Update (Feb. 22, 2021):
As discussed below, the final rules discussed in the alert below were given a Jan. 19, 2021,
effective date, but some ambiguity existed with respect to their effective
status. Since publication, 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
prior McGuireWoods alert, the U.S. Department of Health and Human Services (HHS) published final
rules that significantly amend the Physician Self-Referral Law (Stark Law),
the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties
Law. The final rules discussed in this alert were originally given a Jan.
19, 2021, effective date. Since publication, however, the
Government Accountability Office concluded that the final rules did not incorporate a required 60-day delay in their
effective date. Meanwhile, on Jan. 20, 2021, the
Biden administration paused final rules from the Trump administration from taking effect. McGuireWoods will review
further guidance from the new administration to understand if the policies
in this final review are modified, retracted or corrected with a new
effective date.
This client alert, the latest in McGuireWoods’ summary
series on these final rules, focuses on four key revisions to existing AKS
safe harbors and provides key takeaways to assist healthcare providers in
navigating these new changes. Specifically, the final rules changed several
existing AKS safe harbors, including: (i) modifying the electronic health
records (EHR) safe harbor to expand cybersecurity protections, among other
updates; (ii) increasing flexibility under the personal services and
management contracts safe harbor; (iii) expanding around patient
transportation protections and loosening several restrictions; and (iv)
extending coverage and protections under the warranties safe harbor. This
alert also provides a brief overview of the final rule’s new safe harbors
that cover value-based delivery models and patient engagement tools. By
implementing these changes, the Office of the Inspector General (OIG) will
reduce burdens for healthcare providers and other stakeholders within the
healthcare industry and provide greater flexibility under existing laws
while, at the same time, continuing to protect against misuse, fraud and
abuse.
The final rules stem from HHS’ “Regulatory Sprint to Coordinated Care,”
discussed more thoroughly in a
previous McGuireWoods alert, which is intended to incentivize value-based arrangements and patient
care coordination by expressly permitting certain activities that could be
deemed problematic under historic laws.
- Focus on EHR and cybersecurity technology protections.
As discussed in a
prior McGuireWoods alert, the OIG has amended the EHR safe harbor several times since its creation
in 2006. Most recently, it recognized that certain flexibilities would
allow providers to engage in new digital health technology arrangements to
develop more sustainable value-based delivery models, strengthen the
healthcare industry against cyberattacks, and combat the current public
health emergency resulting from the COVID-19 pandemic. Accordingly, the
final rule shields the donation of cybersecurity items and services through
new protections under the existing EHR safe harbor as well as through the
addition of a new cybersecurity technology and services safe harbor.
Changes to the existing EHR safe harbor include: (i) expanded protections
for cybersecurity technology and services; (ii) modernization updates
regarding interoperability provisions; (iii) changes to cost-sharing
requirements; (iv) removal of the replacement technology donation
prohibition; and (iv) removal of sunset provisions. The new cybersecurity
exception and safe harbor permits the donation of cybersecurity technology
and related services as long as certain conditions are met. More detailed
information regarding the OIG’s changes to the existing EHR safe harbor and
the new cybersecurity technology safe harbor can be found in
this recent McGuireWoods alert.
- Broadened flexibility under the local transportation safe harbor. Undoubtedly, and as the OIG acknowledged, transportation plays a vital
role in patients’ access to quality care and care coordination. To increase
flexibility to meet those needs, the OIG finalized its proposed rule (with
slight modifications) to update the local transportation safe harbor by:
(i) expanding the mileage limits for rural areas from 50 miles to 75 miles
(inclusive of shuttle service); (ii) eliminating mileage limitations to
transport patients back to a residence after being discharged from an
inpatient facility or hospital; and (iii) clarifying that safe harbor
protections extend to rideshare arrangements. The OIG did, however, decline
to extend safe harbor protection to transportation offered for non-medical
purposes, even if such purpose would improve or maintain patient health,
citing risk of fraud and abuse.
By increasing the mileage limits for rural areas from 50 to 75 miles, the
OIG hopes to improve access to healthcare for rural residents and those
living in transportation deserts. In setting this new mileage limit, the
OIG solicited comments and relied on data and evidence as to the distance
patients in rural communities travel to obtain healthcare. The OIG believes
the increase to 75 miles is both “necessary and practical,” yet maintains
the “local” transportation nature this safe harbor was intended to capture
and is unlikely to be subject to abuse.
The OIG cited strong support to eliminate the distance limitations on
transportation furnished to a patient “discharged from an inpatient
facility following an inpatient admission or released from a hospital” to
such patient’s preferred place of residence, regardless of whether the
patient resides in an urban or rural area. The OIG expressly confirmed that
it intends the term “residence” to include and protect transporting
patients to the following locations as long as other requirements of the
safe harbor are met: (i) custodial care facilities (such as nursing),
provided that the patient established such facility as a residence before
receiving treatment; (ii) homeless shelters; and (iii) a residence of the
patient’s choice, such the home of a friend or relative who is caring for
the patient post-discharge.
The OIG noted that many commenters advocated for the OIG to expand the safe
harbor to protect transportation to any location a discharged
patient’s chooses, including to another healthcare facility; however, the
OIG declined to do so, citing the potential for abuse if the safe harbor
extended to protecting transportation between healthcare providers in a
position to refer to each other. The OIG also declined to eliminate
distance limitations for patients other than those discharged as inpatients
or after spending 24 hours in observation status, reasoning that such an
exception would be too “expansive and overly broad.”
Lastly, while the OIG did not believe an amendment to the regulatory text
was necessary, the OIG did expressly state that it supports eligible
entities utilizing ridesharing services or other transportation methods
similar to that of taxis to make local transportation available to their
patients.
- Increased protection and flexibility for personal services and
management contracts. While the OIG largely adopted its proposed modifications
to the personal services and management contracts safe harbor, the OIG did
modify the conditions an arrangement must meet if the parties to an
arrangement will make outcomes-based payments. Specifically, the OIG (i)
removed the requirement that contracts for part-time arrangements specify
the schedule, length and exact charge for the intervals of time worked
under the arrangement; (ii) substituted the requirement that aggregate
compensation paid under an arrangement be set in advance, with a new
requirement that only the methodology for determining compensation be set
in advance; and (iii) adopted modified conditions permitting outcomes-based
payments under a personal services or management contracts arrangement.
Removal of the part-time arrangements restrictions and modification of the
“set in advance” requirement provide regulatory protection (assuming all
other elements of the safe harbor are met) and greater flexibility to
providers that need periodic management and personal services arrangements
but are unable to predict the exact frequency of their need for services
(e.g., call coverage). Additionally, these changes more closely align the
personal services and managements contract safe harbor with the personal
arrangements exception to the Stark Law. In finalizing these revisions, the
OIG noted its desire to accommodate a broad range of part-time or
sporadic-need value-based payment and care arrangements and, at this time,
will not require additional documentation requirements as it continues to
believe that the other conditions to this requirement sufficiently
safeguard against potential fraud or abuse.
By changing the requirement that the aggregate compensation be set
in advance, to the methodology for determining such compensation
be set in advance, the OIG made additional protections available for
provider compensation. As a result of the final rule, productivity and
unit-based methodologies can meet the service arrangement safe harbor as
long as the methodology is consistent with fair market value and set in
advance, and, in any event, does not take into account the volume or value
of any referrals or other business generated between the parties.
In commentary discussing modification of the “set in advance” requirement,
the OIG addressed whether a payment methodology based on “actual expenses
incurred” could be a methodology sufficiently set in advance to satisfy the
modified safe harbor requirement. While acknowledging that whether the
compensation methodology is sufficiently set in advance depends on the
facts and circumstances of the arrangement, the OIG stated that it could be
possible for compensation based on actual expenses incurred to satisfy the
set-in-advance requirement. The example provided in the commentary details
a hospital compensating a physician practice for a leased physician based
on the percent of the practice’s actual expenses in employing the physician
that correlate to the percentage of the physician’s work actually performed
for the hospital. There, the expenses include salary, benefits, bonus,
liability insurance and overhead. The OIG said such expenses could be set
in advance but cautioned that the safe harbor would not be met if the
physician’s bonus took into account the volume or value of referrals
between the parties.
Extending protections of the personal services and management contracts
safe harbor to outcomes-based payments opens the door for rewarding agents
for improving patient or population health, or reducing payor costs, while
simultaneously improving quality of care so long as such arrangements do
not relate solely to the achievement of cost savings for the principal.
Consistent with the OIG’s proposal, the final rule excludes pharmaceutical
manufacturers; manufacturers, distributors and suppliers of durable medical
equipment, prosthetics, orthotics and supplies; and laboratories. The OIG
also decided to exclude from protection under the safe harbor for any
outcomes-based payments those pharmacies that primarily compound drugs or
primarily dispense compounded drugs, wholesalers and distributors of
pharmaceutical products, and pharmacy benefit managers. While such entities
are currently ineligible to receive protection, the OIG indicated that it
may consider outcomes-based contracting for pharmaceutical products and
medical device manufacturers in future rulemaking.
- Expanded warranties safe harbor to provide flexibility and encourage
innovative arrangements. The OIG finalized, without modifications, its proposal to amend the
warranties safe harbor, which includes (among others) the following key
changes: (i) extending coverage for bundled warranties, including
warranties that cover the sale of multiple items and related services (as
described in more detail below); (ii) finalizing the “same program/same
payment requirement”; (iii) capping the warranty remuneration at the
buyer’s cost of the entire bundle of items or items and services in the
applicable warranty; (iv) barring arrangements that condition warranties on
exclusive use or minimum purchase requirements; (v) requiring buyers (other
than beneficiaries) to report price reductions in a way that is compatible
with the applicable reimbursement methodology for the items or services
(without implementing a specific timeline); and (vi) separately and
directly defining “warranties” rather than cross-referencing the definition
to other statutes or case law.
The most material modification to the warranties safe harbor that was
finalized is OIG’s safeguarding of bundled warranties and protecting, for
the first time, warranties that cover bundled items and related services. Previously, the safe harbor
for warranties limited its protection to warranties for single items.
Although the OIG repeatedly clarified in the final rule that the expanded
safe harbor protection will not extend to “services-only” warranties (i.e.,
the warranty arrangement must include at least one item in the bundle), the
OIG expects that the safe harbor’s expansion to safeguard warranties
related to the sales of services will facilitate innovative and value-based
arrangements. The OIG reiterated in the final rule that the safe harbor
continues to protect only warranty remedies (i.e., the expanded safe harbor
does protect free or discounted services or items that are provided as part
of a bundle or ancillary to a warranty arrangement).
Despite commentators’ concerns, the final rule also finalized the “same
program/same payment requirement,” which protects warranties for bundled
items or items and services so long as such items and services are
reimbursed by the same federal healthcare program and in the same payment.
For example, warranties for a bundle of items and services reimbursed under
a single state’s Medicaid program are not eligible for protection under
this safe harbor if the buyer receives separate reimbursement for each item
and service in the bundle under different payment systems.
Notably, in the final rule, the OIG declined to include a “commercial
reasonableness” standard in the expanded safe harbor for warranties and
expressly stated that the expanded safe harbor does not protect
“population-based warranties”; however, the OIG clarified that it may
consider implementing specific safe harbor protection for value-based and
outcome-based, pharmaceutical-related arrangements in the future.
- New safe harbors protecting value-based delivery models and patient
engagement tools and supports. In addition to changes under existing safe harbors, the OIG proposed
three new safe harbors designed to protect value-based arrangements and
create new opportunities for external alignment models, specifically: (i) a
safe harbor regarding care coordination arrangements that do not require
parties to assume risk; (ii) a safe harbor regarding value-based
arrangements with substantial downside financial risk; and (iii) a safe
harbor regarding value-based arrangements with full financial risk. The OIG
notes that, by design, these safe harbors will “offer flexibility for
innovation and customization of value-based arrangements to the size,
resources, needs, and goals of the parties themselves” and further allow
arrangements to reflect up-to-date understandings of medicine and the
healthcare industry. More information regarding the new value-based safe
harbors can be found in
this McGuireWoods alert.
As a result of the growing digital health technology industry, the OIG also
finalized, with some modifications, a new safe harbor that protects patient
engagement tools and supports provided only by a value-based enterprise
participant to certain patients within a target patient population. For a
tool or support to satisfy the safe harbor, the tool and support must be
in-kind items, goods and services, and the aggregate retail value of the
tools or support must not exceed $500 per year.
With the implementation of these final rules, the OIG seeks to remove
specific AKS burdens on providers, while at the same time protecting
against substantial risk of increased fraud or abuse. While some of these
changes to existing safe harbors are not drawing the same focus as the
value-based arrangement changes, they could have similarly large impacts in
allowing more care coordination and reducing overall costs to the
healthcare system.
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 on key changes and implementation of the same.
For more information –
to review additional guidance on the final rules,
see the following McGuireWoods legal alerts:
