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January 14, 2021

Health Law Daily

The Transformative Possibilities of the Value-Based Fraud & Abuse Reforms

This Briefing is brought to you by AHLA’s Payers, Plans, and Managed Care Practice Group.
  • January 14, 2021
  • Jeff Wurzburg , Norton Rose Fulbright US LLP
  • Joseph Keillor , Norton Rose Fulbright US LLP
  • Denise Glass , Norton Rose Fulbright US LLP

In what is likely the most substantial fraud and abuse rulemaking in over a decade, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) and Centers for Medicare & Medicaid Services (CMS) published on November 20, 2020, long-awaited final rules changing the regulations addressing the Anti-Kickback Statute (AKS) and Civil Monetary Penalties for Beneficiary Inducements (CMP),[1] and the Physician Self-Referral Law (Stark Law),[2] respectively. Commercial payers have played a significant role in the shift to value and the AKS final rule references a study finding that payers that adopted value-based payment models “reduced health care costs by an average of 4.6 percent, improved provider collaboration, and created more impactful member engagement.”[3] The final rules significantly reduce barriers for payers and providers to continue to collaborate and innovatively move towards increased risk sharing and other value-based care models.

A new three-tiered Stark Law exception for value-based arrangements and three similar but non-identical AKS safe harbors are generally viewed as the most critical parts of the final rules. For payers, this is doubly so, as the value-based changes should affect payer agreements and arrangements downstream of payer agreements, in each case reducing regulatory barriers to innovative value-based payment models. This increased flexibility appears to reflect a significant opportunity for payers and their downstream providers to pursue bolder value-based arrangements and may constitute a significant tailwind to the evolution away from pure fee-for-service arrangements.

Both rules were part of the HHS Regulatory Sprint to Coordinated Care and are the culmination of a multi-year effort that began with CMS and OIG issuing requests for information in September 2018 and issuing proposed rules in October 2019.[4] The final rules will become effective on January 19, 2021, the day before the Biden administration is sworn into office. Given the generally positive reception from stakeholders and longstanding interest in modifying the Stark and AKS regulations to permit greater utilization of value-based reimbursement, it is not expected that the incoming administration will seek to significantly change these final rules.

Stark Law Value-Based Exception

In finalizing the new exception, CMS touts that it boldly “depart[s] from the historic exceptions to the [Stark Law] in order to facilitate the transition to a value-based health care delivery and payment system.”[5] The three tiers of the exception are based on the level of risk borne by the parties to the arrangement, i.e., full financial risk, meaningful downside financial risk (softened in the final rule to a 10% threshold from the proposed rule’s 25% threshold[6]), and care coordination arrangements with no or lower risk. Greater flexibility is provided for higher-risk arrangements on the assumption that such arrangements inherently have disincentives to at least partially curb overutilization.

The value-based arrangements exception is built on a series of interwoven definitions such as “value-based activity,” “value-based arrangement,” “value-based enterprise (VBE),” “value-based purpose,” “VBE participant” and “target patient population.”[7] The definitions are necessarily formal as CMS and OIG strived to capture a broad universe of potential arrangements between varied types of parties. Yet, straightforward arrangements can readily satisfy the definitional thresholds.

For example, imagine a physician-hospital arrangement—that happens to be downstream of a payer-hospital arrangement focused on high-value care—in which the hospital incented a physician group to enhance the quality of care to surgical patients, including through the postoperative phase, with a goal of improving outcomes such as reducing readmissions. In this example, the payer-hospital arrangement itself likely would not have implicated the Stark Law, but the downstream physician-hospital arrangement would generally need to satisfy a Stark Law exception. Here, the “value-based enterprise” would simply be the miniature ‘network’ of the hospital and the physician group (as governed by the contract between the parties), the “value-based purpose” would be to improve the quality of care to surgical patients, and the “value-based activity” could be the physicians group’s efforts to develop and adhere to redesigned care protocols. Under this new exception, the hospital and physician parties would have greater flexibility in structuring the compensation payable to the physician group, as, for example, the parties would not need to satisfy—at least for Stark Law purposes—the element of ‘fair market value,’ which does not always cleanly fit into the value-based context. Through the hospital having such enhanced flexibility in aligning incentives in its physician contracting, it might be more willing to enter into a bold value-focused arrangement with the payer in the first instance, as the hospital can now likely be more confident in its ability to perform well under the arrangement with the payer.

Another illustrative example of the application of the final rule involves joint venture entities formed by payers and providers. In recent years, some payers have pursued a model in which the payer and a multispecialty physician group form a joint venture entity to operate clinics for high-risk patients. Depending on the scope of services offered at such clinics (e.g., imaging, lab), the services agreement between the joint venture and the physician group regarding the physician group’s provision of services at such entity could readily implicate the Stark Law. Under the new value-based exception, the parties can have substantially more flexibility in structuring the compensation payable to the physician group than would be available under traditional Stark Law exceptions, enhancing the ability of the parties to appropriately align incentives.

The final rule was largely consistent with the proposed rule, resulting in an exception that should be fairly flexible. However, in the final rule, for arrangements below the meaningful downside risk threshold, (1) CMS added a “commercially reasonable” element[8] and (2) was more prescriptive regarding active monitoring of whether an arrangement is in fact furthering its value-based purpose(s), with express requirements to promptly amend or terminate arrangements that are not found to be furthering their value-based purpose(s).[9] The table below summarizes the elements applicable to each tier of the exception.[10]

Element

Full Risk

Meaningful Downside Risk

Value-Based

No inducement to reduce medically necessary items/services; remuneration is for value-based activities undertaken for the target patient population,* standard limitations on required referrals; six-year record-keeping requirement

Yes

Yes

Yes (* with express monitoring requirement)

Any performance/quality standards must be written, objective/measurable, with only prospective changes

No

No express element

Yes

Set in advance requirement

No

Yes

Yes

Signed writing requirement?

Very Limited

Limited

Yes

Commercially reasonable requirement

No

No

Yes

Volume/value of referral or other business generated prohibition?

No

No

No

Fair market value requirement

No

No

No

 

AKS Value-Based Safe Harbors

Recent years have seen an increase in commercial risk-based contracting that seeks to improve quality of care while reducing spending. To minimize risk and avoid scrutiny, many commercial accountable care organizations (ACOs) have structured themselves along the lines of the Medicare Share Savings Program. In fact, the Regulatory Impact Statement in OIG’s final rule cites to certain examples where commercial payers have had successful outcomes employing risk sharing mechanisms.[11] While strictly commercial entities without a connection to a federal health care program are not at direct risk of running afoul of the AKS, it is important to realize that even an arrangement focused on commercial patients can pose risk. The final rule reiterates that:

Generally speaking, the Federal anti-kickback statute is not implicated for financial arrangements limited solely to patients who are not Federal health care program beneficiaries. However, to the extent the offer of remuneration pursuant to an arrangement involving only non-Federal health care program beneficiaries is intended to pull through referrals of Federal health care program beneficiaries or business, the Federal anti-kickback statute would be implicated and potentially violated.[12]

The OIG finalized three value-based safe harbors designed on a sliding scale like the similar Stark exception, in that the more significant the financial risk undertaken by the participants, the greater the flexibility provided by the AKS safe harbors. The OIG states that “[a]n overarching goal of our proposals was to develop final rules that protect low-risk, beneficial arrangements without opening the door to fraudulent or abusive conduct that increases Federal health care program costs or compromises quality of care for patients or patient choice.”[13]

The OIG and CMS underscored that there are some differences between the Stark Law’s value-based arrangements exception and the corresponding AKS safe harbors promulgated in the OIG’s final rule, even if the basic definitional framework is quite similar. The OIG noted their intent to align value-based terminology and safe harbor conditions with those being finalized by CMS, but added that “complete alignment is not feasible because of fundamental differences in statutory structures and sanctions across the two laws.”[14] Additionally, the OIG stated that the AKS final rule is intended to “provide ‘backstop’ protection for Federal health care programs and beneficiaries against abusive arrangements that involve the exchange of remuneration intended to induce or reward referrals under arrangements that could potentially satisfy the requirements of an exception to the physician self-referral law.”[15]

All three safe harbors protect in-kind remuneration, but—in a key departure from the corresponding Stark Law exception—monetary remuneration is only protected under the substantial downside financial risk and full financial risk safe harbors. The three value-based safe harbors are as follows:

Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency. This safe harbor applies to VBE participants that have little or no financial risk and it only protects in-kind remuneration. To meet the safe harbor, the value-based arrangement must meet at least one evidence-based outcome measure. The parties must establish legitimate outcome or process measures that the parties reasonably anticipate will advance the “coordination and management of care for the target patient population based on clinical evidence or credible medical or health science support.”[16] The arrangement must be commercially reasonable and the offeror of the remuneration may not take into account the volume or value of, or condition the 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.”[17] The recipient of remuneration must contribute at least 15% of the offer’s cost or the FMV of the in-kind remuneration.

Value-based arrangements with substantial downside risk. This safe harbor protects in-kind and monetary remuneration between VBEs and VBE participants. Many of the safe harbor’s elements align with the Care Coordination safe harbor but also requires substantial downside financial risk for at least one year. VBE participants are required to “meaningfully share” in downside, meaning at least 5% of the losses and savings (OIG had proposed 8%). The shared savings and losses threshold is reduced in the final rule to 30%, from the 40% threshold that was proposed. A 20% threshold is required for clinical episodes of care.

Value-based arrangements with full financial risk. This safe harbor covers monetary and in-kind remuneration between a VBE and VBE participant. To have full financial risk, “the VBE is financially responsible on a prospective basis for the cost of all items and services covered by the applicable payor for each patient in the target patient population for a term of at least 1 year.”[18]

One example of value-based arrangement would be a commercial ACO that provides bonus payments connected to quality outcomes or shared savings and losses. The final rule provides that protection under the full financial risk safe harbor is dependent on the VBE assuming full financial risk for items and services, but does not require assumption of “other functions from the payor, such as enrollment, grievance and appeals, solvency standards, and other administrative functions performed by payors.”[19] The final rule offers the example of a VBE at full financial risk “if it contracts or enters into a value-based arrangement with a Medicare Advantage plan to receive a prospective, capitated payment for all items and services covered by a Medicare Advantage plan for a target patient population.”[20] The OIG also recognizes that some state laws may hinder the ability for an entity to take on full risk without meeting certain licensure requirements. The final rule makes clear that the value-based safe harbors do not preempt state law. Other safe harbors may be available to parties unable to structure an arrangement that satisfies the conditions of the safe harbor.[21] A VBE may utilize reinsurance or risk adjustment arrangements or use reinsurance payments to reimburse VBE participants for losses incurred.[22]

Throughout the final rule, the OIG states that they have placed “guardrails” to “prevent fraud and abuse under the guise of a value-based arrangement.”[23] Similarly, the OIG reiterates the longstanding principle that failing to meet a safe harbor does not make an arrangement unlawful. Instead, “[a]rrangements that do not fit in a safe harbor are analyzed for compliance with the Federal anti-kickback statute based on the totality of their facts and circumstances, including the intent of the parties.”[24]

The final rule permits, in a change from the proposed rule, any type of actor to be a value-based participant (VBP). However, despite their ability to participate as a VBP, the following entity types are ineligible to use the value-based safe harbors to protect remuneration: pharmaceutical manufacturers, distributors, and wholesalers; pharmacy benefit managers; 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 Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); and medical device distributors and wholesalers.[25] The final rule acknowledges that digital health can play an important role in care coordination. The OIG creates a special pathway for medical device manufacturers and medical supply and DMEPOS companies to be eligible under the care coordination arrangements safe harbor. The entities are considered “limited technology participants” under the final rule.

Therefore, while the OIG creates a wider umbrella for entities to participate in VBEs, it will be critical to track remuneration between these entities and the VBE/VBE participants because certain remuneration will not be protected under the safe harbor. The table below summarizes the elements applicable to each tier of the safe harbors.[26]

Element

Full Risk

Meaningful Downside Risk

Care-Coordination

In-Kind Contributions Only

No

No

Yes

Legitimate and verifiable criteria

No

No

Yes

Set in advance requirement

No

Yes

Yes

Signed writing requirement?

Yes

Yes

Yes

Commercially reasonable requirement

No

No

Yes

Volume/value of referral or other business generated prohibition?

Yes

Yes

Yes

Applies to Participant-Participant Arrangements?

No

No

Yes

Evidence of compliance to HHS (upon request)

Yes

Yes

Yes

 

The Congressional Review Act

These final rules were released informally in pre-publication form on the Federal Register website on November 20, 2020. The Congressional Review Act provides that a major rule “shall take effect” 60 days after it is “published in the Federal Register.”[27] A “major rule” has an annual effect on the economy of at least $100,000,000.[28] The final rules list the effective date as January 19, 2021. However, the actual publication date in the Federal Register is December 2, 2020, which would mean the final rules would not become effective until after inauguration day. It is the “official format of a Federal Register document provides legal notice to the public and judicial notice to the courts under 44 U.S.C. 1507.”[29] This is an unsettled question of law as to whether the 60-day clock begins with informal public display or actual publication in the Federal Register. Historically, an incoming administration will issue a memorandum on inauguration day that places a hold on any regulation that has not been finalized. The incoming Biden administration has already announced they will issue a memorandum on January 20.[30] Whether the administration will consider these final rules subject to the memorandum is presently unknown. However, many stakeholders reacted positively to the final rules[31] and had long been requesting reforms to align with changes in reimbursement. Therefore, the more likely approach will be modifications through future notice-and-comment rulemaking that align with the Biden administration’s approach to value-based reimbursement.

 

[1] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 85 Fed. Reg. 77684 (Dec. 2, 2020).

[2] Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations, 85 Fed. Reg. 77492 (Dec. 2, 2020).

[3] 85 Fed. Reg. at 77883.

[4] Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations, 84 Fed. Reg. 55766 (Oct. 17, 2019); Medicare and State Healthcare Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 84 Fed. Reg. 55694 (Oct. 17, 2019).

[5] 85 Fed. Reg. at 77496.

[6] 85 Fed. Reg. at 77515.

[7] 85 Fed. Reg. at 77661-62 (to be codified at 42 C.F.R. § 411.351).

[8] 85 Fed. Reg. at 77509.

[9] 85 Fed. Reg. at 77520.

[10] See generally 42 C.F.R. § 411.357(aa).

[11] 85 Fed. Reg. at 77883.

[12] 85 Fed. Reg. at 77693.

[13] 85 Fed. Reg. at 77688.

[14] 85 Fed. Reg. at 77689.

[15] 85 Fed. Reg. at 77689.

[16] 85 Fed. Reg. at 77727.

[17] 85 Fed. Reg. at 77739.

[18] 85 Fed. Reg. at 77892.

[19] 85 Fed. Reg. at 77771.

[20] 85 Fed. Reg. at 77775.

[21] See 85 Fed. Reg. at 77771.

[22] 85 Fed. Reg. at 77774.

[23] 85 Fed. Reg. at 77740.

[24] 85 Fed. Reg. at 77685.

[25] 85 Fed. Reg. at 77685.

[26] See generally 42 C.F.R. § 1001.952(ee), (ff), (gg).

[27] 5 U.S.C. § 801(a)(3).

[28] 5 U.S.C. § 804(2).

[30] Jonathan Easley, Biden Aims to Freeze Trump’s ‘midnight regulations’, The Hill, Dec. 30, 2020, https://thehill.com/homenews/administration/532119-biden-aims-to-freeze-trumps-midnight-regulations.  

[31] See Am. Hosp. Ass’n, HHS Releases Final Rules Removing Barriers to Coordinated Care, Nov. 23, 2020, https://www.aha.org/news/headline/2020-11-23-hhs-releases-final-rules-removing-barriers-coordinated-care.