The Regulatory Sprint is Over - What’s at the Finish Line Under the New Stark and AKS Final Rules?

January 8, 2021 Alerts and Newsletters

The U.S. Department of Health and Human Services (HHS) completed its “Regulatory Sprint” by finalizing changes to regulations pertaining to two federal fraud and abuse laws. On December 2, 2020, the Centers for Medicare & Medicaid Services (CMS) published a final rule revising regulations to the Stark Law. The Stark Final Rule adds, modifies and clarifies key definitions and exceptions. On the same day, the HHS Office of Inspector General (OIG) published a final rule revising regulations to the Anti-Kickback Statute (AKS). The AKS Final Rule adds seven additional safe harbors, modifies four existing safe harbors, and codifies a statutory exception to the Civil Monetary Penalty (CMP) Rules. This Alert provides a high-level summary of the most notable changes, remaining questions, as well as action steps to consider for relationships subject to the Stark Law and AKS.


New Definitions

Commercially Reasonable. CMS issued a definition to mean the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope and specialty, even if it does not result in profit for one or more of the parties.

Key Clarifications or Modifications to Existing Definitions

Fair Market Value. The new definition of FMV for general application is the value in an arm’s-length transaction, consistent with the general market value of the subject transaction. CMS also issued new definitions applicable to the rental of equipment and the rental of office space. FMV with respect to the rental of equipment is the value in an arm’s-length transaction of rental property for general commercial purposes, not taking into account its intended use, consistent with the general market value of the subject transaction. FMV with respect to the rental of office space is the value in an arm’s-length transaction of rental property for general commercial purposes, not taking into account its intended use, without adjustment to reflect additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee, and consistent with the general market value of the subject transaction.

Takes into Account the Volume or Value of Referrals. CMS set out the universe of circumstances under which compensation is considered to take into account the volume or value of referrals or other business generated between the parties. Compensation takes into account the volume or value of referrals if the compensation formula includes referrals or other business generated as a variable, resulting in an increase or decrease in compensation that positively correlates to the number or value of referrals or other business generated. Compensation tied solely to a physician’s personal productivity does not take into account the volume or value of referrals or other business generated between the parties.

Set in Advance. CMS confirmed that the special rule at 411.354(d)(1) is a deeming provision that parties can use to ensure compensation is set in advance. CMS clarified that compensation may be set in advance without being set out in a writing before services are provided. CMS also clarified that compensation may be modified during the term as long as the modified compensation or compensation formula is set out in writing before the items or services are furnished for which the modified compensation is paid.

DHS. Inpatient hospital services are only DHS if the furnishing of the service affects the amount of Medicare payment under the inpatient prospective payment system.

New Exceptions

CMS finalized three new exceptions related to value-based arrangements, clarified that the value-based exceptions are available to indirect compensation arrangements that include a value-based arrangement in the chain of unbroken relationships between the physician and the DHS entity, and announced its decision not to adopt a price transparency requirement for the value-based exceptions.

Value-based Arrangements with Full Financial Risk. This exception permits remuneration to be paid to a physician when a value-based enterprise is at full financial risk on a prospective basis for the cost of all patient care items/services covered by a payor for the target patient population.

Value-based Arrangements with Meaningful Financial Risk. CMS also created a new exception to allow remuneration to be paid to a physician when the physician is at meaningful downside financial risk to an entity.

Value-based Arrangements. CMS generally finalized this new exception as proposed. Its terms permit monetary and nonmonetary remuneration between parties to any value-based arrangement as long as the specified requirements are met. The specified requirements include: the remuneration is for or results from value-based activities undertaken by the recipient for patients in the target patient population; remuneration is not provided as an inducement to reduce or limit medically necessary items or services; remuneration is not conditioned on referrals of patients who are not part of the patient population or business not covered by the value-based arrangement; the methodology used to determine the amount of remuneration is set in advance of the furnishing of the items or services for which remuneration is provided; and records of the methodology for determining the actual amount of remuneration paid must be maintained for at least 6 years and made available to the Secretary upon request.

Limited Remuneration to Physicians. This new exception permits compensation of $5,000 in the aggregate per calendar year to a physician for the provision of items or services without a signed writing, provided compensation is set in advance and does not take into account the volume or value of referrals.

Cybersecurity Technology and Related Services. CMS finalized a new exception to permit arrangements involving the donation of certain cyber technology and related services, including hardware donations.

Key Modifications to Existing Exceptions

Space and Equipment. CMS clarified that the lessor is the only party that must be excluded from using the space or equipment for the purposes of the exclusive use requirement.

Fair Market Value. Under the Final Rule, parties can now utilize the fair market value exception for the rental of office space. However, CMS declined to remove the requirement that an arrangement under this exception comply with the AKS.

Isolated Transactions. The Final Rule confirms that this exception does not apply to multiple services provided over a period of time, even if there is only one payment for all of the services. CMS confirmed that this exception applies to the forgiveness of an amount owed if certain requirements are met including that the amount is fair market value and does not take into account the volume or value of referrals.

Other Clarifications or Modifications

Group Practice Requirements. The Final Rule clarifies that group practices may not use DHS-specific sub-groups to distribute DHS profits. The Final Rule requires the profit from all DHS of any component of the group practice to be aggregated before distribution but permits the group practice to use different distribution methodologies to distribute shares of overall profits from all DHS to each component of the group practice made up of at least five physicians, as long as the distribution is not directly related to the volume or value of referrals and the same methodology is used for all members of the same component of the group practice. These requirements become effective January 1, 2022 to give group practices time to adjust their compensation methodologies.

EHR. Importantly, CMS expressly indicated that the exception includes cybersecurity software and services and also made the exception permanent by removing the sunset provision to the existing EHR exception.

Signature Requirement. CMS codified its policy that an electronic signature that is valid under federal or state law is also valid under the Stark Law.

Special Rule for Directed Patient Referrals. CMS restructured the special rule on directed referrals to include an express requirement that a compensation arrangement meet the conditions of the special rule in order to direct referrals to a particular provider. CMS stated that neither the existence of the compensation arrangement nor the amount of the compensation may be contingent on the number or value of the physician’s referrals to a particular provider, but that the requirement to make referrals to a particular provider may require that the physician refer an established percentage or ratio of the physician’s referrals to a particular provider.

Temporary Non-Compliance. CMS expanded the 90-day grace period for signature requirements to the requirement of a written agreement.

Period of Disallowance. The Final Rule also provided a grace period for non-compliance that is reconciled within 90 calendar days of the expiration or termination of a compensation arrangement, if after the reconciliation the full amount of the remuneration for items or services is paid as required by the terms and conditions of the arrangement.


New Definitions

Value-Based Enterprise (VBE). A VBE is made up of two or more VBE participants that align to accomplish at least one of four enumerated value-based purposes, such as coordinating care or reducing the cost of care for a target patient population. A VBE must also undertake what OIG describes as the “minimal” administrative tasks of (1) establishing an accountable body and (2) drafting a governing document. In practice, the term VBE encompasses a wide array of arrangements, from ACOs to smaller initiatives between two providers.

VBE Participant. Virtually any entity or individual (except patients) qualifies as a VBE participant, including physicians, health technology companies, and social service providers.

New Value-based Safe Harbors

VBEs and VBE participants may be eligible for one of three newly created value-based safe harbors under the AKS Final Rule. These safe harbors offer a “tiered” approach in which the relative flexibility afforded by the safe harbor is proportional to the financial risk assumed by the parties.

Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency. This safe harbor protects arrangements between a VBE and participants, or among VBE participants. While VBEs and VBE participants do not need to assume any financial risk in order to qualify for this safe harbor, the protection extends only to in-kind services exchanged to facilitate care coordination.

Value-based Arrangements with Substantial Downside Financial Risk. This safe harbor protects arrangements between VBEs and VBE participants, and applies to both in kind and monetary remunerations exchanged to advance care coordination, improve quality of care, or reduce care costs for a patient population. In order to be eligible for this safe harbor, the VBE or VBE participant seeking protection must assume substantial downside financial risk.

Value-based Arrangements with Full Financial Risk. Similar to the Substantial downside risk safe harbor described above, this safe harbor protects both in kind and monetary remunerations exchanged between a VBE and a VBE participant if that arrangement is directly connected to one of four value-based purposes. Although this safe harbor offers protection for the broadest range of activities, its applicability is limited to VBEs that have assumed full financial risk from payors. As such, relatively few existing arrangements are expected to qualify for this safe harbor in the immediate future.

New and Modified Safe Harbors and Statutory Exception

Cybersecurity Technology and Related Services. OIG created this safe harbor to permit non-monetary donations of cybersecurity software, and in limited circumstances, hardware, to health providers, so long as the donations are not intended to generate future referrals.

EHR Items and Services. OIG modified this existing safe harbor by eliminating a sunset provision and clarifying that the safe harbor applies to donations of EHR—as well as related cybersecurity software—if the cybersecurity software is donated with the predominant purpose of protecting the EHR. Accordingly, there may be instances in which a cybersecurity donation satisfies the criteria for both the EHR and Cybersecurity Technology safe harbors.

Patient Engagement and Support to Improve Quality, Health Outcomes, and Efficiency. This new safe harbor offers protection from AKS liability when a VBE participant provides in kind support and services, such as grocery delivery services or broadband access, to patients if that support is directly connected to care coordination and advances one of five enumerated goals. The entities categorically excluded from invoking the three new value-based safe harbors are also excluded from invoking the Patient Engagement safe harbor.

CMS-sponsored Model Arrangements and Accountable Care Organizations. These two new safe harbors offer prospective AKS immunity for certain CMS-sponsored or approved arrangements that involve patient incentive programs.

Personal Services and Management Contracts. OIG modified this existing safe harbor in the Final Rule to increase flexibility by requiring that the methodology for calculating payment (rather than the aggregate amount of compensation) be set in advance for personal services and management contracts that pertain to outcomes-based and part-time arrangements.

Local Transportation. The Final Rule modified this existing safe harbor to increase the transportation limit from 50 to 75 miles for patients residing in rural areas and also clarified that the safe harbor applies to ridesharing services.

Telehealth Technologies for In-Home Dialysis. The Final Rule also codified a statutory exception under CMP Rules for telehealth technologies offered by certain providers of in home dialysis for patients with End Stage Renal Disease.

Actions to Consider

  1. Stay Tuned for Biden Administration Action. The Stark and AKS Final Rules are scheduled to take effect on January 19, 2021 for many provisions, except for certain clarifications under Stark for the group practice definition, which are scheduled to take effect on January 1, 2022. Under the Congressional Review Act, regulations cannot become effective until 60 days after publication in the Federal Register. This means that the Stark and AKS Rules will not become effective until after the presidential inauguration. Generally, any regulation that has not gone into effect by inauguration day is put on hold in order to give the new presidential administration an opportunity to review the new regulation. As a result, industry stakeholders will need to watch and see whether the Biden administration disregards the effective dates on the basis that they are illegal, changes the regulations, or decides to allow them to take effect as published. Although it may not be likely, it remains possible that industry stakeholders reach the finish line of the regulatory sprint and learn that the Biden administration will send them back to the start line with new proposed rules for the Stark Law and AKS.
  2. Expect Parallel, though Imperfect, Alignment between Stark and AKS Final Rules. The Stark and AKS Final Rules are designed to overlap where possible. For example, there are consistent terms and parallel provisions throughout the rules, especially among the value-based provisions. However, compliance with a Stark exception does not guarantee compliance with an AKS safe harbor; rather, an arrangement must satisfy the conditions of the respective exception or safe harbor for those protections to apply.
  3. Consider Cybersecurity Opportunities. The health care sector is among the most targeted industries for cyberattacks. The newly created Cybersecurity Technology Stark exception, as well as several new and modified AKS safe harbors, may help your organization explore security opportunities now permitted under the Stark Law and AKS.

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