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December 7, 2020

Stark and Anti-Kickback Rules Finalized

Stark and Anti-Kickback Rules Finalized
After considering comments responding to the proposed rule published in October 2019, the Centers for Medicare and Medicaid Services (“CMS”) and Office of the Inspector General (“OIG”) finalized extensive changes to the Stark and Anti-Kickback regulations (the “Stark Final Rule” and “AKS Final Rule”) and the Civil Monetary Penalties (“CMP”) Law (collectively, the “Final Rules”) as part of the “HHS Regulatory Sprint to Coordinated Care” aiming to remove barriers to coordinated care and value-based care.  These Final Rules went on display at the Federal Register on November 20, 2020 and were published in the Federal Register on December 2, 2020.  Generally, the Final Rules will take effect on January 19, 2021. A brief overview of the Final Rules is below, the AKS Final Rule (with CMP) is available here and the Stark Final Rule is available here.
Electronic Health Records (EHR) and Cybersecurity Changes
The Final Rules revised the electronic health record (“EHR”) Stark exception and Anti-Kickback safe harbor and eliminated the sunset provisions. The Stark and AKS Final Rules clarify that donations of certain cybersecurity software and services are permitted under the EHR exception and also permit physicians to pay their portion of EHR costs at reasonable intervals rather than requiring payment in advance prior to receipt of items and services. The Final Rules also made changes to be consistent with the 21st Century Cures Act with respect to interoperability and information blocking.  Notably, the Final Rules also remove the requirement that donors must ensure they are not providing equivalent EHR technology, in order to allow for “replacement” of EHR technologies.
New Value-Based Model Stark Exceptions and Anti-Kickback Safe Harbors
In the Final Rules, CMS and OIG acknowledge that the Stark and AKS laws originally contemplated a “fee for service” payment environment, which resulted in an unnecessary chilling effect on certain risk-sharing models.  The Final Rules aim to facilitate certain risk-based payment structures by creating three new “value-based” permissible payment methodologies under both Stark and AKS.  The value-based payment methodologies are:

  • Full financial risk;
  • Value-based arrangements with meaningful downside financial risk to the physician; and
  • Value-based arrangements.

These new “value-based model” exceptions and safe harbors involve similar arrangements and terminology (but the requirements do not exactly mirror each other) and support arrangements designed to achieve one or more of the following purposes:

  • Coordinating and managing the care of a target patient population;
  • Improving the quality of care for a target patient population;
  • Appropriately reducing the costs to or growth in expenditures of payors without reducing the quality of care for a target patient population; or
  • 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.

Notably, the new value-based Stark exceptions do not require that compensation be set in advance, consistent with fair market value, or determined in manner that does not take into account the volume or value of the physician’s referrals or other business generated by the physician.

Unlike the new Stark value-based exceptions, the new Anti-Kickback safe harbors impose restrictions on the parties eligible to use the new value-based safe-harbors. According to the OIG, certain entities which are not on the front line of care coordination are ineligible for protection under certain of the new safe harbors.  These entities include: pharmaceutical manufacturers, distributors, and wholesalers; PBMs; laboratory companies; pharmacies that primarily compound drugs or primarily dispense compounded drugs; manufacturers of devices or medical supplies; entities or individuals that sell or rent DMEPOS (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); physician owned distributors (“PODs”); and medical device distributors and wholesalers. In certain situations, manufacturers of devices or medical supplies and DMEPOS may qualify for protection under the care coordination arrangements safe harbor.

Other Stark Changes Related to Value-Based Models
In addition to creating new exceptions, CMS further modified the compensation rules to allow for group practices to compensate physicians through certain risk-bearing arrangements and value-based incentives as further described below.

Indirect Compensation.  In some cases,  a physician compensation model under a value-based arrangement might take into account the volume or value of referrals or other business generated by the physician to  the entity or may not be fair market value for specific items or services provided by the physician  which  created  issues with related to satisfying the requirements of the  indirect compensation exception under 42 C.F.R. §411.357(p). In order to address this issue  the Stark Final Rule allows a physician’s referrals to an entity when an indirect compensation arrangement includes a value-based arrangement to which the physician (or the physician organization in whose shoes the physician stands) is a direct party, provided the link closest to the physician is a compensation arrangement that meets the definition of “value-based arrangement” as defined in the Stark Final Rule.

Additionally, compensation made under risk-sharing arrangements may not always be consistent with fair market value. CMS narrowed “indirect compensation arrangements” to include only those arrangements where the individual unit of compensation is not fair market value, or the individual unit of compensation received by the physician is calculated using a formula that varies with the referrals of the physician or varies with the other business generated by the physician in a way that positively correlates to the compensation received by the physician as indirect compensation. While CMS acknowledged this could create many more unbroken chains of financial relationships not requiring a writing, CMS cautioned that best practice is to have a written agreement.

Group Practice Compensation.  CMS finalized changes to the group practice compensation rules for profit sharing and productivity bonuses deeming profits directly attributable to a physician’s participation in a value-based enterprise as not relating to the “volume or value” of the physician’s referrals.  CMS delayed the effective date of this change until January 1, 2022 to allow group practices time to modify their compensation arrangements.

Additionally, CMS confirmed that groups may use the “component of five” rule allowing for distribution of overall profits of all DHS for the whole group or any component of the group of five or more physicians so long as profits are aggregated before distribution. CMS rejected comments that DHS could be distributed to “components of five” based on a service-by-service basis, such as laboratory tests or x-rays.

Key Stark Concepts Clarified
Commercial reasonableness, fair market value, and the volume or value of services are concepts common to many Stark exceptions. CMS confirmed in the Stark Final Rule that each of these terms are separate and distinct and attempted to provide additional clarity regarding each of these concepts, which historically have not been well defined.

Commercial Reasonableness. In determining commercial reasonableness, CMS commented that the key consideration is whether the arrangement makes sense in accomplishing the parties’ goals. As a result, a commercial reasonableness assessment must be a fact-specific analysis from the perspective of the parties involved in the arrangement. CMS specified that determination of commercial reasonableness does not involve valuation nor does it require that  the arrangement will be profitable. Rather, under the Stark Final Rule the definition of “commercially reasonable” means an arrangement that furthers a legitimate business purpose of the specific parties to the arrangement and is sensible, considering the size, type, scope, and specialty of the parties.

Volume or Value Standard and the Other Business Generated Standard.  CMS still has not defined volume or value but did codify the meaning of the term “volume or value of referral and other business generated” within the special rules on compensation to and from physicians. According to the Stark Final Rule, physician compensation “takes into account the volume or value of referrals or other business generated” only when the formula used to calculate compensation to or from a physician includes the volume or value of referrals or other business generated as a variable, either increasing or decreasing the amount of compensation in a way that directly correlates with referrals or other business generated.

Fair Market Value and General Market Value.  The Stark Final Rule finalized the definition of “fair market value” to mean the value in an arm’s-length transaction consistent with the “general market value” of the subject transaction. In other words, the valuation should not take into account the particular value between the parties.  For example, when evaluating equipment, fair market value must be determined considering the value created by its intended use.  Similarly, while in reality real estate valuation often revolves around “location, location, location!” an office space lease valuation for Stark purposes should focus on use of the space for general commercial purposes without any adjustment to reflect the additional value the prospective lessee or lessor would attribute to patient convenience or proximity to a particular referral source.

The Stark Final Rule also finalized the definition of “general market value” related to each type of transaction (asset acquisition, compensation for services, and rental of equipment or office space) but did not include its proposal to equate general market value with market value. All definitions are based on the bona fide bargaining between a well-informed buyer and seller that are not in a position to refer to each other.

Notably, CMS indicated that there may be legitimate reasons for why arm’s length negotiations between parties may result in a different amount of compensation than what the market typically pays. For example, a salary survey indicating that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital. However, if the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate;  this particular physician may command a significantly higher salary and according to CMS compensation substantially above $450,000 per year may be fair market value for this particular orthopedic surgeon.

Other Changes to Stark Regulations
In addition to value-based model changes, CMS finalized several new rules and revised several others which will be helpful in addressing administrative and other historically problematic or confusing Stark compliance issues. We think several of these will be very useful in addressing common Stark compliance challenges and recommend a careful review of the regulatory language and commentary.

Reconciliation of Compensation Errors.  CMS added a new rule that allows parties to reconcile compensation errors for up to 90 days after a compensation arrangement ends. 42 C.F.R. §411.353(h).

Limited Remuneration to a Physician.  This new exception allows for the provision of limited remuneration to a physician if certain requirements are met, including instances when the amount of, or a formula for, calculating the remuneration is not set in advance of the provision of items or services and the remuneration does not exceed an aggregate of $5,000 per calendar year. 42 C.F.R. §411.357(z).  We note this exception could be helpful in addressing compensation to a physician without a signed agreement and CMS specifically stated this exception may be used in conjunction with the special rules that allow 90 days to document and sign an arrangement.

Electronic Signatures. CMS has included a new provision specifically allowing electronic signatures that are valid under federal or state law. 42 C.F.R. §411.354(e)(3).

Patient Choice and Directed Referrals. Under the special rule for directed referrals, an entity is permitted to direct a physician who is a bona fide employee, independent contractor, or party to a managed care contract, to refer to a specific provider, practitioner, or supplier. CMS finalized its proposal to add specified conditions designed to preserve patient choice, comply with insurer’s determinations, and protect the physician’s judgment as to the patient’s best medical interests requirements to §411.354(d)(4) as an element of the exceptions for the following:

  • § 411.355(e) for academic medical centers;
  • § 411.357(c) for bona fide employment relationships;
  • § 411.357(d)(1) for personal service arrangements;
  • § 411.357(d)(2) for physician incentive plans;
  • § 411.357(h) for group practice arrangements with a hospital, §411.357(l) for fair market value compensation, and
  • § 411.357(p) for indirect compensation arrangements.

CMS also added a condition that neither the existence of a compensation arrangement nor the amount of compensation may be contingent on the volume or value of referrals to a particular provider, practitioner, or supplier. However, an arrangement, may require that the physician refer an established percentage or ratio of the physician’s referrals to a particular provider, practitioner, or supplier.

Compensation Documentation and Set in Advance.  CMS added the ability to document and sign agreements within 90 days of the beginning of the arrangement to the special rules on compensation arrangements. The arrangement must satisfy all requirements of an applicable exception except for the writing and signature, and the 90-day period does not apply to agreement modifications/amendments.

The Final Stark Rule also added flexibility to the “set in advance” requirements so that compensation may be amended during the term of an agreement so long as the new compensation is not based on the volume or value of referrals. Importantly, the change can occur at any time, including the first year, as long as all of the requirements of an applicable exception are met as of the date of the  amendment; the new compensation (or formula) is set prior to the furnishing of the items, services, office space, or equipment; and the new compensation (or formula) is set forth in writing in sufficient detail so that it can be objectively verified. Importantly, the new compensation need not remain in place for a year and there is no limit to the number of times that the compensation may be amended during the term of an agreement.

Revisions to Definitions.  CMS finalized revisions to several definitions including: (i) designated health services; (ii) physician; (iii) referral; (iv) remuneration; and (v) transaction. Importantly, CMS confirmed that an isolated transaction does not include a single payment for multiple services over an extended period of time, but does include a payment made to forgo compensation in a bona fide dispute.

Fair Market Value Compensation Exception-Office Space.  CMS finalized extending the exception for fair market value compensation arrangements to office space leases. The prohibitions on per unit of service and percentage-based arrangements are incorporated into the fair market value exception for office space leases, but notably a one-year term is not required (unlike many other Stark exceptions).

Eliminated Period of Disallowance. CMS finalized its proposal to delete the rules on the period of disallowance in their entirety due to the confusion surrounding the ways it had been interpreted.

Removing Link to AKS and other Laws.  CMS stated generally compliance with the AKS and federal and state laws or regulations governing billing or claims submission are no longer necessary requirements of the exceptions to the physician self-referral law. Accordingly, the Stark Final Rule removes this requirement from all physician self-referral law exceptions other than the fair market value exception at 42 C.F.R. §411.357(l).

Anti-Kickback Statute Safe Harbor Changes
In addition to creating new safe harbors, the OIG finalized various changes and clarifications to existing safe harbors, as further described below.

Personal Services and Management Contracts Safe Harbor. In addition to creating new value-based exceptions, the OIG made changes to the personal services and management contracts safe harbor to address potential issues that could be created by risk-sharing arrangements.

The personal services and management contracts safe harbor was revised to permit certain outcome-based payment arrangements, which must be based on the achievement of measures with clinical evidence or credible medical support. The safe harbor requires that payments for any such arrangement measurably improve or maintain care or materially reduce costs. The safe harbor does not cover:

  • Outcomes measures related solely to patient satisfaction or patient convenience;
  • Outcomes-based payments that relate only to internal cost savings; and
  • Relationships with pharmaceutical manufacturers, distributors, wholesalers, PBMs, laboratory companies, compound pharmacies, certain device manufacturers, and durable medical equipment suppliers.

In addition, the “set in advance” requirement for this safe harbor was modified so that the only compensation methodology (and not the aggregate payment) need be set out in advance. Also, the OIG removed the requirement that part-time arrangements have a schedule of services specifically set out as part of the written agreement.

Modification to the Warranty Safe Harbor.  This safe harbor was modified to allow protection for a bundle of one or more items and related services, provided the items and services are all paid for by the same payor and under the same payment, subject to a cap for compensation paid under the warranty at the amount paid for the item(s) or bundle of items and services. The safe harbor does not cover:

  • Population-based warranties that do not receive safe harbor protection; and
  • Service-only warranties.

Modification to Local Transportation Safe Harbor.  The AKS Final Rule finalized modifications to this safe harbor with some changes to the proposed rule. The OIG expanded the mileage limits up to 75 miles (from 50 miles in the Proposed Rule) for residents in rural areas and eliminated any distance requirement for conveying inpatients to their residence upon discharge. Additionally, the finalized modifications permit ride-sharing arrangements.

ACO Beneficiary Incentive Program Safe Harbor.  The Balanced Budget Act of 2018 included a statutory provision excluding incentive payments made to a beneficiary who receives such payments as part of the ACO Beneficiary Incentive Program. The OIG codified the Balanced Budget Act provision as a new safe harbor without modification at 1001.952(kk), which protects incentive payments made by an ACO to an assigned beneficiary under a beneficiary incentive program established under Section 1899(m) of the Act if the incentive payment is made in accordance with the requirements found in Section 1899(m) of the Act.

Civil Monetary Penalty (“CMP”) Changes
The Final Rules amend Beneficiary Inducements CMP regulations at 42 CFR 1003 to allow for providing telehealth technologies to end-stage renal disease (ERSD) patients receiving home dialysis treatment without violating beneficiary inducement prohibitions.  “Telehealth technologies” are defined (more broadly than in the proposed rule) to include hardware, software, and services that support distant or remote communication between the patient and provider, physician, or renal dialysis facility for the diagnosis, intervention, or ongoing care management. The Final Rules modify the OIG’s proposed rule by removing most of the additional proposed conditions and proposed regulatory text language that were not in the exception set forth in the Creating High-Quality Results and Outcomes Necessary to Improve Chronic Care Act of 2018. For example, the OIG did not finalize the following requirements:
  • The technology “is not of excessive value”;
  • The technology is not duplicative of technology that the beneficiary already owns if that technology is adequate for the telehealth purposes; and
  • The provider of services or a renal dialysis facility does not bill Federal health care programs, other payors, or individuals for the telehealth technologies, claim the value of the telehealth technologies as a bad debt for payment purposes under a Federal health care program, or otherwise shift the burden of the value of the telehealth technologies onto a Federal health care program, other payors, or individuals.

For questions regarding this client alert, please contact:
Lara Compton, Partner
[email protected]

Regina Trainor, Of Counsel
[email protected]

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