On October 9, 2019, the Department of Health and Human Services' Centers for Medicare and Medicaid ("CMS") and Office of Inspector General ("OIG"), respectively, published proposed rules updating the long-standing physician self-referral prohibition law ("Stark Law") and the Federal Anti-Kickback Statute ("AKS"). While it is clear that the government will continue to rely on these important laws to provide meaningful protections to the integrity of the Federal health care programs, HHS commendably recognizes that these laws’ respective prohibitions are so broad that they may discourage parties from entering into valuable, innovative, and cooperative arrangements that could improve overall health of patients and lower the cost of care.

Notably, HHS acknowledges that both the Stark Law’s self-referral prohibitions and the AKS’s civil and criminal penalties were enacted at a time when health care providers were reimbursed on a fee-for-service basis which encouraged volume billing (whether in the number of services provided to patients or the number of units sold). Today, however, our continually evolving system strives to pay for health care based on the quality of care provided and related patient outcomes. The proposed rules expressly seek to eliminate potential barriers for health care delivery innovation and to accelerate the transformation of the American health care system towards one that pays for value and promotes coordination of care for patients.

Background

The Stark Law, enacted in 1989, was intended to address concerns that physicians may order certain health services based on their financial self-interests instead of the best interests of their patients. Generally, this law prohibits a physician from making a referral for identified designated health services (“DHS”) payable by the Federal health care program if the physician or their immediate family member has a financial relationship with the DHS provider—unless the arrangement complies with all elements of a regulatory exception.

The Federal AKS provides for criminal and civil penalties for anyone who knowingly and willingly offers, pays, solicits, or receives remuneration to induce or reward the referral of business that is reimbursed under the Federal health care programs. The AKS includes several “safe harbor” provisions to ensure that an arrangement will not be subject to prosecution under the law; however, failure to meet all the elements of a safe harbor does not mean the arrangement violates the AKS. In such instances, the arrangements must be analyzed on a case-by-case basis to determine whether they are abusive and, most importantly, whether the parties have the requisite criminal intent.

Highlights of Proposed Rules

Value-Based Arrangements

Both sets of proposed rules include new exceptions that are intended to promote improved health care outcomes and the coordination of care among providers through certain value-based initiatives. Specifically, the rules provide new protections under both Stark and the AKS for exchanges of non-monetary remuneration made between participants in a defined Value-Based Enterprise (“VBE”) so long as the arrangement satisfies specific conditions. A VBE is defined as an enterprise with two (2) or more participants who:

• collaborate to achieve at least one value-based purpose;
• satisfy the definition of a VBE participant;
• have an accountable body or person responsible for financial and operational oversight of the VBE;
• have a governing document that describes the VBE and how the VBE participants intend to achieve its value-based purpose.

Notably, the proposed AKS rule excludes certain types of important health care participants from establishing a VBE. These excluded entities include pharmaceutical manufacturers; manufacturers, distributors, or suppliers of DMEPOS; and laboratories. In addition, the new AKS and Stark Law rules for VBEs take into consideration whether the participants face a substantial downside financial risk, or full financial risk, from the arrangement.

Definition of Commercial Reasonableness and Fair Market Value

The concepts of commercial reasonableness and fair market value (“FMV”) are often essential elements in determining compliance under both the Stark Law and the AKS. However, these critical terms and concepts never have been specifically defined. While the OIG is seeking comments related to a proposed definition of commercial reasonableness under the AKS, CMS is attempting to codify a definition centered on whether the arrangement makes sense as a means to accomplish the parties’ goals. CMS included important, clarifying guidance for its proposed definition of commercially reasonable: an arrangement is commercially reasonable so long as it furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements. Notably, the definition specifically states that “[a]n arrangement may be commercially reasonable even if it does not result in a profit for one or more of the parties.”

With regard to FMV, the proposed Stark Rule includes a general definition of the value offered in an arm’s-length transaction, between like parties, under like circumstances, of like assets or services, and consistent with the general market value of the subject transaction. In addition to this general definition, CMS included specific guidance for determining FMV as it relates to physician self-referral arrangements and related remuneration involving the rental of equipment and space.

Other Key Changes

As noted above, the proposed rules consistently seek to promote the coordination of care among providers and the development of innovative methods to enhance the quality of care provided to patients. The rules include several additional provisions to advance these goals:

• providing protection for donations of cybersecurity technology and services;
• requiring that protected donations of electronic health records systems promote interoperability and the exchange of patient data;
• adding flexibility to existing protections for personal service arrangements to promote more part-time arrangements and compensation based on patient outcomes; and
• promoting greater patient engagement by allowing for the provision of additional benefits to patients, including health care technology tools and non-medical transportation.

This Alert just includes a summary of some of the key components of the proposed rules and is in no way intended to be a comprehensive review. The actual Rules can be accessed here.

Finally, just as these proposed rules were drafted with considerable input from an array of health care industry participants, so, too, will the final rule rely heavily on the responses and comments that CMS and the OIG receive on the proposed Stark Law and AKS rules. The deadline for the submission of comments prior is December 31, 2019.

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