Is the new CMS rule that impacts healthcare valuations now at risk?

BVWireIssue #221-3
February 17, 2021

physician compensation, healthcare, healthcare appraisal, healthcare compensation

This past December, the Centers for Medicare & Medicaid Services (CMS) released a final rule that modernizes and clarifies the regulations that implemented the Medicare physician self-referral statute (the Stark Law). The new rule, effective Jan. 19, 2021, is designed to make it easier for hospitals and physicians to maintain compliance with the statute in the era of value-based care. The rule impacts healthcare valuations and includes guidance on how to determine whether the compensation being given to physicians is at fair market value.

We’ve read several articles (see one here) indicating that the new rule may be at risk of delay or replacement due to the GAO’s finding of a technical deficiency, i.e., CMS failed a required 60-day notice period for the new Stark regulations. As a result, the articles say the new rule may be impacted by President Biden’s memo of January 20 announcing a regulatory freeze, thus raising the possibility that the new administration may revisit and revise the final rule.

Tim Smith (TS Healthcare Consulting LLC) tells BVWire that, based on what he has heard within the healthcare community, it is unlikely that the new Stark regs will be changed or delayed, despite the technicalities of the notice period and the regulatory hold. Smith is the co-author of the BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements.

Mollie Gelburd, associate director of government affairs at the Medical Group Management Association (MGMA), agrees that it is not likely that the new rule will be delayed or revised. While the GAO finding (see it here) says that the rule indeed failed the notice period that requires a 60-day delay from the date the rule is published to when it is effective, the Biden administration would have to make an argument that, because of that, the rule did not go into effect on January 19 and thus falls under the regulatory freeze signed one day later. That is unlikely, says Gelburd, for several reasons. “It is unclear whether President Biden has the authority to do that and the rule has bipartisan support,” she tells BVWire. “Also, the rule has the support of the healthcare provider community which has its hands full with the pandemic, so I don’t see President Biden trying to exert authority to have the new rule fall under the freeze memo.” Congress could strike down the rule under the Congressional Review Act (CRA), Gelburd explains, but that is also unlikely. “Congress has largely been supportive of the Stark regulations,” she points out, “so they are not likely to choose to undo the new rule.”

The position of CMS is that the regulations are in effect as scheduled. Smith reached out to CMS, which issued this statement: “The regulations finalized in CMS-1720-F (Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations) are effective, except for the revisions to 42 CFR 411.352, which have the delayed effective date set forth in the final rule in order to give physician practices that qualify as ‘group practice’ time to comply with any changes that may affect their physician compensation models.”

Smith and Mark Dietrich (Mark O. Dietrich CPA PC), both of whom gave input to CMS during the development of the rule, conducted a BVR webinar that discussed its impact on healthcare valuation. A recording of their webinar is available if you click here (free for BVR Training Passport Pro holders).

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