Health Law Scan

Legal Insights and Perspectives for the Healthcare Industry

Powerfully illustrating the efforts of the US Department of Health and Human Services (HHS) to transform the US healthcare system to a value-based model, the Office of the Inspector General (OIG) and the Centers for Medicare & Medicaid Services (CMS) have finalized rules that will alter critical healthcare fraud and abuse regulations to remove or diminish obstacles to value-based enterprises that meaningfully embrace patient care coordination. The rule changes will transform fraud and abuse compliance and accelerate what HHS calls the “Regulatory Sprint to Coordinated Care Initiative.”

The HHS Regulatory Sprint identifies four lanes to better coordinate care:

  • Improving a patient’s ability to understand his/her treatment plans and be empowered to make decisions
  • Increasing providers’ alignment on end-to-end treatment
  • Providing incentives for providers to coordinate care with their patients
  • Encouraging information sharing among providers, facilities, and other stakeholders in a manner that facilitates efficient care while preserving and protecting patient access to data

CMS and OIG coordinated the release of the proposed and final rules, but did not entirely avoid different rules and standards in certain key areas. In the final rules, OIG maintained a more cautious approach on qualified value-based arrangements, patient incentives, and social detriments of health to advance access to care, explaining that the intent was to create a back-stop to any fraud and abuse issues that may arise.

Despite some material differences, the direction is clear and the final rules provide a compass that will guide health industry stakeholders to transform our healthcare system. The future is now with a brand new lexicon and new definitions for assessing new arrangements and relationships centered on value-based enterprises (VBEs). The original seminal term “remuneration” now has several different shades of definitions or exceptions.

The new Stark Rules are effective January 19, 2021, except for the amendment related to 42 CFR 411.352 (i), which is effective January 1, 2022 (group practice productivity compensation). The Anti-Kickback Statute (AKS) changes are also effective January 19, 2021. Both CMS and OIG have stated that these rules apply prospectively only.

We will provide more in-depth analysis related to each rule in the near future, but several notable changes stand out in both.

New Safe Harbors to the Anti-Kickback Statute and Civil Monetary Penalty Changes

  • New safe harbors for participants in “value-based arrangements” including (1) care coordination arrangements, (2) value-based arrangements with substantial downside financial risk, and (3) value-based arrangements with full financial risk. Notably, the risk tolerance under the AKS is materially different and more restrictive than similar Stark Law changes. Further, medical device manufacturers and durable medical equipment suppliers may participate in protected care coordination arrangements involving digital health technology.
  • A new safe harbor to protect the provision of tools and supports for patient engagement limited to VBE arrangements and with fixed dollar caps on protected tools and restrictions on marketing and patient recruitment.
  • A new safe harbor to protect the donation of cybersecurity technologies and services related to those technologies.
  • Modifications to the existing safe harbor for electronic health records to reflect changes to requirements for interoperability.
  • Expanding the “personal services” safe harbor for outcomes-based payments and part-time arrangements.
  • Expanding the recently created safe harbor for local transportation to allow for the transportation of discharged patients and increase the mileage limits for rural areas.
  • Expanding permitted beneficiary inducements to telehealth technologies provided to in-home dialysis patients, as required by the Bipartisan Budget Act of 2018.

The new AKS rules are a big step forward in promoting efficiency and innovation in the healthcare sector by protecting outcomes-based exchanges of remuneration. The OIG’s new rules also complement CMS’s efforts to link payment to outcomes through the Merit-based Incentive Payment System (MIPS) and the Quality Reporting Program (QRP).

Both rules are intended to structurally allow incentives not just to the care providers, but to patients to manage their own care. With changes to the beneficiary inducement statute and a new safe harbor for patient engagement and care coordination, patients are on the care coordination team as never before.

There are some winners and losers in the new rules, reflecting serious OIG concern regarding certain industry sectors. For example, pharmaceutical manufacturers, compounding pharmacies, and physician-owned distributors are ineligible for new safe harbor protection for value-based arrangements, outcomes-based payments, and patient engagement and support. Health information technology companies by contrast are eligible to participate in qualified arrangements for those services.

The OIG summarized its present view of eligible and ineligible VBE entities in an interesting chart published in its Fact Sheet announcing the final rule, set forth below.

Click above image to enlarge  |  Download the PDF

Notably, these new AKS safe harbors do not restrict or change the application of existing safe harbors or change the totality-of-the-circumstances assessment for those arrangements that may be unprotected by a safe harbor but nevertheless lawful.

CMS Rule on Stark Law Changes

CMS’s final rule similarly has several significant final provisions, including the following:

  • New definitions regarding “value-based activity,” “value-based arrangements,” “value-based enterprise,” “value-based purpose,” “VBE participant,” and “target patient population.” These definitions, as CMS notes, are pivotal for applying the new value-based arrangement exception. Notably, this exception only applies to compensation arrangements, not ownership.
  • A new regulatory exception for value-based arrangements that have certain levels of financial risk to the parties and other certain characteristics. This exception is further broken down into three parts. The first provides for an exception for value-based enterprises that have assumed full financial risk from a payor for patient care services for a target patient population. The second is for those value-based arrangements for which a physician has “meaningful” downside financial risk for failure to achieve the value-based purposes of the arrangement. The third provides an exception to any value-based arrangement (regardless of downside risk), if the arrangement satisfies certain requirements.
  • Development of clear, bright-line definitions and guidelines for certain fundamental terminology, including “commercially reasonable,” “fair market value,” and the “volume or value standard.” The final rules emphasize that these three terms are separate and distinct from each other.
  • A new definition of “commercially reasonable,” which includes specific mention that “an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.” This new definition recognizes that compensation arrangements for clinical services where revenue from the services does not cover the compensation can be commercially reasonable; for example, to address access to necessary clinical services not available in a community.
  • A revised definition of “fair market value,” recognizing that the requirement is specific to the particular arrangement under consideration by generally defining the term as “the value in an arm’s-length transaction, consistent with the general market value of the subject transaction.” Specific definitions for rental of equipment and office space, as well as compensation, are provided.
  • The establishment of clear guidelines for determining when an arrangement takes into account the volume or value of referrals—only when the formula used to calculate the compensation includes referrals as a variable resulting in an increase or decrease in compensation that positively or negatively correlates with the number or value of referrals or generation of other business for the entity. The final rules also recognize that productivity compensation based solely on a physician’s personally performed services does not take into account the volume or value of referrals or other business generated.
  • New definition of “isolated financial transactions” that involves “a one-time transaction involving a single payment between two or more persons or a one-time transaction that involves integrally related installment payments” so long as the total aggregate payment is fixed and does not take into account volume or value and is secured by some mechanism to ensure payment in the event of default.
  • A new exception for limited remuneration paid to a physician, increased from $3,500 annually in the proposed rules to $5,000 that does not require a written document. The arrangement must be commercially reasonable, and the compensation must be fair market value and must not vary based on the volume or value of referrals or other business generated.
  • A new exception for cybersecurity technology and related services.

CMS’s final rule on value-based arrangements creates a tiered fraud and abuse structure based on the amount of risk an entity is willing to accept. The risk calculator ranges from full risk-bearing arrangements to those arrangements with little or no downside risk that still include value as a basis for payment. Notably, in the final rule, CMS revised the downside risk necessary to qualify for fraud and abuse protections under the value-based arrangement exception from 25% to 10% downside risk. It will be incumbent on the healthcare community—in particular, health systems that have a strong physician arm—to organize around these rule changes.

Morgan Lewis is reviewing these rules more fully and will provide written analyses on key provisions of each rule in the coming days. We will schedule webinars throughout December to review these final rules and other interesting final rules issuing that impact compliance and enforcement initiatives—a busy end to an extraordinary year.

Our best wishes to all for a good and healthy Thanksgiving holiday.

View the OIG Rule and Fact Sheet >>

View the CMS Rule and Fact Sheet >>