Recent Anti-Kickback Safe Harbor Revisions: What Hospices Should Know

January 06, 2021

The US Department of Health and Human Services Office of Inspector General (OIG) recently issued important updates to its Anti-Kickback Statute (AKS) safe harbor rules that provide additional legal protections and flexibilities, in particular with regard to value-based enterprise (VBE) arrangements. While hospices have not been frequent parties to many of the burgeoning risk-based, value-based payment arrangements within the healthcare sector, with the anticipated Medicare Advantage carve-in, this will likely change and consequently hospices and their legal counsel are well advised to familiarize themselves with how hospices may benefit from the OIG’s revised AKS safe harbors.


The AKS, a criminal law that prohibits kickbacks in any form to induce the illicit referral of healthcare business paid for by a federal healthcare program, is one of the primary laws that govern business arrangements between referral sources. The AKS is extremely broad on its face – so broad that Congress authorized the OIG to create regulatory safe harbor rules to protect certain non-abusive arrangements from prosecution under the statute. Since the early 1990s, OIG safe harbors – compliance with which is voluntary – protected common healthcare industry arrangements such as space and equipment leases, discounts, payments to bona fide employees, and investment interests that met specified criteria. With the exception of the employee safe harbor, the safe harbors were narrowly drawn – so narrow and exacting that over time, and as the healthcare industry evolved with new reimbursement programs and collaborations, the AKS safe harbors were viewed as an impediment to industry innovation. So it was with this backdrop that in 2019 and 2020, OIG undertook a major update to its AKS safe harbors, especially with regard to value-based arrangements and outcomes-based payments.

For hospices, the OIG’s December 2020 Final Rule, with new and revised safe harbors effective January 19, 2021, are most significant in four areas: (1) value-based payment arrangements (for care coordination and for those where the parties have substantial downside financial risk or full financial risk); (2) outcomes-based payment arrangements; (3) arrangements for patient engagement and support to improve quality, health outcomes, and efficiency; and (4) part-time personal service arrangements.

Value-Based Payment Arrangement Safe Harbor

Value-based payment arrangements represent the cutting edge of healthcare collaborations where payments are not tied to old fee-for-service payment models, but rather are based on innovative payment arrangements focused on alignment around quality of care, reduced cost, and coordinated care. OIG created several value-based payment arrangement safe harbors with an eye towards different models that have already taken root in healthcare: (a) care coordination arrangements to improve quality, health outcomes, and efficiency; (b) value-based arrangements with substantial downside risk with the payors; and (c) value-based arrangements with full financial risk with the payor. As the hospice industry begins to experiment with the Medicare Advantage carve-in, and as home-centric care takes on an expanded role following the COVID-19 pandemic, these value-based arrangement safe harbors – while complex and demanding – can provide added legal protections to hospices that participate in such value-based payment arrangements with their referral source partners (e.g., hospitals, physicians, home health agencies).

OIG recognized that arrangements involving higher levels of downside financial risk for those in a position to refer or order could curb incentives to order otherwise medically unnecessary services or items and so the safe harbor requirements reflected that principle. The new VBE safe harbor with the fewest restrictions (but perhaps applicable to a smaller subset of arrangements) applies to arrangements when the VBE participants have accepted full financial (including downside) risk in their payor arrangement to achieve value-based purposes. There are several additional safe harbor requirements for value-based arrangements with substantial downside financial risk given the potential incentives at play. Both the substantial downside and full financial risk VBE safe harbors allow for both in-kind contributions and cash payments targeted to value-based activities. In contrast, the care coordination safe harbor protection applies only to in-kind remuneration (e.g., services) exchanged between VBE participants directly connected to care coordination and management for a target patient population.

Outcomes-Based Payment Arrangements Safe Harbor

This new safe harbor focuses on payments to agents for achieving certain clinical outcomes and protects those payments through an expanded personal services and management safe harbor. Protected payment arrangements must be focused on one or more legitimate outcome measures that are selected based on clinical evidence or credible medical support; and have benchmarks that are used to quantify:

  1. improvements in, or the maintenance of improvements in, the quality of patient care;
  2. a material reduction in costs to or growth in expenditures of payors while maintaining or improving quality of care for patients; or
  3. both.

The methodology for determining the aggregate compensation (including any outcomes-based payments) must be set in advance, commercially reasonable, consistent with fair market value, and not determined in a manner that directly takes into account the volume or value of any referrals or business otherwise generated between the parties for which payment may be made in whole or in part by a federal healthcare program. The written agreement must include at a minimum a general description of the services, the outcome measure(s) the agent must achieve to receive an outcomes-based payment, the clinical evidence or credible medical support relied upon by the parties to select the outcome measure(s), and the schedule for the parties to regularly monitor and assess the outcome measure(s). Also, the agreement can neither limit any party’s ability to make decisions in their patients’ best interest nor induce any party to reduce or limit medically necessary items or services. Finally, the principal must have policies and procedures to promptly address and correct identified material performance failures or material deficiencies in quality of care resulting from the outcomes-based payment arrangement.

Patient Engagement and Support Safe Harbor

The patient engagement and support safe harbor protects in-kind patient engagement “tools and supports” that VBE participants furnish directly to patients in a target patient population when those tools or supports advance (i) a patient’s adherence to a drug or treatment regimen, (ii) a patient’s adherence to a follow-up care plan, (iii) the prevention or management of a patient’s disease or condition, or (iv) patient safety. The safe harbor imposes a $500 (retail value) annual, aggregate per-patient cap, and requires that the provision of the tool or support not result in medically unnecessary or inappropriate federally reimbursable items or services. With patient engagement becoming a key factor in driving changes in behavior or creating healthier lifestyles, this patient engagement safe harbor provides welcome protection for certain VBE participant activities with beneficiaries. The role of hospices in this kind of patient engagement geared toward health improvement remains, however, largely untested.

Personal Services Agreements for Part-Time Services

For many years, this existing safe harbor applied to part-time arrangements, such as medical director agreements, but was extremely difficult to meet because it required that the agreement specify the exact schedule of work intervals, their precise length, and the exact charge for each work interval. It had also required that the aggregate compensation be set in advance over the term of the agreement. These aspects were often impractical to meet, and yet posed relatively low risk to the Medicare and Medicaid programs. In its revised personal services safe harbor, hospices will find more navigable waters. As revised, OIG’s personal services safe harbor will require that the “methodology” for determining the compensation paid to the agent is set in advance, but the safe harbor will no longer require that the schedule and precise work intervals be set forth in the agreement. The mainstay of personal services safe harbor remains the same however – the services must be set forth in the agreement, compensation consistent with fair market value that is not determined in a manner that takes into account the volume or value of referrals. Additionally, the safe harbor continues to require that the aggregate services must not exceed what is reasonably necessary to accomplish the commercially reasonable business purpose of the services.

* * *

Critical to the success of many of these value-based arrangements and leveraging the new safe harbor protections will be robust data gathering and careful planning. Hospices have often been on the sidelines of value-based arrangements related to curative care, but with palliative care recognized as an increasingly important aspect of managing patients with serious illness whose care can be managed to avoid unnecessary and very costly care, and with a rich history in home-centric care, hospices can expect to be a more direct participants in these novel healthcare initiatives.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors or any of the following:

Washington, DC
Michele L. Buenafe
Kathleen McDermott
Scott A. Memmott
Albert W. Shay
Howard J. Young
Jacob J. Harper

Gregory N. Etzel
B. Scott McBride
Banee Pachuca
Sydney Reed

Mark B. Stein

San Francisco
W. Reece Hirsch