Nearly a decade after the Affordable Care Act signaled a transition of the U.S. health care system to value-based care, the Department of Health and Human Services (HHS) published on October 9 two long-awaited proposed rules intended to "modernize and clarify" the physician self-referral law (Stark Law) and federal anti-kickback statute (AKS) to reduce regulatory burdens and accelerate the transition. These proposals – an AKS Proposed Rule issued by the HHS Office of Inspector General (OIG) 1 and a Stark Proposed Rule issued by the Centers for Medicare & Medicaid Services (CMS) 2 – follow and incorporate feedback from corresponding Requests for Information issued in summer 20183 as part of HHS's "Regulatory Sprint to Coordinated Care."

Part 1 of this client alert focuses on HHS's proposals to allow and encourage the shift toward value-based payment under both the AKS and Stark Law, as well as other key AKS proposals, including important changes to the warranty and personal services safe harbors. Part 2 will follow and will focus on important proposals to further update and amend the Stark Law regulations.


Both the AKS Proposed Rule and the Stark Proposed Rule include significant proposals related to value-based arrangements, including new AKS safe harbors and corresponding Stark exceptions for arrangements involving substantial or full downside financial risk, and a separate AKS care coordination arrangements safe harbor and Stark value-based arrangements exception that do not require downside risk, but impose other more rigorous requirements as a result. Among the key takeaways from the lengthy and detailed proposals are –

  • While HHS's rules would respond to the call for greater certainty that legitimate value-based arrangements would not risk running afoul of the health care fraud and abuse laws, that certainty would come at the cost of substantially reduced flexibility. Indeed, due to concerns about the need for safeguards against abusive arrangements, the proposed rules include numerous detailed requirements and call for a level of oversight and monitoring that many providers may find difficult to implement as a practical matter. The need for greater balance between flexibility and safeguards is likely to be a major theme of industry comments on the proposed rules.
  • As has been widely reported, HHS decided not to include safe harbor protection for value-based or outcomes-based contracting for the purchase of drugs, which the administration indicated it was "working on" as a potential subject for future rulemaking. It's unclear whether that delay relates to the current politics around drug pricing or just to the difficulty of including everything in one rulemaking. But in the meantime, drug manufacturers, along with durable medical equipment (DME) manufacturers and clinical laboratories, would be explicitly excluded from participation in the proposed AKS safe harbors for value-based arrangements. Although non-DME device manufacturers would not be categorically excluded from the safe harbors, the proposed rules set up hurdles that often may be too high to qualify for protection, and OIG indicates that it is actively considering whether to exclude them as well.

Other key proposals in the AKS Proposed Rule apply beyond the context of value-based arrangements and would offer new flexibility to manufacturers and others, including a proposed expansion of the warranty safe harbor to cover a broader range of product and product-related guarantees, and proposed changes to the personal services safe harbor that would allow new flexibility in setting compensation for services.

Based on the expected dates of publication in the Federal Register, comments on both rules will be due by December 31, 2019.

New AKS and Stark protections for value-based arrangements – But not for everyone

OIG and CMS propose to establish new protections for value-based arrangements in the form of three new AKS safe harbors and three new Stark Law exceptions that would be broadly available to protect arrangements between hospitals, other health care providers or practitioners, and/or payors that qualify as Value-Based Enterprise (VBE) Participants. In contrast, the proposed exclusion of other health care entities from the AKS safe harbors and the rigorous requirements of those safe harbors are likely to limit the proposal's benefits for drug and device manufacturers and clinical laboratories, though the proposed rules do offer the chance for these entities to press for further changes in comments. In addition, the absence of safe harbor protection does not necessarily mean that an arrangement violates the AKS, and entities that may wish to seek an advisory opinion from OIG could find support for a value-based arrangement in various elements of the proposed safe harbors.

Who can participate in a protected "value-based enterprise"?

The AKS and Stark proposals both would define a VBE Participant as an individual or entity that engages in at least one value-based activity as a part of a value-based enterprise, but with significant exclusions under the AKS Proposed Rule.

  • Specifically, OIG's VBE Participant definition would exclude pharmaceutical manufacturers, DMEPOS manufacturers, distributors, or suppliers, and laboratories – meaning these entities would not be protected under the value-based safe harbors. OIG expresses concern that these entities might misuse the proposed safe harbors "primarily as a means of offering remuneration to practitioners and patients to market their products." 4
  • For similar reasons, OIG is considering also excluding pharmacies, pharmacy benefit managers (PBMs), and wholesalers and distributors of pharmaceutical products from the definition of VBE Participant.
  • OIG does not propose to categorically exclude non-DME device manufacturers from the definition of VBE Participant, but asks for comment on whether it should do so and how it should define which manufacturers would be excluded. OIG acknowledges that certain medical technologies provide services such as remote monitoring, predictive analytics, data analytics, care consultations, patient portals, and telehealth that may be used to coordinate and manage care. However, OIG expresses concern that permitting medical device manufacturers to act as VBE Participants could allow some manufacturers, particularly manufacturers of implantable devices, to disguise improper inducements to purchase the medical devices they manufacture as payments for care coordination. 5
  • OIG also seeks comment on an alternative approach – rather than excluding broad categories of entities, OIG suggests it could distinguish among entities that would be excluded from a safe harbor for value-based arrangements, based on factors like product type, company structure, heightened fraud risk, or other factors. 6
  • Note that any remuneration under protected value-based arrangements may not be funded by, and may not otherwise result from the contributions of, any individual or entity outside of the VBE. OIG explicitly states that this is to prevent entities outside the definition of a VBE – like drug manufacturers and labs – from indirectly gaining protection for arrangements that they cannot enter into directly.

The Stark Proposed Rule imposes none of these exclusions or limitations, although CMS requests comment on whether it should do so in order to align better with the AKS Proposed Rule. In any case, because the AKS poses an independent legal risk for value-based arrangements, the proposed rules will offer limited benefit to entities excluded from the AKS safe harbors if the current definition of VBE Participant is finalized.

Value-based arrangement requirements

The AKS and Stark proposals include a common set of requirements for a protectable value-based arrangement. A VBE would be defined as two or more participants collaborating to achieve at least one "value-based purpose" under a value-based arrangement. The VBE must have a governing document and an accountable body (such as a board of directors) or person responsible for financial and operational oversight of the enterprise.

The AKS Proposed Rule adds further requirements, similar to those in existing safe harbors, to address OIG's concern that protected arrangements are bona fide, do not shift costs, and do not result in stinting on care. For example, the value-based arrangement must be documented in a signed writing; must not reduce medically necessary care or unduly limit patient choice; and must not be tied to referrals or business outside the value-based arrangement. OIG requests comment on whether the VBE should be required to have a compliance program and whether the accountable body should be independent of the VBE and have specific oversight responsibilities, such as oversight related to utilization of items and services, cost, quality of data, and other metrics.7

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1 HHS OIG, Medicare and State Healthcare Programs: Fraud and Abuse; Revisions to Safe Harbors under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements (to be published Oct. 17, 2019), available at

2 CMS, Medicare Program: Modernizing and Clarifying the Physician Self-Referral Regulations (to be published Oct. 17, 2019), available at

3 See HL Client Alert, HHS watchdog eyes anti-kickback safe harbors for care coordination, beneficiary incentives, and cost-sharing (August 29, 2018), available at

4 AKS Proposed Rule at 54.

5 Id. at 61-62.

6 Id. at 66-67.

7 Id. at 40-41.

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