Healthcare Blog Series: “Safe Harbor” Exceptions, Common Infractions, and Legislative Updates to the Anti-Kickback Statute and Stark Law

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***This is the second installment in a blog series examining the regulatory environment and
key concerns for persons or businesses operating in the healthcare industry.***

The first installment of this series introduced the Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law), two of the most well-known anti-fraud and -abuse statutes in the healthcare industry. It examined their main differences and respective effects on business relationships and transactions for government contractors and commercial businesses operating in the healthcare sector. This installment examines the “safe harbor” provisions / exceptions under the AKS and Stark Law, common transactions that violate each statute, and recent legislative updates. To address concerns on whether a particular payment or business arrangement is subject to an applicable safe harbor, government contractors and commercial businesses should seek legal advice to minimize the risk of potential government investigations, costly litigation, criminal liability, or exclusion from participation in federal healthcare programs.

Safe Harbors Generally

A “safe harbor” is a statutory exception designed to reduce or eliminate legal or regulatory liability in certain situations where applicable conditions are met. For purposes of the AKS and Stark Law, safe harbors immunize certain payment and business practices that are implicated by either statute from criminal or civil penalties. The enactment of safe harbor provisions resulted from concerns among businesses and providers participating in the federal healthcare programs that certain innocuous commercial arrangements were prohibited. In response to these concerns, Congress authorized the Department of Health and Human Services (HHS) to promulgate regulations that insulated certain payment and business practices, which were otherwise prohibited by law, from criminal or civil prosecution.

To be protected by a safe harbor under either the AKS or the Stark Law, the arrangement in question must fit squarely within an express exception to the statute. Presently, the Department of Justice’s (DOJ) enforcement of violations of the AKS and Stark Law comprise the bulk of the DOJ’s healthcare-based actions brought under the False Claims Act. The legal requirements associated with the application of a safe harbor can be complex and technical.

Anti-Kickback Statute

As of November 2020, there are twenty-eight different payment practices and business arrangements that are exempt from liability under the AKS. 42 C.F.R. §§ 1001.952(a)-(bb). Specifically, the AKS exempts these twenty-eight payment and business practices from inclusion within the statute’s definition of prohibited “remuneration.” Some of the most popular permissible payment practices and business arrangements include:

  • Investment interests in large publicly held healthcare companies, group practices, and ambulatory surgical centers;
  • Space rental;
  • Personal services and management contracts;
  • Referral arrangements for specialty services;
  • Discounts;
  • Practitioner recruitment;
  • Employee compensation; and
  • Electronic prescribing items and services.

To invoke the protections of one of the AKS’s safe harbors, the payment practice or business arrangement must satisfy all of the requirements of the applicable safe harbor. Should the payment practice or business arrangement fail to meet all of the applicable safe harbor’s requirements, criminal and / or civil liability under the AKS could flow to the parties involved in the transaction.

For instance, manufacturers will often offer volume-based discounts to durable medical equipment (DME) suppliers to encourage suppliers to purchase increasing amounts of DME products. To ensure that this particular business arrangement does not run afoul of the AKS, the manufacturer and supplier must each comply with all applicable provisions of the AKS’s discount safe harbor. This particular safe harbor protects a discount, or other reduction in price, provided or obtained by an entity participating in a federal healthcare program, if the discount is properly disclosed and appropriately reflected in the costs claimed, or charges made, by the entity. The safe harbor has separate disclosure and reporting requirements for both buyers and sellers. If these discrete requirements are not satisfied, the buyer or seller may not be able to invoke the safe harbor’s protections.

HHS’s Office of the Inspector General (OIG) notes that the failure to fully comply with an AKS safe harbor provision does not mean that the payment practice or business arrangement in question violates the AKS or is otherwise illegal, unlike the Stark Law. While a business’ compliance with an AKS safe harbor is voluntary, compliance affords protection under the AKS. Arrangements that do not comply with a safe harbor are analyzed by the HHS OIG / DOJ, on a case-by-case basis, for compliance with the statute.

Common Transactions that May Violate the AKS

According to the HHS OIG, some of the most common transactions or business arrangements involving the AKS’s safe harbor provisions include:

  1. referrals made as part of an employment or professional services arrangement;
  2. waiving beneficiary coinsurance and deductible amounts; and
  3. payments made in furtherance of practitioner recruitment.

However, impermissible kickbacks can take a variety of forms. As used in the AKS, the word “remuneration” means “anything of value,” and it is the agreement to offer or receive anything of value in exchange for referrals under the federal healthcare programs that leads to potential AKS infractions. The quintessential impermissible kickback involves the payment of cash or other form of remuneration in exchange for referrals.

Often, healthcare providers and businesses encounter AKS issues when they:

  1. provide physicians free meals, travel, or tickets to sporting events;
  2. enter into consulting or research agreements with physicians where little to no work is performed;
  3. provide recruitment arrangements between physicians and healthcare providers where physicians receive compensation in excess of fair market value;
  4. provide consulting / speaking arrangements that are designed to induce or reward referrals;
  5. provide management fees paid to a physician from an entity to where the physician refers patients;
  6. provide equity or other investment relationships between a physician and an entity to which the physician may refer federal healthcare program beneficiaries; and
  7. waive patient co-pays or otherwise reduce a patient’s financial responsibility without taking into consideration the patient’s requirement for need-based assistance.

Stark Law

The Stark Law prohibits a physician from referring a patient to an entity with which the physician, or an immediate family member, has a financial relationship for certain “designated health services” unless an exception (i.e., safe harbor) applies. The Stark Law’s safe harbor provisions specify the allowable financial and referral relationships between physicians, or other providers and suppliers, to make referrals for certain designated health services under Medicare or Medicaid. 42 C.F.R. §§ 411.355-411.357. Some of these exceptions include:

  • Group practice arrangements;
  • In-office ancillary services;
  • Fair market compensation;
  • Indirect compensation;
  • Risk-sharing arrangements;
  • Non-monetary compensation;
  • Medical staff incidental benefits; and
  • Compliance training.

It is important to remember that, although a particular arrangement may fall within one of the exceptions to the Stark Law, if the referrals are being made in exchange for any type of remuneration, they may still violate the AKS.

Common Transactions that May Violate the Stark Law

Due to the HHS OIG’s broad application of the Stark Law’s provisions and the statute’s imposition of strict liability, the Stark law is an especially complex statute. Legal counsel who possesses Stark Law experience is a valuable resource in reviewing referral practices and ensuring that a safe harbor provision applies. Typically, the most common transactions to violate the Stark Law result from compensation arrangements, particularly those arrangements that pay above or below market rates (i.e., fair market value). Whenever a referral source is paid in excess of the fair market value of his or her services, an impermissible arrangement may exist. Likewise, an arrangement that pays less than the fair market value of the services received may constitute an impermissible arrangement when payment of below market value is used to induce referrals.

Additionally, physicians may run afoul of the Stark Law through:

  1. agreeing to alternative payment models that link physician payments to volume or value of payment referrals;
  2. omitting one or more of the elements to an applicable safe harbor exception in compensation arrangements;
  3. cross referrals where physicians refer patients to one another; and
  4. technical violations of the statute (e., there is no “good faith” compliance), often relating to documentation issues.

Legislative Updates to the AKS and Stark Law

On October 17, 2019, the HHS OIG and the Centers from Medicare and Medicaid Services (CMS) simultaneously released proposed rules revising the AKS and Stark Law safe harbor regulations, respectively, to assist healthcare providers in structuring their business arrangements. Key to the AKS’s and Stark Law’s proposed changes is the government’s focus on promoting value-based care models. Value-based care models seek to align federal healthcare program reimbursements with quality, cost-effective patient care. The HHS OIG’s and CMS’s proposed revisions are part of HHS’s Regulatory Sprint to Coordinated Care and are designed “to remove potential regulatory barriers to care coordination and value-based care.” The proposed revisions contain a newly defined “value-based enterprise” (VBE), which is a defined as network of individuals and / or entities who participate as parties to a value-based arrangement. These proposed revisions to the AKS’s and Stark Law’s safe harbor regulations will hopefully enable business arrangements that promote the provision of value-based care, which would otherwise currently violate either statutory scheme. Both the HHS OIG’s and CMS’s safe harbor revisions will require future business arrangements to be memorialized in writing with any remuneration paid not functioning to reduce or limit medically necessary services and any remuneration paid not conditioned on referrals of patients who are not part of the arrangement’s target patient population or other business not covered by the value-based arrangement.

Proposed Revisions to the AKS’s Safe Harbors

The HHS OIG has proposed the following revisions to the AKS’s current safe harbor regulations:

  • Electronic Health Records: added protections for business transactions that involve certain related cybersecurity technology.
  • Warranties: added protections for warranties that cover bundled items and services while eliminating beneficiary reporting requirements.
  • Personal Service and Management Contracts: modification to the safe harbor eligibility requirements and providing added flexibility to outcomes-based payments and part-time arrangements.
  • Local Transportation: modification to the local transportation radius (expanding from 50 to 75 miles) and removed distance limitations for patients to return home following discharge from inpatient facilities.

Proposed Revisions to the Stark Law’s Safe Harbors

CMS has proposed the following revisions to the Stark Law’s current safe harbor regulations. The proposed revisions were in response to stakeholder requests for additional bright-line guidance concerning requirements for qualifying for any of the Stark Law’s safe harbors.

  • Commercially Reasonable Compensation: proposed two, alternate definitions for “commercially reasonable” to expand its application to business transactions.
  • Compensation Based on Value or Volume of Referrals: proposed clarifications for when compensation would be considered based on the volume or value of referrals.
  • Fair Market Value: proposed to redefine “fair market value” to mean “value in an arm’s-length transaction with like parties and under like circumstances, of assets or services, consistent with the general market value of the subject transaction.”
  • AKS Compliance No Longer Required: proposed eliminating AKS compliance as an element of the Stark Law’s safe harbor eligibility.

New Proposed AKS Safe Harbors

The HHS OIG has proposed the following new safe harbors to the AKS:

  • Value-Based Arrangements: proposed to add three new safe harbors for remuneration exchanged under certain arrangements that (1) coordinate care and improve patient outcomes, (2) contain substantial downside financial risk that is meaningfully shared by the transaction’s participants (VBE), or (3) assume full financial risk.
  • Patient Engagement: proposed to permit the provision of certain tools and supports furnished under patient engagement and support arrangements to improve quality of care and patient outcomes.
  • Cybersecurity: proposed for the donation of cybersecurity technology and services to help effectively respond to cyberattacks.
  • CMS-Sponsored Models: proposed to permit remuneration in the form of incentives or support under certain CMS-sponsored models.

New Proposed Stark Law Safe Harbors

CMS has proposed the following new safe harbors to the Stark Law:

  • Value-Based Arrangements: proposed to permit value-based arrangements where (1) the transaction’s participants (VBE) assume full financial responsibility for the cost of all patient care items and services, or (2) the transaction’s participants (VBE) assume substantial downside financial risk that is meaningfully shared.
  • Performance and Quality Metrics: proposed to permit value-based arrangements that involve performance and / or quality metrics where the remuneration exchanged is not conditioned on referrals.
  • Cybersecurity: proposed for the donation of cybersecurity technology and services to help effectively respond to cyberattacks.

In the next installment in this blog series, we will examine physician employment arrangements.

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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