On October 9, 2019, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Office of Inspector General (OIG) issued two sweeping proposals aimed at revising the Stark Law and Anti-Kickback Statute (AKS) regulations to adapt to and promote the US health care system’s transformation to value-based payment and delivery models.
The proposed rules are part of HHS’s Regulatory Sprint to Coordinated Care Initiative and are the culmination of a yearlong effort that began with CMS and OIG issuing Requests for Information (RFIs) in September 2018. This effort reflects regulators’ attempts to adapt to fundamental changes in the health care marketplace that have occurred since the passage of the Affordable Care Act in 2010, which accelerated adoption of value-based models.
HHS’s press release announcing the proposed rules described the types of arrangements it hopes to promote with these new rules and provided several examples of coordinated care, value-based care, data sharing, and patient engagement activities that could not exist under current regulations, including:
“In an effort to coordinate care and better manage the care of their shared patients, a specialty physician practice could share data analytics services with a primary care physician practice.”
“Hospitals and physicians could work together in new ways to coordinate care for patients being discharged from the hospital. The hospital might provide the discharged patients’ physicians with care coordinators to ensure patients receive appropriate follow up care, data analytics systems to help physicians ensure that their patients are achieving better health outcomes, and remote monitoring technology to alert physicians or caregivers when a patient needs healthcare intervention to prevent unnecessary ER visits and readmissions.”
“A physician practice could provide smart pillboxes to patients without charge to help them remember to take their medications on time.”
“A local hospital could improve its cybersecurity and the cybersecurity of nearby providers that it works with frequently. To do so, it could donate, for free, cybersecurity software to each physician that refers patients to its hospital.”
To accommodate and promote these types of arrangements under current law, the proposals released last week introduce dramatic revisions to the Stark Law and AKS regulations, including the addition of new regulatory exceptions and safe harbors, revisions to existing exceptions and safe harbors, and clarification of key regulatory definitions that impact value-based arrangements.
In an effort to encourage more physicians and health care facilities to shift from a volume-based reimbursement system to value-based care arrangements, CMS has proposed new exceptions to the Stark Law, including creating new exceptions for certain value-based compensation arrangements between or among physicians, providers, and suppliers.
The rule proposes new exceptions that permit certain compensation arrangements in the context of value-based enterprises (VBE), defined as two or more participants:
(i) collaborating to achieve at least one value-based purpose,
(ii) each of which is a party to a value-based arrangement in the enterprise,
(iii) that have an accountable body responsible for financial and operational oversight, and
(iv) that have a governing document describing the value-based enterprise and how participants intend to achieve the value-based purpose(s).
The rule defines “value-based purpose” as:
(i) coordinating and managing care of a target patient population,
(ii) improving the quality of care for a target patient population,
(iii) reducing the costs to payors without reducing the quality of care, or
(iv) transitioning from volume-based health care delivery and payment systems to quality-based care and cost control.
The exceptions impose different requirements depending on the level of financial risk assumed by VBE participants.
• Value-based arrangements with full financial risk:
The Full Financial Risk Exception would apply to value-based compensation arrangements between VBE participants assuming full financial risk for the cost of all patient care items and services covered by applicable payors for each patient in a target patient population for a specified period of time. For Medicare beneficiaries, the VBE would, at a minimum, be responsible for all items and services covered under Parts A and B. To qualify for this exception, an arrangement would need to meet a number of specific requirements, including:
ο The VBE must be at full financial risk for the entire duration of the arrangement,
ο Remuneration under the arrangement must be for value-based activities undertaken for patients in the target population,
ο The remuneration must not be an inducement to reduce or limit medically necessary items or services,
ο The remuneration must not be conditioned on referrals of patients who are not part of the target population,
ο Any remuneration conditioned on referrals must meet the Stark special compensation rules set forth in 42 C.F.R. § 411.354(d)(4)(iv), and
ο Records reflecting calculation of remuneration must be maintained for six years.
• Value-based arrangements with meaningful downside financial risk to physician:
Under this exception, “meaningful downside financial risk” means the physician is responsible to pay the VBE entity no less than 25 percent of the value of remuneration the physician receives under the value-based arrangement, and the physician is financially responsible to the payor or entity on a prospective basis for the cost of items and services covered. Arrangements under this exception are subject to the six requirements listed above for the Full Financial Risk Exception, as well as the following additional requirements:
ο The nature and extent of the physician’s financial risk must be set forth in writing, and
ο The methodology used to determine remuneration must be set in advance.
• Value-based arrangements exception (no downside risk required):
Considering the possible disadvantages for some physicians and smaller practices in assuming full financial risk or downside risk, CMS proposes an additional exception that would include any value-based arrangement, regardless of the level of risk undertaken by the VBE or its participants. Value-based arrangements in which neither party has undertaken any downside financial risk would still be exempted under this proposed exception. This exception contains all of the requirements listed above for the other two VBE exceptions, plus the following additional documentation requirements:
ο The arrangement must be set forth in writing and signed by the parties, and the writing must include certain specific information about the arrangement, and
ο The performance or quality standards against which the recipient will be measured, if any, are objective and measurable, and any changes to the performance or quality standards must be made prospectively and set forth in writing.
• Indirect compensation arrangements to which the exceptions are applicable:
When a physician is a direct party to a value-based arrangement that is part of an unbroken chain of financial relationships, an indirect compensation arrangement between a DHS entity and the physician will qualify as a “value-based arrangement” for purposes of applying the VBE exceptions.
• Group practice:
CMS proposes to add new regulatory text allowing a group practice to distribute profits derived from a physician’s participation in a value-based enterprise to that physician, including profits from designated health services (DHS) referred by the physician. Profit shares and productivity bonuses, for instance, would not be considered to directly take into account the volume or value of the physician’s referrals, and distribution to the physician would not jeopardize the group’s ability to qualify as a “group practice.”
OIG’s proposed rule similarly aims to provide greater clarity for health care professionals who participate in value-based arrangements and to encourage coordinated patient care and outcomes-based payments. More specifically, OIG states in the proposal that it “sought to strike an effective balance between the goals of clarity, objectivity, flexibility, safeguards (including accountability and transparency), and ease of implementation.”
The rule proposes to add six new AKS safe harbors. The first three proposed safe harbors apply to value-based arrangements and are structured to roughly parallel the Stark rule’s value-based arrangement exceptions. The AKS safe harbors also use the same definitions of “value-based enterprise” and “value-based purpose” as the Stark proposed rule. The VBE-related exceptions dictate a graduated series of requirements: arrangements in which participants assume more financial risk have more flexibility, while arrangements with less financial risk are subject to stricter requirements.
• Value-based arrangements with full financial risk
For arrangements in which the value-based enterprise takes on the full downside financial risk from a payor, OIG explains that it intends this safe harbor to offer the greatest latitude to innovate with respect to coordinated care arrangements because the VBEs in this category assume the highest level of risk contemplated in the proposed rule. To satisfy this safe harbor, arrangements would need to meet a series of specific requirements, including documenting the arrangement in a signed writing that contains certain elements, restrictions on the type of remuneration covered under the arrangement, and other documentation and record-keeping requirements.
• Value-based arrangements with substantial downside financial risk
This proposed safe harbor covers certain remuneration when the VBE is at a “substantial downside financial risk” from a payor. (OIG’s definition of “substantial downside risk” contains different standards depending on the payment model.) Under this safe harbor, arrangements would need to meet a more stringent list of requirements than those arrangements with full financial risk, including specific metrics to determine whether a participant is subject to “substantial downside financial risk.”
• Care coordination arrangements to improve quality, health outcomes, and efficiency (no downside risk required)
This proposed safe harbor would cover certain in-kind, non-monetary remuneration exchanged between qualifying VBEs that assume no financial risk and meet certain conditions. Arrangements under this safe harbor would need to meet a longer list of documentation and operational requirements, including that the arrangement is “commercially reasonable.”
• Patient engagement and support safe harbor|
In an effort to include patients in their own health care decisions, OIG proposes a patient engagement and support safe harbor that seeks to remove any obstacles for providers who offer patients tools and supports that “improve quality, health outcomes, and efficiency.” For example, several of the tools and supports that OIG wants to promote are “in-kind items and services to support patient compliance with discharge and care plans” and “services and supports to address unmet social needs affecting health.” This safe harbor is limited because it would only cover patient engagement tools and supports given by a VBE participant. OIG explains that it limits this safe harbor to VBE participants so that it is consistent with the proposed rule’s overall goal of supporting value-based arrangements.
• Safe harbor for certain remuneration provided in connection with a CMS-sponsored model
OIG also proposes a new safe harbor to permit remuneration in the form of incentives and supports between parties in “CMS-sponsored models.” A “CMS-sponsored model” is a model or other initiative being tested by the Center for Medicare and Medicaid Innovation (the Innovation Center) or the Medicare Shared Savings Program. The goal of this safe harbor is to standardize and simplify the Federal Anti-Kickback Statute for providers who participate in testing these new CMS-sponsored models, and to decrease the need for fraud and abuse waivers for each new model being tested.
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These proposed rules are scheduled to appear in the Federal Register on October 17, 2019. CMS and OIG will accept public comments from the date of publication through December 31, 2019.
*Special thanks to Hayley White and Rachel Park, Law Clerks in our Washington, DC office (District of Columbia Bar licenses pending), for their assistance in preparing this post.
 In addition to the value-based proposals summarized here, CMS and OIG also released a number of other significant regulatory proposals that will be discussed in a future alert.