Completely Unreasonable: The “Practice Losses” Theory as a Basis for Stark Violations in the Era of Value-Based Reimbursement

Abstract

With the passage of the Affordable Care Act and the Medicare Access and CHIP Reauthorization Act, the U.S. government has signaled a policy shift towards value-based physician reimbursement.  To infuse more value into the provision of health care services, providers will need to consider various alignment strategies, such as whether to enter into employment arrangements with hospitals or health systems.  While employment arrangements add clinical integration between the employed entity and a hospital or health system, the hospital or health system typically incurs substantial and continuing losses on the employment arrangement.  However, the Stark Law’s employment exception, with its requirement that the employment arrangement’s compensation terms be of fair market value and commercially reasonable, have called these types of arrangements into question. Recent Stark enforcement actions have suggested that the presence of practice losses could amount to a Stark violation, as the presence of substantial practice losses could amount to the arrangement being deemed commercially unreasonable.  This interpretation of commercial reasonableness within the context of Stark presents significant barriers to the complete transformation to value-based reimbursement from fee-for-service reimbursement. Without significant and fundamental changes to the Stark Law, both in terms of requirements of the statute as well as how the statute is enforced by government officials and qui tam relators, the transformation from a fee-for-service reimbursement to one of value-based reimbursement will falter, leaving the U.S. health care system as one of the most costly and inaccessible health care systems in the world.