HHS Proposes New Anti-Kickback and Stark Protections for Value-Based Care

Health Highlights

In October 2019, the Department of Health & Human Services (HHS) released two rules that propose sweeping reforms to the regulations governing fraud and abuse in federal healthcare programs, including Medicare and Medicaid. The first proposed rule, published by the HHS Office of Inspector General (OIG), focuses primarily on the Anti-Kickback Statute (AKS). The second rule, published by the Centers for Medicare & Medicaid Services (CMS), addresses the Physician Self-Referral Law, commonly referred to as the “Stark Law.” Each proposal includes a number of new protections for so-called “value-based arrangements,” as well as a number of other substantive changes that materially loosen various existing restrictions. The deadline for public comment on both rules is December 31, 2019.

Background of the Proposed Rule

In response to industry concern that federal regulations impede innovation in healthcare finance and delivery, HHS announced in 2018 a “Regulatory Sprint to Coordinated Care.” The agency’s goal is to remove regulatory barriers to patient engagement, care coordination, data sharing among providers and financial arrangements that promote value-based care. In support of the Regulatory Sprint, CMS and OIG published Requests for Information (RFIs) in the summer of 2018, soliciting suggestions for how the AKS and Stark regulations might be amended to better support these goals. The agencies received hundreds of comments, and after reviewing those comments—as well as their records of enforcement actions and provider self-disclosures—have now released their proposed regulatory revisions.

These proposals focus on two of the core federal statutes governing fraud and abuse in federal healthcare programs, including Medicare and Medicaid:

  • The Anti-Kickback Statute prohibits individuals and entities from offering or accepting remuneration with the purpose of inducing or rewarding referrals in federal healthcare programs. Impermissible remuneration includes cash kickbacks, as well as more indirect forms of compensation such as, for example, discounted office rental fees or donated medical equipment. OIG is responsible for developing rules relating to the AKS, and has defined a number of “safe harbors” protecting certain types of conduct that, in the agency’s view, present a sufficiently low risk of abuse.
  • The Stark Law focuses exclusively on physicians. The law prohibits physicians from referring program beneficiaries for federally reimbursable “designated health services" (DHS) to any entity with which a physician (or a physician’s family member) has a financial relationship. CMS is charged with enforcing the Stark Law, and has promulgated a number of regulatory exceptions. Unlike the AKS, the Stark Law is a “strict liability” statute, meaning that self-referrals automatically violate the law unless an exception applies, with or without any intention to commit wrongdoing.

New Rules to Promote Care Coordination and Value-Based Care

OIG and CMS propose several new AKS and Stark protections for value-based arrangements among healthcare providers. Existing rules already protect many types of value-based reimbursement arrangements between health plans and entities such as health systems or accountable care organizations (ACOs), but the current regulatory structure creates legal risk for certain types of downstream arrangements between those first-tier provider entities and other providers, especially physicians.

In particular, a number of the current AKS safe harbors and Stark exceptions require that compensation be “fair market value,” or that reimbursement be determined in a manner that does not “take into account the volume or value of referrals or other business generated.” These are difficult concepts to apply in the concept of a value-based arrangement, which often involves concepts of “value” beyond the merely financial (such as patient outcomes), and which often, by definition, takes into account the “volume or value” of services.

OIG and CMS aim to remove some of those barriers for arrangements that satisfy certain criteria. Although the specifics of the proposed protections vary in a number of ways, the two agencies coordinated their approach by proposing a set of shared defined terms, and more generally, by structuring a “tiered” system under which providers gain increasing flexibility in their value-based contracting as they take on an increasing level of downside financial risk.

Defined Terms. The new safe harbors and exceptions rely on a set of terminology relating to value-based care. OIG and CMS propose identical definitions for these terms, except as noted below with respect to the definition of value-based enterprise (VBE) participants.

  • Value-Based Arrangement. An agreement to take actions reasonably designed to promote one or more Value-Based Purposes, including care coordination, quality improvement, cost reduction or otherwise transitioning from volume to value.
  • The value-based purpose must address a Target Patient Population, defined using verifiable criteria such as ZIP code, diagnosis or payer. These criteria must be defined in advance and codified in writing. Although AKS and Stark generally focus on referrals involving federal healthcare programs, the target patient population is not so limited, and can include uninsured or commercially insured patients.
  • Value-Based Enterprise (VBE). Two or more people or entities (referred to as VBE Participants) who collaborate to achieve value-based purposes. The VBE is subject to governance requirements, and may be a legally distinct entity (e.g., an ACO) or merely a network of VBE participants affiliated through a VBE governing document. Each VBE participant must be part of a value-based arrangement with at least one other VBE participant or the VBE entity itself.

OIG chose to define value-based arrangements in a manner that excludes pharmaceutical manufacturers, laboratories and entities that manufacture, distribute, or supply durable medical equipment, prosthetics, orthotics or supplies (DMEPOS). CMS is considering a similar exclusion in its rules.

New AKS Safe Harbors. OIG has proposed six new safe harbors for VBE participants, including three “tiered” safe harbors tied to the level of downside financial risk, a fourth safe harbor that promotes “patient engagement tools and support,” and two safe harbors that protect arrangements within CMS-sponsored care models.

OIG proposes three safe harbors tied to the level of financial risk:

  • Full Financial Risk. For at least one year, the VBE receives prospective payments (i.e., global capitation) from the payer for all covered services for the target patient population.
  • Substantial Downside Financial Risk. The VBE’s arrangement with both the payer and with the VBE participant(s) satisfies the rule’s definition of “substantial downside” risk. The proposed rule defines minimum risk thresholds for models such as shared savings and losses, bundled payment, and partial capitation.
  • Care Coordination Arrangements. VBE participants may exchange in-kind benefits to promote evidence-based care coordination, as long as the arrangement is commercially reasonable and the recipient contributes at least 15% of the cost.

Each of these three safe harbors is subject to a variety of additional safeguards, including the following:

  • All remuneration among VBE participants must be used primarily for value-based purposes;
  • The reimbursement arrangements may not induce VBE participants to limit medically necessary services, include ownership or investment interests, receive funding from third parties outside the VBE, or involve patient recruitment or marketing;
  • The value-based arrangement may not take into account the volume or value of referrals or other business outside the arrangement; and
  • The arrangement must be set forth in writing and the VBE participants must maintain records to establish compliance.

In addition, OIG proposes a fourth safe harbor allowing VBE participants to furnish patients with up to $500 annually in in-kind benefits that meet the rule’s definition of “Patient Engagement Tools and Supports.” These include preventive items or services (e.g., medically indicated nutrition support); health-related technology or monitoring tools/services (e.g., “smart” pill bottles); and supports and services related to social determinants of health (e.g., transportation to and from appointments). In addition to other safeguards, the tool or support must be recommended by the patient’s provider.

Finally, OIG proposes two safe harbors that would protect remuneration within CMS-Sponsored Models, such as the Medicare Shared Savings Program for ACOs, Bundled Payments for Care Improvement or the Oncology Care Model. CMS would have wide discretion to establish baseline requirements and to determine which types of remuneration would be protected, including reimbursement among the participants, as well as patient incentives and supports. Unlike the other safe harbors, this one could potentially extend to pharmaceutical manufacturers and other entities, subject to CMS approval.

New Stark Exceptions. CMS has proposed three new exceptions to the Stark Law for VBE participants. Like the AKS safe harbors, the proposed Stark exceptions reduce the number of regulatory requirements as the VBE participants take on additional financial risk.

  • Full Financial Risk. During the entire term of the arrangement, the VBE receives prospective payments for all covered services for the target patient population.
  • Meaningful Downside Financial Risk for the Physician. The physician’s reimbursement must involve either minimum risk thresholds or partial capitation, and this methodology must be determined in advance and set forth in writing.
  • Other Value-Based Arrangements. Value-based arrangements with no downside financial risk may qualify for protection if the details, including remuneration, are determined in advance and set forth in a signed writing. Any performance standards established in the arrangement must be both objectively defined and prospectively measured.

Notably, CMS has not proposed a new exception regarding value-based care within indirect compensation arrangements. If there exists an unbroken chain of financial relationships between the referring physician and the DHS entity, CMS proposes that the entire chain would be protected as long as the relationship to which the physician is a direct party falls under one of the exceptions defined above.

Example. In addition to arrangements with financial flows among the VBE participants, the new safe harbors and exceptions outlined above may protect an arrangement with in-kind benefits such as the following. A hospital collaborates with a physician practice to manage post-discharge care for their shared patients. The hospital pays for care coordination services to ensure appropriate follow-up care, allows the physician practice to access a data analytics system to track patient outcomes, and provides remote monitoring technology to alert physicians or caregivers to signs that a patient may need healthcare intervention.

Proposed Protections for Cybersecurity and Electronic Health Records (EHRs)

OIG and CMS have made identical proposals regarding new protections for donations of cybersecurity technology and related services (but not hardware), as well as modifications to the existing EHR safe harbor. Among other changes, the agencies propose to:

  • Align the EHR safe harbor with the recent proposed rule on “interoperability” and “information blocking,” issued pursuant to the 21st Century Cures Act;
  • Remove the sunset provision, pursuant to which the existing safe harbor would have expired at the end of 2021; and
  • Expand the safe harbor to include cybersecurity technology (in addition to the new cybersecurity-specific safe harbor noted above).

Other AKS Proposals

Beyond the provisions described above regarding value-based care, OIG proposes several other additions or modifications to the AKS safe harbors. In addition to technical corrections, these proposals make modest policy adjustments and align the safe harbors with updates in other laws.

  • Personal Services and Management Contracts. OIG proposes a number of changes to the existing safe harbor for personal services contracts, including the following:
    • Modifying two requirements that limit the flexibility of services agreements and that currently make the “personal services” safe harbor substantially more difficult to satisfy than the corresponding Stark exception. OIG proposes to:
      • Amend the requirement that aggregate compensation must be set in advance. OIG proposes, instead, a requirement that the compensation methodology be set in advance.
      • Eliminate the requirement that contracts for part-time services must specify the exact schedule for such services.
    • Expanding the personal services safe harbor to include certain outcomes-based payments. This proposal combines requirements from the existing personal services safe harbor as well as the proposed care coordination safe harbor, allowing even parties who are not VBE participants to define outcomes-based payments that indirectly take into account the volume or value of referrals or other business.
  • Warranties. This safe harbor currently applies to warranties covering a single item. Among other changes, OIG’s proposal would permit manufacturers and suppliers to offer “bundled” warranties covering multiple related items and services, as long as those items and services are all reimbursed by a single payment under a federal healthcare program.
  • Local Transportation. OIG proposes the following three modifications to this existing safe harbor:
    • For rural communities, expanding the transportation distance limit from 50 miles to 75 miles.
    • Eliminating the distance limit on transportation for a patient who has been discharged after an inpatient admission, regardless of whether the patient resides in an urban or rural area.
    • Clarifying that ride-sharing services, such as Lyft or Uber, fall within the transportation safe harbor to the same extent as a taxi service.

Other Stark Proposals

CMS proposes several modifications to the Stark Law’s exceptions. These proposals clarify long-standing ambiguities and make certain potentially significant policy adjustments, in addition to codifying existing CMS guidance and implementing a number of technical corrections. Proposed changes include:

  • Definitions for Key Terms. CMS proposes to add or modify definitions for several key terms in the Stark Law regulations, including:
    • Amending the definition of “designated health services” (DHS) to exclude any service provided by a hospital to an inpatient if the service does not affect the hospital’s reimbursement under Medicare’s Inpatient Prospective Payment System. This change could potentially remove from the Stark Law’s scope a substantial volume of services furnished in the inpatient setting.
    • Adding a new definition for “commercially reasonable.” CMS proposes two possible definitions, both of which emphasize the importance of industry norms and market conditions. Under either definition, the fact that an agreement is unprofitable does not necessarily mean that it fails to satisfy the commercial reasonableness test.
    • Creating an objective test to determine whether an arrangement “takes into account the volume or value of referrals or other business.” An arrangement will fit this description when the formula used to calculate compensation includes as a variable referrals or other business generated, and the amount of the compensation correlates with the number or value of referrals or other business. This includes tiered fixed-rate compensation where the tier levels are established based in part on volume or value.
    • Revising the “fair market value” definition to provide a definition of general application (“the value in an arm’s-length transaction with like parties and under like circumstances, of assets or services, consistent with the general market value of the subject transaction”), as well as definitions applicable specifically to equipment rentals and office space rentals.
  • Limited Remuneration to a Physician. CMS proposes a new exception that would protect remuneration from an entity to a physician for items or services up to $3,500 per calendar year. The compensation may not take into account the volume or value of referrals, must reflect fair market value, and must be commercially reasonable. The arrangement need not be set forth in writing, however. This proposed exception will help to avoid many technical violations—often due to a delayed signing or expired written agreement—for physician services that are offered on a temporary or infrequent basis.
  • Temporary Noncompliance. With respect to exceptions that require an executed writing, CMS proposes to expand the types of technical errors that may be corrected within 90 days. (Currently, noncompliance with the signature requirement is the only type of error eligible for the 90-day grace period.)
  • Ownership and Investment Interests. CMS proposes to amend the definition of “ownership or investment interests” by excluding the following:
    • Any interests that are merely “titular” in nature. This proposal would codify existing CMS guidance that exempts from the Stark Law’s reach arrangements involving a physician who holds a titular ownership in an entity, but who does not have a right to the distribution of profits or the proceeds of sale.
    • An interest that arises through participation in an employee stock ownership program that complies with the requirements of the Employee Retirement Income Security Act (ERISA).
  • Period of Disallowance. CMS proposes to eliminate the current bright-line rules that determine when a financial relationship has come to an end, such that a physician may resume making referrals without violating the Stark Law. The agency is proposing instead to apply a case-by-case approach.
  • Patient Choice and Directed Referrals. CMS proposes to expand the applicability of the requirement for certain types of arrangements to preserve patient choice of provider and payer-directed referrals. This requirement (contained at 42 C.F.R. § 411.354(d)(4)) would now apply to a number of additional exceptions, including some of the newly proposed exceptions for value-based arrangements.
  • Other Exceptions. CMS proposes various other adjustments to the exceptions addressing shared use of rented office space, fair market value for office space, the signature requirement in physician recruitment agreements, physician services unrelated to DHS, payments by a physician to a laboratory and non-physician practitioners.


These proposals from OIG and CMS represent some of the most significant regulatory changes to America’s fraud and abuse landscape in at least a decade. The agencies relied heavily on public responses to the RFI in crafting their proposals, and have solicited feedback on all aspects of the proposed rules, including, in several places, specific alternative requirements under consideration. Interested parties are encouraged to review the preambles to the proposed rules, in which the agencies lay out their reasoning and their outstanding questions, before submitting their comments.



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