[Senate Hearing 114-668]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 114-668

                       EXAMINING THE STARK LAW: 
                    CURRENT ISSUES AND OPPORTUNITIES

=======================================================================

                                 HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 12, 2016

                               __________

                                                                        


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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)







                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                               WITNESSES

Barsky, Troy A., partner, Crowell and Moring, LLP, Washington, DC     6
Paulus, Ronald A., M.D., president and chief executive officer, 
  Mission Health System, Asheville, NC...........................     7
Mancino, Peter B., deputy general counsel, The Johns Hopkins 
  Health System Corporation, Baltimore, MD.......................     9

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Barsky, Troy A.:
    Testimony....................................................     6
    Prepared statement...........................................    25
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    39
Mancino, Peter B.:
    Testimony....................................................     9
    Prepared statement...........................................    40
Paulus, Ronald A., M.D.:
    Testimony....................................................     7
    Prepared statement...........................................    42
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    45

                             Communications

Advanced Medical Technology Association (AdvaMed)................    47
Alliance for Integrity in Medicare (AIM).........................    52
American Academy of Orthopaedic Surgeons et al...................    54
American College of Cardiology...................................    57
American College of Surgeons.....................................    57
American Physical Therapy Association (APTA).....................    59
Gundersen Health System..........................................    61
Horty, Springer, and Mattern, Attorneys at Law...................    62
Physician Hospitals of America (PHA).............................    66
Taxpayers Against Fraud..........................................    71
Trinity Health...................................................    72
Withrow, Scott C.................................................    75

                                 (iii)




 
                        EXAMINING THE STARK LAW: 
                    CURRENT ISSUES AND OPPORTUNITIES

                              ----------                              


                         TUESDAY, JULY 12, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:12 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Burr, Coats, Heller, Scott, 
Wyden, Stabenow, Cardin, Bennet, and Casey.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Kimberly Brandt, Chief Oversight Counsel; and Jill 
Wright, Detailee. Democratic Staff: Joshua Sheinkman, Staff 
Director; Elizabeth Jurinka, Chief Health Advisor; and Beth 
Vrabel, Senior Health Counsel.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order. As members 
of the Senate Finance Committee, we have a wide range of 
duties. In addition to drafting laws and overseeing their 
enforcement and implementation, we are also called on to assess 
the impact of existing laws to determine their effectiveness at 
achieving their intended goals.
    When it comes to that last part, there is a quote from a 
well-known American business leader that applies--quote: ``Good 
intentions often get muddled with very complex execution.''
    Today we are here to talk about the Stark Law, an important 
yet extremely complicated health-care fraud law that prohibits 
physician referrals under certain circumstances. This law is 
the embodiment of good intentions muddled with complex 
execution.
    At its most basic level, the Stark Law prohibits doctors 
from referring Medicare patients to hospitals, labs, and other 
physicians for health-care services if the referring doctor has 
any direct or indirect financial relationship with that entity.
    The sweeping nature of that prohibition makes vast swaths 
of medicine performed in the current health-care system 
potentially illegal. Anyone caught violating the law must give 
back all the Medicare reimbursements paid to the doctor, 
hospital, or lab under the tainted arrangement, even if the 
violations were unintentional, because the Stark Law is a 
strict liability statute that is indifferent to motive, 
knowledge, or state of mind.
    When the Stark Law passed in 1989, the lawmakers believed 
that, given a bright-line rule, providers would self-police 
their arrangements with physicians. And despite this original 
intent, the Stark Law has become increasingly complex and 
created more and more challenges for legitimate health-care 
arrangements.
    Today the health-care world is populated by scores of legal 
experts who strive to keep up with the sprawling compendium of 
statutes, regulations, and Federal advisories known 
collectively as the Stark Law.
    The Federal Register contains hundreds, if not thousands, 
of pages of regulatory text drafted by the Department of Health 
and Human Services to improve compliance with and 
implementation of the Stark Law. Through these regulations, HHS 
has come up with more than 30 exceptions to the law, each of 
which carries its own detailed requirements. Even the original 
sponsor, the namesake of the legislation, Representative 
Fortney ``Pete'' Stark, recently lamented the Byzantine turn 
that the statute has taken, stating, quote, ``It gave every 
shyster and promoter a loophole. We now have to keep rewriting 
the laws like the tax code.''
    Because it regulates physicians' financial relationships, 
the Stark Law has a significant impact on the structure and 
operation of the health-care delivery system. Therefore, as we 
have collectively worked to transition our Federal health 
programs towards more value-based payments and systems and away 
from fee-for-service models, one question keeps coming up. In 
its current form, is the Stark Law still necessary?
    Last December, in an effort to answer this question and 
address long-standing concerns about the Stark Law, the Finance 
and Ways and Means Committees convened a roundtable discussion 
with stakeholders and legal experts to discuss these issues.
    All three of the witnesses here today were part of that 
discussion. We received feedback on a number of issues related 
to the Stark Law, including the barriers it places on the 
implementation of health reform laws, stakeholders' 
frustrations with the difficulty and expense associated with 
compliance, and the problems created by the Centers for 
Medicare and Medicaid Services' limited authority to create 
exceptions and to issue advisory opinions.
    Following the roundtable, we issued a broader call for 
comments by industry leaders, and we received almost 50 
responses suggesting a variety of changes, including additional 
or expanded waivers or exceptions, enhanced authority for CMS 
to address specific needs on an ongoing basis, and repeal of 
the compensation arrangement prohibition.
    In addition, some suggested that we repeal the law in its 
entirety. Commentators across the board expressed concern about 
the ambiguous way certain terms are defined under the Stark 
Law--terms like ``fair market value,'' ``volume and value of 
referrals,'' and ``commercial reasonableness.'' They all have 
decisive impact on the application of the law, yet they are not 
clearly defined. And finally, virtually every one we heard from 
believes that technical violations of form rather than 
substance of the law should be subject to separate sanctions 
and limited liability.
    If the aim of the Stark Law is to prevent physicians from 
inappropriately referring patients for medically unnecessary 
treatments, it does so in a rather roundabout way, at least 
under the current structure.
    If we really want to prevent inappropriate self-referrals 
and address the culture of overutilization, we have to do more 
than target specific relationships and practices prone to 
abuse. We must also realign the financial incentives created by 
our current payment mechanisms.
    If, as some have claimed, the Stark Law is impeding the 
implementation of recently passed health reforms like the 
Medicare Access and CHIP Reauthorization Act and preventing 
better integration in the delivery of medical treatment, we 
should address that as well.
    As a committee, we have a responsibility to explore 
potential changes to make the law more workable in terms of 
enforcement and compliance, in both fee-for-service and value-
based payment models, as both are likely to be around for years 
to come.
    We are here today to examine these issues and hopefully 
hear some potential answers to the questions that have come up. 
And I look forward to hearing the testimony of our witnesses 
and getting their input on all of these important issues today.
    And with that, I will turn to Senator Wyden for any opening 
remarks.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman; and, Mr. Chairman, 
thank you for scheduling a hearing on an important topic. Our 
country is beginning a major transformation in the way health 
care in America is paid for. We are moving away from an old 
system, fee-for-service medicine, which in effect opened the 
financial till for every visit, every test, and every procedure 
that was done in a doctor's office or a hospital.
    Now, American health care is going to have a new focus: 
paying for the quality of care that our people receive, rather 
than the quantity. Even though the sea change is in the early 
days, already 30 percent of Medicare payments are going through 
the new system, focused on value and efficiency. Certainly that 
number is going to rise in the years ahead.
    In my view, when you make a health-care transformation, 
particularly when you are talking about the system that we have 
where one out of every six dollars in the American economy goes 
to health care, there is no question that you are going to bump 
up against some very significant challenges, and one of those 
challenges is what we are looking at this morning.
    Now, in my judgment, what this is all about is trying to 
balance two important priorities. On one hand, there is a drive 
toward bringing doctors and specialists together, promoting 
coordination, and making American health care as efficient as 
possible.
    On the other hand, there is a longstanding protection that 
comes from what is known as the Stark Law. It says that 
financial relationships between providers must not influence a 
patient's medical care.
    Some health-care providers in our country are concerned 
that parts of the Stark Law date back years or even decades and 
could be an impediment to treatment. For example, when fee-for-
service was king, a jump in referrals from a doctor to a 
physical therapist would have probably raised red flags, if 
there were some financial ties.
    Today, it is common for doctors and physical therapists to 
work in the same medical practice or hospital system, and the 
science has demonstrated that physical therapy is often exactly 
the right choice to keep a lifelong golfer with a bad shoulder 
or an older woman with a knee replacement healthy and out of 
the emergency room.
    That means that in this day and age, an uptick in referrals 
for physical therapy in one medical practice should not 
automatically be declared a violation of the Stark Law. In 
effect, we are going to be looking at a variety of cases, 
because certainly different cases present different challenges.
    In my judgment, the two important priorities--promoting 
coordination of care and upholding the principles of the Stark 
Law--should not automatically come into conflict.
    As long as there are clear guidelines about what is fair 
game when it comes to patient referrals and the relationship 
between doctors, it ought to be possible to guarantee that 
patients are getting the care that is right for them and not 
just right for somebody else's pocketbook. In certain ways, it 
could be as simple as revisiting the rules that are already on 
the books.
    So I look forward, Mr. Chairman, to having a productive 
discussion. I want to commend the staff on both sides for their 
effort to look at these questions. We appreciate our witnesses 
and look forward to hearing their testimony.
    Thank you.
    The Chairman. Thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Our first witness today will be Mr. Troy 
Barsky, a partner at Crowell and Moring in the firm's health-
care group. Mr. Barsky counsels hospitals, group practices, and 
health plans on the Stark Law. He represents clients seeking 
reprieve from government health-care program overpayment 
issues, as well as fraud and abuse matters.
    Prior to joining Crowell and Moring, he served in various 
positions, providing legal counsel and helping draft and 
implement policy at the Department of Health and Human Services 
and the Centers for Medicare and Medicaid Services for 11 
years.
    He provided counsel to his agency clients on a wide range 
of Medicare and health-care issues and managed Stark Law issues 
and those relating to Medicare payments, as the director of the 
Division of Technical Payment Policy.
    Senator Burr will introduce our second witness, Dr. Ronald 
Paulus.
    Senator Burr?
    Senator Burr. Thank you, Mr. Chairman, for allowing me to 
introduce Dr. Ronald Paulus from Mission Health in Asheville, 
NC. My colleagues know I am not shy when it comes to 
highlighting the great health care that we have in North 
Carolina, so I am pleased that one of our leaders is here with 
us today.
    Dr. Paulus, thank you for traveling here and for your 
willingness to share your thoughts and your expertise. I know 
that today's discussion will be improved by Dr. Paulus's 
participation.
    Dr. Paulus is the president and CEO of Mission Health, a 
health-care system with an impressive footprint in western 
North Carolina and, I would add, one of the most beautiful 
parts of North Carolina.
    Mission Health Care has a network of more than 500 
physicians, six acute hospitals, a rehabilitation hospital, 
inpatient and home hospice programs, a PACE program, and an 
Accountable Care Organization. In other words, under Dr. 
Paulus's leadership, Mission Health is meeting a range of 
health-care needs for a significant number of North 
Carolinians.
    Prior to his work with Mission Health, Dr. Paulus was the 
executive vice president for clinical operations and CIO for 
Geisinger Health System, where he was responsible for managing 
the group practice of over 800 physicians as well as the 
system's hospital.
    He is also the co-founder, president, and CEO of 
CareScience, Inc., a company that provided a web-based platform 
to improve quality and efficiency in health care, a product 
that is now used in health-care systems across the country.
    As if this was not impressive enough, Dr. Paulus earned 
both his MBA and doctorate of medicine from the University of 
Pennsylvania.
    I will end with taking the opportunity to publicly 
congratulate Mission Health for being recognized as one of the 
Nation's top 15 health systems for 4 years in a row. Dr. Paulus 
is a testament to the incredible work he and his colleagues at 
Mission Health do, day-in and day-out.
    I thank you and look forward to hearing your thoughts on 
the challenges and opportunities we see for improving quality 
of care for patients in North Carolina and around the Nation, 
today and in the future.
    And, Mr. Chairman, if I could say to the ranking member, 
his analogy of a golfer--a good golfer would never go to the 
emergency room, because I can assure you there is a doctor in 
their foursome. [Laughter.]
    Thank you, Mr. Chairman.
    The Chairman. Well, with that wisdom, I will finish 
introducing. Thank you, Senator Burr.
    Our third witness is Mr. Peter Mancino, the deputy general 
counsel of the Johns Hopkins Health System Corporation. He 
serves as secretary to the boards of trustees for Johns Hopkins 
Medicine, the Johns Hopkins Health System Corporation, and for 
the Johns Hopkins Hospital.
    He is responsible for the administrative management and 
supervision of the legal department of the Johns Hopkins Health 
System. He further manages legal matters involving the 
Community Hospital Division and Children's Hospital. He was 
previously a partner at a prominent New York law firm, 
Garfunkel Wild, and specialized in health law.
    I want to thank all three of you for coming. We will hear 
the witness testimonies in the order that they have been 
introduced.
    Mr. Barsky, we will ask you to proceed with your statement.

             STATEMENT OF TROY A. BARSKY, PARTNER, 
            CROWELL AND MORING, LLP, WASHINGTON, DC

    Mr. Barsky. Thank you, Chairman Hatch, Ranking Member 
Wyden, and distinguished Senators of this committee. I am 
honored and grateful for this invitation to speak to you about 
an issue of vital importance to the Medicare program and its 
millions of beneficiaries throughout the United States.
    I am here today to share my past experiences as a CMS 
official who administered the Stark Law for 4 years and now is 
a partner at the law firm of Crowell and Moring, advising 
clients who must comply with this law.
    I hope to provide my insight into current challenges posed 
by the Stark Law and how this law can be modernized to 
facilitate a new era of health-care reform.
    The Stark Law came about from a simple concern that 
physicians with a financial interest in their referrals will 
corrupt medical decision-making. This law has evolved from this 
simple premise into a tortured web of confusing standards, 
ambiguous and conflicting definitions, exceptions to the rule--
even exceptions to those exceptions--and volumes of regulations 
that require lawyers and valuation experts just to comply.
    The problem is that the Stark Law is a strict liability 
statute. Intent to violate the law is not required. Therefore, 
as a health-care entity, if you fail to meet any of the 
technical requirements, you will inadvertently violate the law, 
exposing you to millions of dollars or potentially tens of 
millions of dollars in payments and penalties, program 
exclusion, and potentially False Claims Act liability as well.
    As the committee is well aware and as has already been 
mentioned, even before the Affordable Care Act and MACRA, the 
health-care system has been rapidly changing. Health-care 
providers are focused on coordinated care, improved outcomes, 
and lower overall costs. The Affordable Care Act and MACRA have 
only accelerated this effort.
    The goals of these new payment systems are diametrically 
opposed to the goals of the Stark Law. The new health-care 
payment models are designed to integrate providers clinically 
and financially, while the Stark Law is designed to keep 
parties financially separated.
    So here are some suggested solutions and pathways to reform 
the law.
    First, as we move away from a fee-for-service world, the 
need and utility of the Stark Law continues to diminish. Repeal 
in whole or in part of the Stark Law should not be off the 
table in these discussions. Instead, existing fraud and abuse 
laws that have an intent requirement, like the Anti-Kickback 
Statute and the False Claims Act, already exist to prohibit 
financial arrangements that incentivize referrals.
    Next, absent full or partial repeal, there are other 
common-sense reforms that may be implemented.
    First, change the proportionality of the penalty to the 
nature of the violation. The Stark Law has so many confusing 
technical requirements, either remove the technical 
requirements completely or impose a fixed monetary penalty for 
these violations, rather than requiring a full refund of all 
overpayments related to prohibited referrals.
    Second, establish bright-line rules in the Stark Law that 
providers can follow and give CMS greater authority to provide 
guidance through advisory opinions and regulations.
    Third, remove barriers to health-care reform. The 
Affordable Care Act allowed HHS to issue broad Stark waivers, 
and they have taken advantage of that authority. I recommend 
giving greater authority to HHS to continue and expand these 
waivers to encourage innovative payment models and allow for a 
unified approach to the provision of all fraud and abuse 
waivers related to alternative payment models, rather than the 
piecemeal approach that we now see developing.
    Fourth, for those entities that are not yet participating 
in these alternative payment models but aspire to, we need to 
help them to innovate as well. They cannot be protected by 
Affordable Care Act waivers, and CMS does not have existing 
authority to create regulatory exceptions to protect these 
providers. Only Congress can create this pathway to innovation.
    Last, limit loopholes that are contrary to health-care 
reform efforts. For example, the in-office ancillary services 
exception continues to incentivize in-office referrals and 
overutilization, making it less likely that the self-referring 
physicians will move to an integrated delivery model. Closing 
this exception will incentivize physicians to move to these new 
models.
    Because the Stark Law has served to protect against 
overutilization and unnecessary services for Medicare patients, 
I recognize that this committee must move forward carefully and 
thoughtfully. But modernizing the Stark Law to allow and 
encourage innovation in the Medicare program and the entire 
health-care system will best serve the patients that this law 
was originally designed to protect.
    I am happy to answer any questions that this committee has 
on this very important issue.
    Thank you.
    [The prepared statement of Mr. Barsky appears in the 
appendix.]

   STATEMENT OF RONALD A. PAULUS, M.D., PRESIDENT AND CHIEF 
    EXECUTIVE OFFICER, MISSION HEALTH SYSTEM, ASHEVILLE, NC

    Dr. Paulus. Mr. Chairman, Ranking Member Wyden, and members 
of the committee, thank you for the opportunity to testify 
today.
    I am the CEO of Mission Health, and we serve the 18 most 
western counties in North Carolina. We are the region's only 
safety-net system, and our patients, more than 900,000, are 
older, poorer, sicker, and less likely to be insured than State 
and national averages.
    More than 75 percent of all of our patients are Medicare or 
Medicaid beneficiaries or uninsured, and 10 percent of our 
babies are born addicted to narcotics.
    Upon arriving 6 years ago, we began to transform Mission by 
establishing a culture of physician and clinician leadership 
and emphasizing value-based care. Why? Because it benefits our 
patients and local employers and it has the potential to 
provide needed financial stability, not only for Mission, but 
for the U.S. health-care system more broadly.
    We have made real progress, including reducing an already 
better than average mortality rate by more than 50 percent, and 
achieving the lowest Medicare readmission rate of any general 
acute care hospital in the Nation.
    But our crucial responsibility as the region's only safety-
net system demands that we avoid unnecessary risk, and some of 
our most significant risks are the unclear boundaries in our 
fraud and abuse laws.
    As a physician executive, I am absolutely convinced that it 
is simply not possible to transform health care without a 
strong partnership between health systems and physicians. The 
Stark Law makes this remarkably difficult, both by creating a 
thick fog of uncertainty and, at times, directly causing 
patient harm.
    The committee's recently released Majority Staff Report 
provides an excellent summary of important comments, the weight 
of which makes clear that Stark has largely outlived its 
usefulness, given the broad reimbursement changes and the 
existing protections of the Anti-Kickback Statutes.
    Stark has multiple problems that cannot be fixed just by 
tinkering around the edges, and a full repeal would not only 
help systems do what we need to do, but do precisely what you 
have asked us to do: focus on what is best for patients while 
leading the transformation of our antiquated fee-for-service 
system.
    Let me describe a typical pay-for-performance problem at 
Mission. As you know, Stark prohibits linking payments to, 
quote, ``the volume or value of referrals.'' So any Stark-
compliant incentive program must be structured to distribute 
payments equally to all physicians, regardless of the effort or 
outcome.
    A key focus for Mission and CMS is eliminating all 
hospital-
acquired infections. Stark unnecessarily constrains what we can 
do in our hospitals because they include many physicians who 
are not part of our ACO. Under Stark, we have to reward a 
physician who had a dramatic increase in his infection rate 
exactly the same as a physician who eliminated all of her 
infections.
    In most industries, shareholders and watchdogs are 
demanding outcome-based pay for performance. In health care, 
Stark specifically prohibits it.
    As noted, under Stark payment to physicians must be, quote, 
``fair market value,'' unrelated to volume or value of 
referrals. Sounds all right, but those terms are not clearly 
defined, and they are fact-specific, meaning we can never ever 
be sure that any program will pass muster if scrutinized. And 
our risk of guessing wrong? All reimbursement from those 
physicians who are not employed by Mission is subject to 
repayment.
    Beyond pay for performance, Stark also impacts patient care 
in significant and at times negative ways. Here is a real 
example.
    For a number of years, a Mission geneticist has met with 
expectant mothers who have recently learned that the child they 
are carrying will die shortly after birth. The geneticist helps 
the mothers and fathers understand the child's fatal condition 
and what to expect during and after delivery. Our geneticists 
strongly desire to have this no-charge conversation with 
parents at the Ob-Gyn office so they can support them 
immediately and in a comfortable and familiar environment.
    However, when brought to the attention of Mission's 
attorneys, they quickly and understandably became concerned 
that the service could be seen as providing something of core 
financial value to the Ob-Gyn's practice and, given no Stark 
exception, they rejected it.
    Had we been only subject to Anti-Kickback, the service 
could have been provided, as the obvious intent is helpful and 
not abusive. Unfortunately, Stark's strict liability makes it 
so that we cannot take that risk, even during this difficult 
time in these families' lives.
    Now, some have argued that Stark can be managed by CMS 
without action by Congress, and while improvements have been 
made, CMS simply does not have the legislative authority to go 
further, and they cannot resolve all the fundamental issues in 
Stark. It is too complex and too cumbersome.
    Because of the extraordinary penalties involved, it freezes 
health systems in their place and impairs patient care. The 
stakes are simply too high and the need for health-care reform 
too great for our patients, our businesses, and, frankly, our 
Nation. Only Congress can remove those barriers.
    I want to thank you truly for being willing to take on this 
very important issue. It has been an honor and privilege to 
share these thoughts with you. I appreciate your leadership, 
and I know together we can make the changes necessary to remedy 
these problems and succeed in the needed transition to a high-
quality, efficient, and effective value-based system.
    If I can answer any questions or provide any information, I 
would be delighted to do so.
    The Chairman. Well, thanks, Dr. Paulus. That was a very 
good statement.
    [The prepared statement of Dr. Paulus appears in the 
appendix.]
    The Chairman. Mr. Mancino, we will take your testimony now.

  STATEMENT OF PETER B. MANCINO, DEPUTY GENERAL COUNSEL, THE 
     JOHNS HOPKINS HEALTH SYSTEM CORPORATION, BALTIMORE, MD

    Mr. Mancino. Chairman Hatch, Ranking Member Wyden, and 
members of the committee, thank you for the opportunity to be 
here today to discuss the important subject of the Stark Law.
    Given the recent MACRA legislation, we believe that now is 
the ideal time to re-examine the Stark Law to ensure that it 
does not impede the goals of MACRA and health-care reform.
    The Johns Hopkins Health System views the Stark Law as our 
top compliance risk, because it is so easy to violate Stark and 
the penalties are so substantial. I would like to highlight 
three reforms in particular that would greatly improve the 
Stark Law.
    Number one, eliminate ambiguities in key Stark terms; 
number two, make Stark penalties more reasonable; and number 
three, reform Stark to allow for innovative payment 
arrangements.
    First, eliminate Stark ambiguity. When the Stark Law was 
created, the goal was to create a bright-line test to address 
overutilization of health-care services. The problem is that 
this bright-line test has been transformed over time into a 
complex, ambiguous, and highly technical rule that includes 
over three dozen exceptions. As a result, there is considerable 
confusion about basic Stark terms like ``fair market value.''
    As a health law attorney for 20 years, I have been 
confronted with numerous transactions that raise Stark 
questions. No matter how much time, money, or effort is 
expended in analyzing the issues, there are often no clear or 
100-percent safe answers. Subjective judgment calls are often 
required when entering into physician arrangements, contrary to 
Stark's original design as a bright-line test.
    Further, the Stark Law is so rooted in a fee-for-service 
environment that it has become very difficult to adapt Stark to 
value-based health care. Stark's fair market value 
requirements, for example, have been applied to allow physician 
compensation based on productivity and work effort, but there 
are barriers to compensation based on value, clinical 
efficiencies, cost savings, and quality outcomes. We believe 
that the Stark Law should be modernized to make it easier to 
apply in a value-based industry.
    Second, make Stark penalties more reasonable. The Stark 
Law's complexity and ambiguity have made it very difficult for 
even diligent health-care providers to comply. Failure to 
satisfy even one of its technical requirements can result in a 
violation, and, despite the best compliance efforts, 
unintentional mistakes occur.
    Liability under the Stark Law can be staggering, even for 
minor violations. The potential liability associated with an 
alleged Stark violation creates an enormous barrier to a 
provider's ability to defend against a claim, even when there 
are valid defenses.
    Most health-care providers want to be compliant and are 
willing to be accountable for mistakes. However, accountability 
should not entail ruinous penalties. Recent judicial decisions 
have had a chilling effect on the health-care industry, causing 
clients to be reluctant to try creative arrangements at a time 
when innovation is most needed. Accordingly, potential 
penalties associated with Stark violations should be more 
reasonable.
    Third, innovative payment arrangements. Hospitals and 
physicians must work together like never before to reduce 
health-care costs, become more efficient, and improve patient 
quality and outcomes. Unfortunately, Stark is an impediment to 
this collaboration, because it has created an overly rigid 
structure for hospital-
physician relationships.
    For example, Stark restricts a hospital's ability to create 
gain-sharing arrangements with physicians to incentivize cost-
efficient, quality-promoting behaviors. It can also prevent 
hospitals from providing care coordination resources to keep 
chronically ill patients out of the hospital.
    These types of team-based arrangements between hospitals 
and physicians are often problematic under Stark. However, 
these are the types of arrangements that Congress should 
support, because they promote the purposes of MACRA.
    Therefore, we support reforming Stark to allow hospitals 
the ability to enter into innovative relationships with 
physicians.
    Now is the time for Congress to modernize the Stark Law to 
promote fairness and further the goals of MACRA. Health-care 
providers have a reputation of being too slow to change and too 
expensive. The reality is that providers want to change, but we 
need the freedom and the tools to do so.
    Stark has created an atmosphere that is antithetical to 
change. We urge Congress to act quickly to address our concerns 
so that the health-care industry can transform itself to meet 
today's challenges and the goals of MACRA.
    I appreciate the committee's interest and look forward to 
answering any questions.
    The Chairman. Thanks to all three of you.
    [The prepared statement of Mr. Mancino appears in the 
appendix.]
    The Chairman. Let me just start the question period by 
asking this question.
    With the current Stark Law, based on your experience under 
the current waiver processes, either through the ACA or as set 
forth for new models developed under CMMI's authority, is there 
sufficient, quote, ``safe space'' for innovation in the 
development and implementation of alternative payment models? 
And which better promotes innovation--the current waiver-based 
system where the waivers are issued on a case-by-case basis, or 
a regulatory exception system where exceptions would be 
applicable to any organization that meets the requirements?
    Let me start with you first, Mr. Barsky.
    Mr. Barsky. Yes. First, it was an honor for me to work on 
some of those initial waivers when I worked at CMS, and we were 
given the authority to exercise very broad waiver authority.
    It is remarkable that for any new innovative payment model 
that was designed by CMS or mandated by Congress, in every 
single case the Stark Law needed to be waived in order for 
those programs to be successful.
    So from my perspective, the waivers as currently drafted 
have provided that safe space, have provided and allowed for 
innovation within specific models, whether they be Accountable 
Care Organizations, bundled payment models, or many new and 
innovative payment models that are coming out of CMS.
    The only danger that I see that is now developing is that 
with every new program that comes out, a new waiver comes out. 
So what we now find is that there are many different waiver 
authorities that are being developed, and health-care providers 
are forced to operate under multiple waiver regimes at the same 
time.
    But overall, this is a successful effort, and I encourage 
Congress to continue to think about how this might be expanded 
to allow for innovation.
    The Chairman. Dr. Paulus?
    Dr. Paulus. Thank you. I do not disagree with my colleague. 
On the other hand, I would note that despite the overlapping 
waiver scenarios, which absolutely, undeniably have been 
helpful, there is still a very large amount of uncertainty that 
permeates and is always present in any of our dialogue.
    We do not have a single program worth thinking about where 
we do not go through a Stark analysis to figure out how we can 
do it, whether we can do it--look at the waiver, look at an 
exception, look at the pattern. And I think that is just too 
onerous.
    And then I would add, and repeat from the testimony that I 
just provided, there are circumstances like our goal to reduce 
hospital-acquired infections where, because it does not fit 
into a waiver and because it includes physicians who are not 
part of the ACO, there is no way to manage that program.
    So yes, it has been helpful. Is it sufficient? Not in my 
opinion.
    The Chairman. Mr. Mancino?
    Mr. Mancino. So I would echo what was said, but I would 
also just add that, number one, given the impending MACRA 
deadlines, I do not think that the waiver process is going to 
be quick enough to implement the changes that need to be made 
in physician practices.
    I would also say that the waivers do not cover enough, 
because they only cover Medicare. They do not cover Medicaid, 
commercial payers, and certain physician specialties.
    And then finally I would say that, while the waivers are 
helpful, the problem is that again we have so many Stark 
exceptions, and then you layer onto that specific Stark 
waivers, and it creates all sorts of confusion in the industry 
about what you can do and what you cannot do, as Dr. Paulus 
suggested.
    The Chairman. Well, thank you. I thank all three of you.
    Let me just ask you this question, Mr. Barsky. Does HHS 
currently have the authority to create waivers, or to waive the 
Stark Law for alternative payment models, absent a statutory 
mandate?
    Mr. Barsky. I think the answer is, they do partially, but 
they do not have the authority to go far enough. As was already 
stated, they do have the authority to waive the law within 
certain Affordable Care Act-mandated programs. They do not 
currently have the authority to go farther and protect 
alternative payment models that are mandated by MACRA.
    Further, there are many types of innovative programs that 
were already mentioned by my colleagues, both in Medicaid and 
especially in the commercial market, that still trigger Stark 
Law scrutiny.
    And right now, CMS does not have either waiver authority or 
even the authority to create adequate regulations in order to 
fully protect innovative payment models.
    Back in 2008, CMS did try, under their existing regulatory 
authority, without waiver authority, to issue exceptions to 
protect innovative payment models. This exception had 16 
different requirements, with additional subsections, because 
they needed to meet their statutory mandate, which is to not 
create regulations that would cause any risk of program or 
patient abuse.
    So CMS itself has proven that, without further authority, 
they do not have the ability to allow for innovation. They are 
getting part of the way there, but the statute prevents them 
from going any further.
    The Chairman. Well, thank you. And my time is up.
    Senator Wyden?
    Senator Wyden. Gentleman, thank you, and this has been an 
excellent panel. I think if one were to listen in, you would 
say, boy, this is just about as fascinating as having prolonged 
root canal work. [Laughter.]
    But the reality is the stakes here are enormously high, 
because what you are talking about is striking the right 
balance between encouraging these alternative payment models, 
which are so important in care coordination, and at the same 
time maintaining protections against the financial incentives 
for providing large volumes of unnecessary care, which is what 
Stark was all about.
    I would be interested in having the three of you, because 
we have a number of members here, tell us in something 
resembling English what you think would be the best way for us 
to go about, in effect, modernizing how you strike that balance 
between two important causes.
    Mr. Barsky?
    Mr. Barsky. I will make an attempt to speak in plain 
English. I think--a few specific recommendations. First, if you 
are not going to repeal the Stark Law completely, at least 
consider eliminating the compensation component of Stark.
    Stark Law eliminates, or prohibits, both ownership 
relationships and compensational relationships. Keep the 
ownership prohibition, but remove the compensation prohibition.
    There are very clear anti-fraud statutes--the Anti-Kickback 
Statute, the False Claims Act--that protect against bribes and 
kickbacks in the health-care marketplace. So there are still 
protections, getting to your point about balancing allowing for 
innovation and also protecting patients in the Medicare 
program.
    I also would say, when you look at these new innovative 
payment models, the incentives within those models are 
completely different from the fee-for-service world, as you 
mentioned. So there is no incentive in those models to 
overutilize.
    If you overutilize care, if you are providing unnecessary 
care, too much care, you will not be successful. Health systems 
will not make as much money as they otherwise would if they 
provide high-quality care, necessary care, but not too much 
care, which was incentivized in the old fee-for-service world.
    So I would say removing compensation, allowing for the 
Anti-Kickback Statute and the False Claims Act to protect you, 
and allowing these new systems with the change in incentives to 
protect patients and to protect the program.
    Senator Wyden. Dr. Paulus?
    Dr. Paulus. Well, I guess as a physician and someone 
testifying on this complex of a law, I do not know if it is 
possible to speak in plain English. But with that caveat aside, 
I agree with Mr. Barsky that getting rid of the compensation 
arrangement components is the most important thing.
    And I will note, and Chairman Hatch mentioned this, in 2007 
Pete Stark wrote that he believed that, on balance, the law may 
have done more harm than good. And when you look at how much 
has changed in terms of payment models and the shift that is 
occurring, I think we have to ask ourselves, how do we do more 
good than harm in eliminating the compensation arrangements, 
getting rid of that strict liability component?
    And historically, courts were originally challenged to 
enforce the Anti-Kickback Statute because of the intent 
requirement. But now there are a series of cases and other 
factors that I think already provide belt and suspenders for 
the program.
    Senator Wyden. Mr. Mancino, let me modify the question a 
little bit, because time is short, and you and your colleagues 
made important points already.
    Could you give us some specific examples of something your 
organization would like to do with respect to physician 
compensation that you believe you are not allowed to do because 
of Stark? Some specific examples and, I think, that plus the 
thoughts I heard earlier about striking the balance is about 
what I was hoping to pick up.
    Mr. Mancino. Sure. Literally every week I get questions 
from my clients about how we can do gain-sharing arrangements 
with physicians in our community hospitals and in our academic 
medical centers. And the answer is that Stark puts great 
barriers on our ability to do that.
    So what I would recommend is that there be an ability to 
give bonuses and incentives to physicians to change their 
practices, to reduce costs--the types of devices they order, 
the types of products in the emergency room, et cetera.
    And then I think also that quality metrics are important. 
We need to incentivize them to reduce infections, things like 
that. These are the types of programs that we need to be able 
to do and that Congress has been telling us to do with MACRA 
and other laws, and I think gain-sharing is an important tool 
in that regard.
    Senator Wyden. Thank you, Mr. Chairman.
    The Chairman. Senator Stabebow?
    Senator Stabenow. Thank you, Mr. Chairman and Ranking 
Member, for holding this really important hearing, and thank 
you to all of you.
    As we are making these shifts, as we have done from the 
Affordable Care Act and from the legislation that we passed in 
2015, these are really important discussions. And I think for 
nearly 30 years the Stark Act has been focused on rooting out 
fraud and preventing overutilization and protecting the 
Medicare program financially--important things. And I think for 
equally long I have heard concerns, legitimate concerns, about 
stifling innovation and the kinds of things you are talking 
about today. And I think, as we are going to these new models, 
there is even more of a conflict.
    So the question is, how do we address that? And so I think 
we have challenges and opportunities, depending on how we want 
to look at it right now, as we evolve and figure out how to 
address these issues.
    Let me start with Mr. Barsky though and ask you, and then 
anyone--you are all welcome to respond. But when we look at the 
two payment models, one of the questions that I have is--we 
have two different approaches here now. We have MIPS, the 
Merit-based Incentive Payment System, which continues fee-for-
service, and then we have the alternative payment models.
    When this fully takes effect, the change that we made, in 
2019, as we know, we are looking at 4, 5, 6 percent of 
practitioners in that new alternative payment model. So we 
still have fee-for-
service; we know where we want to go, but we will not be there 
yet.
    So the question I have really relates to your thoughts on 
each of the payment systems and how we can, over time, bridge 
that gap. Because it seems that if we are suddenly saying we 
are not concerned about fee-for-service any more in terms of 
these issues, but yet most physicians are still on fee-for-
service, I am not sure that that makes sense in terms of 
repeal. But at the same time, there is no question that we want 
collaboration, we want the incentives changed, we want 
innovation, we want all the things you are talking about to be 
able to happen.
    So I wonder if you might provide your thoughts as to, 
overall, how we get there--in 2019, we are still not going to 
be there yet--and how we mesh those two.
    Mr. Barsky. Thank you for the question. It is challenging 
in that we want to encourage everyone to get all the way there, 
to get to these alternative payment models, but we will not be 
there for some time, and we will continue to have this fee-for-
service world with the same incentives that the Stark Law was 
designed to prevent.
    So if you are ultimately going to conclude that we are not 
going to repeal Stark at this point, I would make two different 
points here.
    One is to allow for waivers, give CMS greater authority to 
create exceptions. When you do move to alternative payment 
models, when you see physicians trying to move to innovative 
payment arrangements, either inside or outside of MACRA, you 
are providing a carrot for physicians to have waiver authority 
if they move to these new programs.
    But for those physicians, those health systems that are 
going to remain in this fee-for-service world for a few years 
to come until we move to a fully population-based payment 
model, I would say that we at the very least need to provide 
greater clarity for those hospital systems, for those 
physicians who are operating in this environment of Stark.
    As we had mentioned, strict liability applies. False Claims 
Act liability applies in an environment where there are very 
few clear rules. So I would say----
    Senator Stabenow. If I might just interrupt to ask, are you 
saying that the prohibitions on self-referral under Stark 
should continue under the MIPS system, or are you saying, are 
you arguing that they should not?
    Mr. Barsky. So to be clear, if you are operating under 
MIPS, which is still a fee-for-service system with incentive 
payments, as I said before, I would advocate to eliminate the 
compensation part of Stark but allow for the ownership 
prohibition to remain.
    Senator Stabenow. I see. All right.
    Mr. Barsky. If you move to an alternative payment model, 
then I think Stark is not necessary at all and that you should 
eliminate it, provide for a waiver completely.
    Senator Stabenow. Quickly, I do not know if anyone else 
wants to respond to this. I am about out of time here, but--
yes?
    Dr. Paulus. If I could just add briefly--and I truly 
appreciate the concern that you have. And I would agree that 
the ownership restriction should stay in the fee-for-service 
world.
    But again, you also need, I believe, to think about the 
balancing act. So just for example, for us to provide teaching 
for our medical students and our residents, we have over 90 
contracts that have to be specified and arranged and renewed 
every single year. We spend millions of dollars just complying 
with all these technical restrictions that are not adding any 
incremental value that Anti-Kickback and False Claims do not 
already provide.
    Senator Stabenow. Thank you so much.
    Thank you, Mr. Chairman.
    The Chairman. Senator Burr?
    Senator Burr. Thank you, Mr. Chairman.
    You know, what I have found is this issue is just as 
confusing as it was 22 years ago when I started on it. 
[Laughter.]
    But I think what is different is that the health-care world 
has changed significantly since then, so let me ask the same 
question a different way.
    Not repealing Stark will do what, Dr. Paulus, to Mission's 
ability in the future as it starts to transform to that future 
model of a health-care system?
    Dr. Paulus. I appreciate that. And the main concern, the 
main impairment, relates to how we can partner with our 
physicians who have chosen or understandably want not to be 
employed by us, right? So with our employed physicians, we have 
broad latitude. But we do not live in a fully employed world, 
and the majority of our physicians are not employed by us.
    So with those individuals, each and every time we want to 
do something to improve care quality, we face barrier after 
barrier after barrier.
    Number one, as I mentioned, all of the rewards have to be 
equal, no matter your performance. That does not make any sense 
to me. I should reward the people who perform and not reward 
the people who do not perform. That is not allowed.
    And every single time we want to do something to improve 
the delivery, the compassion, the effectiveness of care, we 
have to do this Stark algorithm. And just like with the 
geneticists who are unable to go to the Ob-Gyn's office, and 
just like our neonatal palliative care physician who cannot do 
the things that he would like to do, we are impaired and held 
back every step of the way.
    And when we look at the challenges that we face and the 
amount of improvement in quality and efficiency we have to 
create, we do not need these barriers.
    And I will reiterate that the Anti-Kickback Statute and the 
False Claims Act, with a remaining ownership restriction, cover 
the bases.
    Senator Burr. So in essence, what I hear is, we are 
spending a tremendous amount of money to have the comfort of 
knowing that this self-referral process is not going to take 
place, though we are spending a multiplier times an additional 
cost that is not going into the delivery of quality health care 
for this assurance of knowing we have this provision out there. 
Forget for the moment that the provision is written in a way 
that is very difficult to understand; it is a moving target.
    So I guess my point to my colleagues is, we are sacrificing 
the planning we need to do for the future as to how health-care 
systems should transform and what the relationship between 
physicians and systems are to keep a law in place, a statute in 
place, that really has been replaced with the Anti-Kickback 
Statute and other pieces that give us the same assurance that 
that same self-referral will not get out of control.
    Mr. Barsky, I want to go to you just very quickly. Your 
testimony talked about Stark Law waivers, where the current 
workaround for alternative payment plans under the Stark Law is 
a waiver from HHS.
    My question is this: even if a payment model is being 
tested and it demonstrates superior care and decreased cost, 
once the waiver expires, what happens?
    Mr. Barsky. That is an excellent question. And the law 
specifically says--the Affordable Care Act, which is what HHS 
uses to waive the Stark law--HHS does not have the authority 
right now to extend that waiver to protect those providers and 
those programs.
    So you have an experiment that goes on for a few years, and 
at the end of that experiment, because there is no other waiver 
authority, everyone needs to unwind all of the good things that 
they did.
    Senator Burr. So we do this tremendous workaround to find a 
successful route only to find out you cannot continue it 
without Stark being eliminated?
    Mr. Barsky. Exactly.
    Senator Burr. Mr. Mancino, as Medicare payments move from 
volume-based to value-based care, will it be possible for 
health-care systems like Johns Hopkins to comply with Stark 
while utilizing the innovative payment models? And what 
barriers need to be removed to make this transition occur more 
easily?
    Mr. Mancino. Well, I echo what my colleagues here have 
said. I believe that the compensation aspect of Stark should be 
eliminated. I think that that would give a lot more clarity to 
the Stark Law.
    I think that it really needs to be emphasized, the chilling 
effect the Stark Law has had on the industry. People are 
frightened; after the major judicial decisions that have 
occurred over the last few years, they are frightened to do 
anything, really, outside of employment arrangements. You are 
seeing a lot more employment than I think you would normally 
see because of it.
    So I think that--I echo what has been said, and I think 
that that is the best way to go.
    Senator Burr. Great. Thank you.
    The Chairman. Thank you, Senator.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman. I want to thank the 
panel for this informative hearing, because this is 
complicated, and we are grateful that you bring your own 
experience and scholarship to this.
    Dr. Paulus, we are certainly grateful that you went to Penn 
for--how many degrees, three degrees? We are not grateful that 
you left, so we are going to try to recruit you back. But 
thanks for your testimony.
    I guess I want to start with one of the basic problems 
here, as you have outlined, that when we consider the interplay 
between Stark and this new so-called MACRA set of policies, 
part of what we are trying to do with MACRA is to encourage, on 
the part of physicians, both more collaboration and also the 
opportunity to modify your practice behaviors. And those 
efforts are obviously running into the problem that you 
highlight.
    I was struck, Doctor, by your testimony starting on the 
bottom of page 5 going onto 6, about the geneticists and that 
conversation they would like to have with expectant mothers who 
have just learned that the child they are carrying will die 
shortly after birth, and the desire to have that conversation 
in both a comfortable and familiar setting, and that they would 
not charge--not charge--the patient or the physician's 
practice.
    So that is about as good an example as you can get for the 
problem here. I guess I want to know exactly what you hope we 
would do. Is it your testimony that we need to substantially 
modify the law, or would you hope we just repeal Stark?
    Dr. Paulus. From my lens, I believe that Stark should be 
repealed, perhaps retaining the ownership limitation.
    Senator Casey. Right.
    Dr. Paulus. It is the compensation arrangements that are 
problematic. If you think about any business wanting to align 
compensation with the outcomes that are desired, we cannot 
align compensation with the outcomes that are desired unless 
the physician is employed.
    And as a physician myself, why do we want to mandate that 
all physicians need to be employed? It is fine for them to 
remain in private practice. They would still need to have those 
interdigitated relationships with the organizations that they 
are taking care of patients with.
    And Stark is just an extraordinary barrier, not intended. 
It was well-intended, understandably. But I would completely 
repeal the compensation-related components of Stark.
    Senator Casey. I guess if you are kind of living in the 
real world you have to live in, you have a physician practice 
hoping to take advantage of these new alternative payment 
models that have been enacted in the law. How does that 
practice reward or penalize their physician for using the new 
tools or techniques that are deemed to result in cost savings? 
How do they do that and then also improve patient outcomes 
without running afoul of the Stark Law violations which, in 
many ways, run counter to this value-over-volume determination 
that we made?
    Mr. Mancino, do you have anything to add on this part of 
it?
    Mr. Mancino. Well, I agree with everything you said. And I 
think that, again, I believe that Stark as it is currently 
structured right now does not work in today's environment. It 
does not allow the incentives that you want to have under 
MACRA. So it needs to change.
    I believe that the suggestion about eliminating the 
compensation section of Stark is the best way to go at this 
time if we are not going to repeal it altogether. I think the 
ownership requirements under Stark would be more easily 
applied. So I think that is the way to go, but I defer to the 
committee.
    Senator Casey. Mr. Barsky, anything before we conclude?
    Mr. Barsky. The only thing I would add is, whether you are 
in an alternative payment model or not, the question about 
volume and value of referrals that you have mentioned is one 
that I think challenges every health system that is trying to 
comply with Stark in today's health-care economy.
    Right now, the standard is subjective in nature. If you 
think about referrals at all, you may be subject to Stark Law 
liability, whereas the regulations indicate that instead, it is 
an objective standard. It does not matter what you think; it 
matters what you do. Do you pay based on the volume and value 
of referrals?
    Just as an added recommendation, regardless of what we do 
with regard to MACRA and reform, there definitely needs to be 
clarity that the agencies do not seem to be capable of 
providing.
    Senator Casey. Thanks very much.
    The Chairman. Well, thank you, Senator.
    Senator Coats?
    Senator Coats. Thank you, Mr. Chairman.
    Mr. Chairman, I am pleased that both you and the vice chair 
and many of us here understand that there is a way to address 
this issue. It can be done in a bipartisan fashion. There has 
been some good testimony which I have looked through. I 
apologize for having to step out for another matter.
    But I cannot go anywhere in Indiana and talk to hospital 
administrators or others without this issue coming up, saying, 
you make a little technical mistake in the back room and so 
forth, and there is this complex process of trying to work your 
way through this, and you become subject to massive fines and 
so forth.
    Clearly, the intent of the bill is not being exercised 
here, and so I really want to thank you that I can have the 
opportunity to go back to our hospital administrators and 
others and simply say, yes, we are working on doing this, 
achieving the right goals. Practices are changing.
    I thought your opening statement hit the nail right on the 
head in terms of how we can go forward. So I really hope the 
committee can go forward on that basis and finally deal with 
this issue that has just run amok relative to how it is 
implemented, not necessarily the motive behind it, but how it 
has been implemented and over-regulated to the point where it 
is just driving everybody crazy.
    I apologize for not being here earlier. I do not want to be 
duplicative from the time standpoint of what you might have 
already addressed, but tell me, just the three of you--you have 
outlined a path forward, made suggestions as to how we can go 
forward.
    Is there anything that any of you disagree with that the 
others have said that might be a contentious issue that is more 
difficult to resolve than what has already been talked about?
    And I will start here and go right down the line.
    Mr. Barsky. So I think one issue that has not been raised 
but I raised in my opening testimony is the issue of in-office 
ancillary services and that exception which allows for 
physicians to make referrals in their own offices. There is a 
specific exception within the law itself that allows for in-
office referrals.
    So now physicians are allowed to bring in very expensive 
equipment into their offices, refer to themselves, and increase 
utilization. GAO has found numerous times over the past few 
years that this has indeed increased overutilization.
    I will admit that that is a contentious issue. I do not 
know whether it is contentious amongst the panelists here, but 
I do recognize that there are differing opinions within the 
health industry as to how to tackle that problem.
    But I will say that, from an overutilization standpoint--
which is everything we have talked about today that we are 
trying to combat--that is one issue that I would recommend that 
the committee should also consider, even though it is probably 
a tougher issue than maybe some of the other issues that we 
have discussed.
    Senator Coats. Dr. Paulus?
    Dr. Paulus. I actually agree with that, and I would add 
that there is a specific exception, as we are getting 
technical, for radiation oncologists, the theory being that 
they do not refer patients to themselves, which makes perfect 
sense, but some groups have begun to employ other physicians 
through those radiation oncologists, like neurologists and 
others, who then refer and are in this safe harbor exception 
but for this sort of structure that is a workaround.
    But I would agree with Troy and also just say that those 
issues are more contentious. If we could just get the basic, 
simple stuff done, that would be terrific. And there is always 
another day.
    Senator Coats. And, Mr. Barsky, is there anything you want 
to add to that?
    Mr. Barsky. I agree with everything that was said, and I 
think that Dr. Paulus is exactly right. We need to hit the core 
issues. There are definitely peripheral issues, like the in-
office ancillary exception.
    But I think that we seem to have agreement here about what 
we need to do on the core issues.
    Senator Coats. Very good.
    Mr. Chairman, thank you.
    The Chairman. Well, thank you, Senator.
    We are happy to have all three of you here.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman, and I thank the 
panelists. You probably will not find a bigger supporter of 
changing to a value-based way of paying for health care than 
myself, and I think that is because I represent a State that 
has definitely pursued that model, for a variety of reasons, 
and has delivered better outcomes because of it.
    And so we would love the rest of the country to pursue 
that, and that is why we authored some of the language that was 
in the Affordable Care Act and worked on the doc fix and some 
of that language. I would have been much more aggressive at 
moving the market than what was in that bill.
    But I am also a big believer in bright lines, and to me, 
this discussion this morning is a little bit--I mean, there are 
a couple of things here that I keep thinking about. We are 
really talking about reward versus abuse. We are really talking 
about paying physicians and rewarding them for good outcomes 
versus somebody who is doing something perverse in the system 
and not necessarily producing good outcomes, but just paying 
them for whatever they are doing.
    When I think about this from the energy market perspective, 
we went from a more regulated market to a deregulated energy 
market, but that did not mean that we still did not have laws 
to police the energy markets. I mean, we wrote a new anti-
manipulation law that FERC just used today to fine BP for 
manipulating markets.
    So to me, this is not an issue of trading one in for the 
other, and so I do not know what you think that bright line is 
that we are really trying to articulate here today.
    But we need to move forward, and we need physicians to be 
rewarded for good behavior, but we have to have something that 
tells us when they have been abusive of that behavior.
    And so what do you think that bright line is?
    Mr. Barsky. So, as we have been discussing today the Stark 
Law, the bright line that the Stark Law creates is in a system 
of fee-for-service. So if you are paying based on volume, the 
Stark Law is necessary to protect payments based on incentives 
based on volume.
    But as we move to this new value-based payment system, I 
think the bright line changes. What you are worried about is 
not overutilization but potentially underutilization and harm 
to patients, that you might do better if you provide less care.
    At least, when you are thinking about fraud in the 
program----
    Senator Cantwell. No, I think of it more in the context of 
somebody doing something like the same kind of practices or 
abuse you would be concerned about under Stark now, but 
accentuated, and then saying, oh well, the reason why we did 
not get the outcomes or the reason why we did not do this is 
because it was a scam.
    Mr. Barsky. Sure.
    Senator Cantwell. So I think what we are all dancing around 
here on the back and forth is that, even if we want to move to 
value-based payment systems because that is a better way to 
deliver health care--it is proven--then what do we need to do 
to make sure there are penalties for people who are abusive of 
that system for other reasons?
    So I do not think any of you are saying, no, no, no, like, 
just in the energy markets. So we went from a regulated market 
to a less-regulated market. We did not say that there are no 
rules.
    For markets to function--even Alan Greenspan had to admit, 
oh, he was wrong. They are not always self-adjusting. Sometimes 
people do bad things. So what are you going to do to catch the 
bad activity here? And that is, I think, what people on our 
side of the aisle are going to want to understand about this 
before they are going to say, oh, just throw out this rule. 
What are we going to do to catch the abusive behavior?
    Mr. Barsky. I think the existing waivers that HHS has 
issued are a good model for that. What they have said 
specifically is that the laws, Stark, Anti-Kickback, False 
Claims Act, are not waived completely. Instead, if you are 
engaged in the right activities, if you are working towards 
quality, the Stark Law is waived.
    If you are engaged in an activity, as you have mentioned, 
which is a sham, it is really to try to enrich physicians 
without helping patients, the waiver does not apply to you, and 
the Stark Law will continue to apply.
    So what I am saying is that there is a safety valve within 
these waivers--not a complete blanket waiver, but a safety 
valve--that if there are defrauding actors, the protections 
will not exist and the government will still have the ability 
to prosecute.
    Mr. Mancino. I would just add that nobody here is 
recommending that we eliminate the Anti-Kickback Statute or the 
False Claims Act. Those remain in place, and those, in and of 
themselves, I think prevent fraud.
    And I think that it is important to remember that Stark, 
while it is intended to be a bright-line test, is actually not. 
I mean, it is really rather dark. Nobody knows what it really 
means. And regarding commercial reasonableness and fair market 
value, you can talk to a million experts and get a million 
different theories about what they actually mean. So that is 
the problem with Stark. But I think you are protected by the 
Anti-Kickback Statute and the False Claims Act.
    Senator Cantwell. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman. I welcome all of 
our witnesses. I am sorry I was not at the hearing earlier. I 
am ranking member on the Senate Foreign Relations Committee and 
had to be there.
    As I listen to people talk about the Stark rules, I am just 
reminded of my service in the House of Representatives with 
Chairman Stark and being lectured--being educated--by him as to 
the importance of these rules. [Laughter.]
    We are now in a different era. And first, I want to welcome 
Mr. Mancino to our committee. We are very proud of the work 
that he does at Johns Hopkins and the work that Johns Hopkins 
does, not just in Maryland and our Nation but globally, on 
health-care issues. So it is nice to have all of you here, but 
it is nice to have the person from Maryland.
    I want to go a little parochial for one moment, if I might, 
and say that Maryland has an all-payer rate structure for 
hospital reimbursement that requires us to have an integrated 
way to deal with hospital care in our State, where you have to 
have arrangements between the hospitals and other providers in 
order to reduce overall costs in our State on hospital care. It 
is a requirement. Otherwise, we lose our all-payer rate waiver.
    Our all-payer waiver is important so that we do not have 
charity hospitals. At our Maryland hospitals, you get basically 
the same reimbursement regardless of the payer, whether it is 
Medicare or whether it is a private insurance company, for the 
services that are performed at the hospital.
    But the trade-off on that is that we have to show that we 
are saving the government money, and we have done that 
historically on a per-unit cost. We have always been lower. But 
where Maryland was not doing as well as it needed to do was in 
its overall per capita cost of hospital care.
    So 2 years ago we entered into a new arrangement with CMS 
where our hospital community has agreed that it will work with 
an overall global budget on hospital costs, which means they 
have to work with non-hospital providers in order to reduce 
readmissions, et cetera.
    So it seems to me that the Stark rules could present 
challenges to our community in achieving those targets. Could 
you just give me your view as to what modifications may be 
necessary in a State like Maryland that is trying to look at 
overall cost issues and results when there is responsibility on 
one provider to do more than just that particular service?
    Mr. Mancino. In Maryland, more than any other State really, 
because of that system that you are talking about, it is really 
important for us to be able to team with physicians and nursing 
homes, et cetera, to keep patients out of the hospital and out 
of high-cost settings.
    And so Stark is an even bigger problem for us. We cannot, 
for example, provide a physician assistant to a practice to be 
able to keep a chronically ill patient out of the hospital, and 
we cannot provide a PA to help in discharge to keep the patient 
all right. The problem is that Stark prevents us from doing 
these things, in many cases, because it is considered 
remuneration.
    And so the suggestion that has been floated here, which is 
to eliminate the compensation requirements of Stark and just 
have it as an ownership conflict-of-interest statute, I think 
would be an excellent solution in Maryland.
    Senator Cardin. Of course, one of the things that we 
recognize is that budgets are going to be tight in health care. 
We know that. That is a given. So we are all looking for ways 
that we can do more integrative, collaborative care models in 
which we look at provider groups working together in order to 
reduce overall costs. It seems to me that, as has been pointed 
out, some of the Stark provisions make that very difficult to 
achieve.
    Dr. Paulus. If I could add to your excellent comments on 
the situation in Maryland--even beyond Maryland, although 
Maryland is sort of the poster child. We think about how CMS 
has penalties now for hospital readmissions if you go above a 
certain amount, and the question is, what are the mechanisms to 
reduce those readmissions? They involve care coordination and a 
bunch of out-of-hospital things that keep people from needing 
to come back. Most of those things are not paid for.
    So if we were to try to set up a system where, let us say, 
we wanted to embed a care management nurse in a physician 
practice or we wanted to pay based upon our lower readmission 
rate, we cannot do those things because of the quote-unquote 
``volume of referrals.''
    We are actually specifically trying to reduce the volume of 
readmissions because it adds something of, quote, ``economic 
value'' to the practice.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman. I appreciate it.
    The Chairman. Well, thank you, Senator.
    I want to thank the three of you for being here. You have 
been excellent. Each one of you has added a great deal to our 
understanding of this, and we are going to try to do something 
about this before the end of the year.
    This is a very active committee. We move a lot of things 
out of here and, hopefully, we can do this for the medical 
profession as well. But to the extent that we can, it is going 
to be largely because of the testimony of the three of you. So 
we just really appreciate you being here with us. And I 
appreciate the questions of my fellow colleagues.
    So with that, we will recess until further notice.
    [Whereupon, at 11:27 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


                 Prepared Statement of Troy A. Barsky, 
                    Partner, Crowell and Moring, LLP
    Mr. Chairman, Ranking Member Wyden, and members of this 
distinguished committee, it is an honor for me to participate in this 
hearing and to provide my thoughts and insights regarding the Stark 
Law. I am a partner at the law firm of Crowell and Moring, where I 
provide advice and counsel to health care entities engaged in new 
health care delivery models. Prior to joining Crowell and Moring, I 
spent 11 years working at the U.S. Department of Health and Human 
Services (``HHS''). I served as the Director of the Division of 
Technical Payment Policy at CMS for my last 4 years at HHS where I was 
responsible for Stark Law policy and other Medicare payment issues, 
including those related to the implementation and creation of new 
value-based payment models created by the Patient Protection and 
Affordable Care Act of 2010 (``ACA'').\1\ I am here today in my own 
capacity and not on behalf of my firm. My views do not represent those 
of any client or other organization.
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    \1\ My full biography may be found at https://www.crowell.com/
Professionals/troy-barsky.
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              i. stark law reform is overdue and necessary
    The fundamental question at issue here is whether the Stark Law as 
it is currently drafted is precisely tailored to minimize unwarranted 
utilization resulting from certain financial relationships and is a net 
positive to patients/taxpayers. And if not, what reform is necessary to 
remove extraneous aspects that unnecessarily drive up health care 
industry, and ultimately, patient costs. As I will discuss in greater 
detail below, the Stark Law has evolved from the simple objective of 
removing certain financial incentives from medical decision-making into 
a tortured web of confusing standards, ambiguous and conflicting 
definitions, and volumes of regulations that require countless lawyers 
and valuation experts to ensure compliance.

    Compliance then is not only excessively costly, but unachievable as 
a practical matter. And because Stark is a strict liability statute, 
there is no need to intend to violate the law. If you fail to meet any 
of its technical requirements even inadvertently, a health care entity 
is subject to millions or tens of millions of dollars in payments and 
penalties, program exclusion, and False Claims Act (``FCA'') \2\ 
liability. And yet compliance with many of the elements of the Stark 
Law--such as requiring a signature on every written arrangement--have 
nothing to do with fraud, high quality service for patients, or 
protection of the Medicare program.
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    \2\ 31 U.S.C. Sec. Sec. 3729-3733; see, e.g., United States ex rel. 
Drakeford v. Tuomey Healthcare Sys., Inc., No. 13-2219 (4th Cir. July 
2, 2015); U.S. Department of Justice Settlement Announcement (October 
16, 2015): https://www.justice.gov/opa/pr/united-states-resolves-237-
million-false-claims-act-judgment-against-south-carolina-hospital; 
United States ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, 
et al., No. 09-cv-1002 (M.D. FL.); U.S. Department of Justice 
Settlement Announcement (March 11, 2014): https://www.justice.gov/opa/
pr/florida-hospital-system-agrees-pay-government-85-million-settle-
allegations-improper.

    With the passage of the ACA \3\ and the Medicare Access and CHIP 
Reauthorization Act of 2015 \4\ (``MACRA''), the Stark Law is now also 
an obstacle to the implementation of health care delivery and 
reimbursement reform. The goals of new payment models emanating from 
the ACA and MACRA are diametrically opposed to the requirements of the 
Stark Law. New health care payment models are designed to integrate 
providers clinically and financially and compensate physicians on value 
and quality care, while the Stark Law is intended to keep parties 
financially separated. Further, this shift from volume-based (fee-for-
service) to value-based payment systems reduces the underlying 
financial incentives believed to negatively impact medical decision-
making for which the Stark Law was initially enacted to combat. As we 
move away from the fee-for-service world, the need and utility of the 
Stark Law continues to diminish. Therefore, Congress should consider 
repealing, in whole or in part, and replacing the law. For example, a 
balance of harms analysis would support keeping the ownership 
prohibition, but removing the compensation prohibition.
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    \3\ The Patient Protection and Affordable Care Act (Pub. L. No. 
111-148) and the Health Care and Education Reconciliation Act of 2010 
(Pub. L. No. 111-152) are collectively known as the ``Affordable Care 
Act.''
    \4\ Pub. L. No. 114-10.

    Absent repeal, there are common-sense reforms that should be 
implemented to minimize the Stark Law's unjustified, onerous burden. 
First, the overwhelming vast majority of providers want to comply with 
the law, but struggle because of ambiguous critical terms. Making 
bright line rules that providers can follow and expanding CMS's 
authority to provide guidance through advisory opinions will greatly 
assist providers in complying. Second, limit the consequences of purely 
technical violations of the Stark Law. Either remove the technical 
requirements completely, or ascribe only a monetary penalty for 
technical violations rather than conditioning Medicare payment and 
exposing providers to FCA liability based on mere technicalities. 
Third, lower CMS's heightened standard of ``no program or patient 
abuse'' for promulgating new regulatory exceptions to the general 
---------------------------------------------------------------------------
prohibition.

    Stark Law reform is also necessary to remove barriers to 
implementing health care reform. The ACA allowed for broad Stark 
exceptions under the law. Give greater authority to the Secretary to 
expand this waiver authority in a unified manner to allow for more 
innovative payment models as opposed to the piecemeal, constrained 
approach that is now developing. Additionally, Congress should amend 
the statute to limit loophole exceptions that are contrary to health 
care reform efforts. For example, the in-office ancillary services 
exception continues to allow for in-office referrals and 
overutilization making it less likely these practices will move to an 
integrated care model. I recommend closing this exception to incent 
providers to move to value-based payment models. The Stark Law will 
continue to be a barrier if we do not modernize the law to reasonably 
protect against patient and program abuse while allowing for 
innovation.
        ii. the basic construction and history of the stark law
A. Broad Prohibition on Referrals
    The Physician Self-Referral Law, or the Stark Law, found in section 
1877 of the Social Security Act,\5\ consists of a 30-year series of 
statutory and regulatory enactments reflecting the complexity of the 
area for which it applies. Unless an exception applies, the Stark Law 
provides that if (1) a physician (or an immediate family member of a 
physician) has a direct or indirect financial relationship with an 
entity, the physician may not make a referral to the entity for the 
furnishing of designated health services (``DHS'') for which payment 
may be made under Medicare, and (2) the entity may not present (or 
cause to be presented) a claim to the Federal health care program or 
bill to any individual or entity for DHS furnished pursuant to a 
prohibited referral.\6\
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    \5\ Section 1877 of the Social Security Act.
    \6\ See section 1877(a)(1) of the Social Security Act; 42 CFR 
Sec. 411.353(a).

    The Stark Law is applicable when each of the following are 
involved: a physician (or a family member of a physician), a 
``financial relationship,'' and a ``referral.'' Determining the 
existence of a ``financial relationship'' or a ``referral'' are complex 
inquiries. A financial relationship is defined as any direct or 
indirect (a) ownership or investment interest or (b) compensation 
arrangement by or between a physician (or an immediate family member of 
the physician) in the entity providing the DHS.\7\ Indirect ownership, 
for example, brings entire chains of ownership into the province of 
Stark.
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    \7\ Section 1877(a)(2) of the Social Security Act.
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B Exceptions to the Broad Prohibition
    There are numerous statutory and regulatory exceptions to this 
general prohibition, which can be grouped into the following general 
categories:

          General Exceptions to the Ownership and Compensation 
        Arrangements Prohibitions; \8\
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    \8\ Several exceptions apply to both ownership or investment 
arrangements and compensation arrangements, e.g., physicians' services 
provided by a physician in the same group practice as the referring 
physician are exempted by section 1877(b)(1) of the Social Security 
Act.

          Permitted Ownership and Investment Interests; \9\
---------------------------------------------------------------------------
    \9\ For example, ownership of investment securities purchased on 
terms available to the general public and listed on certain recognized 
exchanges that exceed a specific level of average shareholder equity 
over 3 fiscal years are exempted under section 1877(b)(2) of the Social 
Security Act.

          Permitted Compensation Arrangements; \10\
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    \10\ For example, rental of equipment under certain circumstances 
is exempted by section 1877(e)(1)(B) of the Social Security Act.

          The Innocent Entity Exceptions and Related State-of-Mind 
        Issues; and \11\
---------------------------------------------------------------------------
    \11\ For example, an exception applies when the entity did not have 
actual knowledge or act in reckless disregard of deliberate ignorance 
of the identity of the referring physician, and the claim complies with 
all other Federal and State laws under 42 CFR Sec. 411.353(e).

          Waivers for Accountable Care Organizations (``ACOs'') in 
        connection with Shared Savings Program \12\ and other Center 
        for Medicare and Medicaid Innovation (``CMMI'') Models.\13\
---------------------------------------------------------------------------
    \12\ For example, waivers under the Patient Protection and 
Affordable Care Act apply to arrangements within ``accountable care 
organizations.'' See 80 Fed. Reg. 66726.
    \13\ All available fraud and abuse waivers for CMS models and 
programs, including those administered by CMMI, are listed here: 
https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/
Fraud-and-Abuse-Waivers.html. To date, the HHS Secretary has 
established waivers for the following programs:
     Pioneer Accountable Care Organization (``ACO'') Model;
     Bundled Payment for Care Improvement (``BPCI'') Model;
     Health Care Innovation Awards (``HCIA'') Round Two;
     Comprehensive ESRD Care Model;
     Comprehensive Care for Joint Replacement (``CJR'') Model;
     Next Generation ACO Model;
     Oncology Care Model; and
     Medicare Shared Savings Program (``MSSP'').

C.  The Stark Law Was Enacted to Address Possible Overutilization Due 
        to Financial Interests
    At its core, the Stark Law was intended to address the concern that 
physicians paid on a fee-for-service basis will perform or refer more 
or unnecessary services to earn more income.\14\ The impetus behind the 
Stark Law was a documented positive correlation between physicians' 
financial ties and increased utilization of services.\15\ As such, 
Congress sought to prohibit referrals to entities with which physicians 
or physicians' family members had a financial relationship in order to 
minimize or remove the possible impact of a financial incentive.
---------------------------------------------------------------------------
    \14\ 66 Fed. Reg. 856, 859 (January 4, 2001) (describing the 
correlation found between financial ties and increased utilization as 
the basis for the Stark Law).
    \15\ See 66 Fed. Reg. 856, 859 (January 4, 2001).

    As the issue of physician self-referral was gaining attention in 
the 1980s, the HHS Office of Inspector General (``OIG'') and the 
Government Accountability Office (``GAO'') engaged in separate studies 
examining the relationship between physician ownership and referrals. 
Both the OIG and GAO studies examined the occurrence of self-referral 
involving various types of medical services, and both agencies 
determined that physician self-referral most significantly increased 
utilization of clinical laboratory services.\16\ Congress concluded 
that such overutilization was undesired, though neither agency's study 
examined the medical necessity, or lack thereof, of the specific tests 
ordered.\17\
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    \16\ The OIG surveyed utilization patterns of physician owners of 
independent clinical laboratories, independent physiological 
laboratories, and durable medical equipment suppliers. The OIG found 
that physician self-referral related to laboratory tests was associated 
with a 45% increase in utilization, though the increased utilization 
with the other entity types was less significant. OIG--Office of 
Analysis and Inspections, Report to Congress, Financial Arrangements 
Between Physicians and Health Care Businesses 3 (1989). The GAO found 
that physician owners tended to order more, and more costly, laboratory 
services while ordering fewer, but more costly, imaging services. 
Medicare, Referring Physicians' Ownership of Laboratories and Imaging 
Centers, Hearings on H.R. 939 Before the Subcommittee on Health of the 
House Committee on Ways and Means, 101st Cong. 9 (1989).
    \17\ OIG--Office of Analysis and Inspections, Report to Congress, 
Financial Arrangements Between Physicians and Health Care Businesses 3 
(1989); Medicare, Referring Physicians' Ownership of Laboratories and 
Imaging Centers, Hearings on H.R. 939 Before the Subcommittee on Health 
of the House Committee on Ways and Means, 101st Cong. 9 (1989).

            1.  Stark I Only Addressed Financial Relationships With 
                    Clinical Laboratory Services' Entities
    In response, Stark I was created by the Omnibus Budget 
Reconciliation Act of 1989,\18\ which became effective January 1, 1992. 
Stark I prohibited a physician (or an immediate family member) who had 
a financial relationship with a clinical laboratory services entity 
from referring Medicare beneficiaries to the entity, unless an 
exception applied. In addition, it prohibited the lab from billing for 
any services furnished pursuant to such referrals.
---------------------------------------------------------------------------
    \18\ Pub. L. No. 101-239, 103 Stat. 2106 (1989) (Stark I was 
enacted in the Ethics in Patient Referrals Act).

    Congress actively decided \19\ against applying the ban of 
physician self-referral beyond clinical laboratory services to a broad 
array of medical services for which there was no evidence of 
overutilization resulting from self-referral.\20\ Since the agency 
reports indicated overutilization of only clinical laboratory services, 
this first legislative enactment targeted financial relationships with 
only those entities.
---------------------------------------------------------------------------
    \19\ The original Federal bill prohibiting self-referrals would 
have applied to a broad array of health-related goods and services. 
H.R. 5198, Sec. 2(a) 100th Cong., 2d Sess. (1988). The bill was 
introduced by Representative Fortney (Pete) Stark (D-CA). Id.
    \20\ Physician Ownership/Renewal Arrangements, Hearing Before the 
Subcommittee on Health and the Subcommittee on Oversight, House 
Committee on Ways and Means, 102nd Cong. 6 (1991) (statement of 
Representative Pete Stark, Chairman, Subcommittee on Health, House 
Committee on Ways and Means).

            2.  Stark II's Statutory Amendments Broadened the Self-
                    Referral Ban to a Wide Array of Health Services
    Only a few years later, in the second legislative enactment \21\ 
Congress expanded the clinical laboratory prohibition to a number of 
``designated health services'' (DHS). This expansion was based on the 
latest studies which associated overutilization of several additional 
services with self-referral \22\ as well as former Representative Pete 
Stark's ongoing efforts to prevent ``turning a physician's decision to 
refer a patient into a marketable commodity.'' \23\
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    \21\ Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 
107 Stat. 312 (1993).
    \22\ See, e.g., Jean M. Mitchell and Elton Scott, Physician 
Ownership of Physical Therapy Services, 268 Journal of the Am. Med. 
Ass'n 2055 (1992); Jean M. Mitchell and Jonathan Sunshine, Consequences 
of Physicians' Ownership of Health Care Facilities--Joint Ventures in 
Radiation Therapy, 327 The New England Journal of Med. (1992).
    \23\ See Physician Ownership and Referral Arrangements and H.R. 
345, ``The Comprehensive Physician Ownership and Referral Act of 
1993,'' Hearings Before the Subcommittee on Health, House Committee on 
Ways and Means, 103rd Cong. (1993); Physician Ownership/Renewal 
Arrangements, Hearing Before the Subcommittee on Health and the 
Subcommittee on Oversight, House Committee on Ways and Means, 102nd 
Cong. 6 (1991).

    Stark II, as part of the Omnibus Budget Reconciliation Act of 
1993,\24\ expanded the physician self-referral ban to the following 
DHS: \25\
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    \24\ Pub. L. No. 103-66, 107 Stat. 312 (1993).
    \25\ Section 1877(h)(6) of the Social Security Act.

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          Clinical laboratory services (Stark I);

          Physical therapy services;

          Occupational therapy services;

          Radiology or other diagnostic services, including MRI, CAT 
        scans, and ultrasound services;

          Radiation therapy services;

          Durable medical equipment;

          Parenteral and enteral nutrients, equipment, and supplies;

          Prosthetics, orthotics, and prosthetic devices;

          Home health services;

          Outpatient prescription drugs; and

          Inpatient and outpatient hospital services.
            3.  CMS Has Created a Complex and Ever-Growing Body of 
                    Regulations to Implement the Stark Law
    The Centers for Medicare and Medicaid Services (CMS) is responsible 
for interpreting the Stark Law and issuing regulations and other 
guidance. The regulatory definition and exception framework and 
interpretation thereof is ever-changing. The final rules are codified 
at 42 CFR Sec. Sec. 411.350-411.389.\26\ Below, we provide a list of 
the most substantive regulatory promulgations, but there are many 
others. All of these regulatory and other preamble guidance must be 
read, studied, and understood in order to comply with the Stark Law.
---------------------------------------------------------------------------
    \26\ See Significant Regulatory History, Physician Self-Referral, 
Centers for Medicare and Medicaid Services, https://www.cms.gov/
Medicare/Fraud-and-Abuse/PhysicianSelfReferral/Significant-Regulatory-
History.html.

          Stark I regulations, August 14, 1995.\27\ The first round of 
        regulations was promulgated in connection with Stark I. 
        However, since Stark II maintained the same general 
        prohibitions and some of the exceptions of Stark I, the 
        regulations implementing Stark I were applied by CMS to the 
        other DHS subject to Stark II.
---------------------------------------------------------------------------
    \27\ 60 Fed. Reg. 41914, 41916 (August. 14, 1995).

          Stark II Phase I regulations, January 9, 1998 (proposed 
        rule).\28\ These proposed regulations focused on applying many 
        of the existing provisions of the 1995 rule to additional DHS 
        as well as updating others in accordance with the changes to 
        the Stark Law enacted in the Omnibus Budget Reconciliation Act 
        of 1993 and the Social Security Act amendments from 1994. It 
        also provided additional explanation of CMS's views on the 
        appropriate application of the various exceptions and the scope 
        of the referral prohibition.
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    \28\ 63 Fed. Reg. 1659 (January 1, 1998).

          Stark II Phase I regulations, January 4, 2001 (interim final 
        rule).\29\ These regulations specifically interpreted and 
        implemented Stark II and offered guidance concerning its 
        interpretation and application to a wide range of arrangements 
        and relationships. Because the 1998 proposed rules introduced 
        restrictive interpretations, the 1998 proposed rules were 
        received critically and received extensive comments that CMS 
        interpretation was too conservative. These regulations provided 
        guidance regarding the service-based exceptions that apply to 
        both the ownership or investment interests and compensation 
        arrangements, like the in-office ancillary services exception.
---------------------------------------------------------------------------
    \29\ 66 Fed. Reg. 856 (January 4, 2001).

          Stark II Phase II regulations, March 26, 2004 (interim final 
        rule).\30\ This regulation addressed remaining portions of the 
        statute not covered under Phase I, including reporting 
        requirements and sanctions. CMS attempted to clarify the 
        exceptions to compensation arrangements and added additional 
        exceptions for financial relationships that posed no risk of 
        fraud and abuse. In particular, CMS added a ``fair market 
        value'' exception.
---------------------------------------------------------------------------
    \30\ 69 Fed. Reg. 16054 (March 26, 2004).

          Stark II Phase III regulations, September 5, 2007.\31\ Phase 
        III regulations interpreted provisions relating to direct and 
        indirect compensation arrangements. CMS indicated that all 
        three phases of Stark II regulations ``are intended to be read 
        together as a unified whole.''
---------------------------------------------------------------------------
    \31\ 72 Fed. Reg. 51012 (September 5, 2007).

          Stark II, Inpatient Prospective Payment System (``IPPS'') 
        regulations, August 19, 2008.\32\ These regulations expanded 
        the definition of the term ``entity'' to include those actors 
        that ``perform'' services billed as DHS. Further, the 
        regulations limited the ability of entities to utilize 
        percentage and per-click compensation formulas for equipment 
        and space lease arrangements.
---------------------------------------------------------------------------
    \32\ 73 Fed. Reg. 48434 (August 19, 2008).

          Stark II, IPPS regulations, October 30, 2015.\33\ These 
        regulations clarified the definition of ``remuneration'' and 
        the writing requirements of compensation exceptions. 
        Furthermore, CMS created an exception for timeshare leases.
---------------------------------------------------------------------------
    \33\ 80 Fed. Reg. 70885 (October 30, 2015).

    Despite the amount of time and money that goes into development, 
interpretation, implementation, and verifying compliance with the 
exceptions, sometimes it remains unclear whether the intended purpose 
of an exception was achieved, e.g., the ``whole hospital'' exception. 
The ``whole hospital'' exception, since Stark I's passage, exempted 
arrangements where physicians have an interest in an entire hospital--
whether a general acute care or specialty hospital.\34\ Since DHS 
includes inpatient and outpatient hospital services, absent an 
exception, referrals by a physician retaining an interest in a hospital 
would be prohibited. Over many years, some constituents sought to 
restrict this particularly broad exception, especially given a 
perception that specialty hospitals appropriate high-margin surgeries 
from general acute care hospitals. As a result of such efforts, in 
2003, Congress imposed an 18-month moratorium prohibiting physicians 
from referring a Medicare patient to any specialty hospital in which 
the physician had an ownership interest. Later, the ACA limited the 
whole hospital exception's application to only those hospitals that are 
``grandfathered'' in, i.e., hospitals with physician ownership and an 
effective Medicare provider number before December 31, 2010.\35\ 
Further, to avoid circumvention by increasing physician-ownership of 
exempted hospitals, the law and the regulations strictly limit the 
expansion of space or service of any grandfathered hospitals.\36\ And 
still, constituents on both sides of this issue continue to debate 
whether this exception and the imposed limitations on the exception 
effectively achieve their intended goals.
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    \34\ Section 1877(d)(3)(A) of the Social Security Act; 42 CFR 
Sec. 411.356(c). The exception requires (1) the ownership or investment 
interest must be in the hospital itself and not merely in a 
``subdivision'' of the hospital; (2) the referring physician must be 
``authorized'' to perform services at the hospital.
    \35\ ACA Sec. 6001(a)(3) added section 1877(i)(1) of the Social 
Security Act which sets out conditions that a facility must meet to 
continue to use the whole hospital exception.
    \36\ 42 CFR Sec. 411.362 (b)(2).

D. Strict Liability for Stark Law Violations Creates Staggering 
        Consequences
    Any proposed arrangement that involves a financial relationship 
with a physician who refers DHS that are payable by Medicare must be 
evaluated for compliance with every aspect of an exception to ensure 
the referral complies with Stark. Most exceptions have very detailed 
and technical requirements, including signatures on agreements and 
written contracts. Failure to comply with any of these requirements 
means an automatic violation of the Stark Law. Given the difficult and 
lengthy processes necessary to make a Stark Law compliance 
determination compared with the practical demands and structure of the 
health care industry, non-compliance is inevitable even for the best 
intentioned providers. This is troublesome for a number of reasons, 
such as the steep consequences for non-compliance.

    The Stark Law is a condition of Medicare payment: failure to comply 
with the Stark Law means a denial of Medicare payment for any claims 
submitted pursuant to the prohibited referral. In addition, sanctions, 
including civil monetary penalties and potential program exclusion, may 
be imposed against any person that submits or causes such claims to be 
submitted or fails to make a timely refund of any amounts collected. It 
is now well-established that a violation of the Stark Law can lead to 
FCA liability. This liability for submitting a false claim or causing a 
person or entity to submit a false claim is the most significant risk 
that health care providers face under the Stark Law. A violation of the 
FCA results in potential treble damages and civil penalties for every 
``tainted'' claim.

    The penalties under the Stark Law can be much higher than the 
penalties for other billing issues resulting in a Medicare overpayment. 
To illustrate, if a hospital has a non-compliant financial arrangement 
with a physician, all Medicare payments for all inpatient or outpatient 
services referred by that physician are overpayments and must be 
returned, regardless of the nature and the amount of the tainted 
transaction.\37\ This impact is further compounded because the Stark 
Law is also a strict liability statute. So if a physician and hospital 
violate the Stark Law, the entity must refund the payment amount, is 
subject to civil monetary penalties, and potential FCA liability even 
if there was no intent to unlawfully incent the referral and the 
referral was, in fact, warranted and medically necessary.
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    \37\ Senate Committee on Finance, ``Why Stark, Why Now? Suggestions 
to Improve the Stark Law to Encourage Innovative Payment Models,'' p. 5 
n. 10 (June 30, 2016) (using this example to illustrate the higher 
penalties for a Stark violation.)
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        iii. stark law deficiencies and recommended resolutions
A. The Stark Law Creates Unnecessary Impediments to Healthcare Reform
            1. Overview of Reforms Creating Value-Based Payment Models 
                    and Incentives
    The ACA encourages a fundamental shift away from traditional Fee-
for-Service (``FFS'') payment models that reward providers based on the 
quantity of services administered to patients--to value-based and 
population-based payment models that reward providers based on the 
quality and efficiency of care delivered. Value-based payment models 
significantly and, in many cases, entirely eliminate the risk of health 
care resource overutilization, which is the risk the Stark Law was 
designed to address. When health care providers earn their margin not 
by the volume of services they provide, but by the efficiency of their 
services and the excellence of the treatment outcomes, their economic 
self-interest aligns with the interest of law enforcement seeking to 
protect patients from unnecessary services. This is especially critical 
in an environment where health systems are earning an ever-increasing 
proportion of their income (Medicare and otherwise) outside FFS.

    The ACA chiefly promotes the use of value-based payment models 
through the creation of integrated care delivery models. Under the 
ACA's authority, the Center for Medicare and Medicaid Innovation 
(``CMMI'') has created and continues to oversee a number of 
demonstration projects under section 1115A of the Social Security Act 
that are changing health care payment and delivery by offering value-
based and population-based payments to providers.\38\ Similarly, the 
Centers for Medicare and Medicaid Services (``CMS'') administers the 
Medicare Shared Savings Program (``MSSP''),\39\ which is the permanent 
ACO program for CMS. Of note, the MSSP offers financial incentives 
under which ACOs--groups of doctors, hospitals, and other health care 
providers who come together voluntarily to provide coordinated care to 
their Medicare patients--can share a percentage of their achieved 
savings with Medicare, if the ACOs meet quality and savings 
requirements.\40\
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    \38\ CMMI, https://innovation.cms.gov/. Three of these models 
include the BPCI, the CJR, the Pioneer ACO Model, and the Next 
Generation ACO Model.
    \39\ Section 1899 of the Social Security Act.
    \40\ As of January 2016, when accounting for participating 
providers in the MSSP, the Next Generation ACO Model, Pioneer ACO 
Model, and the Comprehensive ESRD Care Model administered by CMS and 
CMMI, nearly 8.9 million Medicare beneficiaries are served through a 
total of 477 ACOs, 64 of which utilize two-sided risk-bearing models. 
CMS Press Release, ``New Hospitals and Health Care Providers Join 
Successful, Cutting-Edge Federal Initiative that Cuts Costs and Puts 
Patients at the Center of Their Care'' (January 11, 2016), available at 
http://www.hhs.gov/about/news/2016/01/11/new-hospitals-and-health-care-
providers-join-successful-cutting-edge-federal-initiative.html; see 
also CMS, ``Accountable Care Innovation Models,'' available at https://
innovation.cms.gov/initiatives/index.html#views=models&key=accountable 
care (last visited July 11, 2016).

    Building upon innovative payment models promoted under the ACA, 
Congress created a new framework to incent physicians to continue to 
engage in collaborative relationships to provide coordinated care to 
patients by enacting MACRA. MACRA ended the Sustainable Growth Rate 
(``SGR'') formula that previously dictated payment amounts for 
physicians enrolled as Medicare providers. In its stead, MACRA 
establishes the new Merit-Based Incentive Payment System (``MIPS'') 
that uses a combination of existing health care quality reporting 
programs to provide positive or negative payment adjustments based on 
value-based metrics. In addition, MACRA gave CMS the authority to 
provide incentive payments to clinicians who engaged in certain 
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Alternative Payment Models (``APMs'').

    APMs are defined under MACRA as: (1) section 1115A models being 
tested by CMMI (except health care innovation awards); (2) the MSSP; 
(3) a demonstration under section 1866C of the Social Security Act 
(establishing the Health Care Quality Demonstration Program); and (4) 
other demonstrations ``required by Federal law.'' \41\ According to the 
law and CMS's proposed rule implementing MACRA, beginning in 2019, if 
an ``eligible clinician'' participates in what CMS has deemed an 
``Advanced APM'' \42\ and receives a certain percentage of payments set 
in advance by CMS from delivering care to certain classes of Medicare 
beneficiaries through the Advanced APM, these clinicians may become 
``Qualifying APM Participants'' (``QPs'') and be eligible for incentive 
payments from CMS equal to 5 percent of their prior year's payments 
from Medicare Part B as well as higher payment updates under the 
annually issued Physician Fee Schedule (``PFS''). Starting in 2021, 
eligible clinicians may also become QPs by participating in a 
combination of Advanced APMs and APMs with other payers, including 
commercial payers (defined as ``Other Payer Advanced APMs'').\43\ By 
2024, the incentive payments will phase out, and the same will occur 
with the enhanced PFS updates. Overall, the incentives for 
participation in Advanced APMs and Other Payer Advanced APMs are 
intended to accelerate the transition from Medicare fee-for-service 
payments to value-based models.
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    \41\ Id. 81 Fed. Reg. 28161. According to the MACRA proposed rule, 
CMS would impose three criteria for the fourth category, including 
that: (1) the demonstration must be compulsory under the statute, not 
just a provision of statute that gives the agency authority, but one 
that requires the agency to undertake a demonstration; (2) there must 
be some ``demonstration'' thesis that is being evaluated; and (3) the 
demonstration must require that there are entities participating in the 
demonstration under an agreement with CMS or under a statute or 
regulation.
    \42\ As further explained in the MACRA proposed rule from CMS, an 
APM must meet all three of the following criteria defined under section 
1833(z)(3)(D) of the Social Security Act to be deemed an ``Advanced 
APM:''
    1. Require participants to use certified electronic health records 
technology (``CEHRT'');
    2. Provide for payment for covered professional services based on 
quality measures comparable to those in the quality performance 
category under MIPS; and
    3. Either require that participating APM Entities bear risk for 
monetary losses of a more than nominal amount under the APM, or be a 
Medical Home Model expanded under section 1115A(c) of the Act. 81 Fed. 
Reg. 28297.
    \43\ Section 1833(z)(2)(B)(ii) of the Social Security Act.

            2.  The Incomplete Protection of Existing Waivers for 
                    Innovative Payment 
                    Models
    Both the ACA and MACRA premise health care reform on the 
coordination of multiple health care providers to provide better care 
at lower cost. In other words, one of the main goals of the ACA and 
MACRA is to drive health care entities together, both clinically and 
financially. Yet, the goals of the Stark Law are diametrically opposed 
to this goal, having been designed to keep health care entities 
financially apart.
              a. The Fraud and Abuse Waivers Under the ACA
    In enacting the ACA, Congress recognized Federal ``fraud and 
abuse'' laws are increasingly incompatible with these innovative 
payment and integrated care models. Thus, the ACA authorized the 
Department of Health and Human Services (``HHS'') Secretary to issue 
regulatory waivers for innovative payment and service delivery models 
under MSSP, CMMI's authority, and the Health Care Quality Demonstration 
Program.\44\ Using that authority, the Secretary issued waivers from 
the requirements of the Stark Law as well as other fraud and abuse laws 
for participants in the MSSP,\45\ and has exercised that authority as 
well for participants in the BPCI, the CJR and other demonstration 
programs at CMMI. Because of these waivers, providers can meaningfully 
participate in innovative payment models without being subject to the 
Stark Law. However, the waivers under the MSSP and under the CMMI 
programs operate very differently and provide incomplete protection, as 
described below.
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    \44\ Section 1899 of the Social Security Act (42 U.S.C. 1395jjj); 
section 1115A of the Social Security Act (42 U.S.C. 1315a); and section 
1866C of the Social Security Act (42 U.S.C. 1395cc-3).
    \45\ CMS and OIG, ``Final Waivers in Connection With the Shared 
Savings Program,'' 80 Fed. Reg. 66726 (October 29, 2015).

                (i)  The MSSP Waivers Are Broad, But May Be Out of 
                    Reach for Commercial Entities
    Under the MSSP, CMS and OIG collaborated to create five waivers 
that would provide collective protection from enforcement under the 
Stark Law as well as from other selected anti-fraud and abuse 
statutes.\46\ The broadest waivers available under the MSSP protect 
arrangements protect ``start-up'' and continuing the operations of an 
ACO as well as distributions and uses of shared savings payments earned 
under the MSSP.\47\
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    \46\ Id.
    \47\ Id. (specifically, the ACO Pre-Participation Waiver, the ACO 
Participation Waiver, and the ACO Shared Savings Distribution Waiver).

    All of the waivers provide simple requirements regarding the 
parties eligible for the waivers, the arrangements to which the waivers 
could apply, the terms during which the arrangements would receive 
protection under the waiver, and requirements for parties' governing 
bodies to fulfill in order to memorialize the adoption of the waivers 
at their respective organizations. Most importantly, however, these 
waivers are generally available to participants in the MSSP as well as 
entities that arrange to provide items or services that support the 
MSSP participants, so long as the governing boards have determined that 
the arrangements are ``reasonably related'' to the MSSP. The MSSP 
waivers have allowed health care systems to engage in innovative care 
coordination and payment arrangements and ACOs find them relatively 
easy to adopt and apply to their operations. But despite these 
benefits, the MSSP waivers are not broad enough to protect arrangements 
that may involve commercial arrangements that still trigger the Stark 
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Law, as I describe in section III.A.3 below.

                (ii)  The CMMI Waivers Are Too Narrow and Time-Limited 
                    for Long-Term Results
    In contrast, the waivers applicable to CMMI initiatives are 
extremely program-specific. As CMMI implements more models, the waiver 
requirements have gotten more prescriptive and extremely narrow. These 
waivers are too program-specific and too numerous to keep track of to 
facilitate continued progress toward health reform, especially when a 
health care entity or system is participating in multiple programs 
simultaneously. More importantly, however, the waivers related to 
CMMI's programs offer only temporary protection for participants 
because they are only available during the time they are being tested 
by CMMI. Thus, once the program related to the specific waiver is over, 
there is little incentive to continue the arrangement it previously 
protected because the parties to the arrangement would have to make it 
comply with applicable exceptions and safe harbors under the fraud and 
abuse laws. More likely than not, this means that an arrangement that 
could have immense cost-efficiencies for the health care system would 
have to end with the termination of the CMMI program. And given the 
short-term nature of the CMMI programs (they generally last for 3 to 5 
years), many health systems will not want to invest in infrastructure 
redesign only to have to unwind such arrangements to comply with 
existing Stark Law restrictions.
              b. New APMs Under MACRA
    Similarly, MACRA is a landmark shift toward value-based payment 
systems in the U.S. health care system, but falls short in addressing 
the still-existing barriers presented by the fraud and abuse laws, 
including the Stark Law, that were not remedied in the ACA. Although 
Congress established the HHS Secretary's authority to waive certain 
requirements including the payment-related requirements imposed by the 
Stark Law within specific provisions of the ACA, no such authority 
exists in MACRA. Thus, providers must rely on the authorities granted 
in the ACA to find relief from the fraud and abuse laws, even though 
MACRA opened the door to the creation of additional government-based 
and non-government based programs to support the transition to value-
based payment for services to Medicare beneficiaries.\48\ But having to 
``bootstrap'' the waivers available under the ACA to new programs under 
MACRA still provides incomplete protection from the fraud and abuse 
laws in the following situations:
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    \48\ Of note, however, Congress has requested a report ``with 
options for amending existing fraud and abuse laws in, and regulations 
. . . through exceptions, safe harbors, or other narrowly targeted 
provisions, to permit . . . arrangements between physicians and 
hospitals [] that improve care while reducing waste and increasing 
efficiency.'' MACRA Sec. 512(b). I welcome the opportunity to respond 
and provide comment to this report whenever it is available to the 
public.

          In CMMI programs where the HHS Secretary elects to not 
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        create waivers from the fraud and abuse laws;

          In APMs from the ``demonstration programs required by 
        federal law'' category where Congress did not provide the HHS 
        Secretary authority to establish waivers; or

          In APMs that are not specified in MACRA, such as Other Payer 
        APMs and Other Payer Advanced APMs.
            3.  Examples of the Incomplete Nature of Fraud and Abuse 
                    Waivers
    Currently, in order to use the waivers from fraud and abuse laws, 
particularly the Stark Law, health care providers or payers must 
undergo the following steps: (1) choose to participate in a program 
where a potential waiver exists, (2) examine the requirements of the 
waiver established by the HHS Secretary to determine the requirements, 
and (3) fulfill the requirements of the waiver, sometimes without 
certainty that the waiver provides complete protection against 
potential enforcement under the Stark Law. As a result, the health care 
system requires providers and payers to engage in a piecemeal, 
patchwork approach to conforming to the requirements of the fraud and 
abuse laws, and prevents a centralized approach to fraud and abuse 
compliance. Where waivers from the fraud and abuse laws are available 
only in certain programs, in the absence of a mechanism to allow for 
application of similar waivers to multiple programs, health care 
providers are deterred because they do not have the time, money, or 
staff resources to structure arrangements to address the requirements 
of each and every program's waivers.

    Finally, while the Stark Law is an impediment to the full success 
of MACRA, it is also a significant barrier to those providers who 
engage in innovative payment models outside of the MSSP ACOs, CMMI 
models, and APMs. These arrangements, often found in the commercial 
market, create the same financial relationships found in Medicare 
innovative payment models and therefore trigger the Stark Law's 
application. While some of these relationships will fit within existing 
Stark Law exceptions, many others do not. It is not clear how broadly 
HHS has exercised its waiver authority to protect these commercial 
arrangements, and it has failed to provide definitive guidance on the 
application of their waivers to these new relationships. This issue is 
vitally important to the success of MACRA and other CMS innovative 
payment models, because many of these new non-Medicare models are an 
``on-ramp'' towards more sophisticated payment arrangements. In other 
words, as physicians and health care providers move towards new payment 
arrangements, some are not ready to move immediately into a Medicare 
model. Instead, they are moving at a slower pace, with the intention of 
moving towards these new models within the next few years. Without 
specific protection from the Stark Law's application to these 
intermediate models, these health care providers will never be able to 
move to more sophisticated models that are being offered by CMS. 
Removing the Stark Law as a barrier to these partially integrated 
entities will allow them to leave behind the fee-for-service payment 
model and begin accepting value based payment without the risk of Stark 
Law enforcement.
            4. Recommendations for Removing Barriers to Reform
    For the reasons set forth above, unfortunately, the following quote 
from Timothy Jost and Ezekiel Emanuel's article 2008 still applies: 
``[t]he current legal environment has created major barriers to 
delivery system innovation. Innovation will not occur if each novel way 
to organize and pay for care needs to be adjudicated case-by-case or is 
threatened with legal proceedings.'' \49\ Thus, without Congressional 
intervention, the fraud and abuse laws will still prevent providers 
from pursuing collaborative, non-abusive relationships that would 
support value-based payment.
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    \49\ Timothy S. Jost and Ezekiel J. Emanuel, Legal Reforms 
Necessary to Promote Delivery System Reform Innovation, 299 JAMA 2561, 
2561 (2008).

    CMS's most recent attempt at such a comprehensive approach occurred 
8 years ago, when it proposed a new ``Exception for Incentive Payment 
and Shared Savings Programs'' to the Stark Law in the proposed 2009 PFS 
Rule.\50\ It was intended to permit incentive payments between 
physicians and entities furnishing DHS, conditioned on the fulfillment 
of 16 conditions. Similar to the issue raised in the prior section, 
this exception would protect all incentive-based payment arrangements 
regardless of whether they exclusively focused on Medicare patients. 
CMS never finalized the exception, but the enactment of ACA and MACRA 
has accelerated the growth of these models to a point where it is 
necessary to explore the possibility of a global exception once again. 
Rather than take the prescriptive, element-by-
element approach that CMS attempted in the proposed Stark Law 
exception, however, I would recommend that Congress provide broad 
waiver authority for the HHS Secretary to use the same approach 
employed to establish waivers for the MSSP.
---------------------------------------------------------------------------
    \50\ CMS, ``Revisions to Payment Policies Under the Physician Fee 
Schedule and Other Revisions to Part B for CY 2009; and Revisions to 
the Amendment of the E-Prescribing Exemption for Computer Generated 
Facsimile Transmissions; Proposed Rule,'' 73 Fed. Reg. 38502, 38548-
38558 (July 7, 2008).

    As described above in section III.A.2.a(i), CMS and OIG's joint 
waivers provide collective protection from enforcement under the Stark 
Law as well as from other selected anti-fraud and abuse statutes.\51\ 
These waivers are generally available so long as the arrangements at 
issue are ``reasonably related'' to the MSSP. Congress should 
legislatively provide the framework for CMS to employ a similarly 
flexible approach for any arrangement that is ``reasonably related'' to 
APMs under MACRA, and make it clear that CMS can permit health care 
entities that operate in the commercial marketplace to enjoy waiver 
protection as well, as long as they are engaged in integrated delivery 
models paid through a value-based payment methodology. As noted above, 
while it is clear that CMS needs broader waiver authority for MACRA to 
succeed, equally as important is waiver authority or a broader 
statutory exception that allows for innovative payment models that 
operate outside of the ACA and MACRA, but still violate the Stark Law.
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    \51\ CMS and OIG, ``Final Waivers in Connection With the Shared 
Savings Program,'' 80 Fed. Reg. 66726 (October 29, 2015).

    I recommend that in addition to modeling any new exception after 
the MSSP waivers, that the committee also review and use portions of 
the managed care safe harbors under the Anti-Kickback Statute (``AKS'') 
that provide fraud and abuse protection.\52\
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    \52\ See section 1128B(b) of the Social Security Act and 42 CFR 
Sec. 1001.952(t) and (u).

B. Penalties for Technical Non-Compliance Far Exceed Possible Harm
    The Stark Law has a strict liability penalty scheme, in which even 
inadvertent violations can trigger enormous repayment obligations. 
Compensation arrangements between a referring physician and a DHS 
entity are typically considered to be ``substantive'' Stark Law 
violations if the compensation (1) is not Fair Market Value (``FMV''); 
(2) takes into account the value or volume of referrals or other 
business generated; or (3) is commercially unreasonable.

    In addition to these substantive rules, the Stark Law requires 
compliance with a number of technical, non-substantive requirements. 
For example, to qualify under the commonly used ``fair market value 
compensation'' exception, compensation resulting from an arrangement 
between an entity and a physician for the provision of items or 
services is excepted under the law, if the arrangement meets certain 
substantive requirements and is ``in writing, signed by the parties, 
and covers only identifiable items or services, all of which are 
specified in writing.'' \53\ The writing must specify the timeframe of 
the arrangement and the compensation to be provided.\54\ Under Stark 
Law's strict liability scheme, any missing element--such as a signature 
by one of the parties to the agreement--pulls the entire arrangement 
out of compliance. The compensation could be set at fair market value, 
not determined in a manner that takes into account the volume or value 
of referrals or other business generated by the referring physician, 
and be commercially reasonable--yet still violate Stark Law due to a 
technical error.
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    \53\ 42 CFR 411.357(l)(1).
    \54\ Id.

    Under the Stark Law, all Medicare payments for DHS furnished 
pursuant to a prohibited referral are disallowed.\55\ In the above 
example, failure to include a required signature could result in the 
disallowance of Medicare payments for DHS, requiring a hospital to 
repay tens of millions of dollars, depending on the size of the 
hospital and the length of the unsigned agreement--an enormously 
disproportionate penalty given the triviality of the violation and lack 
of resulting harm to patients or to the Medicare program.
---------------------------------------------------------------------------
    \55\ 42 CFR 411.353(c).

    There is a general consensus in the industry and among regulators 
that the unintentional failures to satisfy such documentation 
requirements are ``technical'' and do not impact the proclivity of 
providers to make referrals. Compliance with the law's technical 
requirements does not reduce the overutilization of medical items and 
services. Likewise, failure to comply with the technical requirements 
---------------------------------------------------------------------------
does not increase the overutilization of medical items and services.

    The technical requirements were designed as a means for parties to 
evidence adherence to the substantive requirements of the Stark Law. 
For example, signatures provide proof that two parties mutually entered 
an agreement--a premise necessary to establish that an arrangement is 
commercially reasonable, set at fair market value, and does not take 
into account the volume or value of referrals. However, a signature is 
only one means to evidence mutual assent. The rendering of services, 
invoices, and a payment trail are other means by which by both mutual 
assent and compliance with the substantive requirements can be shown.

    Recognizing some of the challenges posed by the technical 
requirements, CMS recently clarified aspects of the technical elements 
(e.g., allowable duration of noncompliance with the ``signature 
requirement'').\56\ While the clarification provided by CMS relaxes the 
technical requirements to a degree, it does not provide reprieve from 
the severe penalties for technical noncompliance. Further, because 
these technical requirements are based in statute, CMS does not have 
the authority to revise or remove these requirements. Congress must do 
so. The technical requirements under Stark Law are unnecessary and 
result in both high compliance costs and excessive penalties for 
hospitals and providers. Congress could eliminate these technical 
requirements with no harm to patients or to Medicare.
---------------------------------------------------------------------------
    \56\ CMS, ``Medicare Program; Revisions to Payment Policies Under 
the Physician Fee Schedule and Other Revisions to Part B for CY 2016,'' 
80 Fed. Reg. 70885, 71300-71341 (November 16, 2015).

    If Congress chooses not to eliminate the technical requirements 
under Stark Law, I recommend removing compliance with technical 
requirements as a condition of Medicare payment and granting authority 
to CMS to impose a simple monetary penalty per arrangement. Currently, 
CMS has the authority to reduce the amount due and owing under the 
Stark Law through its Medicare self-referral disclosure protocol 
(``SRDP''), a process by which health care entities can voluntarily 
disclose actual or potential violations of the Stark Law. Yet, CMS does 
not have clear congressional authority to settle such cases on a per-
penalty basis. As part of the disclosure, entities must provide copious 
amounts of referral data to CMS--which is often extremely time and 
resource intensive for both the health care entity in its data 
collection efforts and for CMS in its review and assessment of the data 
to determine the overpayment amount. Providing specific legislative 
direction to settle these technical non-compliance matters on a per-
penalty basis would remove any doubt as to the limited importance of 
technical violations and would provide for greater efficiency in 
administration of the Stark Law.
C.  The Stark Law's Complexity and Lack of Clarity Raises Costs and 
        Yields Inconsistent Application in the Health Care Industry
    The Stark Law was intended to provide a bright line test limiting 
physician self-referral. As applied, the Law's structure, breadth, and 
complexity have yielded few bright lines, in part, due to unclear and 
ambiguous critical terms: ``fair market value,'' ``taking into account 
the volume or value of referrals,'' and ``commercial reasonableness.'' 
For example, despite the general lack of case law interpreting the 
Stark Law, the determination of fair market value has reached judicial 
review several times.\57\ As a result, the health care industry incurs 
significant costs for legal interpretation from counsel, which, in 
turn, yields a myriad of differing and sometimes conflicting opinions. 
Thus, depending on the interpretation adhered to by an entity, an 
arrangement deemed non-compliant by one institution may be deemed 
compliant by another.
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    \57\ See United States ex rel. Kosenske v. Carlisle HMA Inc., 554 
F.3d 88 (3d Cir. 2009); United States ex rel. Goodstein v. McLaren 
Reg'l Med. Ctr., 202 F. Supp. 2d 671 (E.D. MI. 2002); United States ex 
rel. Singh v. Bradford Reg'l Med. Ctr., 752 F. Supp. 2d 602 (W.D. PA., 
2010).

    To achieve greater clarity and certainty, I recommend the following 
changes to the statute: (1) modify the definitions of the terms 
identified pursuant to the criteria below, and (2) expand CMS's 
authority to issue advisory opinions and regulatory exceptions.
            1.  Define Critical Terms in an Objectively Verifiable 
                    Manner
    Fair Market Value.\58\ Determining what constitutes fair market 
value is not clear under existing CMS guidance. Further, recent case 
law has conflated and combined the definition of fair market value and 
the volume or value standard. To remedy this confusion, I recommend 
that Congress set forth a clear statutory standard. At the very least, 
I recommend the establishment of a ``safe harbor'' for compensation to 
a physician from a DHS entity that is at or anywhere below the 75th 
percentile for national compensation for physicians in the same 
specialty in any national survey designated by the Secretary. The 75th 
percentile is considered fair market value according to the valuation 
expert relied on by the government in several recently litigated cases. 
This ``safe harbor'' approach builds on a proposal by CMS raised in the 
Stark II rulemaking that was not adopted. This safe harbor approach 
should be revisited. While it would not address all physician 
arrangements, it would provide certainty on the FMV standard in the 
vast majority of them.
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    \58\ 42 CFR Sec. 411.351.

    Taking Into Account Volume or Value of Referrals.\59\ Under current 
law, there is confusion over whether the ``takes into account the 
volume or value of referrals'' is an objective standard (i.e., did the 
compensation actually vary based on referrals) or a subjective standard 
(i.e., did the entity think about potential referrals even if it did 
not set the compensation using them). I recommend a ``safe harbor'' for 
all compensation arrangements that are initially established at a fair 
market value rate and do not change or vary during the term of the 
arrangement based on the value or volume of referrals (or other 
business generated where applicable). This is similar to the approach 
taken by CMS with respect to only certain per unit of service payments. 
Because the Stark Law is a strict liability statute, examining a 
party's intent or frame of mind should be irrelevant. Instead, only an 
objective, verifiable standard should be applied.
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    \59\ This phrase is used in fair market value definition cited 
above, as well as the definitions of ``remuneration'' and the special 
rules on compensation relationships defined at 42 CFR Sec. 411.354(d), 
and the regulatory exceptions at 42 CFR Sec. 411.355(e) (academic 
medical centers), 42 CFR Sec. 411.357(a) (rental of office space), (b) 
(rental of equipment), (c) (bona fide employment), (d) (personal 
service arrangements), (e) (physician recruitment), (f) (isolated 
transactions), (g) (certain arrangements with hospitals), (h) (group 
practice arrangements), (j) (charitable donations by a physician), (l) 
(fair market value compensation), (m) (medical staff incidental 
benefits), (p) (indirect compensation arrangements), (r) (obstetrical 
malpractice arrangements), (s) (professional courtesy), (t) (retention 
payments in underserved areas), (v) (electronic prescribing items and 
services), (w) (electronic health records items and services), (x) 
(assistance to compensate a nonphysician practitioner), and (y) 
(timeshare arrangements).

    Commercial Reasonableness.\60\ While a number of important 
exceptions have a requirement that the arrangement be commercially 
reasonable without taking into account Medicare referrals, the term 
``commercial reasonableness'' is not clearly defined anywhere. Under 
current law, there is confusion over whether a hospital's subsidy of a 
physician's practice is commercially reasonable even where the 
physician's compensation is in the range of FMV. I recommend either 
that this standard be removed completely or that the statute be amended 
to add a definition of commercial reasonableness e.g., that the items 
or services are of the kind and type of items or services purchased or 
contracted for by similarly situated entities and are used in the 
purchaser's business, regardless of whether the purchased items or 
services are profitable on a standalone basis.
---------------------------------------------------------------------------
    \60\ This term is used in the exceptions at 42 CFR Sec. 411.357(a) 
(rental of office space), (b) (rental of equipment), (c) (bona fide 
employment), (e) (physician recruitment), (f) (isolated transactions), 
(l) (fair market value compensation), (n) (risk-sharing arrangements), 
and (y) (timeshare arrangements).
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            2. Expand CMS's Advisory Opinion Authority
    While the Stark Law authorizes CMS to issue advisory opinions to 
the industry,\61\ CMS's advisory opinion regulations are unduly 
restrictive.\62\ CMS modeled its advisory opinion regulations on the 
OIG's advisory opinion regulations for the Federal health care 
programs' AKS.\63\ For example, CMS regulations prohibit CMS from 
issuing advisory opinions to a party if the same or similar arrangement 
is under investigation by another government agency, and prohibit 
advisory opinions on hypothetical arrangements. While these 
restrictions may be appropriate for advisory opinions addressing a 
criminal statute, they are inappropriate where the regulated community 
needs to know how to comply as a condition of payment. The Stark Law is 
a strict liability statute where the regulations are complex, 
technical, and ambiguous in crucial areas. The regulated community is 
entitled to clear, timely guidance on how to structure such 
arrangements in order to qualify for Medicare reimbursement.
---------------------------------------------------------------------------
    \61\ Section 1877(g)(6) of the Social Security Act.
    \62\ 42 CFR Sec. Sec. 411.370-411.389.
    \63\ 42 CFR part 1008; see also OIG, ``Advisory Opinions,'' https:/
/oig.hhs.gov/compliance/advisory-opinions/index.asp (last visited July 
10, 2016).

    I recommend that CMS advisory opinion authority be modified to 
expressly (a) permit CMS to advise on existing, proposed, or 
hypothetical compensation or ownership arrangements; and (b) prohibit 
the agency from declining to issue an opinion on the grounds that a 
similar arrangement between other parties is under investigation or the 
subject of a proceeding involving another government agency.
            3.  Relax the Standard for CMS to Promulgate New Regulatory 
                    Exceptions
    The Secretary may only create additional exceptions where she 
determines an arrangement ``does not pose a risk of program or patient 
abuse.'' \64\ CMS has interpreted this language to constrain its 
ability to create exceptions if there is any theoretical risk, however 
small. This stance is significantly more restrictive than the 
Secretary's ability to create safe harbors to the AKS.\65\
---------------------------------------------------------------------------
    \64\ Section 1877(b)(4) of the Social Security Act.
    \65\ Section 1128D(a)(2) of the Social Security Act.

    The constraint prevents CMS from creating exceptions for 
arrangements that pose small or minimal risks. For example, it 
significantly affected efforts by CMS to create a value-based or 
innovative payment exception. It also requires CMS to impose more 
safeguards than necessary, which limits the usefulness of the 
exceptions it does create. For example, each of the Stark Law's 
regulatory exceptions included a requirement that the arrangement not 
violate the AKS. Since compliance with the AKS depends on intent and 
requires a case-by-case investigation, compliance with the Stark 
exception will also require an investigation into intent and the 
specific facts. Such limitations are unworkable and unnecessary for a 
---------------------------------------------------------------------------
payment regulation.

    I recommend that the statute be modified, at a minimum, to allow 
CMS to create new exceptions to the self-referral prohibition so long 
as the Secretary determines the exception does not pose a significant 
risk of program or patient abuse.
D.  Abuse of the In-Office Ancillary Exception is Contrary to the Stark 
        Law's Intent
    Since its enactment in 1989, the Stark Law has provided a statutory 
exception for ``in-office ancillary services'' (``IOAS''),\66\ 
supplemented by requirements in subsequent regulations.\67\ Despite its 
early adoption and incorporation into the law's regulatory framework, 
many stakeholders have singled out the IOAS exception as one of the 
most abused in the law, because it ultimately promotes the very conduct 
that the Stark Law was intended to prevent--overutilization of services 
and unnecessary self-referrals of health care services.
---------------------------------------------------------------------------
    \66\ Section 1877(b)(2) of the Social Security Act.
    \67\ 42 CFR Sec. 411.355(b).
---------------------------------------------------------------------------
            1.  Background of the IOAS
    The IOAS exception was adopted under the guise of promoting patient 
convenience by allowing physicians to self-refer patients for services 
that could be provided by other practitioners in the same group 
practice. The original intent was to allow for limited diagnostic 
testing such as lab services and x-rays to assist in determining the 
proper course of treatment.

    But over the years, it has become clear that the IOAS exception is 
being used and abused well beyond its original intent. For example, as 
evidenced by GAO reports, the use of the IOAS exception has increased 
dramatically with specific service lines, including radiation therapy, 
advanced imaging, anatomic pathology services, and physical and 
occupational therapy. Specifically, ``[p]hysician self-referral of 
ancillary services leads to higher volume when combined with fee-for-
service payment systems, which reward higher volume, and the mispricing 
of individual services, which makes some services more profitable than 
others.'' \68\ A GAO report determined that ``[s]elf-referring 
providers in 2010 generally referred more anatomic pathology services 
on average than those providers who did not self-refer these services, 
even after accounting for differences in specialty, number of Medicare 
FFS beneficiaries seen, patient characteristics, or geography.'' \69\ 
In addition, a 2013 GAO report focusing on a high-cost prostate cancer 
radiation therapy found that ``[s]elf-referring providers referred 
approximately 52 percent of their patients who were newly diagnosed 
with prostate cancer in 2009'' for that therapy, in contrast with the 
34 percent of patients referred for the same procedure by non self-
referring providers.\70\ The self-referring providers were also less 
likely to refer patients for other, potentially less costly 
treatments.\71\
---------------------------------------------------------------------------
    \68\ Medicare Payment Advisory Commission (``MedPAC''), ``Report to 
the Congress: Medicare and the Health Care Delivery System,'' 27 (June 
2011) (hereafter, ``MedPAC Report'').
    \69\ GAO, GAO-13-445 ``Action Needed to Address Higher Use of 
Anatomic Pathology Services by Providers Who Self-Refer'' (June 24, 
2013).
    \70\ GAO, GAO-13-525 ``Higher Use of Costly Prostate Cancer 
Treatment by Providers Who Self-Refer Warrants Scrutiny'' (July 19, 
2013).
    \71\ Id.

            2.  Remedying the Incompatibility of IOAS With Health 
                    Reform
    As stated by the Medicare Payment Advisory Commission, ``under an 
alternative payment structure in which providers are rewarded for 
constraining volume growth while improving the quality of care, the 
volume-increasing effects of self-referral would be mitigated.'' \72\ 
Yet, until we move to a fully integrated payment system, the incentives 
to abuse the IOAS exception remains. Further, because of the 
significant financial incentives that the IOAS exception affords, 
providers engaged in in-office referrals have less incentive to shift 
to innovative payment models. While some providers have argued that the 
IOAS exception is a type of integrated delivery, referring from one 
service line to a second service line is not integrated care as the 
concept is defined under the ACA and MACRA.
---------------------------------------------------------------------------
    \72\ MedPAC Report at 27.

    Because of the statutory structure of the exception, CMS cannot 
reform the IOAS exception by regulation to solve this problem. Instead, 
Congress must provide additional authority. Thus, in order to promote 
and support the goals of health care reform, I recommend limiting 
certain service lines from the IOAS exception's protection that have a 
history of abuse. Yet, in order to further the goals of health reform, 
I also recommend allowing the IOAS to continue to apply to those group 
practices that are participating in APMs under MACRA and other value-
based payment systems. By doing so, Congress would stop the increasing 
rate of unnecessary utilization due to IOAS and promote value-focused 
arrangements among providers that further the goals of higher quality 
health care at lower cost and better patient outcomes.
                             iv. conclusion
    The Stark Law issues I have outlined above are not exhaustive but 
are issues for which I believe there is the most pressing need to 
address. Once these concerns are addressed, Medicare patients and the 
Medicare program will be better off than under the current system.

    Thank you again for this opportunity to testify on the Stark Law 
and recommended reforms. I am happy to answer any questions that the 
committee has.

                                 ______
                                 
              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing to examine 
ways to improve and reform the Stark Law:

    As members of the Senate Finance Committee, we have a wide range of 
duties.

    In addition to drafting laws and overseeing their enforcement and 
implementation, we are also called to assess the impact of existing 
laws to determine their effectiveness at achieving their intended 
goals.

    When it comes to that last part, there is a quote from a well-known 
American business leader that applies: ``Good intentions often get 
muddled with very complex execution.''

    Today we are here to talk about the Stark Law, an important yet 
extremely complicated, health care fraud law that prohibits physician 
referrals under certain circumstances. This law is the embodiment of 
good intentions muddled with complex execution.

    At its most basic level, the Stark Law prohibits doctors from 
referring Medicare patients to hospitals, labs and other physicians for 
healthcare services if the referring doctor has any direct or indirect 
financial relationship with that entity. The sweeping nature of that 
prohibition makes vast swaths of medicine performed in the current 
healthcare system potentially illegal.

    Anyone caught violating the law must give back all the Medicare 
reimbursements paid to the doctor, hospital, or lab under the tainted 
arrangement, even if the violations were unintentional, because the 
Stark Law is a strict liability statute that is indifferent to motive, 
knowledge, or state of mind.

    When the Stark Law passed in 1989, lawmakers believed that, given a 
bright line rule, providers would self-police their arrangements with 
physicians. Despite this original intent, the Stark Law has become 
increasingly complex and created more and more challenges for 
legitimate health care arrangements.

    Today, the healthcare world is populated by scores of legal experts 
who strive to keep up with the sprawling compendium of statutes, 
regulations, and legal advisories known collectively as the Stark Law.

    The Federal Register contains hundreds, if not thousands, of pages 
of regulatory text drafted by the Department of Health and Human 
Services to improve compliance with and implementation of the Stark 
Law.

    Through these regulations, HHS has come up with more than 30 
exceptions to the law, each of which carries its own detailed 
requirements.

    Even the original sponsor and namesake of the legislation, 
Representative Fortney ``Pete'' Stark, recently lamented the Byzantine 
turn that the statute has taken, stating: ``It gave every shyster and 
promoter a loophole. . . . We now have to keep rewriting the laws like 
the tax code.''

    Because it regulates physicians' financial relationships, the Stark 
Law has a significant impact on the structure and operation of the 
healthcare delivery system. Therefore, as we've collectively worked to 
transition our Federal health programs toward more value-based payment 
systems and away from fee-for-service models, one question keeps coming 
up: In its current form, is the Stark Law still necessary?

    Last December, in an effort to answer this question and address 
long-standing concerns about the Stark Law, the Finance and Ways and 
Means Committees convened a roundtable discussion with stakeholders and 
legal experts to discuss these issues. All three of the witnesses here 
today were part of that discussion.

    We received feedback on a number of issues related to the Stark 
Law, including: the barriers it places on the implementation of health 
reform laws; stakeholders frustrations with the difficulty and expense 
associated with compliance; and the problems created by the Center for 
Medicare and Medicaid Services' limited authority to create exceptions 
and to issue advisory opinions.

    Following the roundtable, we issued a broader call for comments 
industry leaders and received almost 50 responses suggesting a variety 
of changes, including: additional or expanded waivers or exceptions; 
enhanced authority for CMS to address specific needs on an ongoing 
basis; and repeal of the compensation arrangement prohibition. In 
addition, some suggested that we repeal the law in its entirety.

    Commenters across the board expressed concern about the ambiguous 
way certain terms are defined under the Stark Law. Terms like ``fair 
market value,'' ``volume and value of referrals,'' and ``commercial 
reasonableness'' all have a decisive impact on the application of the 
law, yet they are not clearly defined. And, finally, virtually everyone 
we heard from believed that technical violations (of form rather than 
substance) of the law should be subject to separate sanctions and 
limited liability.

    If the aim of the Stark Law is to prevent physicians from 
inappropriately referring patients for medically unnecessary 
treatments, it does so in a rather roundabout way, at least under the 
current structure.

    If we really want to prevent inappropriate self-referrals and 
address the culture of overutilization, we have to do more than target 
specific relationships and practices prone to abuse. We must also 
realign the financial incentives created by our current payment 
mechanisms.

    If, as some have claimed, the Stark Law is impeding the 
implementation of recently passed health reforms like the Medicare 
Access and CHIP Reauthorization Act and preventing better integration 
in the delivery of medical treatment, we should address that as well.

    As a committee, we have a responsibility to explore potential 
changes to make the law more workable in terms of enforcement and 
compliance in both fee-for-service and value-based payment models, as 
both are likely to be around for years to come

    We're here today to examine these issues and, hopefully, hear some 
potential answers to the questions that have come up. I look forward to 
hearing the testimony of our witnesses and getting their input on all 
of these important issues.

                                 ______
                                 
    Prepared Statement of Peter B. Mancino, Deputy General Counsel, 
              The Johns Hopkins Health System Corporation
    Chairman Hatch and members of the Senate Committee on Finance, 
thank you for the opportunity to submit testimony on the timely and 
important subject of the ``Stark Law.'' \1\
---------------------------------------------------------------------------
    \1\ Section 1877 of the Social Security Act, 42 U.S.C. Sec. 1395nn.

    The Johns Hopkins Health System Corporation is a non-profit 
organization affiliated with The Johns Hopkins University School of 
Medicine. We serve as the parent to three academic medical centers, 
three community hospitals, and several physician groups. On the payor 
side, our health system includes a Medicaid managed care plan, a 
---------------------------------------------------------------------------
Medicare managed care plan, and other related businesses.

    Since we are active on both the payor and provider sides and on 
both the academic medical center and community hospital sides, our 
health system has a unique perspective on the Stark Law. We view the 
Stark Law as the top compliance risk of our health system, because it 
is very easy to inadvertently violate Stark and the penalties are 
substantial. As a result, we have a keen interest in promoting common-
sense revisions that will make Stark more understandable and less 
burdensome to providers.

    We estimate that our health system currently spends over $600,000 
per year just on Stark compliance. Our compliance program includes 
regular Stark audits, training programs, and various contract and other 
tracking programs. Our compliance office includes a full-time Stark 
attorney, and we routinely seek outside counsel and consultant 
assistance with difficult Stark issues and fair market value reviews. 
We believe that an updated Stark Law could foster the Triple Aim while 
reducing the costs of compliance.

    To be clear, we have no interest in facilitating overutilization of 
health care services or promoting health care fraud. Our health plan 
experience has demonstrated to us the importance of supporting the 
Triple Aim and high quality, cost-effective health care. However, our 
provider experience also has shown us how difficult and unfair the 
Stark Law can be.

    This testimony will focus on three dimensions in particular that 
would greatly improve the Stark Law and allow health care providers to 
partner with physicians to improve quality and reduce costs.
             1. eliminate the ambiguity of key stark terms
    When the Stark Law was originally enacted by Congress,\2\ the goal 
was to create a bright line test to address the overutilization of 
health care services resulting from inappropriate physician referrals. 
The problem is that this bright line test has been transformed over 
time into a complex and highly technical rule that includes over three 
dozen statutory and regulatory exceptions. Each exception contains a 
number of technical requirements, many of which are ambiguous and 
counterintuitive. In some cases, the exceptions have been redefined and 
reinterpreted on multiple occasions by the Centers for Medicare and 
Medicaid Services (``CMS''), and the advisory opinion process and 
recent judicial decisions have not provided needed clarity. Further, 
recent CMS Stark regulations, while helpful, have not addressed the 
core issues. As a result, considerable confusion remains in the 
provider community about Stark requirements.
---------------------------------------------------------------------------
    \2\ Section 6204 of the Omnibus Budget Reconciliation Act of 1989 
(OBRA 1989)--Pub. L. 101-239, December 19, 1989--adding section 1877 to 
the Social Security Act prohibiting physician referrals for clinical 
laboratory services. This provision, known as Stark I, became effective 
January 1992. Section 13562 of Omnibus Budget Reconciliation Act of 
1993--Pub. L. 103-66, August 10, 1993--expanded the prohibition to ten 
designated health services (DHS) in addition to clinical laboratory 
services. This provision, known as Stark II, became effective January 
1995.

    Most notably, the terms ``commercial reasonableness,'' ``fair 
market value,'' and ``varies with or takes into account '' the ``volume 
or value'' of referrals each lack the clear definition necessary for 
providers to be certain of compliance despite their best efforts. As a 
health law attorney for 20 years, I have been confronted with numerous 
physician recruitments and other transactions that raise questions 
about the meaning of these terms, and no matter how much time, money or 
effort is expended in analyzing the issues, I have often had the 
unpleasant duty of informing a client that there are no clear or 100% 
safe answers. Given that Stark was intended to be an easy bright line 
test, we believe that the Stark Law should be amended to clarify key 
terms. Further, there should be a workable process for hospitals and 
other health care providers to obtain clear and timely compliance 
guidance.
                2. make stark penalties more reasonable
    The Stark Law's complexity and ambiguity has made it extremely 
difficult for even diligent health care providers with robust 
compliance programs to comply with Stark. Failure to satisfy even one 
of its technical requirements can result in a violation, and despite 
the best compliance efforts, unintentional mistakes occur.

    Liability under the Stark Law can be staggering even for minor 
violations. For example, a provider may be required to refund any 
Medicare reimbursement received from impermissible physician referrals 
even when the violation concerns a low value contract, and additional 
penalties or treble damages may be assessed. The potential liability 
associated with an alleged Stark violation creates an enormous barrier 
to a provider's ability to defend against a claim, even when a provider 
has valid defenses. When faced with potential Stark liability, 
providers are often forced to settle. A Federal appellate court judge 
recently highlighted this troubling result in a concurring opinion to a 
decision upholding a $237 million dollar judgment against Tuomey 
Healthcare System, stating, ``even for well-intentioned health care 
providers, the Stark Law has become a booby trap rigged with strict 
liability and potentially ruinous exposure--especially when coupled 
with the False Claims Act.'' \3\
---------------------------------------------------------------------------
    \3\ United States ex rel. Drakeford v. Tuomey Healthcare Sys., 
Inc., No. 13-2219, 2015 U.S. App. LEXIS 11460 at *56, *69 (4th Cir. 
July 2, 2015) (Wynn, J., concurring).

    Most health care providers want to be compliant and are willing to 
be accountable for mistakes. However, accountability should not entail 
ruinous penalties. Recent judicial decisions like the Tuomey case have 
had a chilling effect on the health care industry causing clients to be 
reluctant to try creative arrangements (e.g., gainsharing, physician 
alignment strategies for population health, etc.) at a time when 
innovation is most needed. Accordingly, the Stark Law should be amended 
to make the potential penalties associated with Stark violations more 
reasonable.
   3. reform the stark law to permit innovative payment methodologies
    The Stark Law imposes substantial limits on a hospital's ability to 
participate in innovative payment arrangements with physicians. For 
example, gainsharing and value-based payment arrangements are often 
problematic under Stark, because they are not susceptible to fair 
market value assessment and may take into account the volume or value 
of physician services. However, these types of arrangements promote 
care coordination, enhance quality, improve patient care experience and 
control costs. Given the changing face of medicine, including the 
recent enactment of MACRA,\4\ innovative payment arrangements are 
needed.
---------------------------------------------------------------------------
    \4\ Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), 
Pub. L. No. 114-10 (2015).

    Therefore, we support reforming Stark to allow hospitals to make 
incentive payments to physicians based on the physicians' achievement 
of quality metrics and cost-reduction targets. This change would be 
consistent with MACRA and the Triple Aim and would give hospitals an 
important tool in their efforts to enhance quality and reduce health 
care costs. We also support providing the health care community the 
ability to create other value-based payment arrangements that meet the 
same goals.
                               conclusion
    Now is the time for Congress to modernize the Stark Law to promote 
fairness and further the goals of MACRA and the Triple Aim. MACRA 
requires providers to innovate, but we need the tools and the freedom 
to do so. We urge Congress to act quickly to address our concerns so 
that the health care industry can transform itself to meet today's 
challenges.

    Thank you for your consideration of this important topic.

                                 ______
                                 
      Prepared Statement of Ronald A. Paulus, M.D., President and 
             Chief Executive Officer, Mission Health System
    Mr. Chairman, Ranking Member Wyden, and members of the committee, 
thank you very much for the opportunity to testify about essential 
reforms to the Physician Self-Referral Law (``Stark Law'' or 
``Stark''). I am the Chief Executive Officer of Mission Health System 
(``Mission Health''), the largest health care system in western North 
Carolina and the region's only safety net health system. We care for 
nearly 900,000 people across our State's 18 most western counties. Our 
patients are older, poorer, sicker and less likely to be insured than 
State and national averages. More than 75% of our care is provided to 
Medicare or Medicaid beneficiaries or to the uninsured; 10% of our 
babies are born addicted to narcotics.

    Even in the face of these significant demographic challenges, 
Mission Health has received numerous national awards, had the Nation's 
lowest Medicare readmission rate for any general acute care hospital 
and has been named a Top 15 Health System for 4 consecutive years,\1\ 
the only health system in the Nation to ever achieve this recognition.
---------------------------------------------------------------------------
    \1\ Thomson Reuters in 2012; successor firm Truven Health Analytics 
(http://truvenhealth.
com/) in 2013-2015.

    As a senior executive at Geisinger Health System, I saw first-hand 
the impact that a value-based system can have on its patients and 
region before coming to Mission in 2010. Upon my arrival, I began to 
lead a transformation to create a value-based health system including: 
establishing a culture of physician and clinician leadership, creating 
a Medicare Shared Savings Program Accountable Care Organization (``MSSP 
ACO'')--now the largest in North Carolina and one of the largest in the 
Nation--and joining the joint replacement bundled payment program. More 
broadly, Mission Health is proactively funding quality performance 
incentives for our ACO and employed physicians and we are implementing 
nearly 100 care process models that rely upon evidence-based care, 
consumer engagement and activation and which incorporate numerous 
virtual care technologies. Presently, we are evaluating which of the 
alternative payment models (``APMs'') in the Medicare and CHIP Re-
---------------------------------------------------------------------------
Authorization Act (``MACRA'') we will adopt as a system.

    We are actively trying to push our market to a value-based payment 
framework because it offers great promise for patient care and our 
local employers while also providing needed financial stability for 
Mission Health and the U.S. health care system. However, our crucial 
responsibility as the region's only safety net health system demands 
that we avoid unnecessary risks. Some of the most significant risks we 
face originate from the unclear legal boundaries in our fraud and abuse 
laws. In the current environment, health systems cannot responsibly 
make the long term human and capital commitments necessary to truly 
align incentives for the system and physicians to truly transform care.

    As a physician executive and someone who has both contributed to 
and extensively read the literature on healthcare performance and 
innovation, I am convinced that it is simply not possible to transform 
healthcare without a strong, aligned, shared partnership between health 
systems and physicians. Physician decisions drive the overwhelming 
majority of all healthcare spending and of course, patient outcomes. 
The Stark Law creates a choking fog of uncertainty and not uncommonly 
creates truly absurd outcomes that directly cause patient harm. It also 
fails to add any important protections for the Medicare and Medicaid 
programs beyond those already in place under the Anti-Kickback Statute 
(perhaps with the exception of ownership restrictions, which are 
admittedly important).

    Mission Health submitted comments on Stark Law reform to this 
committee in January 2016. Our comments focused on the need for new 
exceptions to: (1) remove obstacles to APMs; and (2) facilitate 
``gainsharing'' between physicians and hospitals. The recently released 
Senate Finance Committee Majority Staff Report \2\ (``Report'') is an 
excellent summary of the submitted comments and it includes these ideas 
and many more. The weight of those comments makes it clear that Stark 
has largely outlived its usefulness and has multiple problems that make 
it unlikely to be ``fixed'' with simple tinkering around the edges. 
Rather than rehash our earlier comments or focus on the tremendous cost 
burden that technical compliance induces, I will use my time today to 
build upon the Report's indictment of Stark and explain how a total 
Stark repeal would not only help health systems do what we need to do, 
but precisely what you've asked us to do: focus on what's best for 
patients and transform our outdated fee-for-service system to a value-
based care system.
---------------------------------------------------------------------------
    \2\ Senate Finance Committee Majority Staff Report, ``Why Stark, 
Why Now? Suggestions to Improve the Stark Law to Encourage Innovative 
Payment Models'' (July 7, 2016).

    To explain how the repeal of Stark is critical to enable payment 
reform, I will describe a typical issue for Mission Health as we 
implement our pay for performance programs. Stark regulations prohibit 
linking payments to the ``volume or value of referrals'' \3\ while the 
Anti-Kickback Statute does not contain this requirement.\4\ Under 
Stark, any incentive program must be structured to distribute payments 
to all participating physicians regardless of a particular physician's 
level of effort. The result is that underperforming physicians have no 
financial incentive to change their practices.\5\ If the government 
relied only on the Anti-Kickback Statute, with its focus on illegal 
intent to induce referrals, we could target incentives to the 
physicians who actually achieve congressional, CMS and patients' 
quality goals, thus improving the impact and cost-effectiveness of 
those incentives. Let me ask you this: if you wanted to achieve a 
particular goal, would you reward everyone equally no matter what their 
performance, or would you reward those who actually achieved the 
desired goal?
---------------------------------------------------------------------------
    \3\ See, for example, the exception for rental of office space at 
fair market value found at 42 U.S.C. section 1395nn(e)(1)(A)(ii)(2006).
    \4\ While the statute itself does not contain this provision, some 
safe harbors do. See 42 CFR Sec. Sec. 1001.952(b)-(d).
    \5\ U.S. Government Accountability Office, GAO 12-355, ``Medicare: 
Implementation of Financial Incentive Programs Under Federal Fraud and 
Abuse Laws,'' at 21 (2012).

    Let me make this point real and tangible. Our system and many 
others use the Centers for Medicare and Medicaid Services (``CMS'') 
data on various patient care issues to develop quality measures. One of 
CMS's quality indicators and a focus for Mission Health is to decrease 
(and ultimately eliminate) hospital-acquired infections. Under the 
current Stark regime, Mission's ACO could include that measure in a 
quality incentive program since Stark does not apply to the ACO and 
---------------------------------------------------------------------------
there are Anti-Kickback Statute waivers available.

    However, in our many other contractual relationships with 
physicians outside of the ACO, the Stark Law significantly and 
deleteriously constrains what we can do. We can only offer incentives 
to employed physicians but not to the independent physicians who 
comprise the majority of practice at our hospitals. Furthermore, we 
have to reward all physicians equally if we achieve our infection-
reduction goal rather than rewarding those physicians who specifically 
achieved their goal. In fact, we would have to reward a physician who 
had a dramatic increase in his or her infection rate exactly the same 
as a physician who eliminated all infections. That literally makes no 
sense and in any other industry, would be laughable. In most 
industries, shareholders and watchdogs are demanding outcome-based pay 
for performance linkages; in healthcare, Stark specifically prohibits 
us from using them.

    These limitations result from Stark requirements that any payments 
to physicians be at ``fair market value'' and unrelated to the volume 
or value of referrals made by the physician to the hospital.\6\ These 
terms are not clearly defined in the regulations and are ``fact 
specific,'' meaning that we can never be sure in advance that any 
quality incentive program will pass muster if scrutinized. The risk of 
our guessing wrong is that all hospital reimbursement attributable to 
referrals from those non-employed physicians is subject to repayment, a 
catastrophic penalty.
---------------------------------------------------------------------------
    \6\ 42 U.S.C. section 1395nn(e)(2)(B)(ii) (2006).

    Aside from the many ways the Stark Law affects Mission Health's 
ability to fully implement pay for performance programs, the law also 
impacts our day to day patient care in very significant and let me 
emphasize, negative ways. A real example will illustrate one way that 
Stark prevents us from providing the kind of care our patients deserve. 
For a number of years, a geneticist with Mission Health has met with 
expectant mothers who have just learned that the child they are 
carrying will die shortly after birth. The geneticist helps the mothers 
and fathers understand their child's fatal condition and what to expect 
during the delivery. The geneticists strongly desire to have this 
conversation with the parents at the obstetrician's office so they 
could share this devastating information in a comfortable, familiar 
environment that is calm and supportive. They would not charge the 
patient or the physician's practice. However, when this compassionate 
suggestion was brought to the attention of Mission Health's attorneys, 
they immediately became concerned that the service could be seen as 
providing ``something of financial value'' to the obstetrician's 
practice. Since there is no Stark exception to cover this circumstance, 
they rejected the suggestion of having the conversation in the 
obstetrician's office at no charge, despite the fact that the 
geneticists' motivation was solely to help these women--often 
indigent--at an extraordinarily difficult time in their lives. If we 
had only been subject to the Anti-Kickback Statute, this service could 
be provided as the intent behind the program is clearly not abusive. 
Unfortunately, since Stark is a strict liability statute, we could not 
take that risk. In a very similar situation, a Mission employed 
neonatologist focused on palliative care desired to offer similar, free 
services to support babies born with very significant life challenges. 
Again, we had to decline. These are just two examples of incredibly 
harmful impacts on patient care, dignity and support. I assure you 
Mission and other health systems could provide hundreds of similar 
---------------------------------------------------------------------------
patient-centered initiatives that are deemed problematic under Stark.

    Although I desperately hope for the contrary, I do recognize that 
Congress may not be ready to take the step of repealing the Stark Law, 
so I will spend a few moments explaining how some of the less 
comprehensive reforms described in the report could help health care 
providers move to value based care. If you are unwilling to eliminate 
Stark entirely, I urge you to consider the many possible revisions to 
Stark described in the Majority Staff Report. In particular, I believe 
that a waiver program similar to the MSSP ACO waiver program or an 
exception for APMs would be valuable. ACOs are able to avoid many of 
the problems I described because they can apply for certain fraud and 
abuse waivers. Allowing entities other than ACOs to invoke waivers if 
they are using APMs would provide at least some relief from the 
unnecessary burden of Stark.

    The rationale for the current ACO waivers is that the many 
statutory requirements to become an ACO and the public scrutiny 
involved in posting the waivers on an ACO's website assure that the ACO 
is focused on meeting Medicare's patient care and financial goals. A 
similar waiver program for Stark would give a health care system that 
wanted to create a quality incentive important flexibility. Any system 
would have to fully describe its program to CMS and on the 
organization's website, thus protecting the Medicare and Medicaid 
programs from abuse, while allowing it to reward physicians who 
actually meet the measures. One of the comments described in the Report 
offers an interesting twist on applying a waiver regime to APMs; it 
suggests creating an exception that would use the kinds of conditions 
present in the ACO waivers.\7\ Either a waiver approach or an exception 
using similar requirements would give health care providers a much 
clearer path toward APMs than exists today.
---------------------------------------------------------------------------
    \7\ Report at 10.

    Some have argued that CMS can make any necessary Stark reforms 
without action by Congress. Indeed, in the most recent round of Stark 
regulations released October 30, 2015, CMS made a number of changes to 
address the issue of unintentional lapses in contracts.\8\ These new 
regulations have helped to prevent many self-disclosures of harmless 
failures to comply with the absurdly strict language of Stark. As a 
side note, we had several very small facilities that we acquired self-
disclose such minor findings after our acquisition due diligence. They 
spent nearly 2 years pending review and paid significant (though 
markedly reduced) penalties for relationships where both the payment 
for services and physician work performed continued. No harm, no foul, 
just a technical error and a large penalty payment.
---------------------------------------------------------------------------
    \8\ Stark II Phase V, IPPS regulations, October 30, 2015.

    But CMS simply does not have the legislative authority to go much 
further in addressing problems. In 2012, the Government Accountability 
Office (``GAO'') issued a report on the changes needed in fraud and 
abuse laws to facilitate health care reform.\9\ While the report is now 
4 years old, sadly, its major points have yet to be addressed. That 
report stated that:
---------------------------------------------------------------------------
    \9\ GAO 12-355 at 22-23.

        CMS has acknowledged that existing Stark Law exceptions may not 
        be sufficiently flexible to encourage a wider array of non-
        abusive and beneficial incentive programs that both promote 
        quality and achieve cost savings. CMS can create additional 
        exceptions as long as the exception does not pose a risk of 
        program or patient abuse. According to CMS officials, this ``no 
        risk'' requirement is high and limits their ability to create 
        new regulatory exceptions to the Stark Law. In 2008 CMS 
        attempted to use its authority to propose a new exception 
        covering financial incentive programs. However, the ``no risk'' 
        requirement necessitated a narrow exception with many 
        structural safeguards in light of the risk that financial 
        incentive programs could be used to disguise payments for 
        referrals or adversely affect patient care. In its proposed 
        rule, CMS noted that the design of the proposed exception 
        created a challenge in providing broad flexibility for 
        innovative, effective programs while at the same time 
        protecting the Medicare program and patients from abuses. The 
        agency solicited comments, and many of the comments it received 
        criticized the number and complexity of safeguards needed to 
        achieve the ``no risk'' standard. To date, the agency has taken 
        no further action to finalize this regulatory exception, and 
        CMS officials told us the agency has no plans to do so in the 
        near future.\10\
---------------------------------------------------------------------------
    \10\ Id. (citing 42 U.S.C. Sec. 1395nn(b)(4) and ``Medicare 
Program; Revisions to Payment Policies Under the Physician Fee Schedule 
and Other Revisions to Part B,'' 73 Fed. Reg. 38502, 38604 (proposed 
July 7, 2008)).

    CMS cannot solve the fundamental problems in the Stark Law: it is 
very complex and requires no intent whatsoever to violate the law. It 
sets up barriers to the necessary alignment between hospitals and 
physicians that is absolutely essential to transform our delivery 
system. Because of the extraordinary penalties involved, it often 
``freezes'' health systems in place and absolutely impairs patient 
care, performance improvement and the shift to value-based payment. The 
stakes are simply too high and the need for healthcare reform too 
great--for our patients, our businesses and our Nation. Only Congress 
can remove those barriers. Thank you for being willing to take on this 
very important issue. It's been an honor and privilege to share these 
thoughts with you, and I truly appreciate your interest in this very 
important topic. With you leadership, we can make the changes necessary 
to remedy these problems and succeed in our transition to a high 
quality, efficient and effect value based health care system. If I can 
answer any questions or provide any additional information on this 
---------------------------------------------------------------------------
topic, I would be delighted to be of help.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    The U.S., over the last few years, has seen the beginning of a 
major transformation in the way medical care is paid for. This country 
is moving away from an old system--fee for service--which opened the 
till for every visit, every test, and every procedure in a doctor's 
office or hospital. Today the focus is on paying for the quality of 
care rather than the quantity--and getting more bang for the buck. Even 
though this sea change is in its early stages, already 30 percent of 
Medicare payments are going through the new system focused on value and 
efficiency. That number is only going to rise in the years ahead.

    In my view, when you make this kind of transformational change in 
our health care system--which makes up one out of every $6 in the 
American economy--you're going to run into challenges. One of those 
potential challenges is the subject of today's hearing.

    There's a question, in my judgement, as to how you balance two 
important priorities. On one hand, there's a drive toward bringing 
doctors and specialists together, promoting coordination, and making 
health care more efficient whenever possible. On the other hand, 
there's a longstanding protection that comes from what's known as the 
Stark Law. It says that financial relationships between providers must 
not influence a patient's medical care.

    Some providers are concerned that parts of the Stark Law that date 
back years or even decades might be an impediment to treatment. For 
example, when fee-for-service was king, a jump in referrals from a 
doctor to a physical therapist would have raised red flags if they had 
financial ties. Today it's common for doctors and physical therapists 
to work in the same medical practice or hospital system. And the 
science has demonstrated that physical therapy is often the right 
choice to keep a lifelong golfer with a bad shoulder or an older woman 
with a knee replacement healthy and out of the emergency room. That 
means that in this day and age, an uptick in referrals for physical 
therapy in one medical practice shouldn't automatically be branded a 
violation of the Stark Law. When it comes down to it, every case is 
different.

    In my judgement, those two important priorities--promoting 
coordination, and upholding the Stark Law--do not have to come into 
conflict. As long as there are clear guidelines around what's fair game 
when it comes to patient referrals and the relationships between 
doctors, it will be possible to guarantee that patients are getting the 
care that's right for them--not for somebody else's pocketbook. In 
certain ways, it could be as simple as revisiting the rules that are 
already on the books.

    I'm hopeful that the committee is able to have a productive, 
bipartisan discussion of these issues today. I want to thank our 
witnesses for being here, and I look forward to hearing your testimony.

                                 ______
                                 

                             Communications

                              ----------                              


           Advanced Medical Technology Association (AdvaMed)

                 701 Pennsylvania Avenue, NW, Suite 800

                       Washington, DC 20004-2654

                           Tel: 202-783-8700

                           Fax: 202-783-8750

                        http://www.advamed.org/

The Advanced Medical Technology Association (AdvaMed) Supports the 
Transition of Health Care Delivery to Value-Based Payments and a Legal 
Framework That Protects Patients From Fraud and Abuse.

The Advanced Medical Technology Association (AdvaMed) appreciates the 
opportunity to provide a statement for the record for the Senate 
Finance Committee's July 12, 2016 hearing entitled, ``Examining the 
Stark Law: Current Issues and Opportunities.'' We applaud the Senate 
Finance Committee for addressing concerns with the federal fraud and 
abuse legal framework that are impeding a broader, more integrated 
transition to value-based health care delivery.

AdvaMed is a trade association that represents nearly 300 members, 
consisting of the world's leading innovators and manufacturers of 
medical devices, diagnostic products, and health information systems. 
Together, our members manufacture much of the life-enhancing health 
care technology purchased annually in the United States and globally. 
Our members are committed to the development of new technologies that 
allow patients to lead longer, healthier, and more productive lives. 
The devices AdvaMed members make help patients stay healthier longer 
and recover more quickly after treatment, allow earlier detection of 
diseases, and treat patients as effectively and efficiently as 
possible.

AdvaMed supports the transformation of health care to value-based 
delivery and payments. Medtech manufacturers are key collaborators with 
providers and payers to improve outcomes, enhance the patient 
experience, and reduce costs. Medtech companies develop and heavily 
invest in technologies and services that are vital to realizing 
quality, clinical outcomes, patient satisfaction, and cost savings 
goals.

We stress that AdvaMed supports a legal framework that protects 
patients and the federal health care reimbursement programs from fraud 
and abuse. Our member companies further recognize the importance of 
ensuring ethical interactions between medtech companies and providers 
so that medical decisions are centered on the best interests of the 
patient. That is why AdvaMed developed a Code of Ethics \1\ (also known 
as the ``AdvaMed Code'') to distinguish beneficial interactions from 
those that may inappropriately influence medical decision-making.
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    \1\ Available at: http://www.advamed.org/CodeOfEthics.

The Current Fraud and Abuse Laws Contemplate a Volume-Based Payment 
System (Fee-for-Service) and Are Ill-Suited for Innovative Value-Based 
---------------------------------------------------------------------------
Payment Arrangements.

The existing fraud and abuse laws seek to prevent inappropriate medical 
decision-making and overutilization by ensuring that the financial 
interests of parties involved in the provision of care are not 
structured in a manner that creates inappropriate incentives to provide 
unnecessary services, leading to increased costs. Value-based payment 
arrangements generally lack overutilization concerns since payments are 
not directly tied to the volume of services provided. Instead 
frameworks such as risk-sharing, shared savings, and/or capitated 
payments are inherently designed to limit overall costs to the system 
with strong measurable quality goals to safeguard against 
underutilizing or withholding medically necessary services and limiting 
patient choice. Value-based arrangements align the financial interests 
of providers, industry, and payers to achieve clinical quality goals 
and manage costs. However, this alignment creates tension under the 
current fraud and abuse legal framework.

The federal Anti-Kickback Statute proscribes the ``knowing and willful 
offer, payment, solicitation, or receipt of any remuneration (directly 
or indirectly, overtly or covertly, in cash or in kind) in return for 
or to induce a referral of services or goods payable by Medicare or 
Medicaid.'' \2\ Congress enacted the Anti-Kickback Statute in 1972, in 
the context of Medicare's then-retrospective reimbursement system. In a 
fee-for-service environment, the Anti-Kickback Statute was intended to 
discourage overutilization of Medicare-reimbursed items and services by 
prescribers motivated by their own financial interest.\3\ Congress was 
further concerned with: (1) possible harm to beneficiaries; (2) 
increased Medicare and Medicaid costs; and (3) the potential of 
kickbacks to freeze competing suppliers from the system, mask the 
possibility of government price reductions, and misdirect program 
funds.\4\ The Anti-Kickback Statute originally prohibited only ``bribes 
and kickbacks,'' \5\ but Congress extended its reach in 1977 by 
substituting ``any remuneration'' for the ``bribes and kickbacks'' 
language \6\ and increasing the severity of the penalties from a 
misdemeanor to a felony.\7\
---------------------------------------------------------------------------
    \2\ 42 U.S.C. Sec. 1320a-7b(b); AdvaMed's commentary on the federal 
Anti-Kickback Statute serves to inform the discussion regarding its 
interplay with the Stark Law as reforms to the fraud and abuse laws are 
considered to advance value-based health care delivery.
    \3\ 59 Washington and Lee Law Review, March 1, 2002 (The Medicare 
Anti-Kickback Statute: In Need of Reconstructive Surgery for the 
Digital Age), citing Jost and Davies, ``The Law of Medicare and 
Medicaid Fraud and Abuse'' 100 (2001-02 ed. 2000) (listing concerns 
that ``patients will suffer, program funds will be unnecessarily 
depleted, and taxpayer dollars will be wasted'' if kickbacks are 
permitted).
    \4\ See 56 Fed. Reg., 35952 (July 29, 1991) (original safe harbors, 
citing United States v. Ruttenberq, 625 F.2d 173, 177, n.9 (7th Cir. 
1980)).
    \5\ Social Security Amendments of 1972, Pub. L. No. 92-603, 
Sec. 242(b), 86 Stat. 1329, 1419 (1972) (codified as amended at 42 
U.S.C. Sec. 1320a-7b (1994)).
    \6\ Medicare and Medicaid Anti-Fraud and Abuse Amendments of 1977, 
Pub. L. No. 95-142, 91 Stat. 1175 (1977).
    \7\ See Pub. L. 95-142, 91 Stat. 1175 (1977).

Congress recognized that the expansive reach of the Anti-Kickback 
Statute created uncertainty as to which routine commercial arrangements 
are permitted,\8\ and it excluded certain types of payments from 
consideration by the statute, including discounts.\9\ However, when the 
Office of Inspector General (OIG) promulgated final implementing 
regulations, the ``safe harbor'' for discounts/rebates was very 
narrowly drawn. For example, the regulation directs that supplying one 
good or service without charge or at a reduced charge to induce the 
purchase of a different good or service is not permitted unless the 
goods and services are reimbursed by the same federal health care 
program using the same methodology.\10\ This has the potential to 
significantly restrict a value-based bundled offering of services and 
product if the reimbursement methodology for all discounted items or 
services is not the same.\11\ Further, there is ambiguity around 
protection for discounts linked to and/or premised on the performance 
of personal services since the safe harbor regulation excludes from the 
definition of a protected discount ``services provided in accordance 
with a personal or management services contract.'' \12\
---------------------------------------------------------------------------
    \8\ See S. Rep. 100-109, 27, 1987 U.S.C.C.A.N. 682, 707-08 (``It is 
the understanding of the Committee that the breadth of this statutory 
language has created uncertainty among health care providers as to 
which commercial arrangements are legitimate, and which are proscribed. 
The Committee bill therefore directs the Secretary, **708 in 
consultation with the Attorney General, to promulgate regulations 
specifying payment practices that will not be subject to criminal 
prosecution under the new section 1128B(b) and that will not provide a 
basis for exclusion from participation in Medicare or the State health 
care programs under the new section 1128(b)(7).'')
    \9\ 42 U.S.C. Sec. 1320a-7b(b)(3).
    \10\ 64 Fed. Reg. 63518, 63554 (November 19, 1999).
    \11\ Id.
    \12\ 42 CFR Sec. 1001.952(h)(5)(vi).

The OIG adopted similarly narrow safe harbors in other areas, also 
intended to protect Medicare from overutilization of reimbursable 
items/services.\13\ In promulgating the warranty safe harbor, the OIG 
explained:
---------------------------------------------------------------------------
    \13\ Note 3, supra.

        ``It is in the public interest to have companies offer 
        warranties as an inducement to the consumer to purchase a 
        product.'' The OIG declined to protect broader warranties, 
        including those relating to competitive warranties on other 
        products, stating ``We believe that safe harbor protection is 
        proper where a replacement program honors the original 
        manufacturer's warranty and the agreement provides remuneration 
        on the same terms as the original manufacturer's warranty 
        without providing additional incentives or shifting additional 
        costs to the Medicare and Medicaid programs.'' \14\
---------------------------------------------------------------------------
    \14\ Id.

Under value-based payment arrangements, this restriction on competitive 
warranties to ``terms equal to the agreement that it replaces'' \15\ 
limits collaboration options that would add value. Another constraining 
element of the Warranties Safe Harbor is that to qualify for safe 
harbor protection a ``manufacturer or supplier must not pay any 
remuneration to any individual (other than a beneficiary) or entity for 
any medical, surgical, or hospital expense incurred by a beneficiary 
other than for the cost of the item itself.'' \16\ This deters the 
formation of value-based arrangements that would include services and 
items among different manufacturers, as warranty remuneration between 
manufacturers is not protected.
---------------------------------------------------------------------------
    \15\ 42 CFR Sec. 1001.952(g) (``the term warranty means either an 
agreement made in accordance with the provisions of 15 U.S.C. 2301(6), 
or a manufacturer's or supplier's agreement to replace another 
manufacturer's or supplier's defective item (which is covered by an 
agreement made in accordance with this statutory provision), on terms 
equal to the agreement that it replaces.)
    \16\ 42 CFR Sec. 1001.952(g)(4).

The Personal Services and Management Contracts Safe Harbor includes the 
requirements that: (1) the agreement specifies exactly the schedule of 
service intervals, their precise length, and the exact charge for such 
intervals; \17\ (2) the term of the agreement be at least one year; 
\18\ and (3) the aggregate compensation paid over the term of the 
agreement be set in advance.\19\ These requirements do not account for 
risk-sharing, cost-savings, and performance-based payment models.
---------------------------------------------------------------------------
    \17\ 42 CFR Sec. 1001.952(d)(3).
    \18\ 42 CFR Sec. 1001.952(d)(4).
    \19\ 42 CFR Sec. 1001.952(d)(5).

---------------------------------------------------------------------------
AdvaMed's Priority Concerns in Advancing Value-Based Care are:

    (1)  The limitations in the Anti-Kickback Statute safe harbors for 
discounts, warranties, and personal services to provide protection for 
bona fide value-based arrangements among collaborating providers, 
payers, and medtech manufacturers;

    (2)  The current off-label promotion enforcement framework, which 
may aggressively construe the sharing of scientific and health care 
economic information to develop and operationalize value-based 
arrangements as implied off-label claims; and

    (3)  Ensuring that the emphasis on value-based care does not create 
perverse incentives for hospitals and providers that compromise patient 
access to necessary care.

Medtech manufacturers want to comply with the fraud and abuse laws. 
However, there is no direct guidance from the government regarding the 
application of the fraud and abuse laws to value-based collaborations 
between manufacturers and providers and/or payors. Currently, value-
based arrangements between medtech manufacturers and providers and/or 
payers are structured by cobbling together constructs within the 
discounts, warranties, and personal services safe harbors. However, 
this analysis necessitates the commission of immense resources, both in 
terms of time and legal costs. Because of the current regulatory 
limitations, these costs may be expended by all stakeholders without 
ultimately moving forward with a value-based collaboration given the 
uncertainty and concern for enforcement applying historic fee for 
service reimbursement principles as a framework. In short, regulatory 
uncertainty concerning the application of the criminal Anti-Kickback 
Statute chills value-based/outcomes-based collaborations.

Medtech company contributions to value-based health care arrangements 
can range from integrating data analytics infrastructure and services 
(to optimize care to achieve quality goals) to services that streamline 
the supply chain to reduce costs. These collaborations might involve 
bundling services, data collection and analytics, and medtech products 
to deliver high quality care, improved patient satisfaction, and cost 
reductions. Safe harbor protection is arguably afforded only to those 
arrangements that meet all of the conditions set forth in the safe 
harbor regulations. Unfortunately, as stated above, the Safe Harbor 
constructs are narrowly fashioned around fee-for-service payment models 
and no longer match the reality of value-based health care delivery and 
payment models. This serves to inhibit value-based frameworks designed 
around quality care, which have the potential for greater impact. For 
example, the Discount Safe Harbor includes the limitation that the 
bundled good or service be reimbursed by the federal health care 
program using the same methodology and the additional limitation that 
for cost-reporting entities, the discount must be earned based on 
purchases of that same good or service within a single fiscal year.\20\ 
The ``same methodology'' limitation can materially restrict the range 
of possible devices and services that may be integrated to deliver the 
best value. Uncertainty exists around what items or services would be 
considered to fall under the ``same methodology.'' Finally, the single 
fiscal year limitation may prevent bundling items and/or services that 
are critical to supporting health care delivery frameworks which 
measure clinical outcomes and economic value over periods of time 
extending beyond the same fiscal year or that measure outcomes over 
multi-year periods that capture the long-term value of a value-based 
health care program, device or service. This is a major limitation of 
potential value-based care arrangements.
---------------------------------------------------------------------------
    \20\ 42 CFR Sec. 1001.952(h).

Integral to developing and executing value-based arrangements is the 
need for manufacturers to be able to communicate with providers, payors 
and other stakeholders on establishing clinical goals, efficiency 
measures, and economic performance terms. Starting points for these 
goals, measures, and terms may originate from economic and clinical 
data (with varying levels of support) that may not be specified in the 
approved or cleared label of the device. This scientific and health 
care economic information will be needed to both establish and optimize 
---------------------------------------------------------------------------
the clinical and economic goals of the value-based collaboration.

Medtech manufacturers support delivery reform models and their goals to 
achieve lower cost and higher quality health care. At the same time, we 
are concerned that the financial incentives inherent in the various 
delivery reform/alternative payment models can have the inadvertent 
effect of discouraging providers from (1) considering the full array of 
treatment options, due to concerns regarding exceeding ``benchmark'' 
threshold costs, or (2) using innovative treatments, technologies, and 
diagnostics that may bring value to the health care system over the 
longer term, but are more costly in the short run. The potential 
negative impact of the financial incentives of these models is 
magnified by the short payment windows used in the programs to compare 
actual spending against benchmarks in order to determine the level of 
savings that may be shared among providers. This is particularly 
concerning because many medical devices and technologies provide 
benefits over a long period of time spanning multiple years.

Additionally, gainsharing and other similar arrangements have created a 
major shift in incentives that have significant and potentially 
negative ramifications for patient care. AdvaMed continues to believe 
that ``gainsharing'' arrangements pose a risk of patient abuse and may 
violate the civil monetary penalty law prohibiting hospitals from 
offering remuneration to physicians for limiting medical care to their 
patients, Sec. 1128A(b) of the Social Security Act (the ``Act''). The 
federal anti-kickback statute and the ``Stark'' physician self-referral 
law also prohibit certain financial relationships such as those created 
in gainsharing arrangements. As such, we recommend that alternative 
payment arrangements be implemented in a way that makes their operation 
transparent and that these arrangements be evaluated and assessed to 
determine their impact on patient access to necessary care.

Recommendations to Advance Value-Based Care

In light of the challenges noted above, AdvaMed offers the following 
recommendations for consideration:

      Create a new Risk-Sharing Safe Harbor for value-based 
arrangements between manufacturers and providers and/or payers that 
incentivize and reward improvements in clinical outcomes and/or 
reductions in cost.

          This safe harbor should allow for:

            -  Sharing value-based rewards (e.g., ACOs sharing some of 
the benefits received from meeting benchmarks with a medtech 
manufacturer if its products contributed to meeting that goal);

            -  Shifting of risk over the course of an engagement so 
long as such risks are set in advance (e.g., the initial phases of a 
bundled device and services program are paid for by a manufacturer, but 
as benchmarks are reached, efficacy is shown and savings recognized, 
the hospital would share a portion of the savings generated with the 
manufacturer);

            -  Multiple entities to engage in a complex study where 
costs may shift from one company to another and then potentially to the 
hospital, as efficacy is proven.

          Prior to proving that a system is efficient, the 
manufacturer would be in a better position to invest in the R&D of the 
engagement. However, once savings and efficiencies are proven, the 
manufacturer would also be able to share in the net benefit.

          While there may be ways to construct these 
engagements currently, they do not offer the fluidity that is possible 
with a single agreement with benchmarks and shifting fees. The freedom 
and efficiencies afforded by a Risk-Sharing Safe Harbor would permit 
greater investments into value-based solutions.

          The applicability of the Medicare Secondary Payer 
Statute to performance-based payments under this safe harbor should be 
clarified as well.

      Create a new Safe Harbor for Bundling Services, Data Collection 
and Analytics, and Medtech Products in Value-Based Arrangements (e.g., 
to determine whether clinical outcomes and cost savings metrics have 
been met, medical technologies are bundled with services to collect and 
monitor data, analytics, monitoring equipment, and IT infrastructure);

      Create a new Safe Harbor for Outcome Warranties that 
specifically addresses warranting an outcome instead of a product 
failure and protects payments for bundled products and services 
provided when an outcome is not met.

          For example, this would provide a targeted 
approach to addressing scenarios where a medical device company agrees 
to reimburse a hospital not only its aggregate purchase price for the 
implant device acquisition costs, but also unreimbursed wound care 
products and services if a patient is readmitted to the hospital within 
90 days following the surgical procedure because the surgical site is 
infected or a revision surgery is needed. Currently, when this occurs, 
there is arguably protection under the safe harbor warranty for only 
the device cost when the device fails. This may lead to litigation over 
whether there was a product failure. Litigation adds substantial costs, 
may not resolve in a timely manner, and may be upsetting to the 
patient. Permitting manufacturers to warrant the outcome, instead of 
against product failure, through the protection of a safe harbor would 
allow for more coordinated and timely management of post-operative 
complications.

      Issuing guidance that expressly delinks the provision of 
scientific and health care economic information supporting the value-
based health care goals to providers and payors from any regulated 
product promotional or labeling restrictions. This guidance should 
include:

          Clarification that communications on efficiency 
(e.g., performance/throughput claims), population outcomes/cost, and 
economics that are not specifically part of the product labeling are 
necessary and permissible to develop and operationalize value-based 
arrangements and that varying levels of supportive data are acceptable 
(e.g., case study, big-data analytics).

          Clear guidelines for industry to rely on in 
providing appropriate medical information to Health Care Professionals 
regarding medical technologies with only general claims in the product 
labeling; and

          Clarification on the scope of what may be 
discussed with payors and sophisticated providers about medical 
technologies and drugs undergoing review (e.g., 510(k) review) to 
facilitate planning.

      Consider directing the creation of a Fast Track Guidance Process 
(that is less formal than the advisory opinion process) that would 
apply across all safe harbors for value-based considerations.

      If there was a preference to work within the existing Anti-
Kickback Statute Safe Harbors, we offer the following for consideration 
to advance value-based payment models:

          Discount Safe Harbor--We recommend that OIG issue 
guidance on the Medicare secondary payer statute's applicability to 
performance-based payments.

          Warranties Safe Harbor--With regard to the 
Warranties Safe Harbor, we recommend:

            -  Expanding warranty coverage in value-based arrangements 
to permissibly include other direct costs, associated products, 
associated services, service as a product, and replacement outsourcing 
costs, which are all means of making the provider whole;

            -  Expanding competitive warranties to permit exceeding 
competitor's terms; and

            -  Permitting warranty remuneration between manufacturers 
to allow for bundled items among different manufacturers to provide 
care.

          Personal Services Safe Harbor--With regard to the 
Personal Services Safe Harbor, we recommend:

            -  Allowing the parties to set the compensation formula in 
advance (e.g., percentage of savings or capitation), instead of being 
required to set the aggregate compensation paid over the term in 
advance;

            -  Removing the limitation that the term is for not less 
than one year (e.g. percentage of savings or capitation);

            -  Removing the interval schedule, length, and charge 
specificity requirement for services (e.g. percentage of savings or 
capitation);

            -  Expanding and revising the definition of fair market 
value to account for services/arrangements tied to new value based 
payment models that incentivize improved quality of care and cost 
effectiveness; and

            -  Issuing guidance that permits utilizing publicly 
available health care professional salary surveys as an acceptable 
methodology to determine fair market value.

Conclusion

In closing, we would like to reiterate our appreciation to Chairman 
Hatch, Senator Wyden, and the Senate Finance Committee for their work 
on this issue, and to also emphasize AdvaMed's support for a legal 
framework that protects patients and the federal programs from fraud 
and abuse. We believe that targeted reforms to our fraud and abuse laws 
for value-based arrangements will maintain the protections for patients 
and the federal health care programs while allowing for greater 
involvement and investment in value-based payment models. AdvaMed 
welcomes opportunities to collaborate on advancing value-based care, 
especially where medtech may offer unique contributions to the value 
equation.

                                 ______
                                 
              Alliance for Integrity in Medicare \1\ (AIM)
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    \1\ Alliance for Integrity in Medicare, c/o Francesca Fierro 
O'Reilly, Vice President, Government Relations, ACLA, 1100 New York 
Avenue, NW, Suite 725W, Washington, DC 20005.
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                  1100 New York Avenue, NW, Suite 725W

                          Washington, DC 20005

                        http://aimcoalition.com/

The Alliance for Integrity in Medicare (AIM) is pleased to submit a 
Statement for the Record for the Committee on Finance Hearing entitled 
``Examining the Stark Law: Current Issues and Opportunities,'' held on 
July 12, 2016. We commend Chairman Hatch, Ranking Member Wyden, and all 
other members of the Committee on Finance for holding this bipartisan 
hearing to examine the urgent need to reform the physician self-
referral law in greater detail. AIM, a broad coalition of medical 
specialties committed to ending the practice of inappropriate physician 
self-referral in Medicare, is pleased to share our recommendations with 
the Committee for vitally-needed reforms so that beneficiaries and 
program integrity may be better protected than under current law.

Even though implementation of the Medicare Access and CHIP 
Reauthorization Act of 2015 (MACRA) continues alongside that of other 
novel physician payment models, such as accountable care organizations 
(ACOs), AIM strongly believes there remains a moral imperative to 
narrow the in-office ancillary services (IOAS) exception to the Stark 
Law. Despite all the progress made and still forthcoming in the area of 
alternative physician payment models, fee-for-service (FFS) has not 
been eliminated from the Medicare program. Thus, FFS will continue to 
exist for the foreseeable future, in addition to the financial 
incentive for clinicians to take advantage of the IOAS exception. AIM 
strongly recommends that anatomic pathology, physical therapy, 
radiation oncology, and advanced diagnostic imaging should be removed 
from the list of designated health services protected under the IOAS 
exception, for which physicians can self-refer and bill Medicare. 
However, in situations where a practice truly is clinically integrated 
or participating in a federally approved alternative payment model, 
which improves quality and value, the IOAS exception should continue to 
apply. Restricting use of the IOAS exception in this manner will drive 
greater participation in alternative payment models, consistent with 
the goals of MACRA.

Note that the intent of the IOAS exception was to allow for the 
provision of certain non-complex services, such as x-rays or simple 
blood tests, deemed necessary by the clinician to help inform the 
diagnosis and treatment of a beneficiary during an initial office 
visit, primarily for beneficiary convenience. But in most instances, 
advanced diagnostic imaging, anatomic pathology, physical therapy, and 
radiation therapy services cannot be provided to beneficiaries during 
an initial or single office visit. Allowing these more complicated 
services to be protected under the IOAS exception does not facilitate 
greater patient convenience. Rather, the IOAS exception only bolsters 
the continuation of questionable utilization patterns of these services 
under FFS. Narrowing the IOAS exception will realign provider 
incentives to help ensure appropriate utilization. The ability of all 
providers to render the highest quality, safest, and most clinically 
appropriate care to all patients will be maintained, while eliminating 
the lure of personal financial gain.

The Government Accountability Office, the Office of the Inspector 
General of the U.S. Department of Health and Human Services, the New 
England Journal of Medicine, and Health Affairs, among others, also 
have called attention to the fact that the IOAS exception has 
substantially diluted the self-referral law and its policy objectives. 
Current law allows Medicare providers to avoid the Stark Law's 
prohibitions by structuring arrangements for advanced diagnostic 
imaging, anatomic pathology, physical therapy, and radiation therapy 
services that meet the IOAS exception's technical requirements but 
otherwise violate the true intent of the exception.

The Administration has advocated specifically for this policy change in 
the last four Department of Health and Human Services Budgets in Brief, 
Fiscal Years 2014-2017. Most recently, the Centers for Medicare and 
Medicaid Services (CMS) lamented the ongoing conflicts of interest for 
physicians referring beneficiaries to entities with which they had 
financialties in the Calendar Year 2017 Physician Fee Schedule Proposed 
Rule (CMS-1654-P). ``[R]ecent studies by GAO indicate that financial 
self-interest continues to affect physicians' medical decision 
making:'' \2\ Later in the Proposed Rule, CMS went on to state: ``when 
physicians have a financial incentive to refer a patient to a 
particular entity, this incentive can affect utilization, patient 
choice, and competition. Physicians can overutilize Medicare resources 
by ordering items and services for patients that, absent a profit 
motive, they would not have ordered. A patient's choice is diminished 
when physicians steer patients to less convenient, lower quality, or 
more expensive providers of health care, just because the physicians 
are sharing profits with, or receiving remuneration from, the 
providers. And lastly, where referrals are controlled by those sharing 
profits or receiving remuneration, the medical marketplace suffers if 
new competitors cannot win business with superior quality, service, or 
price.'' \3\
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    \2\ Page 761, accessed here: https://s3.amazonaws.com/public-
inspection.federalregister.gov/2016-16097.pdf.
    \3\ Page 762-3, accessed here: https://s3.amazonaws.com/public-
inspection.federalregister.gov/2016-16097.pdf.

CMS has long said that it does not have the statutory authority to 
address abuse of the IOAS exception. Reforming the IOAS exception 
through remedial legislation is long overdue, and we urge Congress to 
act. AIM's recommended changes to the IOAS exception will prevent 
unnecessary utilization of resources by providers, protect Medicare 
patients from unnecessary care, promote effective gainsharing 
arrangements, and further the goals of higher quality health care at 
lower cost, resulting in improved clinical outcomes for beneficiaries. 
Furthermore, the realignment of financial incentives for Medicare 
providers would save the program at least $3.3 billion over 10 years, 
---------------------------------------------------------------------------
as scored by the Congressional Budget Office.

In conclusion, the AIM coalition strongly encourages the Senate Finance 
Committee to include in any Stark Law reform legislation language to 
narrow the IOAS exception by removing anatomic pathology, advanced 
diagnostic imaging, physical therapy, and radiation therapy from the 
list of permitted designated health services under the exception. 
Accountable Care Organizations and other alternative payment models 
will not be successful if overutilization continues to be incentivized 
in any element of the Medicare program. Closing the loophole supports 
the original intent of the Stark Law and the cornerstone goals of the 
ACA and MACRA to improve patient care and reduce overutilization. 
Protecting both Medicare beneficiaries and program integrity from 
misaligned financial incentives is in the best interests of taxpayers, 
patients, and the American health care system overall.

                                 ______
                                 
            American Academy of Orthopaedic Surgeons Et Al.

July 22, 2016

Senator Orrin Hatch                 Senator Ron Wyden
Chairman                            Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
104 Hart                            221 Dirksen
Washington, DC 20510                Washington, DC 20510

Re: Senate Finance Committee Hearing: ``Examining the Stark Law: 
Current Issues and Opportunities''

Dear Chairman Hatch and Ranking Member Wyden:

The American Academy of Orthopaedic Surgeons (AAOS), the American 
Association of Orthopaedic Executives (AAOE), and the OrthoForum would 
like to thank you for the opportunity to submit comments regarding the 
recent Senate Finance Committee hearing, ``Why Stark, Why Now? 
Suggestions to Improve the Stark Law and Encourage Innovative Payment 
Models.'' We appreciate the need to improve and modify the Physician 
Self-Referral Law (``Stark Law'') in light of the shift from Medicare 
fee-for-service to alternative payment models. The structure of the 
Stark Law has not been updated statutorily for more than two decades 
and is now an anachronistic hindrance to the 21st century delivery of 
health care and limits the full potential envisioned by Congress when 
it enacted MACRA. Additionally, the overly complex regulatory 
restrictions have negatively impacted the efficiency of patient care 
while serving to drive many private practice physicians into hospital 
employment.

Two issues we would like to emphasize are the importance of protecting 
the In-
Office Ancillary Services Exception (IOASE), which allows for an 
integrated continuum of care, and the need to lift the physician-owned 
hospital (POH) ban on expansion and new construction, which increases 
access to quality care. These issues will be addressed further.

What changes need to be made to the Stark Law to implement the Medicare 
Access and CHIP Reauthorization Act (MACRA, 2015) and Accountable Care 
Organizations (ACOs)/Medicare Shared Savings Program (MSSP)?

Issue of continued relevance: The wide-range of regulations governing 
physician financial incentives are an impediment to the transition to 
value-based Medicare reimbursement. The U.S. Department of Health and 
Human Services (HHS) set a goal to tie at least 30 percent of the fee-
for-service Medicare payments to quality/value through Alternative 
Payment Models (APMs) by 2016 and to 50 percent of payments by the end 
of 2018. CMS announced in March 2016 that the agency was ahead of 
schedule in the realization of its 30 percent goal. However, a 
significant portion of that goal was accomplished through demonstration 
initiatives such as the Bundled Payments for Care Improvement (BPCI) 
initiative in which multiple waivers were required to allow physician 
groups and hospitals to work in concert to lower costs and improve 
quality. BPCI along with the more recently implemented Comprehensive 
Care for Joint Replacement (CJR) model reveal weaknesses in current 
Stark Law which is structured to have some control over volume of 
referred services. Rewarding providers for the value of care and not 
the volume of services, such as in these current initiatives, renders a 
driving intent of the Stark Law obsolete.

Costs for compliance: As MACRA is implemented, regulations should make 
it less burdensome for physicians to participate in APMs and earn 
incentives through the Merit-based Incentive Payment System (MIPS). The 
costs of compliance and disclosures required per the Stark Law can be 
prohibitive for small and medium-sized physician practices. We are 
concerned that this cost will lead to a drop of specialty providers in 
the Medicare program as the cost of compliance continues to grow.

Recommended waivers: Existing Stark Law requirements are highly 
technical and the waivers can get very complex. For example, physician 
referrals in Accountable Care Organizations (ACOs) are theoretically 
exempt from the Stark Law requirements through fraud and abuse waivers. 
There should be similar exceptions/protections to physicians 
participating in APMs. However, we anticipate that as MACRA provisions 
are implemented, such waivers will become more complex. An alternative 
to waivers may be a statutory exception modeled on the Medicare pre-
paid plan enrollees under Section 1877(b)(3) of the law. On the whole, 
regulatory agencies such as CMS should have greater flexibility to 
refine the regulations as the health care policy and delivery 
environment changes.

Other recommendations

The complexities of the Stark Law regulatory infrastructure make it 
burdensome for clinicians to comply. The ``group practice'' definition 
places strict limits on the ways that a physician practice may 
compensate its owners. Agreements with physician contractors must 
satisfy seven distinct regulatory conditions, making them prone to 
technical infractions. Unlike other laws that regulate healthcare, the 
Stark Law does not require demonstration of intentional offers of 
remuneration to induce referrals or any risk to patient care. Current 
waivers are skewed toward primary care and financial relationships with 
hospitals. It is critical to incorporate protections for independent 
specialty groups. Finally, the Stark Law impedes care coordination 
needed to quality for alternative payment models in MACRA due to the 
Law's consideration of ``other business generated'' in its limitations 
on referrals. There are five fundamental revisions that we would like 
to see in order to align the law with MACRA:

      Revise the definition of ``group practice'' by removing the 
current ``volume'' or ``value'' standard so that physicians who are 
part of a group practice may be paid on the basis of furnishing care 
without violating the Stark Law.
      Provide the same protections from the Stark Law for physicians 
operating in an Alternative Payment Model for those provided waivers 
through Accountable Care Organizations eligible for the Medicare Shared 
Savings Program.
      Permit physician compensation for providing high-quality and 
efficient care without violating the Stark Law's ``fair market value'' 
standard even if the compensation is related to the volume or value of 
the referrals.
      Define Stark Law ``technical violations'' as compensation 
arrangements that do not otherwise violate the Anti-Kickback statute.
      Empower CMS to create new regulatory exceptions to the Stark Law 
now and in the future for purposes of promoting non-fee-for-service 
payment structures.
      Quality- and value-based physician reimbursements may violate 
the Stark Law fair market value or reasonableness standards. Under the 
current delivery and payment system, these standards should be repealed 
by Congress or CMS should be able to issue new and relevant standards.

Stark Law technical violations vs. more serious violations_where is the 
line?

We would like to point out that the Stark Law is a liability statute 
unlike other health care legislation. Thus, the physician's actual 
intent to improperly refer services is not pertinent to the liability. 
Thus, unintentional and technical errors of physicians and their staff 
may lead to heavy penalties. Such liability statutes are not 
encouraging of physicians to participate in new demonstrations and 
payment models. These requirements are also not helpful toward 
developing coordinated care models such as the CJR, led by hospitals 
but coordinated by several stakeholders including physicians.

Lifting the moratorium on new construction for physician-owned 
hospitals

The Whole Hospital Exception to the Stark Law allows for a physician to 
have an ownership or investment interest in a hospital to which the 
physician refers designated health services when the physician is 
authorized to perform services at the hospital and the ownership or 
investment interest is in the hospital itself. The Affordable Care Act 
(ACA) amended the Whole Hospital Exception to impose additional 
restrictions on physician-owned hospitals (POHs). The ACA restricted a 
POH from new construction or facility expansion after March 23, 2010.

There are approximately 250 POHs operating in 34 states across the 
country. These hospitals have a long history of providing the highest 
quality care for affordable prices. They are often the most efficient, 
state-of-the-art facilities in the country, which is the result of a 
doctors' desire to be involved in making detailed decisions. In CMS's 
Value Based Purchasing Program results, 7 of the top 10 hospitals, and 
40 of the top 100 hospitals, receiving quality bonuses in FY 2016 were 
POHs. A POH has been the top bonus recipient in each of the 4 years of 
the program. This is impressive, considering that POHs represent less 
than 5% of the 5,700 hospitals nationwide. Likewise, more than 40% of 
POHs earned CMS's top 5-star rating for patient satisfaction in October 
2015, while less than 4% of non-physician-owned hospitals received that 
distinction.

POHs treat similar patient populations as other hospitals. A 2015 
British Medical Journal study, published by a Harvard University 
researcher, found that there is no ``clinically or statistically 
significant differences in patient mix between POHs and non-POHs.'' The 
study found that ``POHs and non-POHs admitted similar proportions of 
Medicare patients . . . Medicaid patients . . . Black patients . . . 
and Hispanic patients,'' as well as patients with ``comparable numbers 
of comorbidities . . . and similar predicted mortality scores.''

Despite the strong track-record of superior performance, POHs serving 
Medicare and Medicaid patients have been restricted from growing and 
expanding through the ACA's change to the Stark Law Whole Hospital 
Exception. The restrictions have limited POHs from developing or 
expanding services in numerous rural and urban communities where 
additional care is desperately needed. In many instances, local 
community hospitals are simply not able to handle the caseload and 
patients do not have access to the care they need.

We strongly believe that the ACA change to the Whole Hospital Exception 
is detrimental to the U.S. healthcare system, and Medicare and Medicaid 
beneficiaries. POH's are a model that encourage the move from volume to 
value and are therefore consistent with the current trends in physician 
reimbursement.

Maintenance of current exceptions for in-office ancillary services

We would like to conclude by stressing the importance of maintaining 
current exceptions. For orthopaedic surgeons, current exceptions such 
as the IOASE, are absolutely essential for providing necessary care. 
For example, in high shortage and low resource rural areas, having 
magnetic resonance and other imaging services in the physician's office 
is often the only way that our surgeons can deliver and their patients 
can get timely diagnoses and care. The IOASE provision has enabled our 
practices to provide convenient, integrated and less expensive high-
quality care.

Several recent studies have made it clear that utilization of ancillary 
services in physician practices does not lead to overutilization. In a 
study published by Health Economics Review found that there was no 
statistically significant difference between physicians who self-refer 
for Magnetic Resonance Imaging (MRI) and those who do not. A June 2015 
study by Milliman Inc.--commissioned by the American Medical 
Association and the Digestive Health Physicians Association--showed 
utilization of ancillary services in physician practices is a small 
percentage of total spending on ancillary services and is declining or 
growing more slowly than in hospital settings. Additionally, a study by 
Braid-Forbes Health Research, LLC found that financial ownership was 
not related to MRI referral rates for practices that owned MRI 
equipment during the period of the study. A 2014 Government 
Accountability Office (GAO) study on physician-owned physical therapy 
services showed that physicians owning physical therapy services 
utilize the services less than physical therapy provided in non-
physician owned settings. Finally, in a June 2011 report to Congress, 
the Medicare Payment Advisory Commission (MedPAC) recommended against 
limiting the Stark Law exception for ancillary services, citing 
potential ``unintended consequences, such as inhibiting the development 
of organizations that integrate and coordinate care within a physician 
practice.'' Any effort to repeal the In-Office Ancillary Services 
Exception should be rejected.

We sincerely appreciate your endeavor in updating the Stark Law 
requirements and regulations and should you have any questions, please 
feel free to get in touch with AAOS's Senior Manager of Government 
Relations, Ms. Julia Williams, at [email protected], or AAOE's 
Government Affairs Manager, Mr. Bradley Coffey, at [email protected], or 
Joel James, OrthoForum Advocacy Committee member at 
[email protected]

Sincerely,

Gerald Williams, M.D.
American Association of Orthopaedic Surgeons

Eric Worthan
Chair, Advocacy Committee
The OrthoForum

Jan Vest, MBA
President
American Association of Orthopaedic Executives

                                 ______
                                 
                     American College of Cardiology

                           2400 N Street, NW

                       Washington, DC 20037-1153

                              202-375-6000

                              800-253-4636

                           Fax: 202-375-7000

                          http://www.acc.org/

The American College of Cardiology supports the following principles 
related to the Stark Law and believes they must guide any policy 
changes in this area:

      Changes must improve access to/quality of care, especially for 
vulnerable patient populations.
      Revisions must actually simplify the law to reduce the 
exorbitant legal fees and administrative burdens imposed on clinicians.
      As we transition to paying for quality vs. quantity, changes 
must allow clinicians to be compensated appropriately for the work they 
do/quality of care they provide.
      Modifications must allow and encourage collaboration between 
clinicians themselves, as well as between clinicians and hospitals, 
across private practices and multiple health systems, to provide 
coordinated care in an appropriate manner.
      Modifications to the law should reflect an emphasis on quality 
measurement, the use of outcome-based clinical data registries such as 
the National Cardiovascular Data Registry, the importance of 
collaborative, team based care models, and other innovative payment 
structures that underscore best practices.
      Changes must allow for the evolution of clinical practice and 
future flexibility in the structure of the Medicare program.
      Revisions must allow clinicians the ability to offer their 
patients both the best care and easy access to care, particularly in 
regard to clinical and diagnostic testing in an appropriate setting of 
their choice.
      Revisions must distinguish between willful and inadvertent 
violations of the law.

                                 ______
                                 
                      American College of Surgeons
On behalf of the more than 80,000 members of the American College of 
Surgeons (ACS), we welcome the opportunity to comment and provide 
information on long overdue and much needed modifications to the 
Physician Self-Referral Law, commonly referred to as the Stark Law. The 
Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) has 
created great opportunity to improve patient care coordination through 
development of new alternative payment models (APMs) but has also 
increased the urgency to modernize the Stark Law to take into account 
the way that care is delivered today and will hopefully be delivered in 
the future. Even before passage of MACRA, ACS has been working to 
develop APM options for our members to help achieve the goal of 
improving the quality, experience, and value of care to the patient and 
the health care system. While these efforts are still in the early 
stages of development, it is clear that coordinating care throughout 
the five phases of surgical care (pre-operative, peri-operative, intra-
operative, post-
operative and post-discharge) will be key to their success.

Removal of real or perceived barriers inherent in the Stark Law will 
help to speed adoption of newly developed APMs. Furthermore, the 
definition of the fair market value (FMV) of the services provided in 
APMs and other models that have perhaps not yet been developed will 
need to be revisited, since the role of the surgeon in such a model may 
go beyond simply providing high quality surgical interventions to 
playing a role in coordinating care that helps to avoid or delay the 
need for surgery.

Technical violations vs. more serious or problematic violations--where 
is the line?

The Stark Law is a strict liability statute, meaning that a physician's 
actual intent to improperly refer services is irrelevant to the 
imposition of liability and damages. Thus, inadvertent errors 
(including technical errors) of physicians provide grounds for harsh 
penalties. Consequently, whereas MACRA seeks to encourage physicians to 
provide quality care and to be innovative and efficient through APMs, 
the Stark Law with its strict liability and severe financial penalties 
can dissuade physicians from innovating their care delivery models. It 
can also deter physicians from adopting best practices that require 
integration unless the penalties under the Stark Law are eliminated or 
substantially reduced, especially in the case of technical errors. The 
lack of an intent requirement also diverges substantially from the 
related Federal Anti-Kickback Statute, which creates a ``knowingly and 
willingly'' standard. Congress should also require that some level of 
intent on the part of physicians to improperly refer patients to 
designated health services (DHS) be found in order to establish grounds 
for a violation of the Stark Law. The Stark Administrative 
Simplification Act (H.R. 776), introduced by Rep. Charles Boustany, 
represents one potential step in the right direction of addressing the 
laws inflexibility. This bill provides for an alternative sanction in 
the case of technical noncompliance with the Stark Law. In cases where 
noncompliance is due solely to the arrangement not being set forth in 
writing, not having been signed by one or more parties, or where a 
prior arrangement expired, the parties involved could disclose this 
technical noncompliance, fix the cause of the noncompliance, or 
terminate the arrangement and pay an alternative sanction in the form 
of a single civil monetary penalty. Changes such as these would help 
reduce uncertainty and the fear of liability and potentially large 
monetary damages, increasing the chances that providers will be 
comfortable to move into innovative payment arrangements.

What changes need to be made to the Stark Law to implement MACRA 
(Medicare Access and CHIP Reauthorization Act of 2015) in its current 
form and ACOs/shared savings programs?

The existing Stark Law exceptions do not provide sufficient protection 
or guidance for physicians to make fully informed decisions about 
participating in innovated care delivery models. More clarity is needed 
as to whether reimbursement models under MACRA would be protected under 
a current Stark Law exception or whether their payment arrangements, 
including risk/reward sharing and delivery of services in an integrated 
care delivery model, violate Stark or other fraud and abuse laws. If no 
exception applies, we recommend that CMS consider a statutory exception 
for any models approved as eligible APMs. At a minimum, the current 
fraud and abuse waivers applicable to the Medicare Shared Savings 
Program (MSSP), the Centers for Medicare and Medicaid Innovation (CMMI) 
Accountable Care Organizations (ACOs), and bundled payment programs 
should be codified in statute and extended to services furnished under 
a potential MACRA APM, where the same requirements for innovation, 
quality of care, efficiency, and care coordination are part of the care 
delivery model.

Other--Fair Market Value Issues

Basing payments to physicians on their performance on clinical quality 
and cost measures may violate the Stark Law fair market value or 
commercial reasonableness standards, which are requirements of many of 
the Stark Law exceptions. These standards were logical at the time the 
Stark Law was devised. But given that Congress has specifically enacted 
policies intended to incentivize physicians and other providers of 
services to deliver quality care, the fair market value requirement as 
a part of Stark Law exceptions should either be repealed or modified to 
permit physicians to participate in these types of payment incentive 
programs without fear of running afoul of the Stark Law.

Other--Preservation of the Current Exception Categories

Improving coordination of care to patients, especially those with 
complex conditions, is a major goal of our health care system in 
general and of the recently enacted MACRA law. We believe that in 
addition to changes in the law, it is important that Congress maintain 
the current exceptions to provide the flexibility needed to deliver 
care in the new health care system's delivery environment. In 
particular, we believe that preservation of the Stark Law In-Office 
Ancillary Services Exception (IOASE) is crucial to ensuring physicians 
can provide coordination of care for patients. This provision permits 
physician practices to provide critical services in an integrated and 
coordinated fashion within their respective practices. Eliminating this 
provision could prevent patients from receiving these services with 
their preferred provider, in hospital settings, thereby reducing access 
and increasing costs.

Again, we thank you for taking the initiative to begin the process of 
modernizing the Physician Self-Referral Law and we look forward to 
working with you in efforts to remove unnecessary barriers to the 
provision of high quality, high value, and coordinated care.

                                 ______
                                 
              American Physical Therapy Association (APTA)

                       1111 North Fairfax Street

                       Alexandria, VA 22314-1488

                              703-684-2782

                            703-684-7343 fax

                          http://www.apta.org/

On behalf of more than 93,000 physical therapists, physical therapist 
assistants, and students of physical therapy, the American Physical 
Therapy Association (APTA) is pleased to provide this statement to the 
Senate Finance Committee on ``Examining the Stark Law: Current Issues 
and Opportunities.''

APTA's vision is to transform society by optimizing movement to improve 
the human experience. Physical therapists diagnose and manage 
individuals across the lifespan who have conditions that limit their 
ability to move or function in their daily lives. We are committed to 
protecting and preserving resources within the health care system, and 
we continue to strive for the highest levels of ethics, 
professionalism, and evidence-based practices for our members. APTA's 
own Integrity in Practice campaign is aimed at educating not only 
current and future physical therapists on methods and reasons to 
prevent fraud, but also educating the public on questions they should 
ask to make wise decisions on care. APTA applauds the committee's 
interest in improving the Stark Laws. As the committee continues to 
look at ways to reform these laws to make them stronger and less prone 
to abuse, we strongly urge you to consider reform of the in-office 
ancillary services (IOAS) exception.

The IOAS exception to the Stark Laws was intended to improve 
coordination of care and promote patient convenience by allowing 
physicians to self-refer for designated health services integral to 
their primary care that are furnished in their group practices. 
Unfortunately, the current use of this exception goes well beyond its 
original intent. This is evident in MedPAC's June 2010 report to 
Congress. MedPAC found that physical therapy services were provided on 
the same day as the initial appointment only 3% of the time, clearly 
illustrating that these are not services that are provided for a 
patient's convenience.

Abuse of the IOAS exception has been examined by the Government 
Accountability Office, the Office of the Inspector General of the U.S. 
Department of Health and Human Services (HHS), and the New England 
Journal of Medicine (NEJM), among others. MedPAC also raised questions 
about abuse under the IOAS exception in the aforementioned June 2010 
report while the Centers for Medicare and Medicaid Services (CMS) asked 
for feedback from stakeholders in its 2008 notice of proposed 
rulemaking. Both MedPAC and CMS found that the existing IOAS exception 
has substantially diluted the self-referral law and its policy 
objectives, allowing Medicare providers to avoid the law's prohibitions 
by structuring arrangements meeting the technical requirements for 
physical therapy services while violating the true intent of the 
exception. Based on the NEJM study and the government reports, the 
abuse of the IOAS exception has also led to overutilization of several 
services. For these reasons, APTA strongly urges Congress to remove 
physical therapy as a designated health service (DHS) permissible under 
the in-office ancillary services exception to the federal physician 
self-referral laws.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) 
required HHS to submit a report to Congress in April 2016. This report, 
which has not been made public, should contain ``. . . options for 
amending existing fraud and abuse laws in, and regulations related to, 
titles XI and XVIII of the Social Security Act (42 U.S.C. 301 et seq.), 
through exceptions, safe harbors, or other narrowly targeted 
provisions, to permit gainsharing arrangements that otherwise would be 
subject to civil money penalties . . . or similar arrangements between 
physicians and hospitals, and that improve care while reducing waste 
and increasing efficiency.'' (Pub. L. 114-10 Sec. 512.) We believe that 
closing the IOAS exception loophole would surely fall under this 
mandate. Since Medicare fee-for-service is still in place, it should 
remain a priority to close the loophole by removing physical therapy, 
advanced diagnostic imaging, anatomic pathology, and radiation oncology 
as designated health services, which will eliminate unnecessary care 
for patients and stop abuse. Furthermore, we believe the promulgation 
of laws to end the unintended abuses under the IOAS exception are 
essential to the success of alternative payment models such as 
accountable care organizations and bundled payment. Congress should 
make clear that the flexibilities afforded under the IOAS exception 
apply only to physician group practices participating in alternative 
payment models that demonstrate true clinical integration evidenced 
through participation in quality reporting and improved outcomes 
initiatives. APTA also advocates for the very narrow use of the IOAS 
exception in rural and underserved areas, and we urge Congress to 
direct the secretary of HHS to delineate these limited circumstances in 
regulatory rulemaking.

APTA asserts that care furnished under the IOAS exception is often 
degraded, raising serious quality concerns. There is evidence that 
beneficiaries may actually receive higher-quality care--and therefore 
better outcomes--when self-referral is not involved. A recent study on 
low back pain episodes of care, published in the July 2015 issue of the 
Forum for Health Economics and Policies by Jean Mitchell, Ph.D., of 
Georgetown University, found that non-self-referred episodes of care 
were far more likely to provide ``active,'' or hands-on, services than 
self-referral episodes--52% compared with 36%. This, according to the 
study's authors, suggests the care delivered by physical therapists in 
non-self-referred episodes is more tailored to promote patient 
independence and a return to performing routine activities without 
pain. It is important to note that ``passive'' treatments, which are 
more likely found in self-referring episodes, can be performed by a 
person who is not a licensed physical therapist. The authors of this 
paper also cite evidence that these passive physical therapy modalities 
are ``ineffective'' in treating low back pain.

Of note, the study highlights the difference in overall expenditures 
for episodes of care provided by self-referring vs. non-self-referring 
physicians. The study examines the total insurer allowed amounts for 
low back pain episodes of care and parses out expenditures on physical 
therapy only. On average, spending for self-referring providers was 
$144 as opposed to only $73 for non-self-referring providers. This is a 
significant difference for a very common episode of care. Even more, 
when the expenditures for the entire episode of care are calculated--
not just physical therapy but all care for the episode--self-referral 
episodes averaged $889 compared with only $602 for non-self-referral 
episodes. The implication is clear: not only is this a problem for 
physical therapy, it has spread far beyond.

Another study published in February of this year in Health Services 
Research, also by Jean Mitchell, Ph.D., examined the use of physical 
therapy following total knee replacement (TKR) surgery. This population 
consisted of Medicare beneficiaries. Patients that were treated by an 
orthopedic surgeon who had an ownership interest in the physical 
therapist that treated the patient after the surgery received 8.3 more 
physical therapy visits as well as 6.6 fewer PT service units per 
episode than patients who had surgery from an orthopedic surgeon with 
no ownership interest in the subsequent physical therapy. Since 
patients were under Medicare, the study was also able to examine the 
codes billed for these episodes. It found that episodes directed by a 
self-referring orthopedic surgeon consisted of billing for 8.2 percent 
fewer therapeutic exercise codes, but higher billing for group therapy 
and manual therapy, the latter of which consists mainly of joint 
massage and mobilization to reduce swelling.

This second study, which mirrors findings of the first, shows patients 
treated by physicians with a financial self-interest in the follow-up 
physical therapy receive less active, hands-on, and one-on-one care 
than those patients who are treated by physicians who have no financial 
interest in the follow up therapy. The incentive exists to extend care 
for more visits while billing less intensive therapy codes that do not 
necessarily expedite patient recovery.

APTA would like to thank Chairman Hatch and Ranking Member Wyden for 
looking into this important policy issue and allowing APTA to share its 
recommendation. We look forward to being a partner in rooting out 
Medicare fraud and abuse and establishing an efficient, patient-
centered health care system. APTA strongly encourages the committee to 
support the original intent of the IOAS exception for same-day services 
by removing physical therapy, anatomic pathology, advanced diagnostic 
imaging, and radiation therapy services. This reform is in the best 
interests of taxpayers, patients, and the American health care system 
overall.

                                 ______
                                 
                        Gundersen Health System

    Gundersen Lutheran Medical Center, Inc. | Gundersen Clinic, Ltd.

                      External Affairs Department

                   1900 South Ave., Mailstop: H02-009

                          La Crosse, WI 54601

              E-mail: [email protected]

                         Phone: (608) 775-1400

July 26, 2016

The Honorable Orrin Hatch           The Honorable Ron Wyden
Chairman                            Ranking Member
U.S. Senate                         U.S. Senate
Committee on Finance                Committee on Finance
219 Dirksen Senate Office Building  219 Dirksen Senate Office Building
Washington, DC 20510                Washington, DC 20510

Re: Examining the Stark Law: Current Issues and Opportunities

Dear Chairman Hatch and Ranking Member Wyden:

On behalf of Gundersen Health System, we write to provide testimony in 
response to the Senate Committee on Finance recent hearing ``Examining 
the Stark Law: Current Issues and Opportunities.'' Overall, we are very 
supportive of the committee's focus on reforming the barriers presented 
by the existing Stark Law.

Gundersen Health System provides integrated care for patients in 
predominantly rural areas along the Mississippi River in western 
Wisconsin, northeast Iowa, and southeast Minnesota. As the largest 
employer in the La Crosse, Wisconsin region with over 7,000 employees, 
Gundersen provides a range of services including: clinical care, level 
II trauma care, medical education, and air and ground ambulance 
services. In addition, Gundersen has maintained a five-star rated 
Medicare Advantage insurance plan for the past 5 consecutive years. 
Gundersen has consistently achieved top national rankings in many areas 
of medical excellence including being named as a Healthgrades Top 50 
hospital in overall care, many clinical specialty services, and patient 
experience.

We believe value-based payment policies can drive better quality, lower 
cost of care, and reduce overall costs for the Medicare program. 
Gundersen Health System is a leader in efforts to reduce healthcare 
costs and improve quality, but certain outdated statutory and 
regulatory barriers hinder opportunities to further develop and expand 
new models of care. As a founding member of the Healthcare Quality 
Coalition (HQC), we strongly support continued implementation of 
payment systems that reward value

Alleviating Statutory Barriers Through Stark Law Reform

Gundersen Health System supports developing and advancing legislation 
for reforming the antiquated Stark Law. The Stark Law's oversight of 
compensation arrangements is anchored in a fee-for-service environment, 
and enacted during a time where physicians were predominately self-
employed, hospitals were separate entities, and both billed for 
services on a piecemeal basis. The Stark Law is outdated and not suited 
to the new models and should not be the locus of oversight for these 
new arrangements. The statute and its complex regulatory framework are 
designed to keep hospitals and physicians apart--the antithesis of the 
new models and certainly not an aspect integrated healthcare at 
Gundersen Health System.

Increasingly, public and private payers are holding hospitals 
accountable for reducing costs and improving quality, and using 
financial incentives, which we strongly support. Achieving Congress's 
goals for value-based care and innovative community delivery models can 
be accomplished only through teamwork among hospitals, physicians and 
other health care providers across sites of care. Existing Stark Laws 
are significant barriers to developing innovative community-based care 
models to help patients recover faster and stay out of the hospital, 
ultimately reducing readmissions and healthcare costs.

Policy Solutions

We recommend legislative solutions in the Senate be developed in tandem 
with the committees of jurisdiction in the House of Representative. 
Introducing bipartisan, bicameral legislation would establish a strong 
signal to the healthcare community that policymakers are working 
diligently across both Congressional Chambers to enact laws to improve 
quality and population health, increase collaboration, and lower the 
cost of care.

At minimum, Congress should adopt legislation that provides a single, 
broad exception for integrated healthcare delivery systems. An 
integrated healthcare organization exception should cut across the 
Stark Law, the anti-kickback statute and relevant civil monetary 
penalties for financial relationships designed to foster collaboration 
in the delivery of health care and incentivize and reward efficiencies 
and improvements in care. We recommend the exception be created under 
the anti-kickback statute and arrangements protected under the 
exception be deemed compliant with the Stark Law. Addressing this 
barrier will help with the implementation of the Medicare Access and 
CHIP Reauthorization Act by developing new alternative payment models, 
reducing hospital readmissions, increasing coordinated care, and 
improving population health programming.

Conclusion

In sum, we are strongly supportive of the Senate Committee on Finance's 
focus on exploring policy solutions to remove legal barriers in the 
advancement of new, alternative payment models. We are pleased with the 
bipartisanship that has encompassed these early hearings. The released 
white paper titled Why Stark, Why Now? is an excellent step at 
identifying potential solutions. We look forward to continue working 
with you to provide input and help move the issue forward to 
legislation.

Sincerely,

Michael D. Richards
Executive Director of External Affairs
Gundersen Health System

                                 ______
                                 
             Horty, Springer, and Mattern, Attorneys at Law

                4614 Fifth Avenue, Pittsburgh, PA 15213

                       Telephone: (412) 687-7677

                       Facsimile: (412) 687-7692

                     https://www.hortyspringer.com/

July 11, 2016

U.S. Senate
Committee on Finance
Dirksen Senate Office Building
Washington, DC 20510-6200

Re: Examining the Stark Law: Current Issues and Opportunities--July 12, 
2016 Hearing

To the Members of the Committee:

This letter is submitted for inclusion in the hearing record in 
connection with the above hearing. The law firm of Horty, Springer and 
Mattern, PC. devotes its practice exclusively to hospital and health 
care law. We work with health care providers throughout the country, 
consulting with hospital boards, management, medical staff leaders and 
other attorneys. We are intimately familiar with regulatory 
implications of the financial relationships between physicians and 
hospitals, especially those arising out of the Physician Self-Referral 
Act, 42 U.S.C. Sec. 1395nn, also known as the ``Stark Law.'' We 
routinely draft hospital-physician arrangements, advise our clients 
about them, and represent clients in False Claims Act litigation when 
such arrangements are challenged based on alleged violations of the 
Stark Law. We also represent clients who have made self-disclosures to 
CMS and the OIG involving Stark Law and similar violations. In 
submitting these comments, we are not acting on behalf of any client. 
We appreciate the opportunity to submit these comments.

Hospitals must enter into a wide variety of compensation arrangements 
with physicians in order to carry on their day-to-day operations. 
Nonprofit charitable hospitals have additional needs for physician 
relationships essential to carry out their charitable mission. The 
Stark Law, as it has been implemented by CMS in its regulations and 
regulatory commentary, applied by the Department of Justice and 
relators in False Claims Act cases, and interpreted by the courts, 
presents very real barriers to achieving clinical and financial 
integration of physicians and hospitals required to achieve the 
``triple aim'' of health care reform--reducing cost, improving quality 
and enhancing access. The Stark Law has also imposed significant 
expenses on health care organizations in the form of legal and 
compliance costs.

In our opinion, the Stark Law should be repealed in its entirety, or at 
least be substantially amended by repealing the prohibitions against 
compensation arrangements that fall outside the statutory and 
regulatory exceptions. In lieu of that, we would offer the following 
comments on specific provisions in the Stark Law.

1. Volume or Value Standard

As CMS has repeatedly stated, the requirement that compensation not 
vary with or take into account the volume or value of physician 
referrals, which appears in a number of statutory or regulatory 
exceptions, should be uniformly interpreted wherever it appears. Such 
uniform interpretation is essential. However, other agencies and some 
courts have interpreted the volume or value standard to consider the 
subjective intent of the parties, rather than applying an objective 
``bright line'' test as Congress intended, making compliance with the 
statute much more difficult and uncertain. In addition, prior CMS 
commentary has added to this confusion by applying the volume or value 
standard to other exception criteria, such as the definition of fair 
market value, thereby conflating two standards that were intended to 
stand on their own. The Committee should consider amending the Stark 
Law to address this confusion.

      (a) Objective vs. Subjective Interpretation

A number of recent court cases have stated that if a hospital discusses 
or analyzes the potential referrals, it ``takes referrals into 
account'' thereby tainting an otherwise compliant arrangement, even one 
that pays a fixed fee. This introduces an element of subjective intent 
into an ostensibly ``bright line'' statutory and regulatory scheme.

The volume and value standard says that the compensation cannot 
``take'' into account the volume or value of referrals--not ``took.'' 
This distinction is crucial. What the parties to an arrangement may 
have intended to achieve is irrelevant for the purposes of the self-
referral law. As CMS pointed out in the Phase 1 regulations: ``a 
compensation arrangement does not take into account the volume or value 
of referrals or other business generated between the parties if the 
compensation is fixed in advance and will result in fair market value 
compensation, and the compensation does not vary over the term of the 
agreement in any manner that takes into account referrals.'' 66 Fed. 
Reg. 877-878 (January 4, 2001) (emphasis added). This is also supported 
by the legislative history of the self-referral law. Congress said that 
compensation simply could not ``fluctuate during the contract period 
based on the volume or value of referrals between the parties to the 
lease or arrangement.'' H.R. Rep. No. 103-111, at 545 (1993), reprinted 
in 1993 U.S.C.C.A.N. 378, 779 (emphasis added). What the parties may 
have wanted to accomplish through the arrangement is not relevant to 
the legality of the compensation arrangement under the Stark Law. 
Unlawful intent is to be addressed by the Medicare Anti-Kickback 
Statute, 42 U.S.C. Sec. 1320a-7b.

Congress should therefore amend the Stark Law to clarify that the 
intent of the parties to an arrangement is completely irrelevant to the 
application of the Law or the eligibility to fit within any of the 
exceptions.

    (b) Circular Definitions

The definitions of ``fair market value'' and ``not take into account 
the volume or value of referrals'' (the ``volume or value standard'') 
as used in the regulations to the Stark Law are completely circular. 
The regulations, at 42 CFR Sec. 411.351, define ``fair market value'' 
as follows:

        Fair market value means the value in arm's-length transactions, 
        consistent with the general market value. ``General market 
        value'' means the price that an asset would bring as the result 
        of bona fide bargaining between well-informed buyers and 
        sellers who are not otherwise in a position to generate 
        business for the other party, or the compensation that would be 
        included in a service agreement as the result of bona fide 
        bargaining between well-informed parties to the agreement who 
        are not otherwise in a position to generate business for the 
        other party, on the date of acquisition of the asset or at the 
        time of the service agreement. Usually, the fair market price 
        is the price at which bona fide sales have been consummated for 
        assets of like type, quality, and quantity in a particular 
        market at the time of acquisition, or the compensation that has 
        been included in bona fide service agreements with comparable 
        terms at the time of the agreement, where the price or 
        compensation has not been determined in any manner that takes 
        into account the volume or value of anticipated or actual 
        referrals (emphasis added).

On the other hand, the volume or value standard, while not defined m 
the body of the regulations, has been described in CMS commentary as 
follows:

        A compensation arrangement does not take into account the 
        volume or value of referrals or other business generated 
        between the parties if the compensation is fixed in advance and 
        will result in fair market value compensation, and the 
        compensation does not vary over the term of the arrangement in 
        any manner that takes into account referrals or other business 
        generated (emphasis added).

66 Fed. Reg. 877-878 (January 4, 2001).

In other words, to comply with the fair market value standard, a 
compensation arrangement must not take into account the volume or value 
of referrals, but the compensation arrangement will not take into 
account the volume or value of referrals only if it results in fair 
market value compensation. This definition is circular and is not 
consistent with the statute. The statute defines ``fair market value'' 
as ``the value in arm's-length transactions, consistent with the 
general market value, and, with respect to rentals or leases, the value 
of rental property for general commercial purposes (not taking into 
account its intended use) and, in the case of a lease of space, not 
adjusted to reflect the additional value the prospective lessee or 
lessor would attribute to the proximity or convenience to the lessor 
where the lessor is a potential source of patient referrals to the 
lessee.'' 42 U.S.C. Sec. 1395nn(h)(3). There is no mention of the 
volume or value standard in this definition, nor should there be, since 
these are two separate and independent concepts. Congress should amend 
the law to make it clear that the volume or value and fair market value 
standards are independent of one another, and that compliance with one 
does not depend on compliance with the other.

    (c) Correlation of Professional Services to Technical Fees

CMS has repeatedly stated that a physician's compensation can always be 
based on personally performed services--69 Fed. Reg. 16054, 16067 
(March 26, 2004)--even if the payment is ``linked to a facility fee.'' 
Id. at 16088-89. Unfortunately, at least one court has misinterpreted 
or ignored this guidance and held that if an employed physician 
eligible for productivity compensation personally performs a 
professional service in a hospital and the hospital also bills a 
technical fee to Medicare, the physician's compensation varies with his 
or her referrals and thus fails to comply with the volume or value 
standard. The vast majority of hospitals and health systems in the 
country pay doctors on a productivity basis linked to their personally 
performed professional services performed in the hospital. Without 
further statutory clarification affirming that this would not violate 
the volume or value standard, hospitals and physicians will be faced 
with grave uncertainty about whether their compensation arrangements 
are compliant.

2. Definition of Referring Physician

The statute provides: ``. . . the request or establishment of a plan of 
care by a physician which includes the provision of the designated 
health services constitutes a `referral' by a `referring physician.' '' 
42 U.S.C. Sec. 1395nn(h)(5)(B). However, the regulations go on for over 
250 words in defining the term ``referral'' which creates confusion. 
Furthermore, the Government has been allowed to prove referrals by 
simply offering into evidence summaries of UB-04 claims forms that 
identify ``attending'' or ``operating'' physicians and which were never 
intended to identify referring physicians. This has also allowed the 
Government to claim damages equal to the entire payment for inpatient 
claims when the physician in question is simply listed anywhere on the 
claim form, even if he or she did not admit the patient. This has 
resulted in wildly inflated damage awards and settlements. To address 
this problem, we would suggest limiting the definition of ``referring 
physician'' to the physician who actually ordered an outpatient service 
or inpatient admission, and require proof from the medical record 
rather than from the claims forms.

3. Physician Compensation

The majority of physicians are now employed by hospitals and health 
systems. Having those employment arrangements micromanaged by CMS and 
DOJ through the Stark Law not only stifles innovation, but flies 
directly in the face of the Prohibition Against Federal Interference 
set forth in the very first section of the Medicare statute: ``Nothing 
in this subchapter shall be construed to authorize any Federal officer 
or employee to exercise any supervision or control over the practice of 
medicine or the manner in which medical services are provided, or over 
the selection, tenure, or compensation of any officer or employee of 
any institution, agency, or person providing health services; or to 
exercise any supervision or control over the administration or 
operation of any such institution, agency, or person.'' 42 U.S.C. 
Sec. 1395. Absent repealing the Stark Law or its prohibition against 
compensation arrangements falling outside its exceptions, or creating 
an all-encompassing statutory carve-out for employment arrangements as 
there is in the Anti-kickback Statute, there are several changes to the 
Stark Law that should be considered.

    (a) Value-Based Purchasing and Alternative Payment Models

Hospitals and health systems need immediate guidance concerning the 
ability of a hospital to compensate physicians who assist the hospital 
under Medicare's Value-Based Purchasing Program (``VBP'') or who 
participate in Alternative Payment Models (``APM'') under the proposed 
MACRA regulations. It is difficult, if not impossible, for a hospital 
to achieve the desired goals under VBP or APM without physician input 
and cooperation. However, the fair market value of that input and 
cooperation is difficult to determine and hourly payment rates are 
often not reflective of the fair market value of the services actually 
being provided to the hospital by the physicians.

Hospitals need to be assured that utilizing a payment methodology that 
is based, in whole or in part, on the amount of the payment that the 
hospital or physician receives under VBP or APM will satisfy an 
exception to the Stark Law.

In addition, since 2001, the Office of Inspector General for HHS has 
provided Advisory Opinion Guidance on gainsharing arrangements. (See, 
OIG Supplemental Compliance Program Guidance for Hospitals, Part C 
``Payments to Reduce or Limit Services: Gainsharing Arrangements,'' 70 
FR 4869-4870 (January 31, 2005).) However, CMS has failed to issue any 
type of formal guidance on gainsharing. The Stark Law should be amended 
to state unambiguously that a hospital that complies with the OIG's 
published guidance on gainsharing will satisfy the personal services 
exception to the Stark Law.

    (b) Personally Performed Services

Hospitals would also benefit from further statutory clarification as to 
what constitutes ``remuneration in the form of a productivity bonus 
based on services performed personally by the physician (or immediate 
family member)'' when a hospital employs a physician directly. 42 CFR 
Sec. 411.357(c)(4) (emphasis added).

For example, many physician groups use an incentive compensation model 
that is based on the group achieving certain goals. The bonus earned is 
then often divided equally between and among the physicians in the 
group. What is unclear is whether a hospital that employs physicians 
directly pursuant to 42 CFR Sec. 411.357(c) is permitted to have a 
similar incentive compensation model that permits the employed 
physicians to share in the professional revenue generated by all of the 
physicians in a particular specialty. Such group-based specialties are 
common in physician organizations and encourage common goals. However, 
CMS has never provided guidance as to whether such a group-based 
incentive compensation model would be ``based on services performed 
personally by the physician'' for purposes of complying with 42 CFR 
Sec. 411.357(c)(4).

    (c) Non-Physician Practitioner

More and more care is being delivered by non-physicians such as nurse 
practitioners and physician assistants. However, these providers always 
must practice in collaboration with or under the supervision of 
physicians. Present law is unclear as to whether a hospital that 
directly employs physicians pursuant to Sec. 411.357(c) and bills for 
the services of non-physician practitioners who are supervised by those 
employed physicians under the Medicare ``Incident to Rules'' is 
permitted to include that revenue in the hospital's compensation of the 
supervising physician. Such an arrangement is specifically permitted in 
a physician group that is organized and operated in a manner described 
in 42 CFR Sec. 411.352. See 66 Fed. Reg. 876 (January 4, 2001).

However, despite the increase in the utilization of non-physician 
practitioners since 2001, when the Phase 1 rules were published, CMS 
has not updated the statement in the Preamble to the Phase 1 rules that 
stated that such payments are limited to physicians in a group practice 
organized and operated pursuant to 42 CFR Sec. 411.352 or to physicians 
in solo practice (see 66 Fed. Reg. 891) and would not constitute 
``services performed personally by the physician'' in the incentive 
compensation model of a hospital-employed physician for purposes of 42 
CFR Sec. 411.357(c)(4).

Therefore, we would recommend that the Stark Law should clarify that 
employed physician compensation may include credit for time spent for 
supervision of or collaboration with non-physician practitioners as 
well as credit for services performed by such practitioners.

    (d) Fair Market Value Issues

Finally, hospitals and health systems recruit physicians in a national 
market. Hospitals often employ physicians in needed specialties, even 
if the patient population served by that hospital will not financially 
support that service. Such professional services are often needed to 
further the charitable purposes of the hospital regardless of the 
profitability of that service.

Hospitals that employ physicians also have limited ability to control 
the amount that they are paid by various third-party payors for the 
professional services provided by the employed physicians. As a result, 
it is not uncommon for a hospital to pay a physician more in 
compensation than the hospital will be reimbursed for the professional 
services that are provided by that physician. In many types of value-
based and bundled payment models, it is difficult, if not impossible, 
to even determine if the hospital is losing money on the professional 
services being provided by the hospital.

While CMS mentioned ``compensation arrangements involving `mission 
support payments' and `similar payments' (`support payments')'' in the 
Preamble to the Phase 4 Rules (73 Fed. Reg. 48691 (August 19, 2008)), 
the Stark Law should be amended to make it clear that there is no 
presumption that a hospital or hospital-affiliated entity that 
compensates a physician an amount in excess of the reimbursement that 
is paid to the employer for that physician's professional services is 
compensating the physician in a manner that is based on, or takes into 
account, the volume or value of the physician's referrals to the 
hospital.

CMS should also make it clear that while salary surveys are excellent 
benchmarks, they are intended to be nothing more than a benchmark. No 
salary survey (or any specific percentile within a salary survey) 
should dictate the fair market value of a physician's services.

4. Conclusion

In his introductory remarks to the Comprehensive Physician Ownership 
and Referral Act of 1993, Congressman Stark stated that ``the only way 
to protect health care consumers from unnecessary referrals is to 
impose a `bright line rule.' '' 139 Cong. Rec. E84-01 (January 6, 
1993). While Representative Stark's intent was to create a bright line 
rule, the current state of the law is anything but that.

We believe that the Stark Law has outlived its usefulness and should be 
repealed, or at least substantially amended to repeal its prohibitions 
against compensation arrangements. In lieu of that, we would 
respectfully request that the Committee consider the above suggestions. 
Our recommended changes are provided in the hope that they will restore 
the ``bright line'' rules that were originally intended by the Law's 
drafters and permit hospitals and physicians to care for patients 
without federal interference and make the Stark Law less of a ``booby 
trap rigged with strict liability and potentially ruinous exposure.''

Sincerely,

Daniel M. Mulholland III
dmulhol[email protected]

                                 ______
                                 
                  Physician Hospitals of America (PHA)
Dear Chairman Hatch, Ranking Member Wyden, and Members of the 
Committee,

On behalf of the Physician Hospitals of America (PHA) and the more than 
250 
physician-owned hospitals (POHs) across the country, thank you for the 
opportunity to submit a statement for the record regarding reforms to 
the Stark Law. PHA offers support, advocacy, and educational services 
to the POH industry, reflecting at all times the best interests of the 
patients, physicians and other specialty providers who play an 
inextricable and essential role in the provision of health care 
services.

Currently, the Stark Law prevents POHs from competing on a level 
playing field with other hospitals, subjecting them to an onerous 
moratorium which prohibits their ability to expand to treat the growing 
population of Medicare and Medicaid patients in their communities. If 
POHs are able to fairly compete in the health care marketplace, 
patients will benefit through greater access to quality and affordable 
care, while the Medicare program will benefit through paying less for 
better outcomes. POHs are an important component of the health care 
system--ensuring competition, preserving physician autonomy, and 
promoting innovation. This anti-competitive moratorium is bad for our 
health care system, bad for the Medicare program, and bad for patients.

Multiple independent, peer-reviewed studies and government quality 
ratings programs have demonstrated that POHs are centers of excellence, 
leading the way in quality, patient satisfaction, and cost. The facts 
so clearly point to the high performance of POHs that the authors of a 
study in BMJ, titled ``Access, Quality and Costs of Care at Physician-
Owned Hospitals in the United States,'' concluded that there is ``a 
need to re-examine existing public policies that target all hospitals 
with physician owners.'' \1\
---------------------------------------------------------------------------
    \1\ BMJ 2015, 351: h4466.

Based on these facts and the need for greater competition, higher 
quality outcomes, and reduced costs in the health care marketplace, 
Congress should allow POHs to compete on a level playing field with 
every other hospital in the country by enacting the reasonable, common-
sense provisions included in H.R. 2513. This bipartisan legislation, 
introduced by Rep. Sam Johnson (R-TX), will improve and sustain the 
Medicare program by allowing existing POHs to expand to meet their 
communities' demand for high-quality, low-cost health care services.

Background

Physician ownership of hospitals has a long and distinguished history 
in this country. Physicians and surgeons often opened the first 
hospitals in communities and many of these POHs evolved into important 
medical centers that set new standards of excellence. The contemporary 
interest in POHs is the result of the physician's desire to return 
decisions regarding medical care back to healthcare providers and their 
patients.

In some cases, physicians have found themselves to be the buyers of 
last resort for hospitals that have been abandoned due to low profit 
margins, even though the community needed such a facility. Physicians 
are no longer allowed to save hospitals that are being abandoned by the 
very opponents of our industry.

Physicians have invested in a wide array of hospitals, including full-
service community, rural, multi-specialty, surgical, rehab, orthopedic, 
cardiac, children's, psychiatric, and long-term acute hospitals. POH 
business models are equally diverse and include joint ventures with 
non-profit or for-profit community hospitals, joint ventures with 
development/management companies or other investors, and hospitals that 
are 100% physician-owned.

POHs provide high-quality care to millions of patients throughout the 
United States and bring many benefits to the communities in which they 
are located. Many POHs operate in Medically Underserved Areas (MUAs), 
serving as refuges for patients with otherwise limited options for 
healthcare services.

Government Ratings Programs

Hospital Value-Based Purchasing Program
Beginning in FY 2013, CMS established the Hospital Value-Based 
Purchasing (VBP) program to award and penalize hospitals across the 
country for quality of care. Medicare payments to the more than 3,500 
participating hospitals are increased or reduced based upon performance 
in measured domains for care quality, including patient experience, 
outcomes, process of care and efficiency.

POHs consistently outperform their non-POH competition in the VBP 
program. In FY 2016, 7 of the top 10 hospitals in the program were 
POHs. Seventy-nine percent of POHs received a bonus payment adjustment, 
compared to only 58% of non-POHs.\2\
---------------------------------------------------------------------------
    \2\ FY 2016 Final Rule, Correction Notices, and Consolidated 
Appropriations Act of 2016 Tables.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Readmissions Reduction Program
Effective on October 1, 2012, CMS reduces payments to hospitals 
participating in the Readmissions Reduction (RR) program for excessive 
readmissions of patients to a hospital within 30 days of a discharge.

As with the VBP program, POHs consistently outperform their non-POH 
counterparts. In FY 2016, 55% of POHs received no penalty for 
readmissions, compared to only 18% of non-POHs.\3\
---------------------------------------------------------------------------
    \3\ 2016 Hospital IPPS Final Rule and Correction Notices Impact 
Public Use File.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


Star Ratings for Patient Satisfaction
In 2015, CMS began issuing summary star ratings for hospitals' patient 
satisfaction scores. The star ratings allow patients to compare 
performance between nearly 3,500 Medicare-certified hospitals on a wide 
array of metrics evaluated in the Hospital Consumer Assessment of 
Healthcare Providers and Systems (HCAHPS) survey, including 
communication with nurses and doctors, pain management, staff 
responsiveness, care transition, hospital cleanliness and quietness, 
etc.

These star ratings are issued quarterly, beginning with April 2015. In 
each of the reported quarters thus far, POHs have displayed 
unparalleled patient satisfaction through their consistently high star 
ratings. The charts below demonstrate the superior performance of POHs 
in the April 2015 reporting period.\4\
---------------------------------------------------------------------------
    \4\ CMS Hospital Compare website.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    

Academic Studies

``Cherry Picking'' Myth
There are many unfounded myths about POHs that have been employed as 
reasons to restrict patient choice. One of the most commonly cited 
accusations is that POHs ``cherry pick'' healthier, more profitable 
patients. Recent research, however, shows that POHs treat similar 
patient populations as other hospitals. An independent, peer-reviewed 
2015 British Medical Journal study found there are no ``clinically or 
statistically significant differences in patient mix between POHs and 
non-POHs.'' The study found that ``POHs and non-POHs admitted similar 
proportions of Medicare patients . . . Medicaid patients . . . Black 
patients . . . and Hispanic patients,'' as well as patients with 
``comparable numbers of comorbidities . . . and similar predicted 
mortality scores.'' \5\
---------------------------------------------------------------------------
    \5\ BMJ 2015, 351: h4466.
---------------------------------------------------------------------------
Low Costs
Beyond debunking the ``cherry picking'' myth, this study also asserted 
that POHs perform as well or better than non-POHs in terms of cost. The 
study states, ``Costs and Medicare payments at POHs were similar to, or 
lower than, those at non-POHs. Taken together, our findings suggest 
that most POHs are not outliers in terms of patients served, the 
quality of care provided, or their costs to the healthcare system.'' 
\6\
---------------------------------------------------------------------------
    \6\ Ibid.
---------------------------------------------------------------------------
High Quality
Another recent academic study published in the Journal of Hospital 
Medicine further validated that POHs are high-quality facilities. The 
study, titled ``Hospital Characteristics and 30-Day All-Cause 
Readmission Rates,'' found that ``Physician partial or full ownership 
was significantly associated with lower readmission rates (P = 0.00); 
hospitals partially or fully owned by physicians had adjusted 
readmission rates 0.36 percentage points lower than non-physician-owned 
hospitals.'' The study's authors asserted, ``Ownership aligns 
physicians' incentives with hospital performance and is therefore 
likely to be associated with better readmission rates.'' \7\
---------------------------------------------------------------------------
    \7\ Al-Amin, M. (2016), Hospital characteristics and 30-day all-
cause readmission rates. J. Hosp. Med. doi: 10.1002/jhm.2606.
---------------------------------------------------------------------------

The Stark Law and the ACA

Despite this strong track-record of superior performance, POHs serving 
Medicare and Medicaid patients have been restricted from growing and 
expanding through a dramatic overhaul of the Stark Law Whole Hospital 
Exception, via adoption of the ACA in 2010. PHA strongly believes that 
the newly-revised Whole Hospital Exception is detrimental to the U.S. 
healthcare system, and Medicare and Medicaid beneficiaries most 
seriously. The following troubling aspects of the Whole Hospital 
Exception were neither necessary nor beneficial nor constitutional:

    1.  The prohibition in the newly modified Whole Hospital Exception, 
set forth at 42 CFR Sec. 411.362(b), prohibiting billing and collecting 
for services referred by physician owners in a POH that did not have 
both Medicare certification and physician ownership prior to enactment 
of the ACA on March 23, 2010; and

    2.  The prohibition on the ability of POHs to expand their 
critically necessary operating rooms, procedure rooms, and bed 
capacities except in extremely limited circumstances that are rarely 
applicable.

The foregoing restrictions have limited POHs from developing or 
expanding services in numerous rural and urban communities around the 
country where additional care is so desperately needed. In many 
instances, local community hospitals are simply not picking up the 
slack to provide the much needed services such that a great chasm 
exists in these communities where patients simply do not have access to 
the care they need. In most instances, if the Whole Hospital Exception 
did not include these two most troubling aspects, physicians who are so 
vested in the community would step in to purchase a failing hospital, 
or expand their existing hospitals, thereby bettering healthcare in the 
area and allowing the community to experience the acclaimed care that 
existing POHs provide. For these reasons, PHA strongly urges Congress 
to adopt legislation removing these troubling provisions of the Whole 
Hospital Exception.

H.R. 2513

Introduced by Rep. Sam Johnson (R-TX) with bipartisan support, H.R. 
2513--the Promoting Access, Competition and Equity (PACE) Act of 2015--
is an important, patient-centric piece of legislation that would 
improve patients' access to some of the highest quality, lowest cost 
hospitals in the country: POHs.

H.R. 2513 would address the most egregious aspects of the ACA 
moratorium on POHs by providing a reasonable pathway for higher quality 
POHs to apply for an exception to expand facility capacity and allow 
hospitals that missed the arbitrary deadline for Medicare certification 
as a POH to be grandfathered under the law.

Specifically, H.R. 2513 would:

      Allow POHs to apply for expansion if they receive at least 3 
stars from CMS in the new Summary Star Ratings program for hospitals 
over 3 consecutive years. While the policy is common sense and is good 
public policy--tying expansion to quality outcomes and the overall 
patient experience--it should apply for all hospitals. Why should 
Congress allow a hospital that treats Medicare patients to expand if 
they provide poor quality of care? Hospitals that are 1- and 2-star 
facilities invariably are hurting patients physically as well as 
financially. They certainly cost Medicare more money. Why does Congress 
allow them unfettered expansion? Hospitals with physician ownership 
have offered to be held to a higher standard for quality of care, but 
all hospitals should submit to this concept as it would increase 
quality for all. This patient-first idea is indicative of the POH 
industry and we challenge those that disparage POHs to apply this 
requirement to themselves.

      Grandfather two hospitals that were under development as POHs 
when the ACA was passed but were unable to meet the arbitrary Medicare 
certification deadline.

Patients should be able to seek treatment at the hospital of their 
choice and Medicare should embrace hospitals that provide high quality 
care and that save the system money. H.R. 2513 will move us towards 
this goal by holding POHs to a high standard, ensuring the best 
outcomes for patients and thereby setting an example for the entire 
system.

Summary

Patients throughout the nation know the benefits of POHs firsthand. 
They choose to go to POHs because they know they will receive excellent 
care and have a stellar experience. Patients deserve the choice of a 
high-quality, low-cost facility, and that is what PHA and the POH 
industry are fighting to protect.

As POHs treat similar patient populations with higher quality outcomes, 
better patient experience, and lower costs of care, it is time for 
Congress to remove the onerous restrictions on POH expansion and give 
patients more freedom of choice in where they receive care. As the 
authors of the BMJ study stated, Congress should ``re-examine existing 
public policies that target all hospitals with physician owners'' and 
enact common sense reforms. To not act would be to perpetuate an 
unsound policy that is bad for patients and bad for Medicare.

Thank you again for the opportunity to submit this statement for the 
record. PHA looks forward to working with the Committee to allow POH 
expansion.

Sincerely,

R. Blake Curd, M.D.
CEO, Sioux Falls Specialty Hospital
President, Physician Hospitals of America

                                 ______
                                 
                        Taxpayers Against Fraud

                   The False Claims Act Legal Center

                    1220 19th Street, NW, Suite 501

                          Washington, DC 20036

                          phone (202) 296-4826

                           fax (202) 296-4838

            Internet: http://www.taf.org or [email protected]

                             July 25, 2016

U.S. Senate Committee on Finance
Hon. Orrin Hatch, Chairman
Hon. Ron Wyden, Ranking Member
Dirksen Senate Office Bldg.
Washington, DC 20510

RE: Hearing: ``Examining the Stark Law: Current Issues and 
Opportunities''
Date: July 12, 2016

Dear Chairman Hatch, Ranking Member Wyden, and Finance Committee 
Members:

I am writing to urge the Committee embrace a go-slow approach as 
regards to the overhaul of Stark Law.

On July 12, several witnesses before your Committee suggested that the 
rules governing the federal anti-kickback statute (AKS) and the Federal 
False Claims Act (FCA) were adequate to keep doctors and hospitals 
walking the straight-and-narrow when it comes to medical procedures and 
billing.

I wish it were so.

The anti-kickback statute has numerous safe-harbor provisions which, 
absent the Stark Law, would allow hospitals to incentivize doctors in 
such a way as to create naked conflicts of interest which would 
inexorably lead to overutilization of expensive procedures done by 
specialized surgical centers.

If the Stark Law is gutted, the result will not just be bad economics 
and bad policy; it will also be bad medicine for patients.

It is worth reminding this Committee that it was its own investigations 
in the area of medical billing by physician-owned labs and centers that 
first illuminated the scope and nature of the problems that the Stark 
Law sought to address when it was passed by Congress in 1989.

Sadly, the rapacious nature of people and companies has not changed.

While the federal anti-kickback statute (AKS) and the Federal False 
Claims Act (FCA) are strong laws, they alone will not stop the core 
conduct that the Stark Law is designed to discourage, because they do 
not explicitly prevent the bundling of unreasonable compensation for 
services and tie them to incentives for doctor referrals and the number 
of procedures being performed.

One need only look at recent cases involving Stark Law violations tied 
to increased utilization of spinal implants and heart stents to see 
that if the Stark Law is swept away, billions of dollars will be lost 
in fraud, and scores of thousands of unnecessary and medically 
dangerous procedures are likely to be performed. How can this be done 
in the interest of patients and taxpayers? It cannot.

Yes, the world of health care is changing, and the future appears to be 
in some form of alternative payment system, but now these systems will 
work in the real world is not yet fully understood. One thing seems 
clear: so long as fee-for-service Medicare exists, U.S. taxpayers and 
patients are going to need Stark Law protection.

To be clear, no one is against increased efficiency in the health care 
arena, and no one is opposed to sweeping away unnecessary or redundant 
regulation. That said, the Stark Law is not one of those unnecessary or 
redundant regulations

In fact, it is because hospitals and doctors are so eager to enter into 
increasingly complicated remuneration arrangements that the Stark Law 
is needed now more than ever. As we have learned time and again in the 
False Claims Act arena, ``in the complexity is the fraud.'' By 
mandating a simple bright line standard, the Stark Law prevents a great 
deal of chicanery, and forces doctors and hospitals to review their 
contracts, their billing, and their relationships with an eye towards 
turning square corners.

We believe CMS is capable of reviewing, drafting, and updating rules 
governing Stark Law implementation with an eye towards ironing out 
problem areas where major fraud schemes are unlikely to be implicated 
or become established.

We urge this Committee to not throw out the baby with the bath water by 
moving too quickly or changing too much.

The private profit and corporate market forces that drive and encourage 
fraud, and which caused the Stark Law to be embraced in the first 
place, have not abated.

An ounce of caution at this juncture may be worth many billions in 
fraud prevented down the road--and many unnecessary and dangerous 
surgeries and procedures as well.

Sincerely,

Patrick Burns
Acting Executive Director

cc: Rep. Sander Levin, Ranking Member, and Rep. Kevin Brady, Chair of 
the Committee on Ways and Means
                                 ______
                                 
                             Trinity Health

                          20555 Victor Parkway

                           Livonia, MI 48152

                            tel 734-343-1000

                     http://www.trinity-health.org/

Thank you for the attention the Committee has devoted to examining the 
effect the Stark Law has on the health care industry, in particular as 
it relates to the movement to alternative payment models (APMs). In 
this time of transformative change--in the way in which health care is 
paid for and delivered--we believe the thoughtful exploration by 
Congress of the issues is important for achieving the goals of 
delivering better health and better care at a lower cost, while 
protecting the health care industry from potentially devastating 
penalties.

Trinity Health is one of the largest multi-institutional Catholic 
health care delivery systems in the nation. It serves people and 
communities in 22 states from coast to coast with 91 hospitals, and 120 
continuing care locations--including home care, hospice, PACE and 
senior living facilities--that provide nearly 2.5 million visits 
annually. Trinity Health employs more than 95,000 people, including 
5,300 employed physicians. Trinity Health has committed to having 75 
percent of its billings in value-based payment models by 2020, and is 
bringing this commitment to life as a participant in more than a dozen 
Medicare Shared Savings Program accountable care organizations (ACOs), 
a Next Generation ACO and deep involvement with the Bundled Payment for 
Care Improvement (BPCI) program.

The movement away from fee-for-service payments toward models that pay 
for better health, better care at lower cost naturally results in the 
need and motivation for hospitals and physicians to become financially 
connected. These alignments facilitate collaboration on quality 
improvement and efficient care coordination, the adoption of clinical 
best practices, and the achievement of better patient outcomes.

Trinity Health agrees that there are significant obstacles to 
accomplishing these goals within the current fraud and abuse legal 
structure, and the Stark Law is specifically hindering Trinity Health's 
progress towards achieving 75 percent of its billings in value-based 
models by 2020. As the Committee recognizes in its white paper, Why 
Stark, Why Now?, the Stark Law was enacted to combat behavior in a fee-
for-service health care world. The Stark Law has become increasingly 
unnecessary for--and is a significant impediment to--value-based 
payment models that Congress, the Centers for Medicare and Medicaid 
Services (CMS), and commercial health insurers have now promoted. We 
generally agree with many of the suggestions that roundtable panelists 
offered to address the Stark Law and would like to highlight a few 
suggestions we think have critical importance.

    A. Create an APM Exception

Within the Stark Law's existing structure, Congress could create an 
exception specifically addressing the new population-based /alternative 
payment model (APM) system. This exception would apply to the financial 
relationships between any provider or supplier that participates in an 
APM. Providers and suppliers that willingly participate in an advanced 
payment model should be entitled to relief from the regulatory burdens 
imposed by Stark. The exception could require certain criteria such as 
being a Qualifying APM Participant provider, which is a provider that 
receives a percent of their payments or patients through an eligible 
alternative payment entity (a QP). If the provider is a QP, then any 
financial relationship between two or more QPs would satisfy the 
exception.

This new exception is needed because, under the current law, any 
compensation relationship between a Designated Health Services (DHS) 
entity and a physician needs to meet an exception. When the APM payment 
bundles both the hospital's facility and the physicians' professional 
services reimbursement, it is unclear whether any of the current Stark 
Law exceptions apply to protect the financial arrangements between the 
hospital and physicians (as well as potentially other providers and 
suppliers) that are necessary to divide up the APM payment.

Furthermore, under the potentially applicable exceptions, the Stark Law 
requires that the compensation be fair market value and limited to the 
physician's personally performed services. The most common method for 
calculating physician compensation now is using Work-RVU (Relative 
Value Unit) values for their personally performed services. As payment 
models change to APMs, however, physicians will likely see a decrease 
in their Work-RVU performance over time. As APMs become predominate, 
health systems and hospitals will face uncertainty as to how to 
continue to pay physicians when those services do not directly 
translate into a Work-RVU. It is unclear about how to measure the fair 
market value of services when those services involve meeting quality 
outcome goals to enable the hospital to qualify for incentive payments. 
Even more unclear is how to calculate the value of services not 
provided by a specialty physician because a population's health has 
been better managed through better preventative or primary care.

For example, one way for an integrated delivery system to manage 
population health and preventive care is greater use of non-physician 
professionals, such as nurse practitioners and physician assistants. 
Historically physicians often resist greater use of non-physician 
professionals because that results in a decrease in the number of 
services that the physician performs, which in turn impacts physician 
compensation. Yet, team-based care is becoming more common and more 
essential from a clinical integration/population health perspective. To 
ensure high-quality and coordinated care, it is desirable for a primary 
care physician to work closely with multiple non-physician 
professionals. Under the Stark Law's existing structure, the 
professional's productivity could not be a factor in the compensation 
arrangement with the physician even though the physician is required to 
oversee the care delivered by the non-physician professional. Yet, 
encouraging this team approach would greatly expand access and lower 
the cost of delivering care without diminishing quality.

Conclusion: Creating an APM exception could provide protection for the 
financial relationships between hospitals, physicians, and other 
providers and suppliers that are necessary to coordinate care and 
allocate compensation within the construct of an APM. The exception 
could apply to payments from an entity concerning cost savings, quality 
measure achievement, and other population health management goals. 
Having a clear exception that applies to employed and independent 
physicians would enable hospitals and integrated delivery systems to 
have uniform compensation models with their physicians and facilitate a 
team approach to patient care delivery.

In order for this APM exception to work, it would need to (1) eliminate 
any fair market value requirement (for the reasons discussed above); 
and (2) permit payments that reflected or varied with the volume or 
value of DHS. For example, cost savings per admission would be a 
reasonable compensation metric to include in an arrangement 
implementing an APM with a physician, even though the payment amount 
would naturally vary depending on the physician's admission volume or 
value. The gainsharing civil monetary penalty law already prohibits 
payments to reduce medically necessary services and should provide 
sufficient incentives for the providers and suppliers to structure the 
relationships in compliance with that law. We believe that the statute 
should permit flexibility in designing the standards or matrix for 
achieving the savings. Clinical practice and evidence-based medicine is 
ever-evolving. The exception could require providers maintain clear 
documentation of the standards used and their application in 
calculating payment amounts to ensure transparency to the government. 
But, too strictly prescribing what standards can be used could result 
in an unworkable rule.

    B. Remove or Clarify the Meaning of Commercial Reasonableness

In recent cases, the Department of Justice (DOJ) appears to have taken 
the position that commercial reasonableness relates to the economic 
terms of an arrangement, such as whether there is a ``practice loss'' 
because the physician's professional collections do not cover the 
physician's compensation. This position has created considerable 
concern among hospital/health systems regarding their employment of 
physicians. This position seems inconsistent with the legislative 
intent.

To illustrate this concern, a system may decide to acquire a physician 
practice for a variety of reasons, such as to ensure that the system 
has a physician network which satisfies the network adequacy 
requirements applicable to Medicare Advantage plans. In other words, if 
a hospital system desires to have a contract with a Medicare Advantage 
plan then it often needs to have a network of providers that is 
attractive to the plan and that meets applicable adequacy requirements. 
The Medicare Advantage plan then pays the hospital network a capitated 
payment. In this context, it is difficult to determine whether the 
hospital system is ``subsidizing'' the acquired physician practice. As 
we move further toward capitated payment arrangements and bundled 
payments in both the commercial and federal context, distinguishing 
between professional and technical revenue loses relevance in the 
actual operation of a system, especially when new payment methodologies 
eliminate these categories.

``Losses'' on physician practices are so commonplace that the leading 
survey company, Medical Group Management Association (MGMA), tracks 
data on the average practice loss from hospital-owned practices by 
specialty.\1\ Simply put, the position that any ``loss'' from a 
physician practice violates the Stark Law is not reasonable or 
realistic, and could expose many hospitals to enormous penalties.
---------------------------------------------------------------------------
    \1\ MGMA survey data for 2014 reported a median loss of $176,153 
per physician for integrated delivery/health system owners of 
multispecialty practices (primary and specialty care).

The better reading of the employment exception's language \2\ suggests 
that the purpose of this requirement relates to the non-economic or 
non-payment aspects of the arrangement; in other words, that the 
``arrangement'' be commercially reasonable, not the ``remuneration.'' 
Examining an employment arrangement for commercial reasonableness 
involves ensuring the employment was bona fide and that the employer 
needed the services of the employee, separate from whether the employee 
made referrals to the employer. Whether the compensation amount is 
appropriate is addressed in the separate fair market value and volume/
value requirements.
---------------------------------------------------------------------------
    \2\ The statute's phrasing is slightly different than the 
regulation, but also consistent with the above interpretation that the 
requirement speaks to the non-payment aspects of the relationship. 
Compare ``the remuneration is provided pursuant to an agreement which 
would be commercially reasonable even if no referrals were made to the 
employer'' (emphasis added) (42 U.S.C. Sec. 1395(e)(2)) with ``the 
remuneration provided under an arrangement that would be commercially 
reasonable even if no referrals were made to the employer'' (emphasis 
added) (42 CFR Sec. 411.357(c)(3)).

Conclusion: Congress should remove the commercial reasonableness 
requirement from the Stark Law, or clarify that commercial 
reasonableness is connected to analyzing the bona fide nature of the 
arrangement and not the remuneration. An affirmative statement in the 
Stark Law that states operating losses in a physician practice owned by 
a DHS-entity are not commercially unreasonable, would be helpful as 
well.

    C. Expand CMS Authority to Create Waivers and Exceptions

As roundtable participants noted, the current authority of CMS to 
create waivers and exceptions is limited and should be expanded to 
provide CMS with greater flexibility to address APMs, regardless of how 
they are created. In addition, the statutory authority of CMS to create 
new regulatory exceptions is limited to arrangements that do ``not pose 
a risk of program or patient abuse,'' 42 U.S.C. Sec. 1395nn(b)(4). 
Because this standard is so strict, CMS cautiously creates exceptions 
that are narrowly drafted, and thus not truly useful for the health 
care industry.

Conclusion: To aid CMS in achieving its goal of shifting a greater 
percentage of revenue to APMs, Congress should adjust the Stark Law to 
provide CMS expanded authority to create waivers and exceptions for 
arrangements that do not pose a significant risk of program or patient 
abuse.

    D. Sunset the Stark Law

At its most basic level, the Stark Law is incompatible with APMs. The 
intended purpose of the Stark Law was to limit Medicare over-
utilization caused by financial incentives rather than the medical 
needs of the patient. These financial incentives were based on a fee-
for-service system where physicians and other providers made more money 
by ordering or providing more DHS. APMs alter that system and those 
incentives entirely, which may be more effective to controlling the 
over-utilization risk with which Congress was concerned and the Stark 
Law was enacted.

Conclusion: We recommend that the Stark Law sunset entirely once a 
certain percentage of Medicare payments are made through APMs.

We truly appreciate the opportunity to engage in this discussion on 
this critical topic, and hope that our perspective is helpful in your 
important work. We encourage the Committee to take action to reform the 
Stark Law in ways recommended herein, and stand ready to provide 
additional information if helpful to the Committee's work. Please 
contact Tonya Wells, Vice President, Federal Public Policy and 
Advocacy, at (734) 343-0824 or [email protected] if you have 
any questions.

                                 ______
                                 
              Statement for the Record by Scott C. Withrow

July 15, 2016

U.S. Senate
Committee on Finance
Dirksen Senate Office Bldg.
Washington, DC 20510-6200

Hon. Orrin Hatch, Chairman
Hon. Ron Wyden, Ranking Member

Re: Full Committee Hearing--``Examining the Stark Law: Current Issues 
and Opportunities''

Dear Chairman Hatch, Ranking Member Wyden, and Members of the 
Committee:

Thank you for your interest in examining the Stark Law. I respectfully 
submit this statement on the Stark Law for your consideration and for 
the hearing record. I am a founding partner of the law firm of Withrow, 
McQuade and Olsen, LLP and have practiced healthcare law for 32 years. 
I authored two books entitled Managing Healthcare Compliance (1999) and 
Managing HIPAA Compliance (2001), both published by Health 
Administration Press, a division of the American College of Healthcare 
Executives. I have nationally recognized expertise in the areas of the 
federal anti-kickback and physician self-referral laws (``Stark'') and 
I speak frequently on those subjects. My views are my own and not on 
behalf of my law firm, any client or organization.

Chairman Hatch posed the ultimate question in his opening statement: 
``Is the Stark Jaw still necessary?'' The answer is an emphatic YES!

The Stark Law Remains Necessary to Regulate Risks of Program and 
Patient Abuse

The Stark Law was first adopted in 1989 to regulate physician ownership 
of clinical laboratories and was expanded in 1993 to regulate referrals 
of designated health services. The Stark Law addressed overutilization 
of services by physicians who stood to profit from referring patients 
to facilities or entities in which they had a financial interest. The 
Stark Law was enacted in the wake of several reports suggesting that 
physicians with a financial interest in referrals tended to provide 
excess care. For example, in 1989 the Office of the Inspector General 
for the Department of Health and Human Services (``HHS'') issued the 
results of a study that found that ``patients of referring physicians 
who own or invest in independent clinical laboratories received 45% 
more clinical laboratory services than . . . Medicare patients in 
general.'' \1\ Later studies showed significant increases in referrals 
by physicians with financial interests (either due to ownership or 
receipt of bonuses) for such things as X-rays (16%), physical therapy 
and rehabilitation (39-45%), MRI scans (54%) and CT scans (27%).\2\
---------------------------------------------------------------------------
    \1\ Steven D. Wales, The Stark Law: Boon or Boondoggle? An Analysis 
of the Prohibition on Physician Self-Referrals, 27 Law and Psychol. 
Review 1, 5 (2003).
    \2\ Id. at 6.

While federally reimbursed healthcare is undergoing a gradual shift to 
value-based and other alternative payment mechanisms, roughly 70% of 
Medicare payments remain fee-for-service.\3\ Fee-for-service 
reimbursement will continue to comprise a major portion of Medicare 
payments for many years to come. The Stark Law remains needed in fee-
for-service reimbursement to regulate the risks of Medicare program 
abuse whenever physicians have financial interests tied to referrals.
---------------------------------------------------------------------------
    \3\ http://www.hhs.gov/about/news/2016/03/03/hhs-reaches-goal-
tying-30-percent-medicare-payments-quality-ahead-schedule.html (last 
viewed July 13, 2016).

Advances in medical technology and procedures may have actually 
increased the risks of patient abuse whenever physicians have financial 
interests tied to referrals. Disturbing evidence of overutilization of 
invasive procedures such as spinal fusions \4\ and cardiac stents \5\ 
is mounting. This Committee has recently examined the dangers of 
physician-owned distributorships (``PODs'') that derive revenue from 
selling implantable medical devices ordered by their physician owners 
and are prevalent in the field of spinal surgery.\6\ This Committee's 
Majority Staff Report summarized the dangers of physicians' financial 
interests:
---------------------------------------------------------------------------
    \4\ https://allmedmd.com/landing-pages/Spinal-Fusion-WP.pdf (last 
viewed July 14, 2016); http://www.cbsnews.com/news/tapping-into-
controversial-back-surgeries (last viewed July 14, 2016).
    \5\ https://allmedmd.com/collaboration/articles/allmed-articles-1/
addressing-overutilization-in-interventional-cardiology-
catheterization-stent-placement (last viewed July 14, 2016); http://
www.usnews.com/news/articles/2015/02/11/are-doctors-exposing-heart-
patients-to-unnecessary-cardiac-procedures (last viewed July 14, 2016); 
http://www.nytimes.com/2015/01/30/business/medicare-payments-surge-for-
stents-to-unblock-blood-vessels-in-limbs.html (last viewed July 14, 
2016).
    \6\ Senate Finance Committee Majority Staff Report, Physician Owned 
Distributorships: An Update on Key Issues and Areas of Congressional 
Concern, http://www.finance.senate.gov/imo/media/doc/
Combined%20PODs%20report%202.24.16.pdf (last viewed July 14, 2016).

        Surgeons have a unique and powerful role in influencing both 
        patient and medical practice decisions. When a surgeon 
        recommends surgery, patients are strongly inclined to follow 
        their doctor's recommendation. Within the field of spinal 
        surgery, spinal fusions are among the most serious and costly 
        types of back surgery, and are typically only recommended for 
        patients with the most serious back problems. Spinal implants 
        are generally ``physician preference,'' meaning hospitals 
        typically purchase the devices recommended by their surgeons. 
        Spinal surgeons therefore have significant influence over both 
        the frequency of spinal fusion surgeries and the devices used 
---------------------------------------------------------------------------
        in those surgeries.

        Unchecked, this position of power can give POD spinal surgeons 
        the opportunity to grant themselves a steady stream of income 
        by increasing the use of the products supplied by their POD. 
        PODs present an inherent conflict of interest that can put the 
        physician's medical judgment at odds with the patient's best 
        interests.\7\
---------------------------------------------------------------------------
    \7\ Id., at 1 (internal footnotes omitted).

The Committee's Majority Staff Report also exposed troubling findings 
---------------------------------------------------------------------------
of overutilization of spinal fusion procedures, including:

        1. POD surgeons saw significantly more patients (24% more) than 
        non-POD surgeons.

        2. In absolute numbers, POD surgeons performed fusion surgery 
        on nearly twice as many patients (91% more) than non-POD 
        surgeons.

        3. As a percentage of patients seen, POD surgeons performed 
        surgery at a much higher rate (44% higher) than non-POD 
        surgeons.

        4. In absolute number, POD surgeons performed nearly twice as 
        many fusion surgeries (94% more) as non-POD surgeons.\8\
---------------------------------------------------------------------------
    \8\ Id., at 14-15.

Overall, the Committee's Majority Staff Report found that POD surgeons 
performed nearly 15 percent of spinal fusions billed to Medicare while 
making up only 8 percent of the total spinal fusion surgeons who billed 
to Medicare in 2011.\9\ The Committee's Majority Staff Report 
recommended that HHS OIG and law enforcement should investigate 
potential violations of the Stark Law.\10\ Thus, the Stark Law remains 
a critical tool for protecting patients from possible abuse when 
physician 
decision-making may be compromised by the physician's personal 
financial interests.
---------------------------------------------------------------------------
    \9\ Id., at 15.
    \10\ Id., at 25.

Stark Law Should Continue to Provide Important Regulation of Physician 
---------------------------------------------------------------------------
Compensation

The three hearing witnesses quickly retreated from recommending full 
Stark Law repeal and admitted that Stark Law should continue to 
regulate physician ownership arrangements. However, the witnesses 
recommended the elimination of all Stark Law regulation over physician 
compensation arrangements because regulation provided by the federal 
anti-kickback statute (``AKS'') and the Federal False Claims Act 
(``FCA'') would be adequate. I strongly disagree with this 
recommendation because Stark Law provides important regulation of 
physician compensation that is not present under AKS and FCA alone.

AKS, which was first enacted in 1972 well before the Stark Law, is a 
criminal statute that prohibits the exchange (or offer to exchange), of 
anything of value, in an effort to induce (or reward) the referral of 
federal health care program business, whether a physician is involved 
or not. Congress mandated in 1987 that the regulators adopt safe harbor 
regulations to give healthcare providers assurance that normal 
arrangements would not fall within the broad reach of AKS. In 
particular, regulators adopted a very generous AKS safe harbor for 
employees which permits ``any amount paid by an employer to an 
employee, who has a bona fide employment relationship with the 
employer.'' \11\ Under this AKS safe harbor for employees, the hospital 
can pay an employed neurosurgeon ``any amount'' including amounts or 
bonuses that might incentivize the neurosurgeon to overutilize spinal 
fusions.
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    \11\ 42 CFR Sec. 1001.952(i) (2016).

Medicare fee-for-service reimbursement provides hospitals with strong 
motivation to employ high-producing neurosurgeons because Medicare 
rewards hospitals with lucrative facility fees for inpatient spinal 
fusions. For example, when a neurosurgeon performs a spinal fusion 
under CPT code 22633 (``lumbar spine fusion combined'') as the lead 
surgeon, Medicare Part B would allow a total reimbursement for the 
facility-based physician service of $1,864.92 (54.79 RVUs  $34.0376--
geographically unadjusted) in fiscal year 2012. Medicare Part A would 
also pay the hospital a facility fee for the inpatient spinal fusion 
procedure. For example, in fiscal year 2012, Medicare paid Mission 
Memorial Hospital in Asheville, North Carolina average Medicare 
payments of $22,805.62 for each of 286 instances of Diagnosis-Related 
Group (``DRG'') 460--Spinal Fusion Except Cervical without Major 
Complication/
Comorbidity for facility fees on a fee-for-service basis.\12\ Mission 
Memorial Hospital received from Medicare a total of $6,522,407.32 in 
facility fees for spinal fusions under one DRG code, DRG 460, in one 
fiscal year.
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    \12\ https://www.cms.gov/Research-Statistics-Data-and-Systems/
Statistics-Trends-and-Reports/Medicare-Provider-Charge-Data/
Inpatient2012.html (last viewed July 14, 2016). In fiscal year 2012, 
Mission Memorial Hospital billed Medicare for DRG 460 more often than 
any other hospital in the State of North Carolina and 4th most in the 
entire United States.

The Stark Law provides regulation focused on physician financial 
relationships to protect against the risks of program and patient abuse 
when an inherent conflict of interest is present that can put the 
physician's medical judgment at odds with the patient's best interests. 
Like AKS, the Stark Law allows compensation arrangements between 
hospitals and employed physicians, but with three critical and 
additional regulatory protections. The amount of the remuneration under 
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the employment must be:

        1. Consistent with the fair market value of the services; \13\
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    \13\ 42 CFR Sec. 411.357(c)(2)(i) (2016).

        2. Not determined in a manner that takes into account (directly 
        or indirectly) the volume or value of any referrals by the 
        referring physician; \14\ and
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    \14\ 42 CFR Sec. 411.357(c)(2)(ii) (2016).

        3. The remuneration is provided under an arrangement that would 
        be commercially reasonable even if no referrals were made to 
        the employer.\15\
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    \15\ 42 CFR Sec. 411.357(c)(3) (2016).

HHS regulators have previously and rightly determined that these three 
regulatory protections are necessary to protect against the risks of 
program and patient abuse when an inherent conflict of interest is 
present that can put the physician's medical judgment at odds with the 
patient's best interests. These three regulatory protections do not 
exist under AKS and FCA alone. The recommendation to limit the Stark 
Law to ownership arrangements only would expose taxpayers and patients 
to abuse resulting from inappropriate compensation arrangements. The 
Stark Law should continue to provide these three important regulatory 
protections on physician compensation arrangements.

Stark Compliance Costs Are Justified and Affordable

Dr. Ronald A. Paulus, President and Chief Executive Officer of Mission 
Health System, complained during the hearing about spending 
``millions'' for Stark compliance and review of physician contracts 
which provide no more protections than kickback law already provides. I 
question whether Mission Health really spends ``millions'' on Stark 
compliance, but even if it did the risk of program and patient abuse 
justifies the expense. As noted above, Stark Law most definitely 
provides three important regulatory protections on employed physician 
compensation that are not provided by AKS and FCA alone.

Healthcare entities such as Mission Health and Johns Hopkins Health 
System can easily afford Stark compliance costs. Many healthcare 
entities, including Mission Health and Johns Hopkins Health System, are 
exempt from federal taxes in the first place. Moreover, these entities 
have amassed huge treasure chests during the era of fee-for-service 
reimbursement. For example, Mission Health, which provides 75% of its 
care to Medicare or Medicaid beneficiaries or to the uninsured, 
accumulated $940 million in cash and investments as of September 30, 
2015.\16\ Johns Hopkins Health System had cash and investments totaling 
$2.792 billion as of March 31, 2016.\17\ Healthcare entities can easily 
afford the Stark Law compliance costs which are necessary to provide 
taxpayers and patients with reasonable protections against abuses 
resulting from conflicts of interests inherent in physician financial 
arrangements.
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    \16\ Mission Health System, Inc, Annual Continuing Disclosure per 
Loan Agreement section 5.06, Selected Utilization and Financial 
Information, http://emma.msrb.org/EP906235-EP702606-EP1104565.pdf (last 
viewed July 14, 2016).
    \17\ The Johns Hopkins Health System Corporation and Affiliates, 
Quarter End Report, Three and Nine Months Ended March 31, 2016 and 
2015, http://emma.msrb.org/ER962785-ER752998-ER1154544.pdf (last viewed 
July 14, 2016).

The Stark Law Exception for In-Office Ancillary Services (``IOAS'') 
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Should Be Retained

I oppose the recommendation of Troy A. Barsky to limit the IOAS 
exception to the Stark Law due to abuse well beyond the original intent 
of the exception. The IOAS exception itself contains a number of 
regulatory protections limiting the exception based on who \18\ and 
where \19\ the service is performed and how the service is billed.\20\
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    \18\ 42 CFR Sec. 411.355(b)(1) (2016).
    \19\ 42 CFR Sec. 411.355(b)(2) (2016).
    \20\ 42 CFR Sec. 411.355(b)(3)(2016).

More importantly, the real value of the IOAS exception in the 
healthcare industry is in the context of Stark-compliant physician 
group practices. The Stark Law provides additional regulatory 
protections limiting abuse of the IOAS exception within the definition 
of ``group practice,'' including eight regulatory requirements for a 
Stark-compliant physician group practice.\21\ In particular, the 
definition of a Stark-compliant group practice prohibits a physician 
from directly or indirectly receiving compensation based on the volume 
or value of his or her referrals unless the compensation arrangement 
complies with special rules for profit shares and productivity 
bonuses.\22\ Many Stark-compliant physician group practices 
appropriately utilize the IOAS exception by designing compensation 
arrangements in compliance with the special rules for profit shares and 
productivity bonuses. These physician group practice compensation 
methods are especially important in states where corporate practice of 
medicine doctrine prohibits hospital employment of physicians, such as 
California. I believe the existing IOAS exception combined with the 
existing definition of a Stark-compliant physician group practice 
strike the right balance of allowing flexible and even productivity-
based compensation arrangements while still providing regulatory 
protection against program and patient abuse.
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    \21\ 42 CFR Sec. 411.352(a)-(h) (2016).
    \22\ 42 CFR Sec. 411.352(g) and (i).

Simplify the Existing Stark Exception for Community-Wide Information 
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Systems

While not the subject matter of the Stark Law hearing, I would also 
like to share with the Committee a recommendation that I made to 
regulators at the U.S. Department of Commerce for improving the Stark 
Law and removing a barrier to realizing the benefits in healthcare from 
the development of the Internet of Things (``IoT'').\23\
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    \23\ https://www.ntia.doc.gov/federal-register-notice/2016/
comments-potential-roles-government-fostering-advancement-internet-of-
things (last viewed July 14, 2016).

By 2025, the total global worth of IoT technology could be as much as 
$6.2 trillion, with roughly 40% of that value from devices in 
healthcare ($2.5 trillion).\24\ IoT value in healthcare will greatly 
benefit patients, the Government, and the taxpayers by increasing 
healthcare quality and reducing healthcare costs.
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    \24\ http://www.intel.com/content/www/us/en/internet-of-things/
infographics/guide-to-iot.html (last viewed May 18, 2016).

AKS and the Stark Law stand as major barriers to the realization of IoT 
benefits in healthcare. In 2004, the Centers for Medicare and Medicaid 
Services (``CMS'') created a regulatory exception to the Stark Law for 
community-wide information systems.\25\ However, the Stark exception 
for community-wide information systems has not been useful to date 
because there is no corresponding anti-kickback safe harbor for 
community-wide information systems. In order to foster IoT development 
and deployment in healthcare, the Government should adopt a new anti-
kickback safe harbor for community-wide information systems that 
corresponds to the existing Stark exception.\26\
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    \25\ 42 CFR Sec. 411.357(u) (2016); adopted at 69 Fed. Reg. 16054, 
16112-16113 (March 26, 2004).
    \26\ Section 205 of the Health Insurance Portability and 
Accountability Act of 1996 requires the Government to annually solicit 
recommendations for developing new anti-kickback safe harbors, although 
the comment period for the most recent annual solicitation has closed. 
80 Fed. Reg. 79803 (Dec. 23, 2015).

The existing Stark exception for community-wide information systems is 
fairly straightforward, with only three conditions for the exception to 
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apply:

        1. The information technology items and services are available 
        as necessary to enable the physician to participate in the 
        community-wide health information system, are principally used 
        by the physician as part of that system, and are not provided 
        in a manner that takes account of referrals or other business 
        generated by the physician;

        2. The community-wide health information system is available to 
        all providers, practitioners and residents in the community who 
        desire to participate; and

        3. The arrangement does not violate the anti-kickback statute 
        or any billing or claims submission laws or regulations.

IoT includes information technology items and services that enable the 
physician to participate in information systems. The Stark exception 
requires that the information system be ``community-wide'' and 
``available to all providers, practitioners and residents in the 
community who desire to participate.'' These requirements conflict with 
the common concerns in healthcare over privacy and security of 
individually identifiable healthcare information. The Stark exception 
also requires that the information technology items and services ``are 
principally used by the physician,'' which excludes IoT devices 
principally used by patients themselves, physician extenders or other 
non-human things. The third condition about not violating the anti-
kickback statute is problematic until a corresponding anti-kickback 
safe harbor is created. The Stark exception would be even more useful 
for IoT if it was further simplified to only one condition:

        1. The information technology items and services are available 
        as necessary to enable the physician to participate in a health 
        information system, and are not provided in a manner that takes 
        account of referrals or other business generated by the 
        physician.

I recommend simplifying the existing Stark exception for community-wide 
information systems as suggested above, and then adopting a new 
corresponding anti-kickback safe harbor. These simple steps would 
remove major barriers to the realization of trillions of dollars in 
value from IoT in healthcare.
I appreciate your consideration of these comments. Please feel free to 
contact me if I can provide any additional information (404-814-0037 or 
[email protected]
com).

Sincerely,

Scott C. Withrow