New value-based Stark exceptions and Anti-Kickback Safe Harbors

December 15, 2020

On December 2, 2020, the Centers for Medicare & Medicaid Services (“CMS”) and Office of Inspector General (the “OIG”) published final rules, formalizing significant changes to the Stark Law and the Anti-Kickback Statute.  Although the Stark Law and the Anti-Kickback Statute are distinct statutes with fundamental differences in their statutory structure, implementation, operation and penalties, the final rules demonstrate a coordinated effort between CMS and the OIG to provide new exceptions and safe harbors for certain value-based arrangements. CMS created three new, permanent exceptions to the Stark Law for value-based arrangements. The OIG also created three new safe harbors to the Anti-Kickback Statute for value-based arrangements, as well as other new safe harbors. This article will summarize the value-based Stark exceptions and Anti-Kickback Safe Harbors.    

The Stark Law’s New Value-Based Exceptions

With the goal to remove regulatory barriers to the transition to value-based care, CMS finalized three new exceptions to the Stark Law applicable for compensation arrangements: (1) value-based arrangements with full financial risk; (2) value-based arrangements with meaningful downside financial risk to the physician; and (3) value-based arrangements regardless of risk.  These exceptions will take effect January 19, 2021.

CMS issued new definitions to be utilized for application of the new Stark exceptions.  The definition of a “value-based arrangement” is one such definition and is key to the application of the new exceptions.  A “value-based arrangement” is an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are the value-based enterprise (“VBE”) and one or more of its VBE participants; or VBE participants in the same value-based enterprise.  “Value-based activities” means any of the following, provided the activity is reasonably designed to achieve at least one value-based purpose of the VBE: the provision of an item or service; the taking of an action; or the refraining from taking an action.  A VBE is two or more VBE participants that collaborate to achieve at least one value-based purpose, with an accountable body responsible for financial and operational oversight and a governing document. The VBE could be a legal entity or two parties in a value-based arrangement. “VBE participant” is defined to mean a person or entity that engages in at least one-value-based activity as part of a VBE, and does not exclude any specific persons, entities or organizations from qualifying. “Value-based purpose” means any of the following: coordinating and managing the care of a target patient population; improving the quality of care for a target patient population; reducing costs without reducing quality of care for a target patient population; or transitioning from health care delivery and payment based on the volume of items and services provided to quality of care and control of costs of care for a target patient population.  “Target patient population” is defined as an identified patient population selected by the VBE or its VBE participants based on legitimate and verifiable criteria that are set out in writing in advance of the commencement of the value-based arrangement and further the VBE’s value-based purpose.  Selecting a target patient population consisting of only lucrative or adherent patients and avoiding costly or noncompliant patients would not be permissible under most circumstances.

Each exception contains different requirements but certain requirements overlap.  For example, under each value-based exception, remuneration must be directly related to the value-based activities for the target patient population. The remuneration cannot be an inducement to reduce or limit medically necessary items or services, and it cannot be conditioned on the referrals of patients who are not part of the target patient population. The methodology and the amount of remuneration must be maintained for six years.

The value-based exceptions apply regardless of whether the arrangement relates to care furnished to Medicare and/or non-Medicare patients. 

CMS finalized its plan to make the new value-based exceptions applicable to indirect compensation arrangements that include a value-based arrangement if a physician or physician organization is a direct party to the arrangement.

The following is a brief summary of each new exception described above.

Full Financial Risk Exception (42 C.F.R. § 411.357(aa)(1))

The full financial risk exception applies to any value-based arrangement where the VBE is at full financial risk during the entire duration of the value-based arrangement. This exception also applies to a start-up arrangement where the VBE is contractually obligated to be at full financial risk within the twelve months following the commencement of the value-based arrangement.  CMS defined “full financial risk” to mean that the VBE is financially responsible on a prospective basis for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified duration.  The VBE must assume financial responsibility prior to providing patient care items and services to patients in the target patient population.

Meaningful Downside Financial Risk Exception (42 C.F.R. § 411.357(aa)(2))

The exception for value-based arrangements with meaningful downside financial risk to the physician protects remuneration in a value-based arrangement when the physician is at a meaningful downside financial risk for the duration of the value-based arrangement for failure to achieve the value-based purpose(s) of the VBE. “Meaningful downside financial risk” means that the physician is at risk of repaying or foregoing at least ten percent of the total value of the remuneration if the value-based purpose(s) are not met. To meet this exception, the physician’s financial risk and the method for determining the amount of remuneration must be set out in writing in advance of the arrangement.  

Value-Based Arrangements Exception (42 C.F.R. § 411.357(aa)(3))

The final new exception for value-based arrangements can be utilized regardless of the amount of financial risk that each party assumes so long as the requirements of the exception are met.  This exception requires the arrangement to be in a signed writing and describe the value-based activities; how the value-based activities are expected to further the value-based purpose(s) of the VBE; the target patient population, the type/nature of remuneration; the methodology used to determine the remuneration; and the outcome measures, if any.  “Outcome measures” are benchmarks that quantify improvements in or maintenance of the quality of patient care, or reductions in the costs to or reductions in growth in expenditures of payors while maintaining or improving the quality of patient care.  Unlike the other two new value-based exceptions, this exception requires the arrangement to be commercially reasonable. This exception also requires annual progress monitoring.  If the monitoring indicates that a value-based activity is not expected to further the value-based purpose(s) of the VBE, the parties must terminate the ineffective value-based activity.  The parties could terminate the arrangement within thirty consecutive calendar days of the completion of monitoring indicating that the value-based activity was ineffective, or the parties could modify the arrangement to terminate the ineffective value-based activity within ninety consecutive calendar days of completion of the monitoring and, if they choose, replace it with a different value-based activity with prospective applicability.

The Anti-Kickback Statute’s New Value-Based Safe Harbors

Similar to CMS, the OIG finalized three new value-based safe harbors for value-based arrangements: (1) care coordination arrangements to improve quality, health outcomes, and efficiency; (2) value-based arrangements with substantial downside financial risk; and (3) value-based arrangements with full financial risk. In addition, the OIG also finalized a new safe harbor for arrangements for patient engagement and support as well as a new safe harbor for CMS-sponsored models for additional arrangements that might not satisfy the new value-based safe harbors.  The new safe harbors to the Anti-Kickback Statute will be effective January 19, 2021.

The three new value-based safe harbors protect in-kind remuneration, but only the safe harbors for value-based arrangements with substantial assumption of risk protect monetary remuneration. The value-based arrangement cannot induce the parties to reduce or limit medically necessary items or services. The remuneration under each value-based arrangement should not take into account the volume or value of referrals of patients not in the target patient population, which differs from the traditional volume or value standard found in other safe harbors.

There are key differences between CMS’s final rule changes for the Stark Law compared to the OIG’s implementation of the final rule changes for the Anti-Kickback Statute; however, the terminology utilized in the new Stark Law value-based exceptions and the Anti-Kickback Statute’s value-based safe harbors mirror one another quite closely, including the terms “VBE participant,” “value-based arrangement,” “VBE,” and “value-based activity.”

Unlike the new Stark Law value-based exceptions, several entities are generally ineligible to use the value-based safe harbors, including: pharmaceutical manufacturers, distributors, and wholesalers; pharmacy benefit managers; laboratory companies; pharmacies that primarily compound or dispense compounded drugs; manufacturers of devices or medical supplies; entities or individuals that sell or rent durable medical equipment, prosthetics, orthotics and supplies (“DMEPOS”) (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); and medical device distributors and wholesalers. On November 20, 2020, the OIG published a chart as an educational resource outlining eligibility for the new safe harbors.

The following is a brief summary of each new safe harbor described above.

Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency (§ 1001.952(ee))

The care coordination arrangements to improve quality, health outcomes, and efficiency safe harbor protects only in-kind remuneration irrespective of the financial risk assumed by the parties, but requires the recipient to contribute at least fifteen percent of either the offeror’s cost or the fair market value of the remuneration. To receive protection under the care coordination safe harbor, remuneration must be in-kind and directly connected to the coordination and management of care for the target patient population.  Remuneration under this safe harbor may not be exchanged for billing or patient recruitment activities. The value-based arrangement must be commercially reasonable, and its terms must be in a signed writing that describes the value-based activities and their purpose; the target patient population; remuneration; methodology for determining cost; amount contributed by the recipient; and the outcome measures by which the recipient will be measured. The parties to the arrangement must establish outcome measures, define benchmarks, and monitor outcomes. If the VBE determines that the arrangement is unlikely to further coordination of care for the target patient population, the parties must terminate the arrangement or implement a corrective action plan.  Unlike the other new value-based safe harbors, this safe harbor permits certain manufacturers of devices or medical supplies and DMEPOS companies to use this safe harbor as “limited technology participants” when exchanging in-kind digital health technology with a VBE or VBE participant.

Value-Based Arrangements with Substantial Downside Financial Risk (§ 1001.952(ff))

The value-based arrangements with substantial downside financial risk safe harbor protects both in-kind and monetary remuneration between a VBE and VBE participant where the VBE assumes a substantial downside financial risk for at least one year.  “Substantial downside financial risk” means the risk calculated using one of the following methods: (a) at least thirty percent of loss, where losses and savings are calculated by comparing expenditures for all items and services covered and furnished to the target population with a benchmark designed to approximate the expected total cost; (b) at least twenty percent of any loss where losses and savings are calculated by comparing current expenditures for all items and services furnished to the target patient population within a clinical episode of care; or (c) a per patient payment designed to produce material savings paid for predefined items and services furnished to the target patient population.

There must be a signed writing describing the arrangement’s value-based activities, target patient population, and type of remuneration; the VBE’s substantial downside financial risk; and the VBE participant’s meaningful share.  “Meaningful share” means that the VBE participant assumes two-sided risk for at least five percent of the losses and savings assumed by the VBE, or receives a per patient payment from the VBE for predefined items and services furnished to the target patient population designed to approximate the expected total cost.  

Value-Based Arrangements with Full Financial Risk (§ 1001.952(gg))

The final rule also provides a new safe harbor for cash payments and in-kind remuneration between a VBE and VBE participant in a value-based arrangement, when the VBE assumes full financial risk. The remuneration must be directly connected to the VBE’s value-based purpose, and it cannot include ownership interests, marketing, or recruiting. To meet the requirements of this safe harbor, the VBE must be financially responsible for a term of at least one year, on a prospective basis, for the cost of all items and services for each patient in the target patient population.  The arrangement must be in a signed writing.  The VBE must also have a quality assurance program for services furnished to the target patient population that protects against underutilization and assesses quality of care.

Arrangements for Patient Engagement and Support to Improve Quality, Health Outcomes, and Efficiency (§ 1001.952(hh))

The OIG created a new safe harbor for arrangements for patient engagement and support. This safe harbor protects tools and supports furnished to patients by a participant in a VBE. The tools and supports are limited to promoting treatment, follow-up care, prevention, or safety, and there is a $500 annual cap. The remuneration must be in-kind, have a direct connection to the coordination and management of care of the target patient population, and recommended by the patient’s licensed health care professional.  Manufacturers of devices and medical supplies are permitted to use this safe harbor to provide digital health technology.

CMS-Sponsored Models (§ 1001.952(ii))

Unlike CMS with respect to the Stark Law, the OIG created a new safe harbor for remuneration provided in connection with a value-based, CMS-sponsored model, program or initiative. These include models and initiatives tested or expanded by the Center for Medicare and Medicaid Innovation and the Medicare Shared Savings Program. CMS-sponsored model arrangements are financial arrangements between CMS-sponsored model parties to engage in activities under the CMS-sponsored model consistent with participation documentation. Among other requirements, this safe harbor requires that the arrangement will advance one or more goals of the CMS-sponsored model; be commercially reasonable and be outlined in a signed writing.  

Outcomes-Based Payments (§ 1001.952(d)(2))

For a discussion of the new outcomes-based payments safe harbor added to the existing safe harbor for personal services and management contracts, please visit our past update here.