ACO Development and the Stark Laws—Time to Reassess Everything—Or Not?

Feb. 6, 2019
Are two University of Pennsylvania healthcare policy researchers correct in asserting that we should not consider modifying the Stark laws in the wake of modest ACO development progress?

Are accountable care organizations moving the needle of the U.S. healthcare industry enough that policy leaders need to rethink the federal antikickback laws? It’s a good question, and one that has been answered in the resoundingly negative by two healthcare policy researchers.

As Wikipedia notes in its entry on the subject, the “Stark Law is a set of United States federal laws that prohibit physician self-referral, specifically a referral by a physician of a Medicare or Medicaid patient to an entity providing designated health services ("DHS") if the physician (or an immediate family member) has a financial relationship with that entity.” The law was named after former Rep. Pete Stark of California, who initiated the legislation that became that set of federal laws that “became law as part of the Omnibus Budget Reconciliation Act of 1990. In specific, what is referred to as ‘Stark I’ prohibited a physician referring a Medicare patient to a clinical laboratory if the physician or his/her family member has a financial interest in that laboratory,” Wikipedia notes. “It was codified in the United States Code, Title 42, Section 1395nn.”

Meanwhile, A pair of healthcare policy researchers have shown a light on a nuance in federal law that could prove troublesome for the leaders of ACOs. In a “Perspective” op-ed published online in The New England Journal of Medicine on Jan. 31, Genevieve P. Kanter, Ph.D. (of the University of Pennsylvania ‘s Perelman School of Medicine) and Mark V. Pauly, Ph.D. (of the University of Pennsylvania’s Wharton School) wrote extensively about the Stark law and the complexities around coordinated care in relation to that. As the authors write in their article, “Coordination of Care or Conflict of Interest? Exempting ACOs from the Stark Law,” Drs. Kanter and Pauly noted that, “[U]nder the Affordable Care Act, hospitals and physician groups are encouraged to form accountable care organizations (ACOs) that jointly contract to deliver care to specified populations of Medicare beneficiaries. Care coordination has become a central theme of new payment and delivery systems and is believed to be an indispensable strategy for eliminating delivery inefficiencies, controlling costs, and improving outcomes.”

That said, “There is, however, at least one downside to care coordination arrangements: they clash with existing regulations on financial conflicts of interest in medicine. This set of regulations, collectively known as the Stark law, prohibits physicians from referring patients to providers when a financial arrangement would allow the referring physician to benefit from such a referral,” they noted. “For example, physicians who have a profit-sharing agreement with a nursing home are prohibited from referring their Medicare and Medicaid patients to that facility. The concern is that if physicians earn more money when they refer patients for additional care, they have an incentive to recommend more services, regardless of medical necessity. Indeed, numerous studies have reported increased utilization of services and greater spending when physicians can, because of either exemptions to the Stark law or poor enforcement of it, refer their patients to facilities in which they have a financial stake. ACO arrangements may violate self-referral prohibitions because of the shared-savings and referral relationships among providers within an ACO.”

Indeed, things are already becoming rather complex in this area. As Drs. Kanter and Pauly wrote, “This tension between care coordination and conflicts of interest has come to the fore with a recent request for information issued by the Centers for Medicare and Medicaid Services (CMS) in the service of ‘addressing unnecessary obstacles to coordinated care…caused by the physician self-referral law.’ CMS currently allows physicians and organizations participating in Medicare ACOs to receive temporary waivers from prosecution for violations of the Stark law. But legislation introduced in November would establish a permanent exemption for providers in ACO and other alternative payment and integrated care arrangements.”

The authors staked out a strong position about all of this, writing that “The easy way forward would be to add this exemption to the burgeoning number of permanent Stark law exemptions — but we are convinced that that is not the right way. The clash between ACO arrangements and conflict-of-interest laws tells researchers something important about potentially negative consequences of ACOs that could undermine not only physicians’ obligations to their patients, but also broader efforts to improve care and control costs. As policymakers deliberate on how ACOs fit into the existing regulatory landscape, a key question should be: Do the care coordination benefits of ACOs outweigh the harms from unnecessary referrals?” Ultimately, they believe, the business arrangements involved in hospital-physician group combinations do not justify changing the Stark laws; in fact, they believe that  what they call the “scan evidence of cost reductions” achieved by ACOs do not support a case for changing conflict-of-interest laws. Instead, the authors argued for “studies of large-scale care coordination payment mechanisms,” with those studies being executed “under conditions that enable rigorous evaluation of the positive and negative effects of integration.”

So, where does all of this leave us? Though it’s taken a while for ACOs—both Medicare-sponsored and those sponsored by private health insurers—to gain momentum, large number of patient care organizations are now participating in both Medicare and private-insurer ACO contracts, as well as in a variety of other risk-based and value-based contracts.

So inevitably, the question does arise as to whether our current laws and regulations reflect our healthcare policy aspirations, on the federal level, and broadly, across the U.S. healthcare system. And one could easily argue that the Stark laws do not reflect what we aspire to for our healthcare system, as the strategy of shifting the U.S. healthcare system from volume to value is one that has gained broad general consensus. And if we generally want to shift from volume to value, shouldn’t we reward the business arrangements that support that shift?

That’s where things get really, really complicated, viz., the NEJM Perspectives op-ed by Professors Kanter and Pauly. Their critique of ACOs is really quite harsh when it comes down to it. They essentially argue that the results documented so far by ACOs don’t merit any changes in antikickback regulations, because, in their view, the business consolidation involved in ACO arrangements disadvantages consumers while not being sufficiently offset in that disadvantage by patient outcomes results that could be considered justifiably transformative. Ouch.

Now, realistically, one could look at this policy issue from numerous different points of view. If the most important goal is cost reduction and outcomes improvement at a relatively fast pace, one could easily argue that advantaging ACOs through regulatory modification is absolutely justified, even if in the short term, the results shown aren’t stellar. But Professors Kanter and Pauly see it from a completely opposite perspective, arguing that, essentially, ACOs will first have to demonstrate their value before they can receive any regulatory concessions. As they see it, “Although granting a Stark exemption for ACOs seems like a simple solution to the sticky problem of ACO arrangements clashing with the Stark law, it is a bit too simple. The tension between care coordination and conflicts of interest should not be used as a pretext for weakening an already impaired Stark regulation; instead, we think it should be used as strong motivation for reevaluating the way we approach both care coordination and regulation of conflicts of interest.”

One could easily argue that Professors Kanter and Pauly are being rigid or ideological in their viewpoint here; after all, there is a sense of urgency about moving the ACO experiment forward, and relaxing Stark law requirements could help. At the same time, it’s important from time to time to pause to consider viewpoints like those of Drs. Kanter and Pauly, and to reflect on the complexity of all of these different policy aims.

In the end, all of this is a virtual Rubik’s cube of complexity. And yet it perfectly reflects the state of the industry in early 2019, as the rush into value hurtles headlong, but definitely not always in a consistent or fully managed way. What will this landscape look like five years from now? It’s difficult even to say. But some of what feels complex and tangled right now, may have become clarified by then; then again, it also might not. Stay tuned.

Sponsored Recommendations

A Comprehensive Workplace Safety Checklist

This checklist is designed for healthcare facilities focused on increasing workplace safety. It’s meant to inspire ideas, strengthen safety plans, and encourage joint commission...

Healthcare Rankings Report

Adapting in Healthcare: Key Insights and Strategies from Leading Systems As healthcare marketers navigate changes in a volatile industry, they know one thing is certain: we've...

Healthcare Reputation Industry Trends

Navigating the Tipping Point: Strategies for Reputation Management in a Volatile Healthcare Environment As healthcare marketers navigate changes in a volatile industry, they can...

Clinical Evaluation: An AI Assistant for Primary Care

The AAFP's clinical evaluation offers a detailed analysis of how an innovative AI solution can help relieve physicians' administrative burden and aid them in improving health ...