On November 20, 2020, the Department of Health and Human Services (HHS), through a coordinated effort between the Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG), publicly released final rules that overhaul the regulations governing the federal Physician Self-Referral Law (Stark Law) and Anti-Kickback Statute (AKS), as well as the Civil Monetary Penalty (CMP) Law. These rules were formally published in the Federal Register on December 2, 2020. The rulemaking is unusually lengthy, in large measure due to the extensive commentary and agency responses from many stakeholders who weighed in on the proposed rules that were issued in October 2019.
While the rules provide broad updates and revisions to both the Stark and AKS regulatory schemes, a central focus is to facilitate value-based arrangements in health care delivery. This is reflected in new exceptions and safe harbors that are specific to value-based activities and arrangements.
Billed by HHS as part of the “Regulatory Sprint to Coordinated Care,” the rules were developed by CMS and OIG in an effort to “advance the transition to a value-based healthcare delivery and payment system...." As stated by OIG, the rules are intended "to reduce the regulatory barriers to care coordination and accelerate the transformation of the health care system into one that better pays for value and promotes care coordination."
Although CMS and OIG coordinated their rulemaking efforts, it is important to recognize that the rules contain meaningful differences. As stated in the extensive commentary to both rules, this divergence is driven by the inherent differences in the underlying statutes. The exceptions to the Stark Law are somewhat broader, but also are governed by a strict liability civil statute that requires strict adherence to the elements of each exception. In contrast, the safe harbors set forth in the OIG rules reflect the intent-based criminal AKS. The OIG rules are somewhat narrower than the CMS rules, in an effort described by both agencies as a “backstop” to abusive arrangements that may meet the technical requirements of the Stark rules. However, OIG points out that failure to adhere to every element in an OIG safe harbor does not necessarily mean that the AKS has been violated; rather, each arrangement will be evaluated in totality on a case-by-case basis to evaluate intent.
It also must be noted that there is some measure of uncertainty as to the effective date of many of the rules, and whether the incoming Biden administration will try to delay or suspend them. While this bears close monitoring over upcoming months, health care organizations are well-advised to digest the final rules on the assumption that many of the key provisions—especially those relating to value-based arrangements—may well stand.
This is the first in a series of Arent Fox client alerts that will examine key aspects of the rules. This alert will highlight the elements of the rules directly focused on value-based purchasing arrangements and related activities. Subsequent alerts will focus on the many other updates and revisions to the rules governing the Stark Law and Anti-kickback Statute.
The Value-Based Regulatory Framework
In broad terms, both CMS and OIG have adopted value-based exceptions and safe harbors that are tiered based on the degree of risk assumed by the “value-based enterprise” (VBE): (1) full financial risk; (2) “substantial” or “meaningful” downside financial risk; or (3) other value-based arrangements not rising to the level of full, substantial or meaningful risk. Generally speaking, the greater the risk assumed by the VBE, the broader the exception or safe harbor latitude.
OIG Rules: AKS Safe Harbors. OIG issued three new safe harbors for value-based arrangements, each tied to the level of risk assumed by the VBE and, potentially, a VBE participant:
- Value-based arrangements where the VBE assumes full financial risk. Generally protects monetary or in-kind remuneration between VBE and VBE participants, provided the VBE is at full risk for all health care items, supplies, devices, and services, on a prospective basis for at least a year with a payer for each patient in the target patient population, through a written value-based arrangement that specifies all material terms.
- Value-based arrangement with substantial downside financial risk. Generally protects monetary or in-kind remuneration between VBE and VBE participants, provided the VBE assumes “substantial downside risk” from a payer, and each VBE participant assumes a “meaningful share” of the VBE’s total risk, as those terms are described in the rules, on a prospective basis for at least a year, through a written value-based arrangement that specifies all material terms. The assumption of risk provisions appears to require that the VBE assume either 20% or 30% of any downside loss, depending on how that loss is calculated, and that the VBE participant assumes the 2-sided risk for at least 5% of the losses and savings, as applicable.
- Care coordination arrangements to improve quality, health outcomes, and efficiency. Generally protects in-kind remuneration only, exchanged between a VBE and VBE participants, or among VBE participants, if it is used predominantly to engage in value-based activities directly connected to coordination and management of care for the target patient population and does not result in more than incidental benefits for persons outside that target population. The arrangement must be set forth in writing and contain enumerated terms, and must be commercially reasonable, taking into account the arrangement itself and all value-based arrangements within the VBE. The recipient must pay at least 15 percent of the offeror’s cost or fair market value for the in-kind remuneration.
Defined Terms. It is important to recognize that the OIG rules depend heavily on defined terms, including “value-based activity,” “value-based arrangement,” “VBE,” “VBE participant,” and “value-based purpose,” among others. While “value” is not defined, “value-based purpose” is, and broadly includes: coordinating or managing the care of a “target patient population”; improving the quality of care for a target patient population; appropriately reducing the costs to or growth in expenditures without reducing the quality of care for a patient population, or transitioning from health care 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.
Entities Excluded from New Value-Based Safe Harbor Protection. Notably, the protections of these new safe harbors and the other OIG-issued safe harbors discussed in this alert are generally not available to certain entities (although these entities may be VBE participants):
- Pharmaceutical manufacturers, distributors, and wholesalers;
- Pharmacy benefit managers;
- Laboratory companies;
- Companies that primarily compound drugs or primarily dispense compounded drugs;
- Manufacturers, distributors, or wholesalers of devices or medical supplies; and
- An entity or individual that sells or rents durable medical equipment, prosthetics, orthotics, or supplies (DMEPOS), subject to certain exceptions
That said, there is a limited opportunity for “limited technology participants” to exchange digital health technology with a VBE or VBE participant under limited circumstances in connection with care coordination arrangements; these participants are defined to include certain manufacturers of devices or medical supplies and certain DMEPOS entities.
Additional Requirements of New Value-Based Safe Harbors. It is also important to acknowledge that there are elements of the three new value-based safe harbors that impose general mandates or restrictions on value-based activities. For example, they prohibit the use of remuneration to market items or services furnished by the VBE or a VBE participant to patients or for patient recruitment activities; protect the ability of VBE participants to make decisions in the best interests of patients; prohibit the inducement of medically unnecessary items or services, or induce the limitation of medically necessary items or services to any patient; and require ongoing monitoring, assessment and reporting of quality and coordination of care. Importantly, the value-based safe harbor protections do not extend to the offer or receipt of an ownership or investment interest in an entity or any distributions related to such ownership interests.
Arrangements for Patient Engagement and Support to Improve Quality, Health Outcomes, and Efficiency OIG finalized a new safe harbor that excludes from the definition of prohibited “remuneration” a patient engagement tool or support provided by a VBE participant to a patient in the target patient population of a value-based arrangement if certain requirements are met. Among other things, the support must be in-kind and not include any cash or cash equivalent; the tools or supports must have a direct connection to the coordination and management of care of the target patient population, and the retail value of the tools and supports furnished to a patient cannot exceed $500 annually (subject to a regulatory inflation factor). This safe harbor is subject to the entity exclusions listed above for the three value-based safe harbors.
Outcomes-Based Payments. OIG modified the existing safe harbor for personal services and management contracts by adding a provision that excludes from the definition of prohibited “remuneration” outcomes-based payments if the recipient achieves one or more legitimate outcomes measures that: (1) are selected based on clinical evidence or credible medical support, and (2) have benchmarks used to quantify improvements in quality of patient care and/or material cost efficiencies while maintaining or improving quality of care. Importantly, this safe harbor requires a written agreement of at least a year, a methodology for determining compensation over the term of the agreement that is set in advance, consistent with fair market value, commercial reasonableness, and various other constraints of the personal services safe harbor. Benchmarks and payments must be assessed periodically to assure they are at fair market value. The entities excluded from the value-based purchasing safe harbors are also excluded from this exception.
While not the focus of this client alert, it is significant that OIG has amended the personal services and management contracts safe harbor to provide greater flexibility for part-time arrangements by eliminating the mandate that the written agreement detail the exact schedule, length and charge for each service increment. Moreover, OIG has loosened the requirement for setting compensation in advance by requiring only that the “methodology” be set in advance, rather than the aggregate compensation itself. The amendments will have a significant positive impact on the number of health sector arrangements that fall within this safe harbor, whether related to value-based purchasing or not.
CMS-Sponsored Model Arrangements and CMS-Sponsored Model Patient Incentives. OIG added a new safe harbor that protects certain payment arrangements and patient incentives offered in connection with CMS care models pursuant to the CMS Innovation Center or the Medicare Shared Savings Program (MSSP). This is intended to supplement fraud and abuse waivers issued in connection with each discrete program.
ACO Beneficiary Incentive Program. OIG also added a new safe harbor that adopts a statutory allowance for certain ACOs participating in select two-sided risk models to make incentive payments to beneficiaries of up to $20 for receipt of medically necessary primary care services.
CMS Rules: Stark Exceptions. As is the case with the OIG AKS safe harbors, CMS has issued three new exceptions for value-based arrangements, stratified by the level of risk assumed:
Full Financial Risk. Applies to value-based arrangements among VBE participants in a VBE that has assumed full financial risk for the cost of all covered items and services for each patient in the target patient population for the entire term of the value-based arrangement. The final rule, as compared with the proposed rule, expands the permitted pre-risk period from 6 months to 12 months.
Meaningful Financial Risk. Applies to value-based arrangements in which a physician is at “meaningful downside financial risk” for the entire term of the value-based arrangement, which is defined to mean the physician is at risk for at least 10% of his or her total remuneration (the risk assumption can take various forms). The final rule makes a significant accommodation, by reducing the proposed rule’s minimum risk assumption from 25%.
Value-Based Arrangements Regardless of Level of Risk Undertaken by VBE or VBE Participants. As is the case for the OIG safe harbor governing limited or no risk arrangements, this CMS safe harbor contains a number of limitations and requirements, including an affirmative requirement that the VBE periodically monitor and assess the effectiveness of the value-based arrangement, and take corrective action if deficiencies are found.
General Observations; Comparison of OIG and CMS Value-Based Provisions. In evaluating the new CMS value-based exceptions to Stark, and in comparing those exceptions to the new value-based OIG safe harbors, the following points should be considered:
- Through a new Stark exception, the tiered value-based exceptions can apply to indirect compensation arrangements, if certain requirements are met.
- Unlike OIG, CMS does not exclude any enumerated entities from value-based exception protection.
- CMS does not distinguish between monetary and in-kind remuneration in the value-based exceptions.
- The value-based CMS exceptions do not incorporate requirements that compensation be set in advance, be consistent with fair market value, or not take into account the volume or value of a physician’s referrals or other business generated by the physician. A low or no risk arrangement must demonstrate that it is “commercially reasonable,” pursuant to a definition that provides added flexibility.
- Unlike the OIG definition of “value-based purpose,” CMS will not consider quality of care to fall within this definition unless there is a reduction in costs too, or reduced growth in expenditures of, the payer.
- As is the case with the OIG value-based safe harbors, the exceptions are not available for ownership arrangements.
- It is important to recognize that CMS modified a number of important definitions and Stark terms, in addition to introducing new definitions specific to value-based arrangements. While a detailed description is outside the scope of this client alert, these changes are significant, and in general provide industry with greater flexibility, around terms that include, for example, “fair market value” and “commercially reasonable.”
There is much to digest in the final OIG and CMS rules. For those involved in or considering value-based arrangements, the following points should be considered:
- As a general proposition, these rules changes are significant and are industry-friendly. As it relates to value-based arrangements, they provide new guidance that can help drive risk decisions and structuring details or modifications.
- While the rules were developed in coordination between CMS and OIG, there are significant differences in content and impact. As a result, many arrangements will need to be evaluated under both sets of rules and potential inconsistencies will need to be resolved.
- Remember that the OIG rules are generally more restrictive than the CMS rules. Failure to meet an OIG safe harbor, however, does not end the AKS analysis; a case-by-case assessment should be undertaken.
- Neither CMS nor OIG rules pertaining to value-based arrangements protect ownership relationships.
- In general, a value-based arrangement not only must meet regulatory requirements at the outset, but will need to be monitored and assessed on an ongoing basis to show continuing performance, with corrective action if deficiencies are identified.
- While there is some uncertainty as to the effective date of much of the rulemaking, and the consequent potential for the new administration to suspend and revisit it, there is a strong possibility that much or all of the rulemaking will stand.While this situation should be monitored closely, current or prospective participants in value-based arrangements are well-advised to allow for the strong possibility that these rules will remain largely intact.