Proposed rule changes regarding anti-kickback restrictions offer compliance relief to physicians and hospitals. The revisions propose three levels of protected value-based arrangements.

  • The effect on drugmakers and medical device manufacturers is uncertain.
  • Onerous documentation requirements for part-time arrangements would be eased, allowing a larger number of arrangements to qualify.
  • The definition of fair market value would no longer be qualified by the requirement that the measurement must be based on an arms-length transaction.

The Department of Health and Human Services (HHS) recently revised federal anti-kickback laws, changes that are seen as primarily good news for risk managers. The revisions clarify issues that were unclear and easing some restrictions that created compliance risks.

The proposed rules would clarify the Anti-Kickback Statute (AKS) and the Stark Law. The changes come in response to hundreds of comments from healthcare leaders about difficulty complying with the rules.

The changes are a significant advantage to doctors, hospitals, and other direct providers of healthcare services to patients, but provide relatively little relief to makers of prescription drugs and suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS), says Thomas N. Bulleit, JD, partner with Ropes & Gray in Washington, DC.

The ultimate fate for makers of other medical devices, and of drugmakers, is uncertain because the agencies still are considering and soliciting comments for additional safe harbors/exceptions that could be more beneficial to productmakers, Bulleit says. But in the case of non-DMEPOS medical devices, the rules could be more restrictive, he says.

Physicians, Hospitals Win

The winners with the rule changes are physicians, hospitals, and other healthcare providers, Bulleit says. In contrast, several provisions offer increased risk-sharing and outcome-dependent payments among providers.

The revisions propose three levels of protected value-based arrangements, he says. All require a value-based purpose (VBP) of coordinating and managing care, improving quality, reducing costs without hurting quality, or “transitioning” from quantity to quality payments. But the level of documentation needed to demonstrate that purpose and the uses of the payments are lighter as more risk is assumed, Bulleit says.

“When a party to an arrangement assumes full financial risk for the cost of patient care in a target population, essentially anything goes. There are no significant constraints on payments to that person or entity other than that patient and payer preference must be observed when directing referrals,” Bulleit says. “For assumption of ‘substantial’ or ‘meaningful’ downside financial risk, there are specific amounts of risk that must be assumed. The parties must be able to establish that the payments are primarily in support of a VBP.”

The least amount of required risk-taking has the toughest requirements, Bulleit explains. Care coordination agreements (AKS) and value-based arrangements (Stark) both require written agreements spelling out the purpose and methodology, and require maintaining records payment calculations, he says.

The AKS provisions have specific standards, and the remuneration may only be in-kind. There also would be other changes to existing provisions that would reduce restrictions and allow more compensation arrangements to qualify for AKS safe harbors and Stark exceptions, Bulleit says. (For more on some of the rule changes favorable to physicians and hospitals, see the sidebar in this issue.)

The rules include new provisions to address the increasing focus on value-based care, says Karl Thallner, JD, partner with Reed Smith in Philadelphia. Hospitals and health systems need to enter arrangements with physicians that include financial incentives to help the network achieve the objectives of improving quality and lowering costs, he notes, so HHS is acknowledging that existing law can stand in the way.

“Providers have been concerned that the Stark Law and the Anti-Kickback Statute create regulatory barriers to building the kind of financial relationships with providers that are necessary to incentivize them to row in the same direction and achieve value,” Thallner says. “These proposed regulations create exceptions under those statutes that are aimed at allowing those kinds of arrangements.”

Other parts of the revisions are intended to clarify interpretations that are fundamental to compliance, aside from value-based concerns, Thallner notes.

“These rules provide some real relief for the concerns that healthcare organizations have had about how their relationships with physicians could be interpreted to be violations of these laws,” Thallner says. “The consequences of the violation are so great that it’s been hanging over the heads of many in the healthcare industry for some time now. I think the interpretations are in line with what the industry wanted, what they hoped would be the interpretation in their favor.”

Some of the value-based proposals are geared more to specific sectors of the healthcare industry, says Nicole Aiken-Shaban, JD, an attorney with Reed Smith in Philadelphia. For instance, certain device manufacturers may be left wondering about the propriety of some products or services they tried to pigeonhole into existing safe harbors, she says.

“Now, the government is saying they’re not sure you’re contributing directly to patient care the way you need to for these value-based arrangement protections,” Aiken-Shaban says. “Those arrangements may be subject to more scrutiny than they originally thought.”

Drug and Device Makers Lose

The clear losers are the drug and device makers, Bulleit says. Along with laboratories and suppliers of DMEPOS, drugmakers are expressly excluded from the class of value-based enterprise participants (VBEPs) who may take advantage of the new financial arrangements that would be authorized under the AKS, Bulleit says. Drug and device makers already are essentially unregulated under Stark, he notes.

“Makers of medical devices other than DMEPOS are not expressly excluded, though the commentary indicates that HHS is considering which kinds of device makers that ought to be allowed to participate,” he says. “One imagines that makers of physician preference items, like implants, may be least likely to be allowed in, while makers of large capital equipment may make the cut. Drug and device makers might benefit from a revised AKS safe harbor for warranties that would allow warranties on bundles of products. Since this is restricted to products that are reimbursed under the same Medicare payment, this may prove a pretty narrow opening.”

HHS is seeking more comments, so drug and device makers may have another bite at the apple, Bulleit says.

Specifics on Rule Changes

Bulleit offers further analysis of the proposed rule changes:

• Full financial risk. When a VBE is financially responsible for the cost of all items and services covered by the payer for a target population, essentially anything goes that has a VBP.

VBP means for a target population, the arrangement has the purpose of coordinating and managing care, improving quality of care, appropriately reducing costs (or growth in expenditures) without reducing quality, or “transitioning from healthcare delivery and payment mechanism based on the volume of items and services provided to the mechanism based on the quality of care and control of costs of care.” While there are no defined standards, records of methodology for determining payments must be maintained. As a practical matter, it will be necessary to maintain documentation that expresses the VBP.

• Substantial downside risk (SDR) for AKS and meaningful downside risk (MDR) with Stark. There are specific standards for the levels of financial risk that must be undertaken. For the AKS safe harbor, to have SDR, the VBE must be at risk for 40% of repayment obligations under a shared savings arrangement, 20% of total loss of a bundled payment arrangement, or a defined subset of total cost for a prospective payment arrangement. The VBEP must be at risk for 8% of the VBE’s risk, or must be paid on a fully or partially capitated basis; or, if the VBEP is a physician, may rely on the Stark standards for MDR.

The value-based arrangement (VBA) must include a VBP. The remuneration must be used primarily to engage in a VBA directly connected to the items and services for which the VBE is at SDR, Bulleit explains. There is no specific writing or recordkeeping requirement, but to establish a VBP and the uses of the remuneration, it will be necessary to create a written plan and method for recording compliance, he says.

Under Stark, to carry MDR, the physician must be at risk to repay the DHS entity with which he or she has a financial relationship 25% of remuneration received, or be responsible prospectively for all or a defined set of covered patient care items and services for each patient (effectively partial capitation). This does require a written description of the downside risk, and maintenance of records of the methodology for determining and payments made for six years, Bulleit says.

• Care Coordination Arrangements (CCA). The least amount of required risk-taking has the toughest requirements. For the AKS CCA safe harbor, only in-kind remuneration is permitted, and it must be used primarily to engage in a VBA that is directly connected to care coordination and management using evidence-based, valid outcome measures.

The recipient must be at risk for 15% of the offeror’s cost, Bulleit says. This arrangement must be in writing, defining offeror cost and the percentage of the recipient’s contribution, and is subject to monitoring and assessment requirements.

There are no specific financial standards for the Stark VBA exception, but the VBA must be in writing with a description of the methodology, performance standards, and the same record maintenance requirements as the other Stark exceptions, Bulleit says.

The proposed revisions should ease a risk manager’s worries over compliance in many situations, although close oversight still will be necessary, Thallner says.

“The consequences of violating these laws is so great that healthcare organizations need to exercise a high degree of care and diligence to ensure that arrangements with other referral sources or recipients are proper,” Thallner says. “The exceptions that had been in place had been so narrowly drafted that healthcare organizations had no choice but to self-disclose when they realized an arrangement did not meet the exception, but there are new exceptions that are broader and may allow you to conclude the arrangement was compliant. There may be a bit of relief now if potentially noncompliant arrangements had been discovered.”