Done Sprinting, but Are We There Yet? The Value-Based Stark Exceptions and AKS Safe Harbors

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Davis Wright Tremaine LLP

On December 2, 2020, CMS and OIG finished a two-year sprint to modernize the Stark and Anti-Kickback (AKS) regulations to remove barriers to value-based care and incentivize patient-centered care coordination.

While the final rules may not check every box on the wish list of stakeholders, the agencies have done an admirable job in responding to feedback from the October 2019 proposed rules (available here). The resulting final Sprint Regulations are much improved by providing more flexibility for value-based arrangements to be structured to avoid the draconian penalties associated with Stark and the AKS.

CMS's contribution to the final value-based Sprint Regulations comes in the form of new exception AA with three subparts that address arrangements with varying levels of financial risk. OIG finalized three new safe harbors with similar themes, and also adopted changes to the personal and management services safe harbor to protect outcomes-based payments in connection with value-based arrangements.

Consistent with the proposed rules, the final value-based Stark exceptions are broader than OIG's value-based AKS safe harbors, and participants in value-based arrangements will need to determine if they are comfortable satisfying a Stark exception but operating outside of an AKS safe harbor. OIG also finalized a new safe harbor for patient engagement and support that should be very useful for participants in value-based arrangements. The final definitions, exceptions, and safe harbors are discussed in detail below and go into effect January 19, 2021.

Value-Based Arrangements: Common Requirements

The final Sprint Regulations have separate requirements for value-based arrangements involving full financial risk, downside financial risk, and qualifying arrangements without strict financial risk requirements. CMS and the OIG finalized the exceptions and safe harbors to include more rigorous requirements as the level of financial risk in the arrangement decreases.

The Stark exceptions and the AKS safe harbors do not require the remuneration under a value-based arrangement to be consistent with fair market value, not determined in a manner that takes into account the volume or value of a physician's referrals or other business generated for the entity. Also, with the exception of the final Stark rule for generic value-based arrangements without any specific financial risk, the remuneration does not have to be commercially reasonable. All in all, these features make the exceptions much more flexible than the previous regulations.

Consistent with the proposed rule, all of the final Stark exceptions share five common requirements, which also appear in substantially similar forms in the three value-based AKS safe harbors:

  • (1) The remuneration must be for or result from value-based activities undertaken by the recipient for patients in the target population. While the term value-based activity is defined as a particular item, service, or action, CMS reaffirmed in the preamble that gainsharing payments, shared savings distributions, and other payment methodologies that do not have a one-to-one relationship with a particular item, service, or action would meet this requirement of the exception.
  • (2) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient.
  • (3) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement.
  • (4) If the remuneration paid to the physician is conditioned on the physician's referrals to a particular provider, practitioner, or supplier, the referral requirement must be in writing and signed by the parties and not prohibit referrals elsewhere based on patient preference, insurance requirements, or physician judgment.
  • (5) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for at least six years and made available to the Secretary upon request.

Value-Based Arrangements: Key Definitions and Concepts

CMS finalized the definitions as they appeared in the proposed rule, with only minor modifications. The final definitions of key terms are:

What is a Value-Based Activity?

The term "value-based activity" is intended to be broad and to include the actions parties take or refrain from taking pursuant to a value-based arrangement and in furtherance of a value-based purpose. Specifically, "value-based activity" means any of the following activities, provided that the activity is reasonably designed to achieve at least one value-based purpose of the value-based enterprise:

  • (1) The provision of an item or service;
  • (2) The taking of an action; or
  • (3) The refraining from taking an action.

Parties should have a good faith belief that the value-based activity will achieve or lead to the achievement of at least one value-based purpose. Nothing requires that the value-based purpose(s) must be achieved in order for a value-based arrangement to be protected. However, if the parties are aware that the activity will not further a value-based purpose, it will not qualify as a value-based activity and from protection under this exception and safe harbor.

Provided that the activity is in furtherance of value-based purpose, examples of permissible value-based activities include:

  • The provision of transportation services to a beneficiary.
  • The provision of non-medical support personnel to a physician.
  • The provision of health technology for the recipient to use to track patient data in order to spot trends in health care needs and to improve patient care planning.
  • Refraining from ordering certain items or services in accordance with a medically appropriate care protocol that reduces the number of required steps in a given procedure.
  • Coordinating care plans across provider for a target patient population.

What Is a Value-Based Arrangement?

"Value-based arrangement" means an arrangement for the provision of at least one value-based activity for a target patient population between or among: (1) the value-based enterprise and one or more of its VBE participants; or (2) VBE participants in the same value-based enterprise.

Examples of value-based arrangements could include:

  • Value-based programs with federal healthcare programs.
  • Commercial and private insurer arrangements.
  • State Medicaid value-based arrangements.
  • Value-based arrangements with Medicare Advantage or Medicaid managed care plans.

What Is a Value-Based Enterprise? 

"Value-based enterprise" (VBE) means two or more VBE participants:

  • (1) Collaborating to achieve at least one value-based purpose;
  • (2) Each of which is a party to a value-based arrangement with the other or at least one other VBE participant in the value-based enterprise;
  • (3) That have an accountable body or person responsible for financial and operational oversight of the value-based enterprise (e.g., the accountable body or person could be the governing body of an entity, a committee, a corporate officer, or another specific person or party); and
  • (4) That have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s) (e.g., the governing document could be a payor contract, employment relationship, service arrangement or other contract).

Examples of organizations that could be considered VBEs include:

  • An integrated delivery system.
  • Accountable Care Organizations (ACOs).
  • Clinically Integrated Networks (CINs).
  • Physician hospital organizations (PHOs).
  • Independent practice associations (IPAs).
  • Other affiliations or networks of clinicians, providers or suppliers.
  • Smaller arrangements comprised of only two or three VBE Participants.

What Is a Value-Based Purpose? 

"Value-based purpose" means:

  • (1) Coordinating and managing the care of a target patient population;
  • (2) Improving the quality of care for a target patient population;
  • (3) Appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a target patient population; or
  • (4) Transitioning from healthcare delivery and payment mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a target patient population.

"Maintenance" or "maintaining" quality of care as a stand-alone is not a sufficient value-based purpose. Also, reducing costs alone is not a sufficient value-based purpose.

Who Is a VBE Participant?

"VBE participant" means an individual or entity that engages in at least one value-based activity as part of a value-based enterprise. Note that the definition of VBE participant does not exclude any specific provider-type; therefore, DMEPOS suppliers, laboratories, pharmacy benefit managers and drug manufacturers could all qualify as VBE participants.

For purposes of safe harbor protection under the AKS, some entities and provider-types are expressly deemed ineligible. Each safe harbor includes a list of ineligible entities, and the following entities are included on the ineligible entity lists for all value-based safe harbors:

  • Pharmaceutical companies.
  • Pharmacy benefit managers.
  • Laboratories.
  • Compound pharmacies.
  • Manufacturers of devices or medical supplies.
  • DMEPOS supplier entities.
  • Medical device distributors or wholesalers that are not otherwise manufacturers of devices or medical supplies.

Unlike the new AKS safe harbors, the Stark exceptions do not exclude any specific entities or provider-types from eligibility.

What Is a Target Patient Population? 

"Target patient population" means an identified patient population selected by a value-based enterprise or its VBE participants based on legitimate and verifiable criteria that are set out in writing in advance of the commencement of the value-based arrangement and further the value-based enterprise's value-based purpose(s).

Selecting a target patient population consisting of only lucrative or adherent patients (cherry-picking) and avoiding costly or noncompliant patients (lemon-dropping) would not be considered legitimate criteria. Selection criteria—but not individual patients—must be identified in advance, and modifications to selection criteria may only be made prospectively.

Examples of target patient populations based on "legitimate and verifiable criteria" include:

  • Patients undergoing knee replacement surgery.
  • Newly diagnosed patients with a common chronic disease or condition (e.g., newly diagnosed patients with type 2 diabetes).
  • Patients residing in an identified county or zip code.
  • Individuals insured by a particular health insurance plan.
  • Patients who share a common criteria such as those in need of social determinants of health such as housing or transportation needs.
  • Patients who have a household income below a certain percentage of the federal poverty level.

Value-Based Arrangements With Full Financial Risk

The full financial risk exception and safe harbor apply to value-based arrangements between VBE participants in a value-based enterprise that has assumed "full financial risk." "Full financial risk" is defined for both Stark and AKS purposes to be an arrangement in which the value-based enterprise is at risk for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population.

Full financial risk also means that the VBE cannot only assume risk for a subset of items and services, or only for expenses that fall below a high dollar outlier threshold. Again, full financial risk means that the VBE has assumed risk for all items and services for the target patient population.

Examples of full financial risk arrangements include capitated per patient per month payments or an annual global budget payment.

Remuneration paid under full financial risk arrangements will be exempted from enforcement under Stark and AKS if the following elements and safeguards are satisfied:

Elements

  • The VBE is at Full Financial Risk for the Duration of an Arrangement:
    The VBE is at full financial risk (or is contractually obligated to be at full financial risk) during the entire duration of the value-based arrangement. The duration must be at least one year under the AKS safe harbor. During this period, VBE participants cannot submit claims for payment to the payor for the costs incurred in providing specific patient care items and services.
  • Prospective Risk:
    The full financial risk arrangement must be prospective. This means the VBE must have assumed financial responsibility for the cost of all patient care items and services prior to providing patient care items and services. A payor could pay the VBE at any point in the coverage period and engage in retrospective reconciliations, as long as the VBE has assumed full financial risk on a prospective basis.
  • Pre-Risk Period:
    The exception can be used to protect value-based arrangements under contracts entered into in preparation for a full financial risk payor contract up to 12 months in advance. A 12-month pre-risk period allows parties sufficient time to work together for taking on full financial risk.
  • Nexus Between Remuneration and Value-Based Purposes:
    The remuneration paid under the full financial risk arrangement—which could include payments for shared savings or other incentive payments for achieving quality, performance, or other benchmarks—is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
  • Other Remuneration Restrictions (AKS Safe Harbor Only):
    In addition to the nexus requirement, the AKS safe harbor further requires that the remuneration paid under a full financial risk arrangement:
    • (1) Does not include an offer or receipt of an ownership or investment interest in, or distributions from, an entity, and
    • (2) Is not exchanged or used for the purpose of marketing items or services furnished by the VBE or a VBE participant to patients or for patient recruitment activities.
  • Documentation Requirement (AKS Safe Harbor Only):
    The VBE's assumption of full financial risk from a payor is documented through a written contract or a value-based arrangement that:
    • (1) Is set forth in writing;
    • (2) Is signed by the parties; and
    • (3) Specifies all material terms including the value-based activities and the term of the arrangement.

Safeguards

  • No Inducements to Reduce or Limit Medically Necessary Care:
    Remuneration is not provided as an inducement to reduce or limit medically necessary items or services to any patient. Remuneration that leads to a reduction in medically necessary services would be considered inherently suspect.
  • Remuneration Is Not Conditioned on Referrals:
    The exception does not protect arrangements where an entity requires VBE Participants to refer patients who are not part of the target population to the entity. For example, the exception would not protect a value-based arrangement related to knee replacement services furnished to Medicare beneficiaries if the arrangement requires that the physician perform all his or her other orthopedic surgeries at the hospital.
  • Record Retention:
    Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement be maintained for a period of at least 6 years and made available to the Secretary upon request.
  • Directed Referrals – (Stark Exception Only):
    Remuneration paid to a physician may be conditioned on the physician's referrals to a particular provider, practitioner, or supplier, if the both of the following conditions are satisfied:
    • (1) The directed referral requirement is set out in writing and signed by the parties; and
    • (2) The direct referral requirement will not apply if:
      • (a) The patient expresses a preference for a different provider, practitioner, or supplier;
      • (b) The patient's insurer determines the provider, practitioner, or supplier; or
      • (c) The referral is not in the patient's best medical interests in the physician's judgment.
  • Quality Assurance Program (AKS Safe Harbor Only):
    The VBE must provide or arrange for a quality assurance program for services furnished to the target patient population that:
    • (1) Protects against underutilization; and
    • (2) Assesses the quality of care furnished to the target patient population.

Value-Based Arrangements With Meaningful or Substantial Downside Financial Risk Arrangements

This safe harbor and exception applies to value-based arrangements in which the VBE and VBE participants have assumed substantial or meaningful downside financial risk. The AKS safe harbor uses the term "meaningful" while the Stark exception uses "substantial" downside financial risk. The two also define these thresholds differently.

First, under the AKS safe harbor, a value-based arrangement with "substantial" downside financial risk includes any one of the following three forms of risk arrangements:

  • 30 Percent Global Downside: Downside risk equal to at least 30 percent of any loss where performance is calculated by comparing total expenditures for all covered items and services to the target patient population to a bona fide benchmark designed to approximate the expected total cost of such care.
  • 20 Percent Downside per Episode: Downside risk equal to at least 20 percent of any loss where:
    • (1) Performance is calculated by comparing total expenditures for all items and services furnished to the target patient population pursuant to a defined clinical episode of care that are covered by the applicable payor to a bona fide benchmark designed to approximate the expected total cost of such care for the defined clinical episode of care; and
    • (2) The parties design the clinical episode of care to cover items and services collectively furnished in more than one care setting.
  • Partial Capitation: The VBE receives from the payor a prospective, per patient payment that is:
    • (1) Designed to produce material savings; and
    • (2) Paid on a monthly, quarterly, or annual basis for a predefined set of items and services furnished to the target patient population, designed to approximate the expected total cost of expenditures for the predefined set of items and services.

Second, for purposes of the Stark exception, VBE participants must have assumed "meaningful downside financial risk." Meaningful downside financial risk means that the VBE participant is responsible to repay or forgo no less than 10 percent of the total value of the remuneration the VBE participant receives under the value-based arrangement.

The exception does not limit the form of remuneration under this definition. Therefore, "meaningful downside financial risk" could include repayments of or forgoing remuneration in the form of incentive payments, or in-kind remuneration such as infrastructure or care coordination services. Whether the remuneration is in cash or in-kind, to qualify under the exception for meaningful downside financial risk, the VBE participant must be at risk to forgo no less than 10 percent of the value of that remuneration paid in cash or in-kind.

Remuneration paid under meaningful or substantial downside financial risk arrangements will be protected from enforcement under the Stark Law and AKS if the following elements and safeguards are satisfied:

Elements

  • Meaningful Downside Financial Risk for the Duration of an Arrangement:
    The VBE participant must assume meaningful downside financial risk during the entire duration of the value-based arrangement. The nature and extent of the VBE participant's financial risk must be described in writing.

The VBE Participant may assume financial risk from another entity that is party to the arrangement, and where such risk is tied to the achievement of the value-based purpose(s) of the value-based enterprise of which the physician and the entity are VBE participants. Unlike the full financial risk exception, there is no "pre-risk" period under the meaningful downside financial risk exception during which remuneration could be paid to VBE Participants and be protected under this exception.

  • VBE Participant Shares Risk with VBE (AKS Safe Harbor Only):
    The VBE participant must assume risk for a "meaningful share" of the VBE's substantial downside financial risk. A "meaningful share" of the VBE's risk will be demonstrated if the VBE participant either:

    If the VBE pays the VBE participant a subcap payment, then the VBE participant cannot also claim payment in any form from the payor for the predefined items and services.

    • (1) Assumes risk of at least 5 percent upside and downside of the VBE's gains and losses; or
    • (2) Receives a subcapitation payment from the VBE for a predefined set of items and services furnished to the target patient population, designed to approximate the expected total cost of expenditures for the predefined set of items and services.
  • Methodology in Writing (Stark Exception Only):
    The methodology used to determine the amount of the remuneration must be in writing and set in advance of the furnishing of the items or services for which the remuneration is provided. Specifically, the methodology used to determine the amount of the remuneration must be set in advance in writing, but the parties need not know the ultimate amount of remuneration under the value-based arrangement.

    Note that a value-based enterprise and a VBE participant may satisfy the writing requirement through the deeming provision set forth in the special rule on compensation at §411.354(d)(1).

  • Documentation of Value-Based Arrangement (AKS Safe Harbor Only):
    The value-based arrangement:
    • (1) Is set forth in writing,
    • (2) Is signed by the parties in advance of the value-based arrangement, and
    • (3) Specifies all material terms including:
      • (a) Terms regarding VBE's substantial downside financial risk;
      • (b) A description of how VBE participant meaningfully shares VBE's risk; and
      • (c) The value-based activities, the target patient population and the type of remuneration exchanged.
  • Nexus Between Remuneration and Value-Based Activities (Stark Exception Only):
    The remuneration paid in connection with the meaningful downside financial risk arrangement—which could include payments for shared savings or other incentive payments for achieving quality, performance, or other benchmarks—is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population.
  • Nexus Between Remuneration and Value-Based Purpose (AKS Safe Harbor Only):
    The remuneration provided by or shared among the VBE and VBE participant is directly connected to one or more of the VBE's value-based purposes as demonstrated by the following:
    • At least one of the value-based purposes to which remuneration is tied must be for purposes of:
      • (1) Coordinating and managing the care of a target patient population;
      • (2) Improving the quality of care for a target patient population; and
      • (3) Appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a target patient population.
  • Unless exchanged pursuant to global, episodic or subcapitation risk sharing arrangement between the VBE and the VBE participant, the remuneration is used predominantly to engage in value-based activities that are directly connected to the items or services for which the VBE has assumed substantial downside risk;
  • The remuneration does not include the offer or receipt of an ownership or investment interest in an entity or distributions related to such ownership or investment interest; and
  • The remuneration is not exchanged or used for the purpose of marketing items or services furnished by the VBE or a VBE participant to patients or for patient recruitment services.

Safeguards

  • No Inducements to Reduce or Limit Medically Necessary Care:
    Remuneration is not provided as an inducement to reduce or limit medically necessary items or services to any patient. Remuneration that leads to a reduction in medically necessary services would be considered inherently suspect.
  • Remuneration Is Not Conditioned on Referrals:
    The exception does not protect arrangements where an entity requires VBE Participants to refer patients who are not part of the target population to the entity.
  • Remuneration Does Not Take Referrals Into Account (AKS Safe Harbor Only):
    The remuneration paid or shared among the VBE and the VBE participant cannot take into account the volume or value of referrals of patients who are not part of the target patient population, or business not covered under the value-based arrangement.
  • When Remuneration Can Be Conditioned on Directed Referrals (Stark Exception Only):
    Remuneration paid to a physician may be conditioned on the physician's referrals to a particular provider, practitioner, or supplier, if both of the following conditions are satisfied:
    • (1) The directed referral requirement is set out in writing and signed by the parties; and
    • (2) The direct referral requirement will not apply if:
      • (a) The patient expresses a preference for a different provider, practitioner, or supplier;
      • (b) The patient's insurer determines the provider, practitioner, or supplier; or
      • (c) The referral is not in the patient's best medical interests in the physician's judgment. 
  • When Directed Referrals Are Prohibited (AKS Safe Harbor Only):
    A value-based arrangement may not direct or restrict referrals to a particular provider, practitioner, or supplier if:
    • (1) A patient expresses a preference for a different practitioner, provider, or supplier;
    • (2) The patient's payor determines the provider, practitioner, or supplier; or
    • (3) Such direction or restriction is otherwise contrary to applicable law.
  • Professional Judgment (AKS Safe Harbor Only):
    The value-based arrangement cannot limit a VBE participant's ability to make decisions in the best interests of its patients.
  • Record Retention:
    Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement be maintained for a period of at least six years and made available to the Secretary upon request.

Stark Exception for Generic Value-Based Arrangements

The last iteration of the new Stark exception is a more restrictive option for generic value-based arrangements that do not meet the meaningful downside or full financial risk requirements in other parts of the exception.

Consistent with the proposed rule, the final rule requires these arrangements to be set forth in a writing signed by the parties that describes the value-based activities of the arrangement and how they further the VBE's value-based purpose(s), the target patient population, the type or nature of remuneration, the methodology used to determine the remuneration, and the outcome measures against which the recipient will be measured (if any).

Updates in the Final Rule

While CMS considered limiting the exception to nonmonetary remuneration and requiring recipients to make a 15 percent contribution to the cost of nonmonetary remuneration, neither of these requirements were finalized. Under the final rule, the exception could be used to pay a physician a set fee every time a clinical protocol is followed (assuming the other requirements are met). Note, however, that compensation paid under a value-based arrangement under this part of Exception AA must be commercially reasonable.

CMS acknowledged that most value-based arrangements will likely be commercially reasonable as a result of the definitional framework in the regulations but decided the commercially reasonableness requirement is a necessary program integrity safeguard. For more information on the new definition of commercially reasonable, please see CMS Sprints to Overhaul Stark.

The final rule adopts a vastly improved definition of outcome measure—a benchmark that quantifies improvements in or maintenance of the quality of patient care or reductions in costs to or growth in expenditures of payors while maintaining or improving the quality of patient care. This better aligns with the corollary AKS safe harbor and replaces the nebulous standard from the proposed rule. Further, the final rule requires outcome measures to be objective and measurable and selected based on clinical evidence or credible medical support.

Finally, while only prospective changes to outcome measures are permitted and they must be in writing, many VBE participants should be used to working under the similar "set in advance" standard that was applicable before these changes.

Notably, there are no limitations on the types of DHS entities that may utilize the exception to provide remuneration to physicians through a value-based arrangement.

Monitoring Requirements

Although no specific language was suggested by CMS in the proposed rule, the preamble to the proposal indicated that a monitoring framework may be required for the value-based arrangement exception. True to their word, CMS's final rule requires parties to monitor value-based arrangements and provides surprisingly straightforward standards defining when a compensation arrangement will no longer qualify for the exception.

As adopted, the final rule requires the VBE or one or more parties to a value-based arrangement to monitor annually, or at least once during the term for short-term arrangements, (1) whether the parties are performing the value-based activities, (2) whether and how the value-based activities are expected to further the value-based purpose of the VBE, and (3) if outcome measures are part of the arrangement, progress toward attainment of the measures.

If the review indicates that a value-based activity is no longer expected to further a value-based purpose of the VBE, the parties must take specific actions to avoid falling out of compliance with the exception. The first option is to terminate the value-based arrangement as a whole within 30 calendar days of the completion of the monitoring. Alternatively, the parties may, no later than 90 calendar days after completion of the monitoring, terminate the ineffective value-based activity.

With respect to outcome measures that are part of a value-based arrangement, if the monitoring reveals that an outcome measure is unattainable, the parties will be required to terminate or replace the measure no later than 90 days after the completion of the monitoring. These provisions give much needed comfort to VBE participants that they can avoid liability for noncompliance by making timely changes after discovery that an activity or measure is not having the anticipated impact. It would be prudent for the parties to consider these timeframes when drafting termination provisions for contracts documenting value-based arrangements.

Safe Harbor for Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency

Similar to the generic value-based arrangement under Stark, the Care Coordination AKS safe harbor would protect certain value-based arrangements even when no financial risk is assumed, provided that the following safeguards are met.

Basic Requirements

The value-based arrangement must be documented in a writing signed by the parties before the arrangement commences or any material change is made to the arrangement. The final rule added a requirement to describe the value-based purpose(s) in the writing.

The arrangement must also be commercially reasonable. OIG emphasized that the commercial reasonableness standard described in the regulation is intended to be flexible "to allow for innovative arrangements that serve legitimate objectives" while prohibiting schemes to pay for referrals.

However, like the other exceptions and safe harbors, there is no fair market value limitation. Given that the safe harbor is available for arrangements that do not involve financial risk, OIG has prohibited the offeror of remuneration to take into account the volume or value of or condition the remuneration on referrals of patients outside the target patient population or business not covered under the arrangement.

OIG finalized the prohibition on remuneration the offeror knows or should know is likely to be diverted, resold, or used by the recipient for an unlawful purpose. The final rule also requires records that demonstrate compliance with the safe harbor to be maintained for at least six years.

Limitations on Type and Uses of Remuneration 

The remuneration must be in-kind and predominately to engage in value-based activities directly connected to coordination and management of care of the target patient population. OIG took a middle ground in the final rule prohibiting more than incidental benefits to patients outside the target population.

The final rule also prohibits remuneration that is exchanged or used "more than incidentally" for billing or financial purposes, for marketing services available through the VBE or its participants, or for patient recruitment activities. Thus, VBE participants should consider whether a particular device or IT tool that is furnished under this safe harbor has functionality that should be disabled or for which the recipient should pay fair market value to align with this requirement.

Outcome and Process Measures

The final rule adopts a somewhat more flexible standard for outcome measures. VBEs must develop at least one legitimate outcome or process measure that the parties reasonably anticipate will advance the coordination and management of care for the target patient population based on clinical evidence or credible medical or health science support and it must relate to the remuneration exchanged.

OIG clarified that the original proposed standard of "evidenced-based" measures was unintentionally onerous and that the standard is intended to capture clinical and non-clinical measures that do not require strict scientific evidence of utility.

There must be at least one benchmark related to improving or maintaining improvements in coordination and management of care for the target patient population. Similar to the Stark exception, the measures must be monitored, assessed, and prospectively revised as necessary to continue to "advance the coordination and management of care." This may entail replacing measures entirely or merely rebasing the benchmark.

Measures that are based solely on patient satisfaction or convenience are not permitted under the safe harbor. However, according to the preamble, patient experience measures may be appropriate depending on the facts and circumstances of the scenario.

Contribution Requirement

The final rule requires the recipient to pay at least 15 percent of the offeror's cost or the fair market value for the in-kind remuneration. The offeror's cost may be determined using any reasonable accounting method, and the written documentation for the arrangement must describe the methodology used. The writing must also identify the percentage and amount to be contributed and the frequency of payments for ongoing cost, if applicable.

Monitoring and Assessment

At least annually, an accountable body or responsible person within the VBE must monitor, assess, and report regarding:

  • The coordination and management of care for the target patient population;
  • Any deficiencies in the delivery of quality care under the value-based arrangement; and
  • Progress toward achieving the outcome or process measure(s).

Drawing another parallel to the Stark exception for generic value-based arrangements, if an arrangement has been determined to result in material deficient in the quality of care or to be unlikely to further coordination and management of care, the parties will be required to take action. The first option is to terminate the arrangement within 60 days.

The alternative option is to develop and implement a corrective action plan designed to remedy the deficiencies within 120 days, and if the corrective action plan does not achieve this goal, terminate the value-based arrangement.

Eligible Donors

As noted above, the safe harbor will not be available to protect remuneration provided by ineligible entities. However, DMEPOS suppliers and device or medical supply manufacturers may only provide digital health technology, which is defined broadly under the safe harbor.

Personal Services and Management Contracts and Outcomes-Based Payment Arrangements

The OIG adopted revisions to the personal services and management contracts safe harbor to protect certain outcomes-based compensation, regardless of whether it meets the criteria for substantial downside financial risk. The final revisions are largely consistent with OIG's proposed version.

Modify the "Set in Advance" Requirement

The OIG removed the requirement that the aggregate amount of compensation paid over the term of the agreement be "set in advance." Instead, the safe harbor will require the parties to determine the arrangement's compensation methodology in advance. This better aligns the safe harbor with its corollary Stark exception for personal services arrangements.

Eliminate the Requirement to Specify the Schedule, Length, and Charges for Service Intervals

The final rule eliminates the requirements set forth at 42 CFR 1001.952(d)(3) relating to agreements for services provided on a periodic, sporadic, or part-time basis. This paragraph of the safe harbor requires contracts that provide for services on such a basis to specify "exactly the schedule of such intervals, their precise length, and the exact charge for such intervals."

Removing this requirement affords parties additional flexibility in designing business arrangements, including care coordination and quality-based arrangements.

Add Protection for Outcomes-Based Payments

The last revision to the personal and management services safe harbor adopted new language to expressly protect payments defined as "outcome-based" payments from models such as shared savings, shared losses, episodic payments, gainsharing, and pay-for-performance.

The final rule defines "outcomes-based payment" as a reward for successfully achieving an outcome measure or recouping from or reducing payments for failure to achieve an outcome measure. Parties utilizing the Care Coordination safe harbor to provide in-kind remuneration may find the outcomes-based payments portion of this safe harbor useful to protect cash payments.

The OIG's proposal for outcomes-based payment arrangements includes the following conditions:

  • Eligibility for an Outcomes-Based Payment Arrangement:
    The OIG's final rule limits safe harbor protection to situations where the agent achieves at least one legitimate outcome measure that is selected based on clinical evidence or credible medical support and has benchmarks that quantify improvements in quality of care or maintenance of such improvements; materially reduce costs to or growth in expenditures of payors while maintaining or improving quality of care; or both.

OIG revised the proposed version to recognize that it is sufficient for the agent to merely maintain quality of care while reducing costs or expense growth of payors. Notably, the OIG finalized its exclusion on payments that relate solely to the achievement of internal cost savings for the principal, limiting most hospital gainsharing programs from protection under the safe harbor. Measures related to patient satisfaction or convenience also do not meet the safe harbor's requirements.

  • Fair Market Value and Commercial Reasonableness:
    The methodology for determining compensation (including any outcomes-based payments) must be fair market value, despite the lack of industry standards developed to determine fair market value for some outcome-based payment arrangements in the value-based care arena.

However, the OIG anticipates that the industry will evolve and adapt to assess fair market value for value-driven outcomes-based payment arrangements. OIG also finalized the requirement for the methodology to be commercially reasonable.

  • Volume or Value of Referrals:
    The compensation methodology for determining the outcome-based payment may not be determined in a manner that directly takes into account the volume or value of referrals or other business generated between the parties.

Outcome-based payments that indirectly take volume or value or other business generated into account are permissible. Unfortunately, the OIG does not define or provide examples regarding indirect payments.

  • Writing and Monitoring:
    A written agreement with a term of at least one year is required to qualify for the safe harbor. The agreement must include: a description of the services to be performed; the outcome measures; the clinical evidence or credible medical support for the outcome measures; and the schedule for the parties to regularly monitor and assess the outcome measures.

The parties are required to monitor the agent's performance for impacts on patient quality of care. The benchmarks and remuneration must also be assessed and revised as necessary to ensure the fair market value requirement is met, although there is no strict schedule for review or rebasing.

The principal must also address and correct material performance failures or deficiencies in quality of care consistent with its written policies and procedures concerning the same.

  • Stinting:
    The agreement may not limit any party's ability to make decisions in the best interest of a patient, nor induce a party to reduce or limit medically necessary services.
  • Eligible Entities:
    Outcomes-based payments cannot be furnished by an ineligible entity.

Patient Engagement and Support Safe Harbor

The final Sprint Regulations adopt a new safe harbor to protect the provision of patient engagement tools and supports by a VBE participant to a patient in a target patient population of a value-based arrangement. Arrangements structured to meet the safe harbor will also be protected from enforcement under the Beneficiary Inducements CMP.

The safe harbor may prove to be a useful supplement for VBEs utilizing the care coordination safe harbor to protect in-kind items exchanged between VBE participants that are intended to be transferred to patients, such as fitness trackers.

Additionally, the safe harbor will be available to protect treatment regimen adherence incentives that have been excluded from other Beneficiary Inducement CMP exceptions adopted by the OIG in recent years.

Tools and Supports Eligible for Protection

The safe harbor is subject to an annual $500 cap that will be adjusted annually for inflation. To use this safe harbor, the patient engagement tool or support must have the following features:

  • It must be an in-kind item, good, or service that has a direct connection to the coordination and management of care of the target patient population. Similar to other safe harbors and Beneficiary Inducement CMP exceptions, gift cards and other cash equivalents are not eligible for protection.
  • It must be recommended by the patient's licensed health care professional.
  • It must advance one of the following goals:
    • (1) Adherence to a treatment or drug regimen determined by the patient's licensed health care professional;
    • (2) Adherence to a follow up care plan established by the patient's licensed health care professional;
    • (3) Prevention or management of a disease or condition as directed by the patient's licensed health care professional; or
    • (4) Ensure patient safety.
  • It cannot be funded by a VBE participant that is not a party to the particular value-based arrangement of which the patient is in the target patient population.
  • It cannot be furnished by an ineligible entity; however, device and medical supply manufactures may provide digital health technology.

OIG affirms throughout the preamble discussion its intention to expand opportunities for VBE participants to innovate patient engagement and support. Therefore, the final safe harbor does not identify specific examples of tools and supports that may be provided by a VBE participant.

VBE participants should be thoughtful when seeking to protect the provision of tools addressing social determinants of health given that the safe harbor is limited to tools and supports that have a direct connection to coordination and management of care.

The discussion in the final rule provides helpful examples of tools and supports that may be eligible for the safe harbor, including: temporary housing for an individual experiencing homelessness, incentives as part of addiction recovery and mental health programs, and providing internet access to a patient to enable remote monitoring or virtual care.

Other Elements

The final rule prohibits the VBE participant from using the tools or supports to market other reimbursable items or services or for patient recruitment purposes. Interestingly, OIG makes a broad statement in the preamble that "providing remuneration to patients in order to market items or services not reimbursable by federal healthcare programs is unlikely to implicate the anti-kickback statute and therefore would not need safe harbor protection."

While the safe harbor limits protection to remuneration provided to patients in the value-based arrangement's target patient population, the availability of a tool or support cannot be determined in a manner that takes into account the type of insurance coverage of the patient.

Updates to the Stark Group Practice Definition 

The final Sprint Regulations also recognize that group practices need additional flexibility to incentivize their physicians to participate in value-based arrangements.

Therefore, CMS revised the group practice definition to allow distributions of DHS profits that are directly attributable to a physician's participation in a VBE. The preamble notes that distributions based on VBE participation should be made based on profits, not revenues.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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