CMS And HHS-OIG Issue Proposed Stark Law Exceptions And Anti-Kickback Safe Harbors To Facilitate Movement Toward Coordinated Care And Value-Based Reimbursements

October 18, 2019

By: Kevin E. Raphael

What Happened:

As federal payors move away, with increasing speed, from fee-for-service payments toward value-based payment reforms, CMS and HHS-OIG released, on October 9, 2019, proposed Stark Law Exceptions and Anti-Kickback Statute Safe Harbors to better permit health care providers to engage in coordinated care reimbursed by these value-based payments.  The proposed Rules remove “potential barriers to more effective coordination and management of patient care and delivery of value-based care that improves quality of care, health outcomes, and efficiency.”  HHG-OIG proposed Rule at 5.

In summary, the proposed Rules create several new terms, all which define aspects of the value-based changes central to the proposed Rules’ purpose.  The proposed Anti-Kickback Statute Rule creates six new Safe Harbors to the Anti-Kickback Statute, modifies four existing Safe Harbors, and provides clarification on certain statutory requirements.  CMS’s proposed Stark Law Rule creates value-based Exceptions to Stark and provides additional guidance related to the Stark Law’s application to value-based care and clarifies its application to existing Exceptions.  The proposed Rules, if adopted, will impact hospitals, physician groups, other care providers along the continuum of care, and vendors providing support services to healthcare providers, including EHR, security technology, and transport services.  Importantly, the application of these proposed Rules is limited in many regards as to pharmaceutical companies, durable medical equipment distributors and suppliers, and laboratories.  HHS-OIG is still contemplating whether to also exclude medical device manufacturers, PBMs and pharmacies from its proposed Rule’s application.

The government has solicited comments to these proposed Rules, and there is a 75-day deadline for interested parties to submit comments.  After review of the comments, it is expected that final Rules will be published in 2020.

The Devil is in the Details:

I. The Anti-Kickback Statute Proposed Rule
A. The New Terminology

In order to integrate value-based care and value-based reimbursement into the existing Anti-Kickback Statute framework, HHG-OIG has defined six new terms, all of which play integral roles in the new Value-Based Safe Harbors created by the proposed Rule.  These terms are:

  1. Value-Based Enterprise (VBE) – A network that collaborates to achieve one or more value-based purposes. A VBE requires: (1) two or more participants who each must contribute to the arrangement; (2) an accountable body or person responsible for VBE financial and operational oversight; and (3) a governing document describing the VBE and how the VBE will achieve its value-based purpose.
  2. Target Patient Population (TPP) – An identified patient population selected by the VBE or its participants using legitimate and verifiable criteria set out in writing in advance of the arrangement. The VBE must identify the TPP based on criteria that furthers the VBE’s value-based purpose and ensures that the VBEs are not trying to “cherry pick” or “lemon drop” patients.
  3. Value-Based Activity – Any of the following activities, reasonably designed to achieve at least one value-based purpose of the VBE: (1) the provision of an item or service; (2) the taking of an action; or (3) refraining from taking an action. It does not include the making of a referral.
  4. Value-Based Arrangement – An arrangement for the provision of at least one Value-Based Activity for a TPP.
  5. Value-Based Purpose – (1) Coordinating and managing the care of a TPP; (2) improving quality of care for a TPP; (3) appropriately reducing costs, or limiting growth in costs, to payors without reducing quality of care for a TPP; or (4) transitioning from volume-based delivery and payment to quality of care and cost control for the TPP.
  6. Value-Based Participant – An individual or entity that engages in at least one Value-Based Activity as part of a VBE.

B. New Safe Harbors

  1. Care Coordination Arrangements to Improve Quality, Health Outcomes and Efficiency (42 CFR § 1001.952(ee)).

This proposed Safe Harbor will protect in-kind remuneration exchanged between qualifying VBE participants to further the coordination of care.  The remuneration must be: (1) in-kind and not a cash payment; (2) used to engage in Value-Based Activity directly connected to the coordination and management of care for the TPP; and (3) cannot be funded, or result from contributions, by parties outside the VBE.  In addition, the recipient of the care coordination must pay at least 15% of the cost for the in-kind remuneration received.

An example set forth in the proposed Rule contemplates a hospital and a skilled nursing facility (“SNF”) in a value-based arrangement, in which the hospital provides a behavioral health nurse to follow designated in-patients with mental health disorders who are discharged to the SNF.  In turn, the SNF could provide staff to the hospital to help coordinate patients’ care through the discharge planning process or provide office space at the SNF for the nurse.

  1. Value-Based Arrangements with Substantial Downside Financial Risk (42 CFR § 1001.952(ff))

This Safe Harbor covers Value-Based Arrangements in which a VBE assumes substantial downside financial risk from a payor for providing coordinated care to a TPP.  It would protect both monetary and in-kind remuneration.

“Substantial downside financial risk” means:  (1) shared savings with a repayment obligation to the payor of at least 40% of any shared losses; (2) a repayment obligation to the payor under an episodic or bundled payment arrangement of at least 20% of total loss; (3) prospectively paid population-based payment for a defined subset of the TPP; or (4) a partial capitated payment from the payor for items and services for the TPP, reflecting a discount of at least 60% of the total expected fee-for-service payments for those items and services (based on historical expenditures).

  1. Value-Based Arrangements With Full Financial Risk (42 CFR § 1001.952 (gg))

This Safe Harbor addresses arrangements in which a VBE assumes the full financial risk from a payor for a TPP.  “Full financial risk” means the VBE is financially responsible for the cost of all items and services covered by the applicable payor for each patient in the TPP and is prospectively paid by the applicable payor.  Because the VBE would assume full financial risk, thereby lessening the traditional fee-for-service fraud and abuse risks, this Safe Harbor provides the most flexibility to the VBEs and the greatest ability to innovate with respect to the coordination of care.

  1. Arrangements for Patient Engagement and Support to Improve Quality, Health Outcomes and Efficiency (42 CFR § 1001.952(hh))

This Safe Harbor protects arrangements under which a VBE participant furnishes patient engagement tools and supports to improve quality, health outcomes, and efficiency to the TPP.  The tools must be in-kind preventive items/services, such as health-related technology or patient health-related monitoring, and must be furnished directly to the patient by the VBE participant.  Cash and cash equivalents are not protected and all items must directly advance the patients’ compliance with a treatment regimen, follow-up plan, or disease management plan as determined by the patient’s provider, or advance the improvement in measurable outcomes for the TPP.  The aggregate value cannot exceed $500 annually.  Examples given in the proposed Rule of these types of services include providing support to improve patient safety during care transitions, or allowing providers to communicate more effectively with patients.

  1. CMS-Sponsored Arrangements and CMS-Sponsored Model Patient Incentives (42 CFR § 1001.952(ii))

This Safe Harbor would protect remuneration among and between parties to arrangements under CMS-sponsored models, and permit remuneration in the form of incentives and supports provided by model participants to patients covered by that model.  The Safe Harbor contains six safeguards to avoid intentional limitation of medically necessary care and to reduce inappropriate utilization of services.

  1. Cybersecurity Technology and Related Services (42 CFR § 1001.952(jj))

This Safe Harbor removes barriers so parties can address the growing threat of cyberattacks on health care data.  The Safe Harbor protects cybersecurity donations, while enforcing safeguards to ensure that referral sources do not become inappropriately tied to the donors.  Several interesting notes to this Safe Harbor are:  1) the recipients cannot condition doing business with the donor on the receipt of the donation; 2) protected donors have to play a central role in the healthcare delivery structure; 3) there is no restriction on who can receive the donations; 4) patients can receive the donations with certain limitations; 5) the donations must be necessary and used predominately to implement and maintain effective cybersecurity; and 6) multifunctional technology and services are not protected by the Safe Harbor.

C. Modification of Existing Safe Harbors

  1. Electronic Health Records and Services (42 CFR § 1001.952(y))

While there are a number of changes to this Safe Harbor in the proposed Rule, the most impactful are:

a) the elimination of the prohibition on the donation of equivalent items or services;

b) the allowance of donations of replacement electronic health records technology;

c) the modification of the EHR Safe Harbor sunset provision; and

d) the limitation on the recipient cost-share requirement for small or rural physician practices.

       2. Personal Services and Management Contracts (42 CFR § 1001.952(d))

Among the more impactful changes are:  1) the requirement that aggregate compensation be set in advance would be replaced with the requirement that the methodology for determining compensation be set in advance; 2) the elimination of the requirement that a contract specify schedule, length, and exact charge for part-time work; 3) the proposed protection for “Outcome-Based Payments.”  “Outcome-Based Payments” are defined as those from a principal to an agent that:  (1) reward agent improving/maintaining improvement of a patient or population health by achieving one or more outcome measures that effectively and efficiently coordinate care across the care settings, or (2) achieve one or more outcome measures that appropriately reduce payor costs while improving, or maintaining the improvement of, quality care for patients, such as shared savings payments, shared losses payments, gainsharing payments, and episodic or bundled payments.

  1. Warranty Safe Harbor (42 CFR § 1001.952 (g))

The proposed Rule would expand the existing Safe Harbor for warranties to include bundled items and related services, such as product support and educational services.  HHS-OIG provides examples of services that may be protected under the proposed expanded Safe Harbor.

  1. Local Transportation Safe Harbor (42 CFR § 1001.952(bb))

The mileage limit for patients residing in rural areas would increase to 75 miles and the distance limit on transportation of discharged patients would be eliminated.  The Safe Harbor is intended to offer greater protection to hospitals and physician practices in rural areas, so they can arrange the transport of patients to necessary medical appointments.

D. Clarification of Bipartisan Budget Act of 2018 (“BBA”) Requirements

The proposed Rule amends the CMP (Civil Monetary Payment Law) definition of remuneration to exclude telehealth technologies furnished to certain in-home dialysis patients.  However, this applies only to providers currently treating a patient for end-stage renal disease.  The proposed Rule also applies the BBA definition of “remuneration” related to all ACO Beneficiary Incentive Programs.

II. Proposed Rule Regarding The Stark Law
A. New Exceptions

First, the proposed Rule incorporates the new value-based terminology set forth in the Anti-Kickback Statute proposed Rule.  There are minor differences in certain of the new value-based terms, but for the most part the definitions in the proposed Stark Rule track those in the proposed Anti-Kickback Statute Rule.  There are also three new value-based Stark Exceptions and two other new Exceptions:

  1. Full Financial Risk. (§ 411.357(aa)(1))

This Exception applies to a Value-Based Arrangement where a Value-Based Enterprise has assumed full financial risk from a payor for the cost of all covered patient care and services for a defined population for the duration of the VBE arrangement.

  1. Value-Based Arrangement With Meaningful Downside Financial Risk to a Physician. (§ 411.357(aa)(2))

This Exception applies to a Value-Based Arrangement under which a physician accepts meaningful downside financial risk for failure to achieve the Value-Based Purposes of the Value-Based Enterprise during the entire term of the arrangement.

  1. Value-Based Arrangements. (§411.357(aa)(3))

This Exception applies broadly to any Value-Based Arrangement where additional requirements are met, including:  1) the Value-Based Arrangement is set forth in writing, signed by the parties, and includes descriptions of certain details of the arrangement; and 2) any performance or quality standards against which receipt of remuneration will be measured are both objective and measurable.

All three of these Exceptions apply to compensation arrangements, including indirect compensation arrangements, but do not apply to other financial arrangements.

  1. Limited Remuneration to a Physician Not to Exceed $3500 Per Year (§ 411.357(2))

This Exception is intended to cover small payments to a physician for items and services the physician provides to an entity on a short-term or infrequent basis.  The remuneration must not be determined in any manner that takes into account the value or volume of referrals or other business generated by the physician and the compensation must be commercially reasonable.

  1. Cybersecurity Technology and Related Services (§ 411.357(bb))

This Exception would protect donations of cybersecurity technology for the same policy reasons underlying the proposed Anti-Kickback Statute Safe Harbor.

B. Additional Stark Law Guidance

CMS also provides guidance requested by stakeholders on terminology and concepts that are lynchpins of the Stark Law.  These include:

  1. The proposed Rule provides two alternate definitions for “commercially reasonable,” and makes clear that the determination of commercial reasonableness is not one of either valuation or profitability.
  2. The proposed Rule provides guidance on the “volume or value” standard and the “other business generated” standard that is integral to many compensation Exceptions. CMS proposed two separate Rules related to the “volume or value standard” and two related to the “other business generated standard.”  Further, responding to questions after Tuomey (United States ex. rel. Drakeford v. Tuomey Healthcare System, Inc), CMS reaffirmed its position from the Stark Law Phase II regulations that, with respect to employee physicians, a productivity bonus does not take into account the volume or value of the physician’s referrals solely because corresponding hospital services are billed each time the employee/physician personally performs a service.
  3. The proposed Rule suggests to modify the current definition of “fair market value” to provide a definition of general application, a separate definition applicable to the rental of equipment, and a third definition applicable to rental office space. CMS also suggests in the commentary to the proposed Rule that “fair market value” relates to the value of an asset or service to hypothetical parties in a hypothetical transaction, while “general market value” relates to the value of an asset or service to the actual parties to a transaction that is set to occur in a specified time frame.  CMS recognizes that these two values could be different.

C. Changes to the Scope and Application of the Stark Law

CMS has added, deleted or revised a number of the existing Stark Law Exceptions.  In brief, CMS proposes the following changes:

  1. Remove compliance with the Anti-Kickback Statute or other laws as a requirement for certain Stark Law Exceptions.
  2. Revise the definition of “Designated Health Services” to clarify that a service provided by hospital to an inpatient does not constitute a “Designated Health Service” if the furnishing of the service does not affect the amount of the Medicare payment to the hospital under the Acute Care Hospital In-Patient Prospective Payment System.
  3. Provide additional guidance on what can constitute a “writing” necessary to meet applicable compensation Exceptions. Under the proposed Rule, records of a consistent rate of payment over the course of the arrangement from the first payment to the last would be recognized as typically supporting the inference that the rate of compensation was set in advance, even if there is no writing.
  4. Conform the Electronic Health Record Exception so it is consistent with the proposed Rule for the Anti-Kickback Statute Safe Harbor.

There are several other proposed additions, modifications or revisions to other Stark Exceptions that are of limited applicability or are technical in nature.

Take Away:

The proposed Rules are a meaningful and comprehensive effort by both CMS and HHS-OIG to respond to criticisms and commentary from the healthcare industry about the difficulties that the current Stark Law and Anti-Kickback Statute create for providers in the current healthcare environment and in moving towards value-based care.  These proposed Rules offer significant opportunities for various healthcare entities to more closely work together to provide value-based care and to share value-based payments.  The proposed Rules are expected to be fully in effect sometime in late 2020.


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