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Labs Left Outside Value-Based Care Arrangements by Stark, Anti-Kickback Reforms


NEW YORK – Recent changes to the federal Stark Law and Anti-Kickback Statute provide certain clarifications that could prove somewhat helpful to labs, but the reforms leave the industry on the outside looking in when it comes to participating in value-based care.

Some observers suggest that this could hamper efforts within the laboratory business to better leverage lab test data to impact patient health at the system and population level, a growing trend within the industry commonly referred to as Clinical Laboratory 2.0.

In November 2020, the US Department of Health and Human Services published two final rules intended to reform the Stark Law and Anti-Kickback Statutes to make it easier for healthcare providers to coordinate care for their patients and participate in value-based arrangements.

The new rules provided carve-outs for certain types of providers to allow for relationships that had traditionally been forbidden by the statutes due to fears of potential for fraud. For instance, the new carve-outs would allow a hospital to provide physician offices with care coordinators to help manage patients whose cases require ongoing care. Similarly, hospitals are now able to reward outside providers for hitting outcome goals that result in better coordinated care and reduced hospital admissions.

Labs, however, were not covered in these carve-outs, leaving the industry largely reliant on traditional fee-for-service business models even as many in the space have begun advocating for the power of lab data to support value-based care.

As government and private payors continue to put downward pressure on lab pricing, and patients are more exposed to testing costs, concern has grown within the industry about how long traditional fee-for-service business models will remain viable.

To succeed in coming years, one common line of argument goes, labs will have to become more than just providers of test results. They will need to use the vast quantities of patient data they are sitting on to carve out new roles within the healthcare system and proactively impact patient outcomes. It's a vision of the industry's future that would seem to fit well with the broader shift in healthcare toward more value-based arrangements. The failure of the Stark and Anti-Kickback carve-outs to include labs, however, present challenges to the Lab 2.0 idea.

Rick VanNess, director, product management at Rhodes Group, a wholly owned subsidiary of TriCore Reference Laboratories, highlighted the example of diabetes management to illustrate how Stark and Anti-Kickback laws prevent the lab from best using its data to serve patient health.

TriCore has over the last three years done testing for around 122,000 patients it has clinically identified as having diabetes. Roughly 69,000 of those patients have not received the recommended annual hemoglobin A1c test. On a typical day, nearly 1 percent of those patients use a TriCore draw site for testing other than hemoglobin A1c and leave the site without getting an A1c because for the lab to offer it would violate the law.

Ancillary providers like labs are prohibited from soliciting or changing orders, VanNess noted. Additionally, he said, Stark Law prohibits TriCore from referring any of the roughly 68,000 patients it knows have a diabetes care gap for A1c testing, while the Anti-Kickback Statute prohibits the lab from notifying the patient's physician that the patient needs an A1c.

VanNess said that New Mexico Medicaid offers providers a payment of $55.10 per A1c test per patient with diabetes to incentivize providers to make sure their patients are compliant with recommended annual testing. According to the Clinical Laboratory Fee Scheduled, however, TriCore is only paid $9.13 per A1c.

Ideally, TriCore could improve the care of these patients and their compliance with A1c testing and, in exchange, receive some portion of the $55.10 incentive through negotiations with the provider and health plan, VanNess suggested. However, he said, "due to the laboratory's exclusion from safe harbor, the contract process is incredibly complex."

Charles Dunham, a healthcare attorney and shareholder at law firm Greenberg Traurig, said that the decision to exclude labs from these safe harbors stemmed from the belief at HHS that coordination of patient services and value-based care are more "directly tied to a hospital or health system and primary care physician and specialist" than laboratories. The final rule, in fact, states that "laboratory companies are not on the front lines of care coordination."

He suggested that this view was misguided, however, noting the role labs can play in, for instance, diagnosing individuals before they come down with particular conditions, thereby contributing to more effective and less expensive care.

"You're talking about liquid biopsies now, precision medicine, the use of bioinformatics," he said. "How could you not think that labs are relevant contributors to value-based care and reducing costs? They are, and they will be."

The practical impact of excluding labs from the carve out will be to keep labs in a fee-for-service and volume-driven model, Dunham said.

"You aren't allowing them to participate in these types of [value-based] programs, where a lab can go in and offer all kinds of new testing capabilities that in coordination with primary care physicians and specialists can monitor and identify issues in an individual's well-being and monitor their chronic conditions in a way that can have significant impact on treatment decisions," he said.

"I think it's a case of more of the same where laboratories are always keen to be part of the party but very seldom do they walk away with any of the party prizes," said David Gee, a healthcare attorney and partner at law firm Davis Wright Tremaine.

"Laboratories have so much critical health care information at their fingertips, so to speak, and they tend to have the ability to track that sort of" information, he said. "They are in a position to have the data and do the data analytics related to patient outcomes and so forth, and … they are not in a position to receive any kind of special consideration in the framing of networks or contracts or arrangements with a physician practice group or a healthcare system."

Gee said that labs were likely not included in the carve-outs in part because the sector is seen as being higher risk for fraud and abuse than other parts of the healthcare system.

At the American Clinical Laboratory Association annual meeting this month, Kimberly Brandt – a partner at law firm Tarplin, Downs & Young and previously the principal deputy administrator for operations and policy at the Centers for Medicare & Medicaid Services, where she was involved in drafting the Stark and Anti-Kickback reforms – said during a panel discussion on the reforms that the decision regarding whether to include labs in the new carve-outs was one where "we really went back and forth."

"Ultimately, there was a decision made that it was just a bridge too far for our [Office of Inspector General] and [US Department of Justice] colleagues," she said.

Jane Pine Wood, chief legal counsel for BioReference Laboratories, who was moderating the panel, cautioned labs that they may find themselves in a position where clients with large value-based care arrangements ask for their help closing care gaps.

"Just be aware that the rules that will apply to you as a laboratory will not be the same rules that will apply to others who are participating in these arrangements," she said.

Caitlin Forsyth, an associate at David Wright Tremaine, noted that labs are technically allowed to join value-based arrangements under the Stark Law, though liabilities could remain under the Anti-Kickback Statute.

She said that this means that "assuming all the requirements of the exception are met with respect to the Stark Law, labs can participate in value-based enterprises, and they can do so even though it is not safe-harbored under the kickback statute, as long as you advise on the risk of potential liability under the kickback statute. It's not outright prohibiting labs from participating in these arrangements."

Gee noted, though, that it is difficult as a regulatory lawyer to advise a client that while they may not have a problem under the Stark Law they could possibly have a problem under the Anti-Kickback Statute.

"That's a little difficult for people to sift through," he said.

The new regulations do come with a few changes that will likely make life easy for labs and their lawyers.

One notable change is around requirements covering agreements between providers like labs and outside service providers such as, for instance, marketing firms. Previously, these agreements had to specify in advance the total amount of compensation the lab would pay to the outside provider. This presented challenges, though, in that labs often weren't certain at the outset of a project how much work and compensation would be required, Gee said.

That requirement has been relaxed under the new regulations, he said. "The requirement is not that the aggregate amount of the compensation be set in advance but that the methodology for that compensation is set in advance."

Gee noted, though, that there is still a restriction on paying based on the volume or value of referrals.

Brandt also highlighted during the ACLA session a change in the Stark Law that clarifies what kind of sample collection tools labs can provide healthcare providers. Previously, she noted, companies were not allowed to furnish providers with surgical devices and supplies. This led to questions as to what items fell into that category. For instance, could labs give healthcare providers gloves, which are obviously used in surgery, to use when collecting a sample?

The recent modifications have changed the law to make the focus not whether an item is or is not a surgical device, but instead on how it is being used in a particular scenario.

"If it is actually used solely for the collection of a specimen for the laboratory, it will be OK," BioReference's Wood noted. "We don't have to worry about theoretically how it can be used, but only how it is actually being used. And that is a much easier standard."