WHITE PAPER: VALUE-BASED SAFE HARBORS AND EXCEPTIONS TO THE ANTI-KICKBACK STATUTE AND STARK LAW

Reposted from February 21, 2021 Article: https://www.klgates.com/White-Paper-Value-Based-Safe-Harbors-and-Exceptions-to-the-Anti-Kickback-Statute-and-Stark-Law-2-24-2021


By: Limo T. Cherian, Steven G. Pine, Gabriel T. Scott


On 2 December 2020, the U.S. Department of Health and Human Services’ (HHS) issued two Final Rules in conjunction with its “Regulatory Sprint to Coordinated Care,” which will markedly change the regulatory fraud and abuse landscape for “value-based” arrangements:

(i) The HHS Office of the Inspector General (OIG) published a Final Rule that introduces new safe harbor protections under the federal Anti-Kickback Statute (AKS) for certain coordinated care and risk-sharing value-based arrangements between or among clinicians, providers, suppliers, and others that squarely meet all safe harbor conditions (AKS Final Rule).

(ii) The HHS Centers for Medicare & Medicaid Services (CMS) published a Final Rule that finalizes similar exceptions to the Physician Self-Referral Law (Stark Law) for certain value-based compensation arrangements between or among physicians, providers, and suppliers (Stark Final Rule, and together with the AKS Final Rule, the Final Rules).

These Final Rules introduce an entirely new framework for structuring permissible arrangements and affiliations between and among health care providers and payors. This white paper will review this new framework and walk through the new definitions, exceptions, and safe harbors that, together, are designed to play a central role toward innovating care coordination and health care payment models for years to come.

In addition to these sweeping value-based changes, both Final Rules contain a host of other, wide-reaching regulatory changes and policy clarifications. Detailed analyses of these broad updates (outside of the value-based context) are contained in two separate K&L Gates white papers:

  • Non-Value-Based Changes within the Stark Final Rule are discussed here.*

  • Non-Value-Based Changes within the AKS Final Rule are discussed here.**

I. AN OVERVIEW OF VALUE-BASED CARE AND THE SIGNIFICANCE OF THE FINAL RULES

Since the passage of the Affordable Care Act (ACA), HHS has made it a priority to transition away from traditional fee-for-service payment systems. This has resulted in a concerted move toward value-based models that tie provider reimbursement to increased quality, reduced costs, enhanced care coordination, and improved patient outcomes.

These concepts of the “triple-aim” or “quadruple-aim” of health care were bolstered with the introduction and adoption of the Medicare Shared Savings Program, which was authorized under Section 3022 of the ACA and implemented in 2013. Since then, CMS has tested various other innovative value-based models, often through the Centers for Medicare and Medicaid Innovation, refining model structures over time and focusing on a variety of provider types and clinical conditions. In addition, this value-based payment model shift was not limited to Medicare or other governmental programs. Commercial insurers have likewise taken up the mantle to shift reimbursement away from volume and toward value.

To foster this transition to value-based care, HHS promulgated various waivers of the AKS, the Stark Law, and civil monetary penalty (CMP) laws in connection with these CMS-driven innovation models. This reflected a recognition that many traditional fraud and abuse concerns, such as provider overutilization, are mitigated when payments are tied to value instead of volume.1

Prior CMS waivers, however, have been tied to specific CMS models. Value-based arrangements in the commercial setting—or otherwise outside of the scope of specifically waived Medicare and Medicaid models—remained subject to the Stark Law and AKS under a traditional regulatory analysis based on long-standing safe harbors and exceptions. These safe harbors and exceptions, however, have traditionally been ill-suited to encapsulate innovative value-based arrangements.

In 2018, HHS launched the “Regulatory Sprint to Coordinated Care” to accelerate a transformation of the health care system, with an emphasis on eliminating “unnecessary obstacles” to coordinated care. In providing a new framework for supporting value-based arrangements, the Final Rules align with the goals of the “Regulatory Sprint to Coordinated Care,” as HHS seeks to drive increased provider engagement with value-based care. Through the Final Rules, CMS and the OIG offer new pathways for providers and payors to come together in innovative ways, without fear of violating fraud and abuse regulations, for both governmental and nongovernmental value-based arrangements.

As this white paper will discuss, these safe harbors and exceptions are intended to cover a broad array of arrangements. In a manner of thinking, the Final Rules reflect an opportunity for payors and providers to “design their own model” through selecting, for example, the patient populations, value-based purposes and activities, quality measures, payment methodologies, referral requirements, and other components of an arrangement without these parameters being prescribed or narrowly defined. At the same time, however, CMS and OIG have included a robust set of requirements and safeguards within each of the new exceptions and safe harbors, which help ensure that the arrangements are structured to drive providers toward clear value-based goals.

For arrangements that are designed and implemented to fit within the parameters set forth in the Final Rules, providers will be able to take advantage of operating outside the purview of many traditional fraud and abuse safeguards. Of particular note, several of the new safe harbors and exceptions:

  • Do not contain a requirement that an arrangement be set at fair market value.

  • Do not require that compensation or other remuneration under an arrangement be set in advance.

  • Do allow for directed referrals of patients to specific providers (so long as a series of conditions and exceptions are accounted for).

  • Do not contain a broad prohibition on remuneration under an arrangement taking into account the volume or value or referrals.

While these flexibilities provide exciting new opportunities for payors and providers—especially when providers are prepared to take on risk—they can only be taken advantage of through careful structured arrangements that satisfy a series of requirements set forth in the Final Rules. Indeed, careful review and understanding of these requirements is, perhaps, heightened for value-based arrangements, as such arrangements may explicitly include provisions that would be expressly prohibited outside of a structured arrangement taking advantage of these value-based safe harbors and exceptions.

II. UNDERSTANDING THE FRAMEWORK OF THE VALUE-BASED SAFE HARBORS AND EXCEPTIONS

The chief focus of this white paper will be a series of three AKS safe harbors and three Stark Law exceptions that reflect a sliding scale of regulatory flexibility for value-based arrangements. This sliding scale is based on degree of risk sharing that is incorporated into the agreement. Intuitively, the greater the amount of risk sharing incorporated into the arrangement, the more flexibility provided under the safe harbor or exception.


AgencyLimited or No Risk ShareSignificant Risk ShareFull Risk ShareOIG/AKS Safe Harbor“Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency Safe Harbor”“Value-Based Arrangements with Substantial Downside Financial Risk”“Value-Based Arrangements With Full Financial Risk”CMS/Stark Law Exception“Value-Based Arrangements”“Value-Based Arrangements with Meaningful Downside Financial Risk to the Physician”“Full Financial Risk”

A. Overview of Key Safe Harbors and Exceptions

An important initial consideration is that there are multiple differing requirements between corresponding Stark Law exceptions and AKS safe harbors. Stakeholders must navigate the requirements under both regulatory regimes for arrangements that potentially implicate each law. Although a number of commenters sought a unified set of requirements between Stark Law and AKS requirements, CMS and OIG rejected this approach, noting the different purposes of each law. In general, CMS provides more flexibility for Stark Law exceptions, given its strict liability standard. In contrast, OIG felt it was appropriate for the AKS—which is an intent-based law—to serve as “backstop” protection for arrangements that implicate both laws. The six safe harbors and exceptions set forth by OIG and CMS are as follows:

i. Limited or No Risk Share Arrangements
  • The AKS Care Coordination Arrangements safe harbor protects in-kind (nonmonetary) remuneration within compliant value-based arrangements that further patient care coordination purposes. This safe harbor requires no assumption of downside risk by parties to a value-based arrangement. One example CMS uses is a skilled nursing facility providing a hospital with staff to assist in coordinating patient care through the inpatient discharge process.

  • The Stark Value-Based Arrangements exception protects physician compensation arrangements that qualify as value-based arrangements, regardless of the level of risk undertaken though the arrangement.

ii. Significant Risk Share Arrangements
  • The AKS Value-Based Arrangements with Substantial Downside Financial Risk safe harbor protects both monetary and in-kind remuneration and offers greater flexibility than the AKS Care Coordination Arrangements safe harbor in recognition of the assumption of an intermediate level of downside risk in a payor arrangement. As detailed below, this safe harbor requires the value-based enterprise (VBE) to take on defined percentages of downside risk.

  • The Stark Meaningful Downside Risk exception is meant to protect remuneration paid under a value-based arrangement where both the physician and VBE take on downside financial risk under a payor arrangement.

iii. Full Financial Risk Share Arrangements
  • The AKS Value-Based Arrangements with Full Financial Risk safe harbor is intended to protect arrangements (including in-kind and monetary remuneration) involving VBEs that have assumed “full financial risk” for a target patient population.

  • The Stark Full Financial Risk Exception only applies to arrangements that involve a VBE taking on full downside risk in a value-based arrangement with an applicable payor. However, unlike the meaningful downside risk exception, it does not require a physician participating in the arrangement to also assume financial risk.

B. New Value-Based Definitions

Although the specific requirements differ as between AKS and the Stark Law, the framework is helpfully similar. CMS and OIG have largely harmonized a series of new definitions that establish this broad framework for understanding the form of arrangements that may be eligible for protection.

Both Final Rules are designed to only protect remuneration occurring under a “value-based arrangement” as part of a VBE. To understand what this means, a helpful place to start can be focusing on what is required to be at the heart of any permissible arrangement—the arrangement’s “value-based purpose.” Every protected arrangement must have, at its core, one or more value-based purposes, which are defined as:

(i) Coordinating and managing the care of a target patient population;

(ii) Improving the quality of care for a target patient population;

(iii) Appropriately reducing the costs to or growth in expenditures of payors without reducing the quality of care for a target patient population; or

(iv) Transitioning from health care delivery and payment mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a target patient population.2

While there may be other goals to an arrangement, at least one of these enumerated value-based purposes is necessary. For example, while cost savings to a provider or maintenance of a current level of quality may very well be legitimate and valuable goals of an arrangement, such goals will not qualify as value-based purposes and will not be sufficient to obtain Stark Law and AKS protection.3

With value-based purposes in mind, the Final Rules define a “value-based activity” as one or more activities reasonably designed to achieve a value-based purpose, which can be the provision of an item or service, the taking of an action, or the refraining from taking an action.4 OIG specified that a value-based activity does not include the making of a referral.5 CMS did not make a similar exclusion6 because the definition of referral in the Stark Law already reflects a policy that referrals are not items or services for which a physician may be compensated. In other words, if the value-based purpose is the goal of an arrangement, the value-based activity is the action intended to accomplish that goal.

Value-based activities must then be set forth in a “value-based arrangement,” which is an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are: (A) the VBE and one or more of its participants, or (B) two or more participants in the same VBE.7

A VBE can be thought of as the network of participants engaging in value-based activities. A VBE might be an accountable care organization (ACO) or clinically integrated network (CIN), although a series of structures for VBEs are permissible. Specifically, a VBE means two or more participants collaborating to achieve at least one value-based purpose, where each participant is a party to a value-based arrangement with the other or at least one other participant in the VBE.8 While a VBE does not need to be a separate legal entity, a VBE must:

(i) Have an accountable body or person responsible for financial and operational oversight of the VBE; and

(ii) Have a governing document that describes the VBE and how the VBE participants intend to achieve its value-based purpose(s).

As referenced above, each value-based purpose (and thus, each value-based arrangement) must identify and be tied to a specific “target patient population.” (TPP). This TPP must be set in advance, selected using legitimate and verifiable criteria, and must further the value-based purpose of the VBE.9


C. Key Limitations to Waivers

While the Final Rules offer exciting new opportunities for providers, payors, and CINs to innovate, it is important at the onset to note several key limitations.

(i) The safe harbors and exceptions require compliance with the technical requirements for each specific type of value-based arrangements. The fact that an arrangement is associated with a legitimate value-based purpose alone will not guarantee that the arrangement will fit within one of the safe harbors or exceptions.

(ii) Much like existing AKS and Stark Law regulations, these safe harbors and exceptions are highly prescriptive, with specific requirements that are set out below. Thus, existing value-based arrangements will likely not satisfy all AKS or Stark Law value-based requirements without review and amendment.

(iii) As shown in the chart below, OIG has not limited the types of individuals and entities that may participate in a VBE. However, the AKS Final Rule prohibits certain types of organizations from relying on value-based safe harbors. These provider types are those that the OIG believe pose heightened fraud and abuse concerns. OIG revised the exclusion of these entities as VBE participants to recognize the role they may have, while denying protections for most arrangements involving these entities. While they are generally excluded from protections under the safe harbors, as discussed below, certain durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) providers and suppliers that qualify as limited technology participants may utilize the care coordination arrangements safe harbor for arrangements involving digital health technology.


Entity TypeCare Coordination Arrangements 42 C.F.R. § 1001.952(ee)Substantial Downside Risk 42 C.F.R. § 1001.952(ff)Full Financial Risk 42 C.F.R. § 1001.952(gg)Providers and SuppliersEligibleEligibleEligiblePharmacies Other Than Compounding PharmaciesEligibleEligibleEligibleCompounding Pharmacies IneligibleIneligibleIneligiblePharmacy-Benefit Managers; Pharmaceutical Manufacturers, Distributors, Wholesalers; Laboratory Companies Physician-Owned DistributorsIneligibleIneligibleIneligibleManufacturer of a Device or Medical Supply (as defined in 42 C.F.R. § 1001.952(ee)(14)(iv))Eligible, but only for in-kind remuneration that constitutes digital health technologyIneligibleIneligibleDMEPOS Suppliers (other than pharmacies or physicians, providers, or other entities that primarily furnish services)Eligible, but only for in-kind remuneration that constitutes digital health technologyIneligibleIneligibleHealth Technology Companies Not Otherwise Covered by an Entity Type on This ListEligibleEligibleEligible

III. DEEP DIVE INTO EXCEPTION AND SAFE HARBOR REQUIREMENTS – LIMITED RISK SHARE ARRANGEMENTS

As part of the effort to provide protections to a continuum of arrangements, the limited risk share arrangements present the least amount of flexibility. While the relevant Stark Law exception and AKS safe harbor provide some protections, it is noteworthy that a significant number of current risk sharing arrangements in the market fall into the limited risk share category. Likewise, the Stark Final Rule includes additional and significant non-value-based changes discussed in this white paper.

A. AKS Safe Harbor – Care Coordination Arrangements

The AKS safe harbor for care coordination arrangements protects in-kind remuneration exchanged between qualifying VBE participants in a value-based arrangement connected to the coordination and management of care of the target patient population.10 Under this safe harbor, each offer of in-kind remuneration among VBE participants must be analyzed separately for compliance with the safe harbor. One key component of this safe harbor is the requirement that the recipient pay 15 percent of either: (i) the offeror’s cost, or (ii) the fair market value of the in-kind remuneration.

OIG provided certain examples of arrangements that could be structured to satisfy the care coordination safe harbor. OIG suggested that the care coordination safe harbor could be used to coordinate care between hospitals and post-acute care providers, specialists and primary care providers, or hospitals and physician practices and patients. Such coordination could involve the use of care managers, providing care or medication management, creating a patient-centered medical home, helping with effective transitions of care, sharing and using health data to improve outcomes, or sharing accountability for the care of a patient across the continuum of care. These arrangements often naturally involve referrals across provider settings, but they include beneficial activities beyond the mere referral of a patient or ordering of an item or service. The OIG stressed that it “sees a clear distinction between coordinating and managing patient care transitions for the purpose of improving the quality of care or improving efficiencies, which would fit in the definition, and churning patients through care settings to capitalize on a reimbursement scheme or otherwise generate revenue, which would not fit in the definition.”11 Likewise, the OIG noted that arrangements involving the provision of data analytics software, care managers, or remote patient monitoring could likely fit within the safe harbor. OIG specifically responded to commenters that income guarantees are not in-kind remuneration and therefore would not qualify for protection under the care coordination arrangements safe harbor.12

This safe harbor does not require parties to bear or assume downside financial risk. The OIG is concerned that the offer or provision of remuneration under value-based arrangements could present opportunities for the types of fraud and abuse traditionally seen in the fee-for-service system, particularly where the parties offering or receiving the remuneration have not assumed downside financial risk for the care of the target patient population. For this reason, and to ensure that the safe harbor arrangements operate to achieve their value-based purposes, the OIG has finalized numerous conditions and safeguards, set forth in detail in the chart below.

B. Stark Law Exception – Value-Based Arrangements

This Stark Law exception applies to physician compensation arrangements that qualify as value-based arrangements, regardless of the level of risk undertaken by the VBE or any of its VBE participants. The exception permits both monetary and nonmonetary remuneration between the parties.

CMS intends for the value-based purpose of the arrangement to relate to the VBE as a whole. The exception does not protect a “side” arrangement between two VBE participants that is unrelated to the goals and objectives (that is, the value-based purposes) of the VBE of which they are participants, even if the arrangement itself serves a value-based purpose.13

C. Takeaway – Many Major Differences Between AKS and Stark Law for Arrangements Without Downside Risk

CMS and the OIG took significantly different approaches as to no- or low-risk sharing arrangements. As a result, there is limited overlap between the requirements of the finalized AKS safe harbor and the Stark Law exception, and if a CIN or ACO wants a no- or low-risk sharing arrangement to be compliance with both the AKS safe harbor and the Stark Law exception, it will need to ensure that the arrangement meets a long list of largely non-overlapping requirements.

That said, one of the key similarities between the finalized AKS safe harbor and the Stark Law exception is the referral requirement. Specifically, both the OIG and CMS finalized requirements that the remuneration within a value-based arrangement not be conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement. This means that the value-based safe harbors and exceptions do not protect arrangements where one or both parties have made referrals—or other business—not covered by the value-based arrangement a condition of the remuneration. One example provided by CMS is that a VBE could not receive protection under a value-based Stark Law exception for a value-based arrangement between an entity and a physician that are VBE participants in the VBE if, as part of the arrangement, the entity requires the physician to refer Medicare patients who are not part of the target patient population for designated health services furnished by the entity.14 Similarly, the value-based AKS safe harbors do not provide protection for value-based arrangements that condition an offer of remuneration on: (i) referrals of patients that are not part of the value-based arrangement’s target patient population, or (ii) business not covered under the value-based arrangement.15

The following chart shows the key requirements under each arrangement:

AKS – Care Coordination ArrangementsStark Law – Value-based ArrangementsScope of Remuneration ProtectedIn-kind remuneration only under arrangements used predominantly to engage in value-based activities that are directly connected to the coordination and management of care for the target patient population and which does not result in more than incidental benefits to persons outside of the target patient population.Monetary and in-kind remuneration paid under a value-based arrangement.Quality and Performance MeasuresVBE participants must establish one or more legitimate outcomes or process measures reasonably anticipated to advance coordination and management of the target patient population.

  • Based on clinical evidence or credible medical or health sciences support;

  • Include one or more benchmarks that are related to improving or maintaining improvements

  • Are monitored, periodically assessed, and prospectively revised as necessary

  • (Relate to the remuneration exchanged under the value-based arrangement

  • Are not based solely on patient satisfaction or patient convenience

Outcome measures, if any, against which the recipient of remuneration will be assessed, must be objective, measurable, and selected based on clinical evidence or credible medical support. Inclusion of outcome measures in a value-based arrangement is optional. Any changes to the outcome measures against which the recipient of the remuneration will be assessed must be made prospectively and set forth in writing. Commercially ReasonableArrangement must be commercially reasonable.Arrangement must be commercially reasonable.Reduce to WritingAgreement must be set forth in contemporaneous writing signed by parties.Agreement must be set forth in contemporaneous writing signed by parties.Contents of AgreementWritten agreement must include:

  • A description of the value based purpose and the value-based activities undertaken under the arrangement.

  • Term of value-based arrangement.

  • The target patient population for the arrangement.

  • A description of remuneration.

  • Either the offeror’s cost for the remuneration and the reasonable accounting methodology used by the offeror to determine its cost or the fair market value of the remuneration.

  • The percentage and amount contributed by the recipient and, if applicable, the frequency of the recipient’s contribution payments for ongoing costs.

  • The outcome or process measures against which the recipient will be measured.

Written agreement must include:

  • A description of value-based activities undertaken under the arrangement.

  • How the value-based activities are expected to further the value-based purpose(s) of a VBE.

  • The target patient population for the arrangement.

  • The type or nature of remuneration.

  • The methodology used to determine the remuneration.

  • The outcome measures against which the recipient of the remuneration is assessed, if any.

Additional Limitations on Remuneration

  • Must be used primarily to engage in value-based activities directly connected to coordination and management of care for the target patient population.

  • Not exchanged or used more than incidentally for the recipient’s billing or financial management services.

  • Cannot be an inducement to reduce or limit medically necessary services.

  • The offeror must not—and should not—know that remuneration is likely to be diverted, resold, or used for an unlawful purpose.

  • Must be for or result from activities undertaken by the recipient for patients in the target patient population.

  • Cannot be an inducement to reduce or limit medically necessary services.

  • Methodology used to determine amount of remuneration must be set in advance.

ReferralsOfferor of remuneration does not take into account the volume or value of, nor condition remuneration on, referrals of patients who are not part of target patient population or for business not covered by the value-based arrangement.Remuneration cannot be conditioned on referrals of patients who are not part of target patient population or for business not covered by the value-based arrangement.Cost-Sharing RequirementRecipient pays at least 15 percent of the offeror’s cost for or the fair market value of the in-kind remuneration (either in advance for one-time costs or at regular intervals for ongoing costs).No similar requirement.Patient Best InterestArrangement does not place any limitations on participants’ ability to make decisions in the best interest of their patients. No similar requirement.Directed Referrals to a Particular ProviderRemuneration can be tied to a requirement to direct referrals to a particular provider, practitioner, or supplier unless:

  • A patient expresses a different preference.