quantity. Most of CMS’ proposals recognize and attempt to accommodate this fundamental shift.

Many of CMS’ proposed changes would have critical operational and structural implications for arrangements between entities and referring physicians. These changes would include a new, broad and flexible exception for value-based arrangements of nearly any shape and size. Discussed in detail in Section I herein, this new exception has tremendous potential to allow the proliferation of a great variety of new and restructured relationships between entities and physicians collaborating to improve patient care. CMS also proposes to provide important and overdue definitions of “commercially reasonable” and when compensation “takes into account” the volume or value of referrals. To date, aggressive interpretations of these terms have limited entities’ flexibility in contemplating and structuring their relationships with referring physicians; CMS’ proposed rule would significantly restore this flexibility. Additional revisions to CMS’ regulatory compensation exceptions would offer further operational flexibility. For instance, CMS proposes a new, broad exception for arrangements that are not related to “patient care services”, and another for up to $3,500 of annual, undocumented remuneration to physicians – both of which signal the forthcoming narrowing of the scope of the Stark Law, generally, and concomitant operational and administrative relief for the regulated industry. Stated simply, CMS’ proposed regulatory changes (if finalized) would significantly alter the scope of the Stark Law and ease compliance.