Reed Smith In-depth

On Friday, November 20, 2020, the Department of Health and Human Services (HHS) gave everyone an early holiday present when it released complementary rules to modernize and clarify the regulations that interpret the Physician Self-Referral Law (the Stark Law) and the federal Anti-Kickback Statute as part of its Regulatory Sprint to Coordinated Care. In a press release, HHS states these final rules deliver on its promise to “provide greater flexibility for healthcare providers to participate in value-based arrangements and to provide coordinated care for patients[, and] . . . ease unnecessary compliance burden[s] . . ., while maintaining strong safeguards to protect patients and programs from fraud and abuse.”

As discussed in our client alerts last fall (Part One and Part Two), these rules mark the most recent effort by HHS to establish exceptions and safe harbors to appropriately tailor the reach of the Stark Law’s strict-liability-based civil penalties and the Anti-Kickback Statute’s criminal penalties to protect from enforcement certain non-abusive and beneficial arrangements. HHS notes in both final rules that these rules are the culmination of its effort to address concerns within the health care industry that these laws, as well as the Civil Monetary Penalty (CMP) Law, have operated as barriers to the delivery of value-based care to improve quality of care, health outcomes, and efficiency. Both final rules incorporate and address the over 650 comments submitted by industry stakeholders in response to the proposed rules released on October 17, 2019.

The final rules, which span over 1,600 pages in current form, are a product of coordination between Centers for Medicare & Medicaid Services (CMS) and Office of Inspector General (OIG), which sought to align the regulations where appropriate. However, both OIG and CMS acknowledge that complete alignment between the two final rules is not feasible given the fundamental differences between the civil, strict-liability-based Stark Law and the criminal, intent-based Anti-Kickback Statute. Indeed, CMS states that the agencies agreed to allow the Anti-Kickback Statute safe harbors to serve as the “backstop” protection against abusive value-based arrangements that may otherwise satisfy a new, value-based Stark Law exception. We therefore discuss each final rule in turn below.

Stark Law value-based arrangements - final rule

CMS begins its final rule with a lengthy discussion of the history behind the Stark Law and the changes in the United States health care delivery and payment systems that have called into question the continued utility of existing Stark Law exceptions to address present needs. To address those changes and the potential risks of abuse present in value-based arrangements, such as underutilization, cherry-picking, lemon-dropping, and manipulation of data to verify outcome measures, CMS rejected the request made by some commenters for one value-based exception, and instead finalized its proposed “tiered” value-based rules and exceptions with minimal changes.

Specifically, CMS established three “new, permanent exceptions to the physician self-referral law for value-based arrangements and definitions for terminology integral to such a system,” codified at new 42 CFR Sections 411.357(aa)(1)-(3): (i) value-based arrangements with full financial risk, (ii) value-based arrangements with meaningful downside financial risk; and (iii) any value-based arrangement provided the enumerated requirements are met. Essential to the application of these three exceptions are the definitions for a value-based arrangement, value-based activities, a value-based enterprise, value-based enterprise participants, a value-based purpose, and a target patient population. CMS finalized these definitions as proposed, with a few noteworthy comments and modifications, including:

  • Referrals are not explicitly excluded from the definition of “value-based activity”; however, referrals generally are not items or services for which a physician may be compensated under the Stark Law.
  • CMS finalized its definition of “value-based arrangement” to clarify that such arrangements must be among only parties within the same value-based enterprise.
  • Maintenance of quality of care will not be considered a permissible value-based purpose absent a reduction of costs to, or growth in expenditures of, the payor. While maintaining quality is important, CMS does not believe that permitting remuneration for maintenance alone is consistent with HHS’ goals for the Regulatory Spring to Coordinated Care.
  • No particular providers (e.g., manufacturers) are excluded from eligible value-based enterprise participants, unlike OIG’s corresponding final rule for the Anti-Kickback Statute safe harbors.