On Friday, November 20, 2020, the Department of Health and Human Services (HHS) gave everyone an early holiday present when it released complementary rules to modernize and clarify the regulations that interpret the Physician Self-Referral Law (the Stark Law) and the federal Anti-Kickback Statute as part of its Regulatory Sprint to Coordinated Care. In a press release, HHS states these final rules deliver on its promise to "provide greater flexibility for healthcare providers to participate in value-based arrangements and to provide coordinated care for patients[, and] . . . ease unnecessary compliance burden[s] . . ., while maintaining strong safeguards to protect patients and programs from fraud and abuse."
As discussed in our client alerts last fall (Part One and Part Two), these rules mark the most recent effort by HHS to establish exceptions and safe harbors to appropriately tailor the reach of the Stark Law's strict-liability-based civil penalties and the Anti-Kickback Statute's criminal penalties to protect from enforcement certain non-abusive and beneficial arrangements. HHS notes in both final rules that these rules are the culmination of its effort to address concerns within the health care industry that these laws, as well as the Civil Monetary Penalty (CMP) Law, have operated as barriers to the delivery of value-based care to improve quality of care, health outcomes, and efficiency. Both final rules incorporate and address the over 650 comments submitted by industry stakeholders in response to the proposed rules released on October 17, 2019.
The final rules, which span over 1,600 pages in current form, are a product of coordination between Centers for Medicare & Medicaid Services (CMS) and Office of Inspector General (OIG), which sought to align the regulations where appropriate. However, both OIG and CMS acknowledge that complete alignment between the two final rules is not feasible given the fundamental differences between the civil, strict-liability-based Stark Law and the criminal, intent-based Anti-Kickback Statute. Indeed, CMS states that the agencies agreed to allow the Anti-Kickback Statute safe harbors to serve as the "backstop" protection against abusive value-based arrangements that may otherwise satisfy a new, value-based Stark Law exception. We therefore discuss each final rule in turn below.
Stark Law value-based arrangements - final rule
CMS begins its final rule with a lengthy discussion of the history behind the Stark Law and the changes in the United States health care delivery and payment systems that have called into question the continued utility of existing Stark Law exceptions to address present needs. To address those changes and the potential risks of abuse present in value-based arrangements, such as underutilization, cherry-picking, lemon-dropping, and manipulation of data to verify outcome measures, CMS rejected the request made by some commenters for one value-based exception, and instead finalized its proposed "tiered" value-based rules and exceptions with minimal changes.
Specifically, CMS established three "new, permanent exceptions to the physician self-referral law for value-based arrangements and definitions for terminology integral to such a system," codified at new 42 CFR Sections 411.357(aa)(1)-(3): (i) value-based arrangements with full financial risk, (ii) value-based arrangements with meaningful downside financial risk; and (iii) any value-based arrangement provided the enumerated requirements are met. Essential to the application of these three exceptions are the definitions for a value-based arrangement, value-based activities, a value-based enterprise, value-based enterprise participants, a value-based purpose, and a target patient population. CMS finalized these definitions as proposed, with a few noteworthy comments and modifications, including:
- Referrals are not explicitly excluded from the definition of "value-based activity"; however, referrals generally are not items or services for which a physician may be compensated under the Stark Law.
- CMS finalized its definition of "value-based arrangement" to clarify that such arrangements must be among only parties within the same value-based enterprise.
- Maintenance of quality of care will not be considered a permissible value-based purpose absent a reduction of costs to, or growth in expenditures of, the payor. While maintaining quality is important, CMS does not believe that permitting remuneration for maintenance alone is consistent with HHS' goals for the Regulatory Spring to Coordinated Care.
- No particular providers (e.g., manufacturers) are excluded from eligible value-based enterprise participants, unlike OIG's corresponding final rule for the Anti-Kickback Statute safe harbors.
The three value-based exceptions are finalized with only a few changes from the proposals. Of note, none will require that the remuneration paid under a value-based arrangement be consistent with fair market value or not take into account the volume or value of referrals or business generated between the parties. In the case of a non-risk bearing value-based arrangement, however, such arrangements must be commercially reasonable, as "commercially reasonable" is clarified by CMS in the final rules (and as discussed below) to be a more subjective standard between the parties. Also of note, each exception is available only for compensation arrangements, not ownership arrangements. A few of the most notable changes from the proposed rule are highlighted below:
- Full financial risk (new 411.357(aa)(1)) – When a value-based enterprise is at full financial risk on a prospective basis for the cost of all patient care items/services covered by a payor for the target patient population. CMS finalized the exception to extend the time within which a value-based enterprise needs to assume full financial risk, expanding its proposed six-month window to 12 months after the commencement of the value-based arrangement. This additional time will allow participants to make structural changes and take other actions to prepare to be at full risk.
- Meaningful downside financial risk (new 411.357(aa)(2)) – When a physician is at meaningful downside financial risk to the entity from which the physician is assuming such risk. In response to comments and a 2018 Deloitte survey of physicians related to the amount of compensation those physicians were willing to tie to quality and cost measures, CMS finalized its definition of "meaningful downside financial risk" to mean a physician is at risk for at least 10 percent of the remuneration to be received by the physician. This risk can be reflected in paybacks, withholds, incentive bonuses, and other payment structures, so long as at least 10 percent of the physician's total remuneration is at risk to the entity remitting that remuneration. This is a substantial change from CMS' proposal to make physicians at risk for 25 percent of their remuneration, and should provide more flexibility for those entities seeking to engage with individual physicians for risk-bearing relationships.
- Value-based arrangements (new 411.357(aa)(3)) – Any value-based arrangement, so long as the enumerated requirements are met. CMS generally finalized this exception as proposed, although it changed the definition of "performance metrics" for such arrangements from "performance and quality standard" to "outcome measures" and aligned that definition to OIG's corresponding definition. Perhaps the most impactful deviation from the proposed exception is CMS' explicit regulatory requirement (which was implicit in the proposed rules) that a value-based enterprise monitor and assess the success of its value-based arrangements at least annually, or once during the term of the arrangement if it is for a term of less than one year, and either terminate the arrangement or replace ineffective activities if the arrangement is found to not be working. CMS is providing parties with a grace period to terminate or revise the arrangement, allowing 30 days to terminate, and 90 days to replace, ineffective activities or outcomes measures, following a determination that the arrangement is not successful.
CMS ends its discussion of its value-based initiatives by finalizing its primary proposal to make the new, tiered value-based exceptions available to indirect compensation arrangements that include a value-based arrangement in the unbroken chain of financial relationships between a physician and a designated health services entity, and announces its decision to not include a price transparency requirement in its value-based exceptions.
Additional modifications finalized to the Stark Law exceptions and definitions
Separately, CMS finalized, largely as proposed, additional modifications to Stark Law exceptions and key definitions.
CMS cited to its experience with the Self-Referral Disclosure Protocol to support revising or adding certain Stark Law exceptions, recognizing that certain arrangements that failed to meet all requirements of an existing exception posed a low risk of fraud and abuse. For example, CMS finalized a new exception to the Stark Law to protect limited remuneration in an amount that does not exceed $5,000 per year (up from the proposal of $3,500 per year) to a physician for items or services provided by that physician. This exception expands the ability of entities to compensate physicians on a limited basis where an existing exception would not be available, such as for a short-term medical director arrangement between a hospital and a physician to address an unanticipated opening.
The final rule also clarifies key definitions that apply to existing Stark Law exceptions. For example, CMS has defined "commercially reasonable" as meaning the arrangement "furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty . . . even if it does not result in profit for one or more of the parties (emphasis added)," declining to use its alternative proposed definition focused on whether an arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size. The final rule's definition should provide parties with some flexibility in structuring a commercially reasonable arrangement based on the needs and attributes of the parties to the arrangement, rather than measuring such arrangements against an objective, external standard. CMS also clarified the definitions of "fair market value" and "general market value" to state specific requirements for determining the fair market value of rental property and to disentangle "the volume or value" exceptions to the Stark Law from the definition of "general market value." In discussing these concepts, CMS recognized that the fair market value of a transaction may not always align with valuation data compilations. For example, CMS noted that physician salary schedules are "an appropriate starting point" in determining fair market value, although hospitals may appropriately need to pay more, such as based on a "compelling need" for certain physician services.
CMS also finalized policies relating to the "volume or value and other business generated" standards that apply to a number of Stark Law exceptions, and explained that if compensation complies with these rules, CMS will not consider it to take into account the volume or value of the physician's referrals or other business generated by the physician for purposes of the Stark Law. Recognizing the uncertainty created by recent court opinions interpreting the Stark Law compliance of productivity-based physician-compensation formulas, CMS additionally provided the welcome confirmation that compensation tied to only a physician's personal productivity will not be deemed to "take into account" the volume or value of referrals of the physician solely because a hospital may bill for designated health services each time the physician personally performs a service at the hospital.
CMS also finalized, among other changes:
- Decoupling Stark Law exceptions from the Anti-Kickback Statute and billing or claims submission requirements by removing compliance with those laws as a requirement in certain existing exceptions, with the notable change from the proposal being that the exception for fair market value compensation will retain those requirements.
- Revising certain rules related to signature requirements (e.g., excusing a practice's signature requirement under certain physician recruitment arrangements), and codifying its policy that an electronic signature that is valid under federal or state law is sufficient to satisfy the signature requirement of various Stark Law exceptions.
- Providing a grace period if any non-compliance issues are reconciled within 90 calendar days of the expiration or termination of a compensation arrangement, if after the reconciliation, the entire amount of remuneration for items or services is paid as required under the terms and conditions of the arrangement.
- Revising the definition of "designated health services" to exclude inpatient services paid for under prospective payment systems if furnishing those services does not increase the amount of Medicare's payment to the hospital.
- Removing its carve-out of surgical devices, items, or supplies from the definition of "remuneration."
- Stating policies that will reduce the number of unbroken chains of financial relationships that fall within the Stark Law's definition of "indirect compensation."
- Narrowing the list of Stark Law exceptions that may supersede the exception for fair market value payments made by a physician to an entity in exchange for certain items or services, while also confirming that this physician payments exception may not serve to "sidestep" other, more specific statutory exceptions (e.g., the exceptions for the rental of office space or equipment).
- Permitting parties to rely on the exception for fair market value compensation to protect certain arrangements for the rental or lease of office space.
- Confirming that lease arrangements may comply with the related Stark Law exception's "exclusive use" requirements – even if concurrently used by multiple lessees or invitees – so long as the lessor is prohibited from such concurrent use.
- Confirming that the exception for isolated transactions does not apply to multiple services provided over a period of time, even if there is only a single payment for all the services.
- Making changes to the definition of "group practice" to clarify circumstances under which the profits of a group practice may be shared with its members, including compensation that relates to participation in a value-based arrangement, and confirming that a physician practice that wishes to qualify as a group practice may not distribute profits from designated health services on a "service-by-service" basis.
- Excluding titular ownership or interests arising from a qualified employee stock ownership plan from the definition of "ownership or investment interests."
- Confirming that the exception for Electronic Health Records (EHR) expressly includes cybersecurity software and services, and making permanent the EHR exception by removing the sunset provision.
- Finalizing certain other exceptions as to cybersecurity technology and related services.
The Anti-Kickback Statute final rule
OIG begins its final rule with a brief discussion of the driving force behind what HHS Secretary Alex Azar and HHS Deputy Secretary Eric Hargan have characterized as "historic reform"— to address prevalent stakeholder concerns that the broad reach of the federal Anti-Kickback Statute and the CMP Law "chill" innovative, beneficial arrangements that would advance the transition of the U.S. health care system to value-based care. In order to address those concerns and the potential risks of fraud present in value-based arrangements, as well as any potential impacts on competition, OIG implemented six new safe harbors, modified four existing safe harbors, and codified new statutory exceptions to the definition of "remuneration."
In coordination with the value-based exceptions established under the Stark Law, discussed above, OIG established three "new safe harbors for remuneration exchanged between or among participants in a value-based arrangement." These value-based safe harbors follow a "tiered" framework based on risk assumption of the parties, as proposed by OIG.
- Value-based arrangements with full financial risk (new Section 1001.952(gg)) – Requires a value-based enterprise to be at risk on a prospective basis for the cost of all health care items, devices, supplies, and services covered by the applicable payor for each patient in the target patient population for a term of at least one year, in order to protect both monetary and in-kind remuneration.
- Value-based arrangements with substantial downside financial risk (new Section 1001.952(ff)) – Requires a value-based enterprise to assume substantial downside financial risk from a payor and a value-based participant to assume a meaningful share of the value-based enterprise's total risk, based on delineated methodologies, in order to protect both monetary and in-kind remuneration exchanged pursuant to value-based arrangements between value-based enterprises and participants. In the final rule, OIG reduced the proposed risk and meaningful share thresholds under certain methodologies.
- Care coordination arrangements to improve quality, health outcomes, and efficiency (new Section 1001.952(ee)) – Requires no assumption of downside risk by parties to a value-based arrangement in order to protect in-kind remuneration exchanged to engage in value-based activities that are directly connected to the coordination and management of care for the target patient population. Recipients are required to pay at least 15 percent of either the offeror's costs or the fair market value of the remuneration.
By design, these three new value-based safe harbors vary, among other ways, by the types of remuneration protected, the types of entities eligible to rely on the safe harbors, the level of financial risk assumed by the parties, and the types of safeguards included as safe harbor conditions to offer parties increased flexibility to develop and tailor value-based arrangements. As with the three value-based exceptions to the Stark Law, essential to the application of these three value-based safe harbors are the newly promulgated definitions for a value-based arrangement, value-based activities, a value-based enterprise, value-based enterprise participants, a value-based purpose, and a target patient population.
In a noteworthy shift from the proposed rule, OIG decided to list those entities and individuals ineligible to use each value-based safe harbor rather than exclude them from the definition of "value-based enterprise participant." Ineligible entities identified in the final rule include: (i) pharmaceutical manufacturers, distributors, and wholesalers; (ii) pharmacy benefit managers; (iii) laboratory companies; (iv) pharmacies that primarily compound drugs or primarily dispense compounded drugs; (v) manufacturers of devices or medical supplies; (vi) entities or individuals that sell or rent durable medical equipment, prosthetics, orthotics and supplies (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); and (vii) medical device distributors and wholesalers. However, OIG carved out a separate pathway for certain medical device manufacturers and durable medical equipment companies to participate in protected care coordination arrangements that involve digital health technology, provided that the enumerated requirements are met. These "special pathway" entities and individuals are referred to as "limited technology participants."
Because ineligible entities are not excluded from the definition of "value-based enterprise participant," these entities can participate in a value-based arrangement, but the remuneration exchanged between them and a value-based enterprise or other value-based enterprise participants would not be protected under the safe harbor, except in the case of limited technology participants (where the digital health technology "special pathway" may be available).
OIG explained that this approach is intended to "strike the right balance between flexibility for beneficial innovation and better coordinated patient care with necessary safeguards to protect patients and Federal health care programs." OIG also acknowledges – as it has repeatedly done before – that arrangements that do not fit into a safe harbor are not necessarily unlawful, but must instead be analyzed for compliance with the federal Anti-Kickback Statute based on the totality of their facts and circumstances, including the intent of the parties. OIG further notes that some care coordination and value-based arrangements can be structured to fit in existing safe harbors, as an alternative to its newly promulgated value-based safe harbors.
OIG also established, with modifications from the proposed rule, new or modified safe harbors related to patient engagement and outcomes-based payments. Specifically:
- Patient engagement and support safe harbor (new at 42 CFR Sections 1001.952(hh)) – Protects certain tools and supports furnished to patients to improve quality, health outcomes, and efficiency. In a notable change from the proposed rule, the final rule does not include specific illustrative categories of protected tools and supports, reflecting OIG's policy to be agnostic as to the types of in-kind tools and supports that may be eligible for safe harbor protection.
- Outcomes-based payments safe harbor (modified Section 1001.952(d)) – A new provision to the existing personal services and management contracts safe harbor protects payments tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs. Some notable changes from the proposed rule include (i) modification of the definition of "outcomes-based payment" to clarify that the payment may be a reward for successfully achieving an outcome measure or a recoupment or reduction in payment for failure to achieve an outcome measure; (ii) revisions to the proposed "rebasing" standard to clarify that parties must periodically assess and revise benchmarks and remuneration under the agreement as necessary to ensure that any remuneration is consistent with fair market value in an arm's length transaction; and (iii) additional clarification that remuneration also may move from agent to principal. In addition, the currently existing personal services and management contracts safe harbor provision is amended to add flexibility with respect to part-time arrangements by removing the requirement that for such arrangements the agreement must specify the exact schedule for services provided. This revision aligns the safe harbor with the corresponding Stark Law exception and, as a result, should alleviate the burden on parties seeking to comply with both.
Both the patient engagement and support safe harbor and the outcomes-based payments provision of the personal services and management contracts safe harbor exclude from safe harbor protection the same or similar ineligible entities and individuals identified above with respect to the value-based arrangement safe harbors, although the patient engagement and support safe harbor does include a "special pathway" for digital health technology patient engagement tools and supports provided by manufacturers of devices or medical supplies.
OIG also established certain new cybersecurity technology safe harbors. Specifically:
- Cybersecurity technology and services safe harbor (new Section 1001.952(jj)) – Protects nonmonetary donations of cybersecurity technology and services. A notable change from the proposed rule is OIG's rejection of its alternative proposal to require parties to conduct a risk assessment prior to donating hardware.
- Electronic health records safe harbor (modified Section 1001.952(y)) – Adds protections for certain related cybersecurity technology, updates provisions regarding interoperability, and removes the sunset date. Some notable changes from the proposed rule include (i) revisions to expand the scope of protected donors to additional entities, including accountable care organizations; (ii) additional flexibilities in connection with administering the 15 percent contribution requirement; and (iii) OIG's decision to not finalize its proposed modifications related to information blocking nor the definition of "electronic health record."
Further, OIG modified the existing safe harbors for warranties and local transportation as follows:
- Warranties safe harbor (modified Section 1001.952(g)) – Modifies, as proposed, the definition of "warranty" to provide protection for warranties covering bundles of items and related services, rather than only single-item warranties as the OIG permitted in Advisory Opinion 18-10.
- Local transportation safe harbor (modified Section 1001.952(bb)) – Expands mileage limits for rural areas and for transportation of certain discharged patients. A notable change from the proposed rule is clarification that, with respect to transportation following an inpatient admission, mileage limits do not apply when the patient is discharged from an inpatient facility following inpatient admission or released from a hospital after being placed in observation status for at least 24 hours. The final rule also clarifies that this safe harbor is available for transportation provided through rideshare arrangements.
Finally, the final rule established a CMS-sponsored model arrangements safe harbor (new at Section 1001.952(ii)) to protect certain remuneration, including certain patient incentives, provided in connection with CMS payment models tested by the Innovation Center or related to the Medicare Shared Savings Program. Some notable changes from the proposed CMS-sponsored models safe harbor include (i) additional clarification from OIG that safe harbor protection will not necessarily apply to every possible financial arrangement or incentive in connection with CMS-sponsored models, and (ii) revisions to the conditions for safe harbor protection of patient incentives, including that an individual other than the CMS-sponsored model participant or its agent may furnish an incentive to a patient under a CMS-sponsored model if that is specified by the participation documentation. And the final rule codifies, without modification, statutory exceptions to the definition of "remuneration" under the Anti-Kickback Statute related to ACO Beneficiary Incentive Programs for the Medicare Shared Savings Program (Section 1001.952(kk)), and under the CMP Law for "telehealth technologies" furnished to certain in-home dialysis patients (42 C.F.R. Section 1003.110).
It remains to be seen what, if any, action the Biden Administration may take with respect to the final rules once President-elect Joe Biden is inaugurated on January 20, 2021. For example, it is common practice that when the political party of the president changes, the new presidential administration takes swift action to stop rules promulgated during the final months of the previous administration from taking effect. While notices granting temporary delays are common when a final rule's stated effective date has not yet passed, the final rules assert that they go into effect completely (in the case of the OIG final rule) or in substantial part (in the case of the CMS final rule) on January 19, 2021, which is one day before President-elect Biden takes office.
The January 19 effective dates may prove to be of questionable legality. The Congressional Review Act generally provides that a so-called "major rule" (e.g., a rule with "an annual effect on the economy of $100,000,000 or more") cannot go into effect until 60 days after the rule is "published in the Federal Register." However, the final rules discussed above are not scheduled to be published in the Federal Register until December 2, 2020, 60 days from which falls on January 31, 2021–11 days after President Biden takes office. Because both rules qualify as major rules, the Biden Administration may choose to disregard the January 19 effective dates stated in the final rules on the basis that they are illegal, and take an approach similar to other final rules whose stated effective dates have not yet passed.
This article is presented for informational purposes only and is not intended to constitute legal advice.