Stark and AKS Rules Cross the Finish Line of HHS Regulatory Sprint

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With a bold finish, the Department of Health and Human Services (HHS) crossed the finish line of its race to modernize and clarify the regulations interpreting the federal physician self-referral law (Stark) and anti-kickback statute (AKS) through final rules released Nov. 20, 2020. With one exception, the Stark and AKS rules, based on October 2019 proposals, are effective on Jan. 19, 2021 – the day before the presidential inauguration. A separate AKS rule released the same day revises the discount safe harbor and creates new safe harbors focused on pharmaceutical distribution models. This rule follows a February 9, 2019 proposed rule and a July 24, 2020 Executive Order directing that HHS complete the rulemaking.

Through its Regulatory Sprint to Coordinated Care, HHS has acted to support innovative arrangements to improve quality outcomes, produce health system efficiencies, lower costs and promote care coordination, with an overarching goal of transforming the healthcare system into one that better pays for value. The Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General (OIG) coordinated closely on the rules, which finalize proposed protections for value-based arrangements, with some modifications, and also clarify and revise existing Stark and AKS requirements that are viewed as barriers to coordinated and value-based care or that simply cause undue confusion and burden. The OIG additionally acknowledged that these “[f]lexibilities to engage in new business, care delivery and digital health technology arrangements with lowered compliance risk may assist industry stakeholders in their response to and recovery from the current public health emergency resulting from the [COVID-19] pandemic.”

The final rules represent the most dramatic regulatory changes to Stark and the AKS in decades. Select highlights of the rules are outlined below, but stay tuned for a deeper dive by BakerHostetler into the changes and their potential impacts on the healthcare industry.

Value-Based Rules

The new value-based rules contain detailed terminology addressing participation by a “VBE participant” in a “value-based enterprise” (VBE) and present tiered options for participation in “value-based arrangements” based on risk. Stark and AKS both protect arrangements with full financial risk. A Stark exception covers substantial financial risk, and an AKS safe harbor protects meaningful financial risk. The OIG finalized a safe harbor for care coordination arrangements, and CMS finalized a broader exception for value-based arrangements. The agencies retained the proposed definitional framework, with some modifications. Examples of notable provisions of the final rules, and deviations from the earlier proposals include:

  • CMS lowered its threshold for meaningful downside financial risk from no less than 25 percent to no less than 10 percent of the total value of the remuneration the physician receives under the value-based arrangement.
  • CMS extended the period of time during which the full financial risk exception would be available from six to 12 months prior to the date the VBE is contractually obligated to be financially responsible. In contrast, CMS does not permit the use of the meaningful downside financial risk exception during the pre-risk period.
  • The AKS safe harbor for care coordination arrangements (without full financial risk or substantial downside financial risk) protects only in-kind remuneration. The Stark exception for non-risk, value-based arrangements does not contain a similar limitation.
  • Neither CMS nor the OIG limited the definition of “targeted patient population” to include only individuals with chronic conditions or shared disease states, which the OIG had considered.
  • Though CMS questioned in its proposed rule whether laboratories and durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) suppliers have the direct patient contacts that would justify protection, and it also solicited comments on whether to exclude pharmaceutical manufacturers, manufacturers and distributors of DMEPOS, pharmacy benefit managers, wholesalers, and distributors from the definition of VBE participant, the CMS final rule does not exclude any specific persons or entities from the definition. The OIG retained but modified its treatment of the entities it proposed to exclude from the definition of VBE participant by finalizing lists of entities ineligible to rely on safe harbor protection within new safe harbors. There is limited protection of certain digital technology arrangements for device and supply manufacturers in care coordination arrangements.
  • CMS included an explicit monitoring requirement, with guidance on determining whether the value-based activity is expected to further the value-based purpose of the values-based activity and monitoring progress toward achieving “outcomes measures” (which replaces the term “performance and quality standards” used in the proposed rule).
  • CMS declined to include the maintenance of quality of care as a permissible value-based purpose in the absence of reduction of the costs to or growth in expenditures of payors.
  • The Stark rule includes changes excepting certain indirect compensation arrangements that include a value-based arrangement in the unbroken chain of financial relationship.
  • Both agencies include safeguards addressing program integrity, which are scaled, and include what CMS describes as a “carefully woven fabric of definitions and exceptions that protect against program and patient abuse while providing flexibility for experimentation in the design and implementation of value-based arrangements.”
Notable Stark Changes

While the value-based changes are momentous, clarifications and amendments to existing Stark rules represent a significant policy shift and advance the goals of CMS’ Patients over Paperwork initiative, launched in 2017 to evaluate and streamline regulations with a goal of reducing unnecessary burden, increasing efficiencies, and improving the beneficiary experience. CMS finalized many of its proposals, which will largely be welcomed by providers.

The Big Three

The Stark rule includes an extensive review of the comments received to CMS’ proposals concerning the “big three” requirements underpinning compensation exceptions.

  • Commercially Reasonable. The Stark rules add a definition for “commercially reasonable” – a foundational element of key compensation exceptions. “Commercially reasonable” means that the particular arrangement further a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope and specialty. CMS clarifies that the determination of commercial reasonableness is not one of valuation and the rule expressly states that an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.
  • Volume or Value. Although it declined to codify this policy in regulation text, CMS confirmed its position that an “association between personally performed physician services and designated health services furnished by an entity does not convert compensation tied solely to the physician’s personal productivity into compensation that takes into account the volume or value of a physician’s referrals to the entity or the volume or value of other business generated by the physician for the entity.” CMS acknowledged concerns of commenters predicated on interpretations of the law applied in cases such as United States ex rel. Drakeford v. Tuomey Healthcare System, Inc. and U.S. ex rel Bookwalter v. UPMC. CMS also made clarifying changes that apply to indirect compensation arrangements.
  • Fair Market Value. CMS finalized changes to the definitions of “fair market value” and “general market value” with slight modifications. CMS declined to establish “rebuttable presumptions” or “safe harbors” for compensation within ranges of values in salary surveys. Recognizing that this data is an appropriate starting point for the determination of fair market value, CMS clarified that (1) it is not CMS policy that salary surveys necessarily provide an accurate determination of fair market value in all cases, and (2) a hospital may find it necessary to pay a physician above what is in the salary schedule, especially where there is a compelling need for the physician’s services.
Stark Technical Changes and Clarifications

CMS finalized many proposals to “recalibrate the scope and application of the physician self-referral regulations” after examining comments and drawing upon its ten plus years of experience administering the SRDP and working with law enforcement partners. While this list is not exhaustive, the changes include:

  • Decoupling Stark and AKS/Billing Rules. With one exception, CMS eliminated the requirement of compliance with the AKS and Federal or State billing and claims submission laws from Stark exceptions. CMS retained the requirement of compliance with the AKS in the exception for fair market value compensation at 42 CFR 411.357(l), explaining that it serves as a substitute safeguard, in lieu of certain safeguards contained in the Stark statutory exceptions.
  • Temporary Noncompliance. CMS extended its deeming provision for temporary noncompliance with signature requirements to also extend to failure to have a writing during a 90 day cure period. This gives a party 90 days to memorialize an arrangement in writing, not just to obtain signatures. CMS specifically addresses compliance with the “set in advance” requirements during this period. CMS also codified its policy that an electronic signature that is valid under Federal or State law is sufficient to satisfy the signature requirement.
  • Physician Recruitment. Based on its experience with the SRDP, CMS modified the signature requirement in the physician recruitment exception to require the physician practice to sign the writing documenting the recruitment arrangement only when remuneration is provided indirectly to the physician through payments to the physician practice and the practice does not pass through all of the remuneration from the hospital.
  • Limited Remuneration to a Physician. CMS finalized a new exception allowing limited remuneration to a physician with certain modifications, including increasing the aggregate annual limit from to $5,000 instead of $3,500. The preamble acknowledges the exception could be used in conjunction with other exceptions, including during times that may otherwise be periods of disallowance.
  • Remuneration. CMS finalized its proposal to remove the parenthetical carve out of surgical items, devices or supplies (that are not single-use) from the exclusion of “remuneration” in its definition.
  • Group Practice. CMS restructured and clarified the special rules for profit shares and productivity bonuses available to a group practice. In connection with the new value-based exceptions, CMS revised its group practice rule at 42 CFR 411.352 to allow profits from designated health services that are directly attributable to a physician’s services in a value-based enterprise to be distributed to the participating participation. To address informal stakeholder inquiries regarding distributions within groups comprised of fewer than five physicians, CMS explains that for these small groups, “overall profits” means the profits derived from all the designated health services of the group. Notably, the final rule specifically restricts distributions to “overall profits” and confirms that a group practice may not distribute profits from designated health services on a service-by-service basis. To illustrate, CMS confirms that to qualify as a group practice, the practice “may not distribute the profits from clinical laboratory services to one subset of physicians and distribute the profits from diagnostic imaging to a different subset of its physicians.” The effective date of this change impacting group practices is delayed until January 1, 2022.
  • Period of Disallowance. CMS also finalized its proposal to eliminate in their entirety the provisions setting forth the period of allowance at 42 CFR 411.353(c)(1). Though intended to establish an outside bright-line limit for the period of disallowance, CMS acknowledged that in application they appear to be overly prescriptive and impractical.
Other Key AKS Changes

The AKS rule incorporates a safe harbor for CMS-sponsored programs which previously were protected by a patchwork of separate fraud and abuse waivers. The new Patient Engagement and Support safe harbor protects certain support provided to a target patient population by a participant in a VBE. Finally, a new Cybersecurity Technology and Services safe harbor is available for all types of entities to encourage improved cybersecurity.

In addition to these new safe harbors, the final rule includes revisions to four existing safe harbors:

  • Personal Services, Management Contracts and Outcomes-Based Payments. In addition to providing more flexibility for part-time arrangements, the safe harbor now includes protection for payments related to quality improvements. Vastly expanding the utility of this safe harbor, the OIG also eliminated the requirement that aggregate compensation be set in advance and instead requires only that the methodology for determining compensation be set in advance.
  • Electronic Health Records. The AKS rule includes changes to the interoperability provisions of this safe harbor and clarifications on protection for cybersecurity technology and services, among other changes.
  • Warranties. Changes to the definition of warranties and protection of items and related services were adopted as proposed last year.
  • Local Transportation. This safe harbor is revised to expand mileage limits for rural areas, to eliminate certain mileage limits and to clarify that protection includes transportation using rideshare services.
  • Beneficiary Incentives and CMP. The final rule also includes changes (as proposed) to the definition of “remuneration” related to the ACO [Accountable Care Organization] Beneficiary Incentive Program for the Medicare Shared Savings Program. Finally, the rule finalizes the exception for telehealth technologies for in-home dialysis patients under the beneficiary inducements civil monetary penalty regulations.

The final Stark and AKS rules are extensive, and will present both opportunities for new and different healthcare arrangements and challenges in structuring and updating physician contracting protocols and compliance programs. Stay tuned for additional analysis.

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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