Health Reform WK-EDGE Final rule modernizes physician self-referral law
Tuesday, December 15, 2020

Final rule modernizes physician self-referral law

By Rebecca Mayo, J.D.

A new final rule released by CMS modernizes the Medicare physician self-referral law to allow more flexibility in structuring value-based care models and providing integrated care to patients.

In an effort to support the innovation necessary for a health care delivery and payment system that pays for value, CMS has established new, permanent exceptions to the physician self-referral law. The rule also includes clarifying provisions and guidance intended to reduce unnecessary regulatory burdens on physicians and other health care providers and suppliers, while reinforcing the self-referral law’s goal of protection against program and patient abuse. Since many of the compensation arrangements between parties that participate in alternative payment models and other novel financial arrangements implicate both the physician self-referral law and the anti-kickback statute, CMS worked closely with HHS Office of Inspector General (OIG) in developing certain provisions of the rule. By working together, CMS and OIG aimed to promote alignment across agencies, where appropriate to ease the compliance burden on the regulated industry (Final Rule, 85 FR 77492, December 2, 2020).

Purpose. The physician self-referral statute was enacted in 1989, under traditional fee-for-services (FFS) Medicare, when the vast majority of covered services were paid based on volume. The self-referral statute was enacted to address concerns that arose in Medicare’s volume-based reimbursement system where the more designated health services that a physician ordered, the more payments Medicare would make to the entity that furnished the designated health services. The prohibitions were intended to prevent a patient from being referred for services that were not needed or steered to less convenient, lower quality, or more expensive health care providers because the patient’s physician may improve his or her financial standing through those referrals.

Since that time, Medicare payment models have shifted to a value-based system where physicians are encouraged to integrate and coordinate with other physicians and health care providers and suppliers. To facilitate the transition the health care system from volume-based to value-based, CMS proposed new exceptions to the physician self-referral law for value-based arrangements, along with integrally-related definitions for value-based enterprises, activities, arrangements, and purposes, the providers and suppliers that participate in a value-based enterprise, and the target population for whom the parties efforts are undertaken.

Provisions. The rule finalizes new exceptions to the physician self-referral law for compensation arrangements that satisfy specified requirements based on the characteristics of the arrangement and the level of financial risk undertaken by the parties to the arrangement or the value-based enterprise of which they are participants. For purposes of applying the exceptions, the rule also finalized new definitions for the terms value-based activity, value-based arrangement, value-based enterprise, value-based purpose, VBE participant, and target patient population.

The first exception applies to a value-based arrangement where a value-based enterprise has, during the entire duration of the arrangement, assumed full financial risk from a payor for patient care services for a target patient population. The second exception applies to a value-based arrangement under which the physician is at meaningful downside financial risk for failure to achieve the value-based purposes of the value-based enterprise during the entire duration of the arrangement. The third, and final, exception applies to any value-based arrangement, provided that the arrangement satisfies specified requirements.

FederalRegisterIssuances: FinalRules AgencyNews FraudNews MedicarePartANews MedicarePartBNews MedicarePartCNews MedicarePartDNews PhysicianNews ProgramIntegrityNews NewsFeed

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