CMS and OIG Propose Changes to the Stark Law, Anti-Kickback Statute and Civil Monetary Penalty Rule

October 22, 2019By Serra J. Schlanger & McKenzie E. Cato & Alan M. Kirschenbaum

In the Federal Register of Thursday, October 17, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Office of Inspector General (OIG) both published substantial amendments to the regulations implementing the Medicare physician self-referral law (commonly referred to as the Stark Law) and the safe harbor regulations under the Federal health care program anti-kickback statute (AKS).  These proposed rules are part of HHS’s Regulatory Sprint to Coordinate Care initiative, which, according to HHS’s press release, “seeks to promote value-based care by examining federal regulations that impede efforts among providers to better coordinate care for patients.”

The proposed revisions add new Stark exemptions and AKS safe harbors for value-based and other arrangements, which, if finalized, will have a substantial impact on much of the healthcare industry.  Unfortunately, CMS and OIG are considering excluding drug and device manufacturers from many (but not all) of these protected arrangements.  Below we highlight the proposed changes that may be of particular interest to our readers.

I.  CMS Proposed Stark Rule Revisions

The CMS proposed rule sets forth new exceptions to the Stark Law, 42 U.S.C. § 1395nn, for certain value-based arrangements (VBAs).  According to the CMS Fact Sheet, the goal of these new exceptions is to “unleash innovation by permitting physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the Stark Law.”

The new exceptions would be applicable to VBAs between or among value-based enterprise (VBE) participants.  The preamble explains that CMS is considering whether to exclude pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment (DME), pharmacy benefit managers, wholesalers, and distributors from the definition of “VBE participant,” or, alternatively, to impose a requirement that the arrangement not be between a physician (or immediate family member of a physician) and a pharmaceutical manufacturer, manufacturer or distributor of DME, pharmacy benefit manager, wholesaler, or distributor.  Either of these limitations would have the effect of excluding these entities from the new Stark Law exceptions.

The new proposed Stark Law exceptions include:

  • Full financial risk exception. This exception would apply to VBAs between VBE participants assuming “full financial risk” for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time.  This would protect VBE participants that receive a prospective, capitated payment for all items and services covered by Medicare Part A or B or by Medicaid Managed Care.
  • Value-based arrangements with meaningful downside financial risk to the physician. This would protect remuneration, including partially capitated and other arrangements, paid under a VBA where the physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the VBE.
  • Value-based arrangements. CMS is proposing an exception for compensation arrangements, regardless of the level of risk undertaken by the VBE or any of its VBE participants.  The exception would permit monetary and nonmonetary remuneration between the parties.  This exception would have some requirements that are included in the meaningful downside financial risk exception.
  • Certain indirect compensation arrangements. This exception recognizes that indirect compensation arrangements can meet the other exceptions.  When a VBA is the link in the chain closest to the physician (i.e., the physician is a direct party to the VBA), the indirect compensation arrangement would qualify as a VBA.
  • Arrangements involving the donation of cybertechnology technology and services. This would, for example, allow hospitals to share cybersecurity software with physicians, including physicians who refer patients to the hospital.  The purpose of this exception is to protect recipients of electronic health record information from “weak links” in the health care system.
  • Limited remuneration to a physician. This exception would allow for remuneration that does not exceed $3,500 per calendar year (adjusted for inflation) if the compensation is not determined in a manner that takes the volume or value of referrals into account; the compensation does not exceed fair market value; the arrangement is commercially reasonable; compensation for leased space or equipment or for the use of premises, equipment, items, supplies or services are not based on percentage of revenue raised, business generated, or per unit charges.

In addition to proposing new exceptions, CMS includes a new definition for “commercially reasonable” and revises the definition of “fair market value.”  The proposed new general definition of “fair market value” is “the value in an arm’s length transaction, with like parties and under like circumstances of like assets or services, consistent with the general market value of the subject transaction.”  Definitions of fair market value are also provided with respect to rental of equipment and of office space.

The preamble explains that CMS is considering whether to include a requirement related to price transparency in every exception for VBAs.  For example, CMS is considering whether to require that a physician provide notice or have a policy to provide public alerts to patients that their out-of-pocket costs for items and services for which they are referred by the physician may vary based on the site where the services are furnished and the type of insurance they have.

II.  OIG Proposed Safe Harbor Revisions

The OIG proposed rule revises the safe harbors under the AKS, 42 U.S.C. § 1320a-7b(b), and provisions on civil money penalties for beneficiary inducements, 42 U.S.C. § 1320a-7a(a)(5).  As described in the OIG Fact Sheet regarding the proposed rule, HHS has determined that these provisions, as currently written, potentially inhibit “beneficial arrangements that would advance the transition to value-based care and improve the coordination of patient care among providers and across care settings in the both the Federal health care programs and commercial sector.”

A.  Safe Harbors From Which Pharmaceutical Manufacturers and DME Manufacturers/Distributors are Excluded

1.  Value-Based Care Safe Harbors

OIG has proposed three new safe harbors for remuneration exchanged VBAs that foster better coordinated and managed patient care: (1) care coordination arrangements to improve quality, health outcomes, and efficiency, (2) VBAs with substantial downside financial risk, and (3) VBAs with full financial risk.  As currently proposed, pharmaceutical manufacturers, manufacturers and distributors of DME, and laboratories would be excluded from the new safe harbors for VBAs.  OIG expressed concern that these entities, which are heavily dependent upon practitioner prescriptions and referrals, would misuse the new safe harbors to promote products, rather than creating value by coordinating care.  OIG stated that it is considering future rulemaking to address “pharmaceutical manufacturers’ role in coordination and management of care” or create a “specifically tailored safe harbor … for value-based contracting and outcomes-based contracting for the purchase of pharmaceutical products (and potentially other types of products).”  OIG is seeking comments on whether other entities – pharmacies (including compounding pharmacies), pharmacy benefit managers, wholesalers, and distributors – should also be excluded from the VBA safe harbors.

The proposed safe harbor for care coordination arrangements to improve quality, health outcomes, and efficiency could include, for example, providing data analytics systems, remote monitoring technology, or care coordinators to ensure patients receive appropriate follow-up care.  For example, if a hospital provided a behavioral health nurse to a nursing facility to follow discharged patients with mental health disorders, savings shared between the hospital and nursing facility from managing the care of mental health patients and reducing emergency room visits would be eligible for protection.  The care coordination safe harbor would protect in-kind (but not monetary) remuneration exchanged between participants in the VBA.  The safe harbor would include other limitations and requirements.  For example, parties would be required to establish one or more specific evidence-based, valid outcome measures against which the recipient of remuneration will be measured, and which the parties reasonably anticipate will advance the coordination and management of care of the target patient population.  Additionally, the VBA must be commercially reasonable, in that it must make commercial sense if entered into by reasonable entities of a similar type and size.

Similar to the CMS proposed Stark rule revisions, the value-based care safe harbor for VBAs with full financial risk would protect VBE participants that receive a prospective, capitated payment for all items and services covered by Medicare Part A or B or by Medicaid Managed Care.  Since providers are fully at risk for the cost of the items and services provided to patients, the potential for overspending and overutilization is reduced, and the conditions of this safe harbor are therefore more flexible than those of the care coordination safe harbor.  The third value-based care safe harbor, for VBAs with “substantial downside financial risk,” would apply to partially capitated and other arrangements where a VBE participant is partly responsible for loss.  The full financial risk and substantial downside risk safe harbors would protect both in-kind and monetary remuneration that meets the conditions of the safe harbor.

2.  Safe harbor for outcomes-based payments

The OIG proposed rule adds to the current safe harbor for personal services and management contracts (42 CFR 1001.952(d)) protection for outcomes-based payments.  The outcomes-based payment safe harbor is intended to protect payments for improving or maintaining an improvement in patient health by achieving outcomes measures that coordinate care across care settings, or achieve outcomes measures that reduce payor costs while improving or maintaining the quality of patient care.  Similar to the VBA safe harbors discussed above, OIG proposes to exclude pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment, and laboratories from the outcomes-based safe harbor.  OIG is seeking comments on whether other entities – pharmacies (including compounding pharmacies), pharmacy benefit managers, wholesalers, and distributors – should also be excluded from the outcomes-based safe harbors.

3.  Patient Engagement and Support

The OIG proposed rule includes a new safe harbor for certain tools and supports furnished under patient engagement and support arrangements to improve quality, health outcomes, and efficiency.  According to the OIG, “[a]ppropriate patient engagement tools and supports can foster successful behavior modifications that improve health, ensure that patients receive the medically necessary care and other nonclinical, but health-related, items and services they need, and improve adherence to an appropriate treatment regimen.”  The HHS press release provided the example of a smart pillbox given to patients without charge to help them remember to take their medications on time.  Once again, pharmaceutical manufacturers, manufacturers and distributors of durable medical equipment, and laboratories are excluded from this safe harbor.

B.  Safe Harbors and Safe Harbor Revisions That Do Not Exclude Pharmaceutical or Device Manufacturers

1.  Modification of personal services and contract safe harbor

Heretofore, this safe harbor has contained two conditions that have limited its usefulness in protecting arrangements between drug and device manufacturers and consultants and other service providers.  First, for part-time or sporadic arrangements, the “agreement must specify exactly the schedule of intervals, their precise length, and the exact charge for such intervals.”  Few consulting arrangements that are not full-time are capable of meeting this exacting requirement.  Another current requirement is that the aggregate compensation for the term must be set in advance – also a requirement that is difficult to meet under many circumstances, for example where an investigator agreement provides for per-patient compensation, or a speaker arrangement provides for compensation per speaking engagement.  The OIG is now proposing to eliminate the part-time schedule requirement entirely, and in place of the aggregate compensation condition, to substitute a requirement that the methodology for determining compensation be set in advance.  These changes, if finalized, will substantially expand the scope of consulting and other service arrangements eligible for safe harbor protection.

2.  Modification of warranty safe harbor

OIG is also proposing a modification of the existing safe harbor for warranties that would (1) protect warranties for one or more items and related services upon certain conditions, (2) exclude beneficiaries from the reporting requirements applicable to buyers, and (3) define “warranty” directly, and not by a reference to the definition at 15 U.S.C. § 2301(6).  This proposed modification would allow for “bundled warranties” that cover certain services in addition to items, as long as the items and services are reimbursed by the same Federal health care program and in the same Federal health care program payment (e.g., the same Medicare Severity Diagnosis Related Group for hospital inpatients, the same Ambulatory Patient Classification for hospital outpatients, or the same Medicaid managed care payment).  However OIG raised concern that certain warranted services, such as medication adherence services, could increase risk or patient harm and inappropriate utilization.  OIG also noted that free or reduced-price items or services provided as part of a bundled warranty agreement or ancillary to a warranty agreement (for example, laboratory tests to determine if an outcome was achieved) could still implicate the AKS.

3.  Donations of cybersecurity equipment

As with the CMS proposed Stark rule revision, the OIG proposed rule includes a new safe harbor for donations of cybersecurity technology and services.  Although pharmaceutical and device manufacturers are permitted donors under the proposal, the OIG solicits comments on whether such entities should be prohibited as donors.

4.  CMS sponsored models

A new safe harbor would protect certain remuneration provided in connection with a CMS-sponsored model, which is aimed to reduce the need for OIG to issue separate fraud and abuse waivers for new CMS-sponsored models.  This safe harbor would (1) permit remuneration between and among parties to arrangements under a model or other initiative being tested or expanded under CMS-sponsored models and (2) permit remuneration in the form of incentives and support provided by CMS model participants under a CMS-sponsored model to patients covered by the CMS-sponsored model.

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Comments on the CMS and OIG proposed rules are due by 5 pm on December 31, 2019.  The link to submit comments on the CMS proposed rule can be found here.  The link to submit comments on the OIG proposed rule can be found here.