HHS Finalizes Highly Anticipated Stark Law, AKS Final Rules

On November 20, 2020, the Center for Medicare & Medicaid Services (CMS) and the U.S. Department of Health and Human Services (HHS) finalized two highly anticipated rule change packages to modernize the federal physician self-referral law (Stark Law) and the federal Anti-Kickback Statute (AKS).

The rule changes are intended to:

1. Update statutory principals to reduce regulatory barriers for care coordination and accelerate the transformation of U.S. health care to value-based care.
2. Help providers and medical businesses better interpret and comply with highly technical and extensive Stark Law and AKS provisions.

The Final Rules became effective on January 19, 2021, although some amendments – impacting how physician groups can divide profits – will take effect January 1, 2022.

Key Changes Under New Stark and AKS Final Rules:

Rule changes impacting the Stark Law and AKS represent historic reforms, and come as part of the HHS’ Regulatory Sprint to Coordinated Care. They include four broad policies:

1. New, permanent exceptions to permit physicians and providers to participate in value-based arrangements, while still safeguarding against overutilization
2. Additional guidance on key requirements of Stark Law exceptions to help providers and physicians ensure compliance. For example, the Final Rule clarifies how to determine if compensation from a physician to another healthcare provider is set at “fair market value”.
3. New exceptions to protect non-abusive beneficial arrangements between physicians and other providers (such as sharing cyber-security technologies)
4. Clarification on technical compliance requirements with the intention of reducing costly administrative burdens and redirecting those funds toward patient care

The rules establish three new AKS safe harbors and three new Stark Law exceptions which protect remuneration exchanged between eligible participants in value-based arrangements.

They also introduce value-based definitions for participants in a value-based enterprise and create tiered participation options in value-based arrangements based on risk. Both the safe harbors and exceptions are broken down by the value of assumed financial risk; the more risk a participant assumes, the more flexibility offered.

What Is a Value-Based Arrangement?

A value-based system pays providers based on the quality of patient care, and has emerged as an alternative to fee-for-service reimbursement, which was the primary reimbursement model when the Stark Law was enacted in 1989.

With traditional fee-for-service models, providers are paid for the number of services performed – incentivizing (or at least not discouraging) providers to order more tests and procedures to earn more income. Under this model, healthcare costs were increasing nationwide, but patient outcomes were not necessarily improving.

As a result, in the mid-2010s, Medicare and private insurers began to introduce reimbursement programs for value-based arrangements that reward providers for cost control and patient outcomes. Value-based reimbursements are calculated based on specific metrics – such as hospital readmissions, adverse events, patient engagement, and population health – and the provider’s ability to demonstrate improvement.

When CMS published its Request for Information in 2018 to gather input from stakeholders on the regulatory barriers to value-based arrangements, it discovered that many providers declined to take part in innovative reimbursement programs for fear of violating Stark Law. Thus, the effort to modernize Stark and AKS began.

CMS Final Rule Modernizes and Clarifies Stark Law Exceptions & Definitions

The “Modernizing and Clarifying the Physician Self-Referral Regulations” final rule, issued by CMS, brings changes and clarification intended to promote the adoption of value-based compensation structures.

The final rule creates three new permanent Stark exceptions, including:

1. Full Financial Risk Exception. Applies to value-based arrangements involving a value-based enterprise (VBE) that has assumed full financial risk for all patient care item and service costs in the target population for the duration of the arrangement. This exception has fewer technical requirements compared to other value-based exceptions.
2. Meaningful Downside Financial Risk to the Physician Exception. Applies to remuneration paid under value-based arrangements where physicians assume meaningful downside financial risk. The final rule lowers the threshold to 10% of the total value of the remuneration received by the physician from the proposed 25%.
3. Exception for Value-Based Arrangements Regardless of the Level of Risk Undertaken by the Physician. Applies to value-based arrangements regardless of physician’s risk. This exception includes several additional requirements to guard against abuse, including monitoring requirements.

CMS’ final rule also clarifies existing exception requirements, including these definitions:

• Commercially Reasonable. CMS adds a definition for “commercially reasonable,” a core element for several compensation exceptions, as an arrangement that furthers the parties’ legitimate business purpose and is sensible in relation to the parties, including their size, type, scope, and specialty. CMS clarifies a commercially reasonable determination is not one of valuation, and that arrangements may be commercially reasonable even if one or more parties do not profit.
• Volume or Value. CMS confirmed that “physician services and designated health services furnished by an entity does not convert compensation tied solely to the physician’s personal productivity into compensation that takes into account the volume or value of a physician’s referrals to the entity or the volume or value of other business generated by the physician for the entity.”
• Fair Market Value. CMS modifies definitions for “fair market value” (FMV) and “general market value” and declined safe harbors or rebuttable presumptions for compensation within ranges of values in salary surveys. CMS clarified it is not policy that surveys provide accurate FMV determinations in all cases, and that providers may find it necessary to pay physicians in excess of the salary schedule, especially when there is a compelling need for services.

Some of the technical changes to the Stark Law under the final rule include:

• Removing requirements from Stark exceptions that arrangements must not violate state and federal laws and regulations governing billing and claims submissions. AKS compliance will still be a requirement for the fair market value compensation exception (42 CFR 411.357(l)).
• Modifications to the physician recruitment exception to require physician practices to sign documents of the recruiting arrangement only when remuneration is provided to the physician indirectly through payments to the practice, and the practice does not pass through all remuneration from the hospital.
• Revisions to rules for profiting sharing and productivity bonuses available to group practices.
• CMS changed the definition of remuneration to remove the reference to surgical items, devices, or supplies (that are not single use) from its exclusion. CMS also added the phrase “in fact” to its definition to indicate that the furnishing of an item, device, or supply at no cost – that could be used for a purpose other than one or more of the permitted purposes – does not automatically constitute remuneration if it is in fact used for a permitted purpose.

Revisions & Additions to Safe Harbors under the Anti-Kickback Statute Final Rule

The “Revisions to the Safe Harbors Under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements” final rule, issued by the HHS Office of Inspector General (OIG), includes three new safe harbors:

1. Care Coordination Arrangements to Improve Quality, Health Outcomes, and Efficiency Safe Harbor. Protects remuneration exchanged between value-based enterprise (VBE) participants of a VBE that assumes no downside financial risk or less than substantial downside financial risk, provided remuneration is used for value-based activities directly tied to care coordination for a target patient population.
2. Value-Based Arrangements with Substantial Downside Financial Risk Safe Harbor. Protects payments or anything of value exchanged between VBE participant and VBE under value-based arrangements, provided several criteria are met. The final rule also provides methodologies for calculating whether a VBE assumes substantial downside risk.
3. Value-Based Arrangements with Full Financial Risk Safe Harbor. Protects remuneration exchanged from a VBE to a VBE participant, provided the VBE assumed full financial responsibility for all items and services for each patient in a target population for at least one year, and is paid prospectively.

Final Rule also revises existing AKS safe harbors:

• Personal Services, Management Contracts, and Outcomes-Based Payments. This safe harbor was revised to create more flexibility for part-time arrangements and protect payments for quality improvements. The requirement that compensation be set in advance was also eliminated; the safe harbor will instead require that a methodology for determining compensation be set in advance.
• Electronic Health Records. Among other changes, the Final Rule modified Electronic Health Records interoperability provisions and clarified protection for cybersecurity technology and services.
• Warranties. As proposed, the definition of “warranties” and the protection of items and related services were modified.
• Local Transportation. Mileage limits for rural areas were expanded to eliminate certain limits and to clarify that protection applies to transportation via rideshare services.

Compliance with New Stark Law and AKS Rules

Hospitals and physician groups may benefit under new value-based exceptions and safe harbors. However, as providers continue to grapple with evolving regulations arising from the COVID-19 pandemic, the new rule changes will create additional challenges in the quest for compliance – including the need to ensure current arrangements comply with new laws.

At Hendershot Cowart P.C., our health and medical law team is standing by to discuss these and other compliance concerns with your practice or healthcare business. We are based in Texas but serve clients throughout the nation.