By Beth Anne Jackson and Allison Shelton, Brown & Fortunato, P.C.
In the December 2, 2020 issue of the Federal Register, the Centers for Medicare and Medicaid Services (CMS) and the Office of Inspector General (OIG) published significant changes to the Physician Self-Referral Law (Stark) and Anti-Kickback Statute (AKS) rules. These changes added protections for value-based care arrangements and altered some fundamental tenets of the rules. The revised rules will affect a wide variety of health care arrangements. Some of the significant changes are discussed in this article.
Seeking to promote innovative arrangements that improve quality and lower the cost of care, CMS and the OIG adopted new protections for value-based arrangements. The CMS and OIG rules on “value-based enterprise” arrangements (VBEs) are generally coordinated but not precisely aligned. CMS adopted three new VBE exceptions to the Stark Law for (1) full financial risk VBEs; (2) VBEs with meaningful downside risk to the physician; and (3) VBEs (regardless of the level of risk). CMS also clarified how indirect compensation arrangements are treated within the VBE context. Finally, CMS did not, as previously proposed, exclude entities such as laboratories and durable medical equipment suppliers from the definition of “VBE participant.”
OIG, on the other hand, largely excluded such entities in the AKS safe harbors for VBEs. The new OIG safe harbors include: a care coordination safe harbor that protects in-kind remuneration to advance the management and coordination of care for the population targeted by the VBE; VBEs with down-side risk of at least 5% for VBE participants; CMS-sponsored models; and VBEs with full financial risk. This latter safe harbor provides VBE participants with the most flexibility.
The OIG also made some significant changes that will provide additional flexibility in health care contracts. Most significantly, the personal services and management contracts safe harbor to the AKS no longer requires that the aggregate payment for services be set in advance. Like the corresponding Stark exception, the revised safe harbor will only require the payment methodology to be set in advance. In addition, the safe harbor will no longer require that part-time arrangements have a schedule of services specified in the agreement, allowing parties greater flexibility to schedule services as needed. Finally, the safe harbor will now protect certain outcome-based payment arrangements.
The CMS rules clarified several definitions that occur throughout the Stark rules, including three key terms: commercial reasonableness; fair market value; and the volume or value and other business generated standard. With respect to commercial reasonableness, CMS added a definition of “commercially reasonable” that specifically states that an arrangement can be commercially reasonable even if it does not result in profit for one or more of the parties. This answers the long-standing question of whether a Stark violation occurs simply because a hospital loses money on a physician practice it owns. Rather than looking only at profit, CMS advises parties to focus on whether the arrangement furthers a legitimate business purpose of the parties and is sensible given the circumstances.
“Fair market value” is now defined as “the value in an arm’s-length transaction, consistent with the general market value of the subject transaction.” “General market value” is defined within the context of the subject transaction– that is, asset purchases, compensation for services and rental of equipment or office space. The preamble to the new Stark rules clarifies that the requirement that compensation not take the volume or value of referrals or other business generated by the physician into account is not part of the definition of “fair market value,” but rather a separate and distinct requirement. This standard is violated only when the compensation formula directly takes into account, and varies with, the volume or value of referrals or other business generated between the parties.
Other provisions of the new Stark rules provide greater flexibility for providers. For example, hospitals and physicians can commence arrangements without a previously signed agreement if the parties document and sign an agreement within 90 days. In the interim, however, all other elements for meeting the relevant compensation exception must be met. Such agreements can be signed using electronic signatures that are valid under state and federal law. Perhaps more importantly, CMS revised the Stark rules so that compensation may be changed prospectively at any time during the course of an arrangement. Previously, compensation could only be changed after the initial twelve-month term of an agreement.
These CMS and OIG rules, which are effective January 19, 2021, represent the first major changes to the Stark Law and AKS in years. Health care lawyers will spend the holidays digesting these complex rules and their implications. When structuring arrangements in the new year, providers will want to consult with qualified legal counsel to determine how these changes will affect their financial arrangements.