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Hospitals see signs referral law may be changed to enable doctor incentives

The Trump administration is considering loosening restrictions on physician referrals to hospitals, a move that would enable hospitals to reward doctors for providing more efficient care.

Officials at the U.S. agency that oversees the Medicare and Medicaid health insurance programs have suggested that they may make changes to a law known as the Stark Act. The 1989 law was passed in the wake of concerns that physicians could profit by referring patients to hospitals, labs and other healthcare facilities with which they have a financial relationship.

Industry groups like the American Hospital Association and the Federation of American Hospitals have criticized the Stark Act as counterproductive at a time when the federal government is trying to bring about a shift from fee for service payments, in which reimbursements are based on the number of procedures, to one based more on value and patient outcomes.

Hospitals have said the Stark restrictions can get in the way of their efforts to reduce healthcare costs through such steps as giving physicians financial incentives to keep patients from having to be readmitted to the hospital. Such incentives could be viewed as kickbacks under the law.

The administration appears to be listening. Its budget request to Congress in January included a proposal to exempt physicians from the law if they operate under an advanced alternative payment model, or APM. Such models, created in the Medicare Access and CHIP Reauthorization Act of 2015, give physicians financial incentives to provide cost-efficient and effective care.

Last week, officials at the Centers for Medicare and Medicaid Services, or CMS, said in different settings that they are working on changes to the Stark law.

At a March 21 House Ways and Means Committee hearing reviewing the 2015 law, known as MACRA, CMS Principal Deputy Administrator Demetrios Kouzoukas said policies similar to a House bill relaxing the Stark law was one of "a few exciting things we're thinking about and working on."

The bill, sponsored by Rep. Larry Bucshon, R-Ind., would give CMS the ability to waive the Stark Act for physicians involved in APMs.

CMS Administrator Seema Verma told reporters March 22 that the agency is starting work on changing the laws because it is "a big barrier for providers in doing value-based payments," and the agency will announce its plans later this year.

In a Jan. 21 American Hospital Association webinar, Verma told the group's president and CEO, Rick Pollack, "the Stark Law was developed a long time ago, and given where we're going in terms of modernizing [Medicare] and the payment systems we are now operating under now, we need to bring along some of those regulations."

Neither the Federation, which represents for-profit hospital chains such as HCA Healthcare Inc. and Community Health Systems Inc., nor the broader-based AHA would comment about the latest remarks from CMS.

Keeping hospitals and physicians apart

The law, as well as a separate anti-kickback law "and their complex regulatory framework, are designed to keep hospitals and physicians apart the antithesis of the new value-based delivery system models," the AHA wrote to the Ways and Means Committee March 21.

In a February 2017 report, AHA said it is "perfectly appropriate" to forbid physicians from sending patients to hospitals in which they have a financial stake. But the bill's language has led to some unintended consequences, it said.

Encouraging physicians to select the most efficient and effective treatment options helps eliminate unnecessary healthcare costs, the AHA report said. However, hospitals run a "legal risk" if they offer physicians an incentive, like getting a share of cost reductions, to align themselves with a hospital, according to the report.

Hospitals could also want to give physicians financial incentives to take steps to improve patients' care, such as monitoring long-acting insulin levels after they are discharged. That could bring sanctions under the current law because the payments could be seen as a way to entice doctors to refer patients to the hospital.

The AHA also said patients are often better off being treated by teams of healthcare professionals, including physicians, dietitians and social workers. But hospitals could be at risk of violating the law if they offer financial rewards for coordinating coverage, the report said.

A Federation spokeswoman, meanwhile, pointed to a 2015 letter from the group to then CMS acting administrator Andy Slavitt, saying that "as payment policy evolves, so too must Stark."

The law has had some benefits, including making healthcare organizations more aware of potential financial conflicts, according to a 2009 report by the American Health Lawyers Association public interest committee.