Labs May Be Excluded from Revised Stark, AKS Rules

The Stark Law and Anti-Kickback Statute are being revised to support value-based care

CEO SUMMARY: When CMS and the OIG issued proposed rules last fall to make it easier for providers to participate in value-based and coordinated care arrangements, they considered excluding clinical labs, pharma companies, and DME firms because of concerns that the proposed rules could promote lab test fraud. Now, labs will have to wait for the final regulations to see if they can engage in certain arrangements that will be protected under the revised rules if they are finalized as written.

FEDERAL OFFICIALS ARE REVISING TWO IMPORTANT ANTI-FRAUD RULES and may exclude clinical laboratories from proposed new safe harbors intended to support some value-based and care-coordination arrangements.

In October, the federal Centers for Medicare and Medicaid Services (CMS) and the federal Office of Inspector General (OIG) proposed rules to make it easier for healthcare providers to deliver coordinated and value-based care while complying with federal regulations against fraud. Healthcare providers and the public submitted comments through Dec. 31 and officials are reviewing those comments now. It is not known when the agencies will issue final rules.

The proposed rules call for clarifying the regulations under the Physician Self-Referral Law (commonly known as the Stark Law) and the Federal Anti-Kickback Statute (AKS). CMS said its proposed rules are part of its “Regulatory Sprint to Coordinated Care” initiative.

The OIG has proposed seven new safe harbors, the first three of which track the proposed Stark law exceptions. These proposed rules call for value-based exceptions (VBEs) for physicians, hospitals, labs, and other providers working in such arrangements. But the final rules could exclude clinical laboratories, pharmaceutical manufacturers, and companies that make and sell durable medical equipment.

Lawyers familiar with the proposed regulations said any such exclusions would be due to concerns that allowing labs more flexibility in how they get paid and receive referrals could lead to more fraud in testing.

In announcing the proposed rules, CMS acknowledged that incentives in a healthcare system that pays for value-based care are different from the incentives in a system that pays for volume under fee-for-service reimbursement. At the same time, CMS said it wanted to guard against overutilization of tests and other services.

One way to guard against overuse in testing is to exclude medical laboratories out of concern that they depend heavily on referrals from physicians. Therefore, CMS warned that laboratories “might misuse the proposed safe harbors primarily as a means of offering remuneration to practitioners and patients to market their products, rather than as a means to create value for patients and payers by improving the coordination and management of patient care, reducing inefficiencies, or lowering healthcare costs.”

While labs could be excluded in any final rules that CMS and OIG issue, there are potential work-arounds for clinical lab directors whose labs have value-based or care-coordination contracts, according to Danielle Holley, a healthcare lawyer and partner with the law firm of O’Connell and Aronowitz, in Albany, N.Y.

“There are several new exceptions—meaning safe harbors—proposed under the Anti-Kickback Statute that could be beneficial for labs working in care coordination arrangements,” Holley said. But the proposed rules also are a warning to labs to be aware of payment models that could be problematic, she added.

Impact of Revised Rules

Clinical lab directors will need to understand how the proposed rules could affect how labs get patient test referrals, how they get paid for testing in some value-based and care-coordination payment models, and how the rules governing current arrangements may change, she explained.

“One such arrangement that sticks out to me is the outcome-based payment and part-time arrangement safe harbor,” Holley commented. “The proposed rules will make a change to the personal service and management safe harbor that potentially will add flexibility for certain arrangements that labs may have used previously, for example.

“Also, labs will need to know how the proposed rules would affect any work done by independent contractors or by someone consulting for a lab under certain management agreements,” added Holley. The proposed rules also could affect some billing agreements with third-party payers that are based on outcomes.

Proposed Safe Harbors

“Under some arrangements, clinical labs might have more protections under a proposed new safe harbor than they had in the past,” she commented.

“In some outcomes-based payment arrangements that labs had in the past, labs would need to set a flat fee in advance and that fee could not take into account any increase in volume or value,” Holley explained. “But the new proposed rules allow for some outcomes-based payment and part-time arrangements that could be important for clinical laboratories.

“In addition, laboratories could benefit from the value-based proposed safe harbors. For example, we’ve seen scenarios where some laboratories wanted to provide feedback or training courses to physicians who order tests, or they wanted to provide reminders to physicians about how best and when to order tests,” she said. “Those kinds of activities potentially could fall under the value-based safe harbor, or the patient engagement and support safe harbor, if the final rules do not exclude clinical laboratories.”

Clinical labs and some genetic testing labs have heard complaints that referring physicians do not always order the most appropriate tests for patients or do not understand the results that labs produce, meaning that educating physicians on these issues might be useful.

But labs will need to be aware that in the commentary CMS and the OIG added to the proposed rules, the agencies said they were considering excluding clinical laboratories from some or all of the safe harbors in the proposed rules that are designed to support payment for value-based and coordinated care.

“CMS and the OIG are concerned about fraud and abuse in some of the value-based or coordinated care programs and whether these programs are really providing a direct benefit to patients,” Holley explained.

“Therefore, clinical labs should be aware that they could potentially have this great safe harbor that would be useful under the proposed rules. But to use that safe harbor, labs would need to have explained in the solicitation for comments how laboratories could participate in the outcomes-based or care-coordination payment program and benefit patients, so that the regulating agencies do not exclude laboratories in the final rule,” she added.

Federal Advisory Opinions

The American Clinical Laboratory Association addressed this same issue in comments it sent to CMS about the proposed rules. In an Aug. 24 letter, ACLA recommended that CMS change the process labs and other providers would use to request an advisory opinion about whether an arrangement would comply with the Stark Law.

“In the two decades since the advisory opinion process was implemented in regulation, the agency has issued less than one opinion per year,” wrote Sharon L. West, ACLA’s Vice President, Legal and Regulatory Affairs.

“Currently, CMS accepts only those questions involving specific existing or planned arrangements and not those related to interpretation, hypotheticals, or proposed business arrangements,” she said. “This limits the usefulness of the advisory opinion process tremendously.”

In comments to CMS, the ACLA and the College of American Pathologists both recommended changes to the in-office ancillary services exception under the Stark Law.

Calls to End AP Ancillary Service Exception

IN COMMENTS SENT TO THE CENTERS FOR MEDICARE AND MEDICAID SERVICES both the American Clinical Laboratory Association (ACLA) and the College of American Pathologists (CAP) called on CMS to end the in-office ancillary services (IOAS) exception for anatomic pathology testing.

Under the Stark law, physicians are prohibited from referring testing or other services to entities that they own or in which they have an investment interest.

“The IOAS exception to the self-referral prohibition allows a physician or group practice to self-refer and bill for anatomic pathology (AP) services that are performed in the physician’s office or in a space in the same building or a centralized building,” ACLA wrote in its letter to CMS. “Most non-pathology practices that self-refer and bill for anatomic pathology services use the IOAS exception to comply with the Stark Law.”

In recent years, ACLA has told CMS that one way to limit self-referral for AP services is to exclude such work from the IOAS exception. The problem for CMS and for clinical lab and AP professionals is that including AP services in the IOAS exception can result in overutilization and worse outcomes for patients, ACLA wrote.

CAP had similar apprehensions about overutilization of AP services, writing that the IOAS exception to the Stark law provides a financial incentivize for physicians to self-refer AP services, CAP wrote in an unsigned letter to CMS dated Aug. 24.

Congress allowed the IOAS exception so that physicians and labs could offer non-complex ancillary services, such as simple blood tests, that a physician would need to diagnose a patient’s condition and treat that patient during an initial office visit, CAP wrote.

Contact Danielle Holley at 518-462-5601 or


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