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Stark Changes: Substantial Revisions to the Physician Self-Referral Law and Anti-Kickback Statute Seek to Align Healthcare Laws with Value-Based Care

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On January 19, 2021, new rules go into effect clarifying and revising the regulatory exceptions to the Stark Law (also known as the Physician Self-Referral Law), the Anti-Kickback Statute (AKS) safe harbors, and the civil monetary penalty laws related to beneficiary inducements law.  These burdensome and outdated federal regulations have impeded the health care system’s progress towards value-based reimbursement while increasing administrative costs. 

In announcing the reforms in November 2020, the U.S. Department of Health and Human Services (HHS) stated its intention to “provide greater flexibility for healthcare providers to participate in value-based arrangements and to provide coordinated care for patients[, and] . . . ease unnecessary compliance burden[s] for healthcare providers and other stakeholders across the industry, while maintaining strong safeguards to protect patients and programs from fraud and abuse.”[1]  HHS has indicated these rules are the culmination of its efforts to address concerns by health care professionals and entities that the Stark Law and AKS have impeded the delivery of value-based care to improve quality of care, health outcomes, and efficiency.

The Centers for Medicare & Medicaid Services (CMS) and Office of Inspector General (OIG) collaborated in developing the rules, spanning over 1,600 pages.  While CMS and OIG aimed to align the regulations where feasible, they acknowledged that perfect alignment between the final rules was unattainable given the fundamental differences between the civil, strict-liability-based Stark Law and the criminal, intent-based Anti-Kickback Statute.

Changes to the Stark Law

The Stark Law is a healthcare fraud and abuse law that prohibits physicians from referring patients for certain designated health services paid for by Medicare to any entity in which the physician has a “financial relationship”.  The Stark Law defines “financial relationship” broadly but sets forth exceptions which HHS has determined do not pose a risk of program abuse. 

In the new rules, CMS established three new permanent exceptions to the Stark Law for value-based arrangements along with accompanying definitions.  Importantly, each of the new exceptions is available only for compensation arrangements, not ownership arrangements.  Key definitions for these exceptions include meanings for the terms “value-based arrangement”, “value-based activities”, “value-based enterprise”, “value-based enterprise participants”, “value-based purpose”, and a “target patient population”.

A few of the notable comments to these definitions include that “value-based activity” does not explicitly exclude referrals.  However, it is important to recognize that under the Stark Law, referrals are generally not services for which a physician may be compensated.  CMS also clarified that a “value-based arrangement” must be among only parties within the same value-based enterprise.  Also, no particular providers are excluded from eligible “value-based enterprise participants”.  This contrasts with OIG’s corresponding final rule for AKS safe harbors which specifically excludes pharmaceutical manufacturers, laboratory companies, pharmacies, and other individuals and entities.

Notably, none of the three value-based exceptions require that the remuneration paid under the arrangement be consistent with fair market value.  Similarly, none of the exceptions require the parties to refrain from considering the volume or value of referrals or business generated between the parties.

However, for non-risk bearing value-based arrangements, the arrangements must be “commercially reasonable”, which as defined by CMS, is a more subjective standard between the parties.  CMS also now explicitly requires that a value-based enterprise monitor and assess the success of its value-based arrangements at least once a year, or, if the arrangement is for a term of less than one year, once during the term.  If the arrangement is not successful, parties must terminate the arrangement within thirty (30) days or replace the ineffective activities within ninety (90) days.

Additionally, CMS finalized a new exception to the Stark Law to protect limited remuneration in an amount that does not exceed $5,000 per year to a physician for items or services provided by that physician.  This exception provides limited flexibility where an existing exception is not available for the arrangement.  CMS also loosened its definition for “fair market value”, recognizing that the fair market value of a transaction may not always align with external objective valuation criteria.  CMS identified that physician salary schedules are “an appropriate starting point” in determining fair market value, although hospitals may rightfully need to pay more where, for example, the hospital has a “compelling need” for certain physician services.

Another notable change is the new rules provide a grace period for any non-compliance issues reconciled within ninety (90) calendar days of the expiration or termination of a compensation arrangement if, after the reconciliation, the entire amount of remuneration for items or services is paid as required under the terms and conditions of the arrangement.

Other significant rule changes relate to billing or claims submissions requirements, clarification of what constitutes “remuneration”, “indirect compensation”, “group practice”, and other key terms, and exceptions related to Electronic Health Records, cybersecurity technology, and related services.

Changes to the Anti-Kickback Statute

The Federal Anti-Kickback Statute makes it a crime to knowingly and willfully offer, pay, solicit, or receive remuneration to induce or reward referrals of items or services payable by a Federal health care program such as Medicare.  Both a party offering a kickback and the intended recipient can be held criminally liable under the AKS.

OIG characterizes the AKS rule changes as “historic reform” to address the health care industry’s concerns that the federal AKS chills innovative, beneficial arrangements that would advance the transition of the U.S. health care system to value-based care.  The AKS rule changes codify new statutory exceptions to the “remuneration” definition, modify four existing safe harbors, and implement six new safe harbors.

AKS coordinated three of its new safe harbors with the value-based exceptions established under the Stark Law and addressed above. OIG established these new safe harbors for remuneration exchanged between or among parties in a value-based arrangement.  These three safe harbors follow a “tiered” framework based on risk assumption of the parties.

The first safe harbor relates to value-based arrangements with full financial risk.  In order to protect both monetary and in-kind remuneration, this safe harbor requires a value-based enterprise to be at risk on a prospective basis for the cost of all health care items, devices, supplies, and services covered by the applicable payor for each patient in the target patient population for a term of at least one year.

The next safe harbor covers value-based arrangements with substantial downside financial risk.  In order to protect both monetary and in-kind remuneration, this safe harbor requires a value-based enterprise to assume substantial downside financial risk from a payor and a value-based participant to assume a meaningful share of the value-based enterprise’s total risk, based on delineated methodologies.

The last value-based safe harbor requires no assumption of downside risk by parties to a value-based arrangement in order to protect in-kind remuneration exchanged to engage in value-based activities that are directly connected to the coordination and management of care for the target patient population.  Recipients are required to pay at least 15 percent of either the offeror’s costs or the fair market value of the remuneration.

The new OIG rules also list specific entities and individuals that are ineligible to use the value-based safe harbors listed above.  Specifically, ineligible entities include: (i) pharmaceutical manufacturers, distributors, and wholesalers; (ii) pharmacy benefit managers; (iii) laboratory companies; (iv) pharmacies that primarily compound drugs or primarily dispense compounded drugs; (v) manufacturers of devices or medical supplies; (vi) entities or individuals that sell or rent durable medical equipment, prosthetics, orthotics and supplies (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); and (vii) medical device distributors and wholesalers.  OIG carved out certain medical device manufacturers and durable medical equipment companies involved in digital health technology arrangements, so-called “limited technology participants”, provided that the enumerated requirements are met.  OIG reiterated that arrangements that do not fit into a safe harbor are not necessarily unlawful, but must instead be analyzed for compliance with the federal AKS based on the totality of their facts and circumstances, including the intent of the parties.

OIG also established new or modified safe harbors related to patient engagement and outcomes-based payments.  A safe harbor for patient engagement and support protects certain tools and supports furnished to patients to improve quality, health outcomes, and efficiency.  The rule provides no specific illustrative categories of protected tools and supports.

An outcomes-based payments safe harbor protects payments tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs.  This safe harbor is added as a new provision to the existing personal services and management contracts safe harbor.  It further adds flexibility to part-time arrangements by removing the mandate that these agreements specify the exact schedule for services provided.

OIG also established or modified safe harbors for cybersecurity technology, electronic health records, warranties, and local transportation.

Will the New Administration Reverse Course?

It is unclear what action, if any, the Biden Administration may take to the above rules once President-elect Joe Biden is inaugurated on January 20, 2021.  Various news outlets have reported that the new administration has been preparing a slew of executive orders to undue the policies of the previous administration.  Even though the Stark Law and AKS rules go into effect on January 19th, one day before Biden’s inauguration, the new administration may seek what legal avenues they have to revoke the rules.  It remains to be seen whether the Stark Law and AKS changes are among those rules impacted by the change in administration.

At The Nan Gallagher Law Group we have the healthcare expertise and experience to guide you through the maze of ever-changing federal and state healthcare laws and regulations.  We are focused on representing physicians and other healthcare providers in all stages of their professional lives, no matter what legal issues they encounter.  Call us at 973.998.8494 to make sure that as laws inevitably change, you have all the right strategies in place to ensure you are in compliance.


[1] https://www.hhs.gov/about/news/2020/11/20/hhs-makes-stark-law-and-anti-kickback-statute-reforms-support-coordinated-value-based-care.html