Historically, federal and state regulations designed to control healthcare costs have focused on preventing fraud and abuse and self-referrals. Prior to adoption of the Patient Protection and Affordable Care Act in 2010, the Anti-Kickback Statute and the Stark Law were probably the most frequently referenced healthcare statutes.  Both of these statutes, which have been in effect for more than 20 years, are designed to prevent overutilization of healthcare services.

The Anti-Kickback Statute prohibits the payment or the receipt of remuneration to induce the referral of patients or services which are reimbursable by a federal healthcare program. This statute prohibits not only direct payments in exchange for referrals, but also raises questions about a broad range of contractual arrangements between parties in the healthcare industry who may be in a position to refer patients to each other.

The Stark Law is designed to reduce overutilization of health care services by prohibiting “self-referrals.” The Stark Law prohibits referrals for certain designated health services by physicians who have a financial relationship with the entity to which the referral is made. There are a number of exceptions to this law, which permit physicians to make referrals which might otherwise be prohibited. Healthcare industry executives and their counsel spend a significant amount of time structuring contractual arrangements to fit within an applicable Stark Law exception or determining if a particular arrangement qualifies for an exception to the Stark Law.

More recently, regulatory efforts to reduce healthcare costs have focused on promoting greater efficiencies through cooperation among healthcare providers. Recent legislative and regulatory initiatives are promoting bundled payments for services provided cooperatively by multiple providers rather than paying providers separately for services provided on a fee for service basis.  Other initiatives enable providers who provide services cooperatively to share the savings that may be generated as a result of cooperative efforts.

The Affordable Care Act encourages the formation of Accountable Care Organizations (ACOs).  An ACO is an entity which generally includes a hospital and a number of physicians from different independent physician groups who are jointly responsible for providing care to a specific patient population.  The members of the ACO are entitled to share a portion of any savings which are realized by the Medicare program as a result of care being provided more efficiently.  Private insurance companies are now trying to develop similar shared savings programs for non-Medicare patients.

Another way in which hospitals and physicians can work together cooperatively to reduce the cost of care is through a “co-management arrangement.”  The hospital engages members of the hospital’s medical staff to manage certain hospital services, with a view towards providing such services more efficiently, thus improving the hospital’s bottom line. The hospital pays the physicians a management fee for providing the management services. Part of such fee can be incentive-based—the physicians will receive a higher fee if they achieve certain predetermined goals, which are designed to increase both efficiency and quality of care.

All of these cooperative arrangements, which involve sharing of cost savings, raise significant questions under the Anti-Kickback Statute and under the Stark Law. There is tremendous friction between older laws, which were designed to prevent overutilization by prohibiting certain relationships between healthcare providers, and newer reform efforts, which encourage cooperation among providers. The older laws were based on the premise that, if independent healthcare providers formed relationships which were a bit too “cozy,” they would likely make referrals for unnecessary services, thus increasing healthcare costs.

In contrast, the thrust of more recent laws and initiatives is to promote cooperation among providers, in order to coordinate patient care so as to improve quality and increase efficiency, thus reducing costs.  This is a new paradigm.  Concerns about overutilization have not been forgotten, but such concerns have taken a back seat to the concept that cooperation among providers promotes more efficient care, rather than overutilization of services.