AMARILLO, TX – Historically, health care in the United States has been based on fee-for-service (“FFS”). That is, third party payors (“TPPs”) pay a physician, hospital or other provider for the service rendered…regardless of the outcome. A by-product of FFS has been very little coordination among providers regarding a particular patient. The FFS approach has proven to be inefficient and expensive.

With 78 million Baby Boomers retiring at the rate of 10,000 per day, and with many Boomers living well into their 80s, the financial strain on the nation’s health care delivery system is markedly increasing. TPPs have concluded that the FFS system is no longer financially viable and that a new approach is necessary.

This new approach is “value-based care,” also known as “coordination of care” and “patient outcome management.” Value-based care (“VBC”) is premised on providers collaborating to provide health care for a patient and for remuneration to the providers to be based, at least in part, on whether certain metrics are achieved. VBC may result in providers referring patients to each other, providing services to each other, and sharing in the remuneration paid for the care of the patient.

The challenge is that VBC has run up against the prohibitions and restrictions of the federal physician self-referral law (“Stark”) and the federal anti-kickback statute (“AKS”). Stark and the AKS came into existence when health care was almost entirely based on FFS. And while there have been modifications/updates over the years to Stark and the AKS, such updates have not addressed how these two statutes fit within the VBC framework.

• Starkis a civil statute. It states that if a physician (or an immediate family member) has a financial interest (ownership or compensation) in a health care provider, then the physician cannot refer a Medicare/Medicaid patient to the provider for “designated health services” (“DHS”) …unless a Stark exception is met. DHS includes durable medical equipment (“DME”). The Stark definition of “physician” is a “doctor of medicine or osteopathy, a doctor of dental surgery or dental medicine, a doctor of podiatric medicine, a doctor of optometry, or a chiropractor.”
• The AKSis a criminal statute. It states that a person/entity cannot pay or receive (or offer to pay or agree to receive) anything of value in exchange for (i) referring or arranging for the referral of a patient covered by a federal health care program (“FHCP”) or (ii) recommending the purchase of a service/product covered by an FHCP. The Office of Inspector General (“OIG”) has published a number of “safe harbors.” If an arrangement complies with a safe harbor then the remuneration exchanged between the parties does not constitute illegal remuneration under the AKS. If an arrangement does not meet the terms of a safe harbor, it does not mean that the arrangement violates the AKS; rather, it means that the parties will need to conduct an in-depth analysis in light of the language of the AKS, court decisions and other published guidance.

Recognizing the challenge imposed by Stark and the AKS on providers moving into the VBC space, (i) CMS updated Stark and (ii) the OIG updated the AKS.

Background

In the summer of 2018, CMS and the OIG sought input from interested parties by issuing Requests for Information. AAHomecare submitted a letter containing the association’s comments. One comment was that it would be ill-advised for physicians to be allowed to self-refer for DME. The recently released Final Rules do not change the Stark prohibition against physicians self-referring for DME.

In early October 2019, CMS and the OIG simultaneously issued proposed rules modifying Stark and the AKS. Providers and other interested parties submitted many comments. And then finally on November 20, 2020, CMS and the OIG issued the Final Rules that are the subject of this white paper.

The goal of the Final Rules is to encourage health care providers to collaborate in the provision of health care…without being unduly restricted by Stark and the AKS. Nevertheless, the AKS will remain as a “back stop” designed to prevent arrangements that while being technically correct on their face, are in reality designed to funnel remuneration to referral sources.

Three-Part Series

Part One of this three-part series of articles discusses modifications to Stark. Part Two discusses modifications to (i) the AKS, and (ii) Stark and the AKS. Part Three discusses the applicability of the modifications to DME suppliers.

Stark

Value-Based Enterprise (“VBE”) Exceptions
The goal of the VBE exceptions is to facilitate the transition of health care to the VBE model. The final definition of a “VBE participant” does not exclude DME suppliers.

• The Full Financial Risk exception applies to value-based arrangements among VBE participants that have assumed full financial risk for the cost of patient care in the target patient population for a defined period of time.
• Meaningful Downside Financial Risk to the Physician exception protects remuneration paid under a value-based arrangement where the physician assumes a meaningful level of financial risk for failure to meet the value-based purpose of the VBE.
• The Value-Based Arrangements exception pertains to value-based arrangements … even if no risk is assumed by the VBE participants. Because the parties are assuming little to no risk, they have to meet certain requirements not mandated by the other two value-based exceptions.

Execution of Documents
Documents can be prepared and executed within 90 days of the beginning of the arrangement. The arrangement must satisfy all requirements of an applicable exception except for the documentation/execution. Further, electronic signatures (that comply with applicable law) are accepted.

Set in Advance
The definition of “set in advance” is amended to allow the modification of compensation during the term of an agreement where the modified compensation is not based on the volume or value of referrals. The modification can occur at any time, including the first year, as long as (i) all of the requirements of an applicable exception are met; (ii) the modified compensation is established prior to the furnishing of the services/products; and (iii) the modified compensation is set out in writing in sufficient details that allow it to be verified. The new rule allowing 90 days to prepare and execute documentation is not applicable to the modification of compensation.

Disallowance
CMS deleted the rules on the period of disallowance. However, parties to an arrangement can correct errors for up to 90 days after a compensation arrangement ends.

Indirect Compensation
Exceptions are available to protect a physician’s referrals to an entity when the indirect compensation includes a value-based arrangement to which the physician is a direct party. The link closest to the physician may not be an ownership interest – rather – it must be a compensation arrangement that meets the definition of a value-based arrangement.

Limited Remuneration to a Physician
Limited remuneration may be paid to a physician, for substantive services rendered, without a written agreement or compensation set in advance. The remuneration cannot exceed $5000 per calendar year.

Patient Choice
An entity may direct a physician to refer to a specific provider, practitioner, or supplier. The compensation must meet specified conditions designed to preserve patient choice, comply with the TPP’s guidelines, and protect the physician’s medical judgment. The compensation cannot be contingent on the volume or value of referrals.

Fair Market Value (“FMV”)
FMV is the value in an arm’s-length transaction consistent with the general market value of the transaction. For example, FMV of equipment is determined without taking into account its intended use. FMV of an office space lease considers the space as used for general commercial purposes (not taking into account potential referrals from the lessor).

Volume or Value of Referrals/Business Generated
The new rule discusses when arrangements will be construed as taking into account the volume or value of referrals or other business generated. The focus will be 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 (i.e., when the compensations varies based on referrals or other business generated). This special rule also applies to the group practice definition to ensure that a physician member’s compensation does not take into account the volume or value of referrals for DHS unless permitted for productivity bonuses and profit shares. 

Commercial Reasonableness
The key question to consider when determining if an arrangement is commercially reasonable is whether the arrangement makes sense as a means to accomplish the parties’ goals. Commercial reasonableness determination is not one of valuation; it is expressly not based on whether the arrangement is profitable or not.

Rental of Office Space and Equipment
CMS clarifies that these exceptions do not prohibit multiple lessees from using the space or equipment, or prevent a lessee from inviting another party (other than the lessor) to use the rented office space/equipment.

Group Practice
If a physician group practice establishes a valid value-based model, then distribution of profits to physician members will be construed as not taking into account the volume or value of the physicians’ referrals. The effective date of this change is January 1, 2022.

Consistency of Stark and the AKS
The requirement that an arrangement must comply with the AKS as a precondition to meeting a Stark exception is removed.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm with a national health care practice based in Texas. He represents pharmacies, infusion companies, HME companies, manufacturers and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].