Update (Feb. 22, 2021):
The final rules discussed in the alert below were given a Jan. 19, 2021,
effective date. Since publication, however, ambiguity with respect to their
effective status were created by two regulatory actions: (1) the
Government Accountability Office concluded that the final rules did not have a required 60-day delay in their
effective date and (2) on Jan. 20, 2021, the
Biden administration paused final rules from taking effect from the Trump administration. According to an industry
publication, CMS has now
clarified its view that the regulations finalized in the final rule are effective. McGuireWoods will continue to review further guidance from the new
administration to understand if the policies in this final review are
otherwise modified or retracted.
As discussed in a
previous McGuireWoods alert, the Department of Health and Human Services (HHS)
published
final rules, effective Jan. 19, 2021, that significantly amend the
Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute
(AKS) and the Civil Monetary Penalties (CMP) Law. This client alert, the
latest in McGuireWoods’ summary series on these final rules, focuses on the
AKS safe harbors and Stark Law exceptions finalized by the HHS Office of
Inspector General (OIG) and Centers for Medicare & Medicaid Services
(CMS) aimed at reducing regulatory burdens to allow healthcare providers to
engage in value-based arrangements.
These protections include (1) three safe harbors to the AKS for
remuneration exchanged between or among participants in a value-based
enterprise (VBE) that includes two or more participants collaborating to
achieve a value-based purpose with an accountable body, or person
responsible, and a governing document; and (2) three new exceptions to the
Stark Law for remuneration to physicians participating in a value-based
arrangement. Each agency has a different approach in light of the scope of
each law and agency enforcement objectives, but both place fewer regulatory
burdens on the parties when the VBE accepts full risk for all of a target
population’s care, with greater burdens when VBEs accept less financial
risk. By implementing these changes, OIG and CMS seek to permit more
flexibility around valued-based arrangements that could, in the absence of
these changes, be deemed to induce or reward referrals in violation of the
AKS, or be deemed a financial relationship between a physician referrer and
a provider of designated health services (DHS) not covered by an exception
to the Stark Law.
OIG and CMS largely adopted their proposed approach to VBEs,
discussed in part in a Nov. 22, 2019, McGuireWoods alert, with certain tweaks that largely did not make compliance more difficult.
- Three new value-based safe harbors.
As outlined below, OIG created three new value-based safe harbors that
render a value-based arrangement immune from sanction if it meets all the
terms of the safe harbor. The amount of risk the VBE assumes, if any,
dictates which safe harbor applies, with higher financial risk correlating
to lesser requirements.
- Care coordination arrangements (no financial risk). The
first safe harbor protects remuneration when the VBE and its participants
provide remuneration to achieve a value-based activity directly connected
to coordination and management of care for the VBE’s target patient
population. The OIG intends for this safe harbor to protect in-kind
remuneration exchanged by and among a VBE and VBE participant(s), such as
providing care coordinator staff, technology for care coordination and
devices to monitor a patient’s recovery upon discharge.
As this safe harbor does not require financial risk, the OIG included more
safeguards than for the other value-based safe harbors (all discussed
below). For example, the remuneration cannot be intended to induce
referrals of patients or business not covered under the value-based
arrangement, the remuneration cannot be exchanged or used more than
incidentally for the recipient’s billing or financial management services,
and the recipient must pay at least 15 percent of the cost for the in-kind
remuneration.
- Value-based arrangements with substantial downside financial risk.
The second safe harbor protects remuneration when the VBE assumes
substantial downside financial risk from the payor (or will assume such
downside risk in the next six months). This safe harbor, unlike the care
coordination safe harbor, protects in-kind and monetary
remuneration exchanged by and among a VBE and its participants.
Substantial downside financial risk means the VBE: (i) assumes at least 30
percent of any loss for all items and services of the target population
compared to a bona fide benchmark (reduced from the 40 percent
stated in the proposed rule); (ii) assumes 20 percent of any loss where
savings and losses must be calculated by comparing current expenditures to
a bona fide benchmark designated to approximate the expected total cost of
such care and the parties design the clinical episode to cover more than
one care center; or (iii) receives from the payor a prospective,
per-patient payment that is designed to produce material savings and is
paid on a monthly, quarterly or annual basis for a predefined set of items
and services to approximate the expected total cost of expenditures for the
predefined set of items and services.
The VBE participant receiving remuneration must also assume a meaningful
share of the risk, meaning the participant (i) assumes two-sided risk for
at least 5 percent of the losses and savings realized by the VBE, or (ii)
receives a prospective, per-patient payment.
- Value-based arrangements with full financial risk. The
final safe harbor protects remuneration when the VBE takes on full
financial risk from a payor (or will assume such risk within one year) for
all patient care and services related to a target patient population. Full
financial risk means the VBE has assumed prospective risk for all items and
services for the target patient population for at least one year — i.e., a
full capitated payment. Similar to the substantial financial risk safe
harbor, in-kind and monetary remuneration will be protected for VBEs that
assume full financial risk. A requirement of this safe harbor is that the
VBE participant cannot claim payment in any form from a payor for items or
services except as set forth in the VBE agreement.
- AKS safe harbor requirements.
Each of the three safe harbors requires the following universal
requirements: (i) the arrangement must be reflected in a signed writing
among all VBE participants (though timing of these writing requirements
varies based on risk); (ii) remuneration must be directly connected to one
or more of the VBE’s value-based purposes; (iii) no inducements to reduce
medically necessary treatment can be included; (iv) remuneration based on
referrals must be tied to the target patient population and business
covered under the arrangement; (v) VBE participants must retain records
sufficient to establish compliance for a period of six years; and (vi)
certain entities may not qualify as VBE participants within each safe
harbor, which typically include pharmaceutical manufacturers, laboratory
companies and device manufacturers. Moreover, the final rule requires that
parties to a value-based arrangement establish certain monitoring
requirements for outcome or process measures for care coordination
arrangements that the parties reasonably anticipate, based on clinical
evidence or credible medical or health science, will advance the VBE’s
quality goals, with full financial risk arrangements having the most
flexibility in such monitoring activities.
In addition to these universal requirements, the substantial downside risk
and care coordination safe harbors also require that the value-based
arrangements do not: (i) place any limitations on the VBE participants’
ability to make patient care decisions; nor (ii) direct or restrict
referrals to a particular provider if: (a) a patient expresses a preference
for a particular provider; (b) the patient’s payor determines the provider,
practitioner or supplier; or (c) directing the patient is contrary to
Medicare and Medicaid policy.
Finally, since VBE participants in a care coordination model are not taking
financial risk, only in-kind (i.e., non-monetary) remuneration, such as
information technology and patient monitoring tools, may be protected and,
as noted above, the safe harbor requires that the recipient of any
remuneration under this safe harbor contribute at least 15 percent of the
offeror’s cost or the remuneration’s fair market value.
- Stark Law key differences.
The Stark Law exceptions are similar to the safe harbors discussed above —
with the requirements decreasing as the financial risk on the participants
increases — but are generally easier to meet. If the VBE includes payment
by a DHS entity to physicians, one of these exceptions must be met (or the
requirements of another Stark Law exception must be met instead) to avoid a
Stark Law violation for that physician’s referrals to the DHS entity.
Unlike the AKS safe harbors, where adherence is voluntary to gain
protections, the strict liability nature of Stark Law mandates strict
compliance. The key distinctions between the AKS safe harbors and the
correlating Stark Law exceptions are discussed below.
- Full financial risk. The Stark Law’s full financial
risk exception similarly protects value-based arrangements by and among a
VBE and VBE participants when the VBE has assumed full financial risk for
the cost of all patient care items and services covered by a payor for a
targeted patient population. Like the AKS safe harbor, the VBE is
responsible, or is obligated within one year (increased from six
months in the proposed rule) following the commencement date of
the value-based arrangement to assume responsibility. As a result, VBE
participants can utilize this exception during the “pre-risk period” prior
to the VBE assuming full financial risk.
- Meaningful downside financial risk exception versus
substantial downside financial risk. The Stark Law’s
meaningful downside financial risk exception shares similarities with the
AKS safe harbor for value-based arrangements with substantial downside
financial risk. However, significant differences exist. First, the Stark
Law exception requires the physician to be responsible for at
least 10 percent (down from the 25 percent stated in the proposed rule) of
the risk, instead of measuring the VBE’s risk in totality. CMS clarified in
the final rule that this risk can be established if either: (i) the
physician is required to repay remuneration already received if the
value-based purpose is not achieved, or (ii) a portion of the physician’s
remuneration is withheld and paid only upon the achievement of the
value-based purpose. Moreover, whereas the proposed rule included an
alternative definition of meaningful downside financial risk where the
physician would be financially responsible to the entity on a prospective
basis for the cost of all or a defined set of patient care items, CMS
omitted this alternative financial risk methodology from the final rule.
Also, CMS did not provide a pre-arrangement protection period as it did
with the full financial risk model.
- Value-based arrangements exception. The Stark Law’s
corollary to the limited AKS care coordination safe harbor is a broader
general exception to protect value-based arrangements that do not fall into
the meaningful downside financial risk or full financial risk exceptions.
The value-based arrangements exception applies regardless of the level of
risk assumed by the VBE or physician, even if no risk component is
involved. This gives physicians and DHS entities flexibility to participate
in value-based arrangements that do not assume any financial risk at this
time, but where the VBE is working to achieve a value-based purpose, such
as coordinating and managing care, improving quality and reducing costs. To
satisfy the criteria, there are a significant number of safeguards
described further below.
- Key differences in requirements among the Stark Law exceptions.
As a threshold matter, all Stark Law value-based exceptions must comply
with the following requirements, which are similar to the AKS safe harbors:
(i) remuneration is for or results from value-based activities undertaken
by the recipient of the remuneration for patients in the target patient
population; (ii) the arrangement must not cause inducements that reduce
medically necessary treatment; (iii) remuneration based on referrals must
be tied to the target patient population and business covered under the
arrangement; (iv) if remuneration paid to the physician is based on the
physician’s referral to a particular provider, the requirement to make
referrals must be set out in writing and signed by the parties and does not
apply if the patient expresses a preference for a different provider or the
referral is not in the best interest of the patient; and (v) VBE
participants must retain records sufficient to establish compliance for a
period of six years.
Also similar to the AKS safe harbors, the Stark Law exceptions have fewer
requirements as risk-sharing increases. For example, while the full
financial risk exception does not require that the methodology for
determining remuneration be set in advance — i.e., could be determined
after receiving funds — CMS requires a prospective methodology be
determined before healthcare providers furnish the items or
services for which the remuneration is provided under the meaningful
financial risk exception and the value-based arrangement exception. CMS did
not, however, mandate the aggregate remuneration amount to be set in
advance or even be fair market value.
While the Stark Law meaningful downside financial risk and value-based
arrangements exceptions each contain a writing requirement, they differ
depending on the levels of risk involved. While the meaningful downside
financial risk exception requires only a description of the nature and
extent of the physician’s downside financial risk to be set in writing, the
signed writings for the value-based arrangements exception must include a
fulsome description of: (i) the value-based activities to be undertaken
under the arrangement, (ii) the activities furthering the value-based
purposes of the VBE, (iii) the target population, (iv) the type or nature
of the remuneration, (v) the methodology to determine remuneration and (vi)
the performance or quality standards measured against the remuneration
recipient. Notably, the full financial risk exception does not contain a
writing requirement outside of the VBE’s governing document and likely a
contract with the payor.
Additionally, the value-based arrangements exception is the only one of the
three that includes a commercial reasonableness requirement, mandatory
outcome measure and the obligation that the VBE (or one of
the parties to the value-based arrangement) annually monitor the following:
(i) whether the parties have furnished their required value-based
activities; (ii) whether and how continuation of the value-based activities
is expected to further the value-based purpose(s) of the VBE; and (iii)
progress toward attainment of the outcome measures against the remuneration
recipient. Though the care coordination AKS safe harbor also contains
monitoring safeguards, the AKS requirements are not nearly as burdensome as
those required under the Stark Law. This is likely due to CMS permitting
both in-kind and cash remuneration under this exception, and not
requiring the physician recipient to contribute any of his or her own money
to the arrangement. For example, under the Stark Law value-based
arrangement exception, a VBE could compensate physicians for providing
post-discharge services to patients in a target patient population, and
have the compensation be dependent on readmission rates. This arrangement
would not qualify for protection under the AKS care coordination safe
harbor.
- Examples of permitted conduct.
Provided an arrangement complies with a safe harbor’s requirements noted
above and the payment made to a physician complies with a Stark Law
exception noted above, VBE participants are permitted to encourage
referrals of the target patient population as part of value-based
activities. For example, a VBE can create a preferred network of post-acute
care providers that meet certain quality criteria. Further, if a VBE seeks
to coordinate and manage the care of patients who undergo joint replacement
procedures and reduce costs while improving the quality of care, VBEs could
condition remuneration to physicians (or other VBE participants) on
referring joint replacement treatments to certain facilities under the
Stark Law, with certain limitations under the AKS. As a result, VBE
participants could receive remuneration based on these referrals so long as
the remuneration furthers the value-based purpose.
Similarly, although the OIG final rule prohibits remuneration used for
marketing items or services furnished by the VBE or VBE participants or for
the purpose of patient recruitment activities, a VBE is permitted to
provide educational activities on behalf of the VBE participants within the
target patient population. For example, a skilled nursing facility staff
member may work with patients at a hospital to assist in the discharge
planning process and, in doing so, educate patients regarding care
management processes used by the skilled nursing facility, provided the
patient had already selected the facility and such facility was medically
appropriate. OIG would consider such activities occurring prior to the
patient’s selection of the facility as marketing and therefore ineligible
for safe harbor protection. OIG also made it clear that notifying a patient
of the criteria used by a VBE participant to determine patient eligibility
is not considered marketing.
Additionally, the Stark Law exceptions make it clear that a hospital can
share internal cost savings achieved with a physician who is participating
in the hospital’s quality and outcome improvement program if the program
reaches or exceeds pre-established benchmarks. Such programs are often
referred to as gainsharing. More importantly, the Stark Law exception can
be utilized even if the physician is not assuming any of the financial
risk. The challenge of the separate regulatory structures, however, is that
such a gainsharing arrangement will not meet an AKS safe harbor without
risk sharing. While failure to meet a safe harbor does not mean the
gainsharing arrangement is illegal or improper, it will not have the AKS
protection afforded by a safe harbor. This is only one example of how VBEs
will need to navigate both regulatory structures when establishing
value-based relationships.
With the implementation of these final rules, the OIG and CMS seek to
balance a need for innovation within an evolving healthcare system, with
the need for safeguards against improper inducements prohibited by the AKS
and Stark law. These proposed safe harbors and their analogous exceptions
provide greater flexibility for providers to enter into non-conventional
arrangements aimed at rewarding value and care coordination while
attempting to provide meaningful safeguards to protect against patient and
program abuse.
Contact a McGuireWoods attorney or one of the authors of this alert for
more information regarding these final rules. Given the significance of
these changes, McGuireWoods plans to provide additional analysis and
summaries.
For more information –
to review additional guidance on the final rules discussed in this alert,
see the following McGuireWoods legal alerts:
