On November 20, 2020, the US Department of Health and Human Services (HHS) released final rules amending the regulations to the physician self-referral law (Stark Law) (Stark Rule) and the Anti-Kickback Statute (AKS) and Beneficiary Inducement Civil Monetary Penalty Law (CMPL) (collectively, AKS Rule). The Stark and AKS Rules finalize, with some modifications, most of the proposed changes promulgated by the Centers for Medicare and Medicaid Services (CMS) and the HHS Office of Inspector General (OIG), respectively, in October 2019.

These final rules represent arguably the most significant changes to these regulations in the last decade. This On the Subject provides a high-level overview of key provisions in the Stark and AKS Rules. 

IN DEPTH

The Sprint

HHS promulgated the Stark and AKS Rules as part of its “Regulatory Sprint to Coordinated Care,” which the Trump Administration launched in 2018 with the goal of reducing regulatory burden and incentivizing coordinated care. As part of this initiative, CMS and OIG began scrutinizing a variety of long-standing regulatory requirements and prohibitions to determine whether they unnecessarily hinder innovative arrangements that policymakers are otherwise hoping to see develop. The agencies formally sought public input on this topic by issuing requests for information in June and August 2018. Then, on October 9, 2019, CMS and OIG simultaneously proposed rules significantly modifying the Stark Law and the AKS. See (Stark Proposed Rule) and (AKS Proposed Rule). Stakeholders provided hundreds of comments to both agencies with regard to these proposals, and have eagerly awaited CMS’s and OIG’s final rules. After slightly more than a year, CMS and OIG have finalized most of their proposed revisions in substantially the same form as proposed.

The Stark and AKS Rules reflect a coordinated effort between CMS and OIG to address various challenges to the transition to value-based care. Both agencies recognize that the two laws often operate in tandem, but their proposals also made clear that they are distinct and separate enforcement vehicles. Although commenters requested additional uniformity between the two regulatory schemes to ease compliance burden, as well as clarity with respect to value-based care arrangements, distinctions between the Stark and AKS rules remain. Thus, OIG’s new safe harbor regulations for value-based care arrangements are more restrictive than CMS’s, and both agencies state that the AKS acts as a “backstop” to protect against arrangements that meet a Stark Law exception but are nonetheless considered abusive.

The Stark Rule

The Stark Rule includes new exceptions designed to enable value-based care arrangements as well as changes that address some of the most challenging aspects of Stark Law compliance and issues often termed “technical non-compliance” by the industry. Among the most noteworthy changes to the Stark Law regulations are the following:

• New Compensation Exceptions

  • Value-Based Care Exceptions. CMS finalized new exceptions for value-based care arrangements that satisfy a series of requirements, depending on the level of financial risk (full, meaningful downside and no risk) undertaken by the parties to the arrangement. The new value-based exceptions largely mirror the proposed rules, with minor changes often favorable to providers. Specifically, in the full financial risk exception, CMS extended the “pre-risk” period from six months as proposed, to 12 months, and in the meaningful downside financial risk exception, requires the physician be responsible to pay or forego no less than 10%, rather than paying 25% as proposed, of the value of the remuneration the physician receives under the value-based arrangement. The final version also builds in several additional guardrails around “no risk” arrangements, including updates to how “outcomes measures” (where applicable) are defined, selected and monitored. CMS permits both monetary and non-monetary remuneration between the parties and does not exclude any specific entities, such as laboratories or durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) manufacturers, wholesalers or distributors, from participating in value-based care arrangements.

  • New Exception for Limited Remuneration to a Physician. CMS finalized a new exception to protect compensation not exceeding an aggregate of $5,000 per calendar year (increased from $3,500 as proposed), adjusted for inflation, to a physician for the provision of items and services without the need for a signed writing and compensation that is set in advance if certain conditions are met, including that the compensation does not exceed fair market value and is not determined in any manner that takes into account the volume or value of referrals or other business generated. The Stark Rule also permits the physician to provide the items or services in question through employees the physician hired for the purpose of performing the services, a wholly owned entity or locum tenens physicians. This new exception is one of the ways CMS expanded the avenues to protect otherwise potentially non-compliant space and equipment lease and timeshare arrangements, as well as a way to “gap fill” when the parties have not otherwise completed an agreement before beginning performance.

  • New Exception for Cybersecurity Technology and Related Services. CMS finalized a new exception to protect arrangements involving the donation of certain cybersecurity technology and related services, including certain cybersecurity hardware donations.

• New Defined Terms

  • New or Modified Definitions for Key Stark Law Terms. In an effort to establish clear bright-line rules, CMS finalized new definitions of key concepts, including the “Big Three” that are elements of many Stark Law exceptions: “commercial reasonableness,” “fair market value,” and “takes into account the volume or value” of referrals or other business generated. Specific changes include:

    • With regard to fair market value, CMS generally attempted to return to the statutory definition of fair market value and better align fair market value with the “general market value” of a subject transaction, thus ostensibly allowing parties to consider more specific circumstances surrounding the particular arrangement than overly relying on the four corners of a salary survey. CMS notes that salary surveys can be a good “starting point” but that the fair market value for a particular physician may be higher or lower than the survey data. CMS confirms its policy that there is no predetermined salary percentage level that is per se acceptable or per se suspect. The new regulatory definition of “fair market value” provides for three separate definitions: a definition of general application, a definition applicable to the rental of equipment, and a definition applicable to the rental of office space.

    • CMS also endeavored to define, through the use of special rules, when a physician’s compensation takes into account the “volume or value” of the physician’s referrals or “other business generated.” CMS tackled the definition by delineating a “universe of circumstances under which compensation is considered to take into account the volume or value of referrals or other business generated between the parties.” Specifically, compensation “takes into account” the volume or value of referrals or other business generated if the compensation formula includes referrals or other business generated as a variable, resulting in an increase or decrease in compensation that positively correlates to the number or value of referrals or other business generated. If the methodology used to determine the physician’s compensation or the payment from the physician does not fall squarely within the defined circumstances, the compensation does not take into account the volume or value of the physician’s referrals or other business generated by the physician, for purposes of the Stark Law. CMS affirmed that an association between personally performed physician services and designated health services (DHS) 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. The volume/value change arguably may have the greatest impact on physician compensation structures for many organizations, from health systems to group practices.

    • CMS defined the term “commercially reasonable” in regulatory text. Specifically, “commercially reasonable” means that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope and specialty. The definition, among other things, appears crafted to provide ammunition for defense of qui tam suits predicated on a lack of commercial reasonableness solely because an arrangement with a physician was not profitable. CMS included a statement in the regulatory definition that an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.

  • DHS Definitional Change. CMS modified the definition of DHS to make clear that an inpatient hospital service is only DHS if the furnishing of the service affects the amount of Medicare payment under the inpatient prospective payment systems for acute care hospitals, inpatient rehabilitation facilities, inpatient psychiatric facilities and long-term care hospitals. This change has the potential to dramatically reduce the number of hospital claims that may be tainted by a prohibited financial relationship between a hospital and a physician where the physician is not the admitting physician. Notably, however, CMS declined to expand the modified definition to outpatient hospital services.

• Other Regulatory Modifications

  • Clarification of “Set in Advance.” CMS finalized guidance making clear that compensation may be set in advance, even if it is not set out in writing before the furnishing of items or services. To this end, CMS confirmed that the special rule at § 411.354(d)(1) is a “deeming” provision that parties can utilize to ensure compensation will be considered “set in advance.” CMS also finalized requirements for arrangements where the compensation (or formula for determining the compensation) is modified during the course of the arrangement. Specifically, the new regulation related to modifying compensation terms during the course of an arrangement requires that the modified compensation (or formula for determining compensation) is set out in writing before the furnishing of items or services for which the modified compensation is to be paid, and it specifically provides that parties do not have 90 days to reduce the modified compensation terms to writing.

  • Clarifications to “Group Practice” Requirements. CMS finalized clarifications to the regulations defining a “group practice” for purposes of the Stark Law, including revisions that make clear that group practices may not use DHS-specific pods for purposes of distributing DHS profits. While the profits from all DHS of any component of the group that consists of at least five physicians (which may include all physicians in the group) must be aggregated before distribution, CMS clarified that a group practice may utilize different distribution methodologies to distribute shares of the overall profits from all DHS of each of its components of at least five physicians, provided that the distribution to any physician is not directly related to the volume or value of the physician’s referrals and the same methodology is used for all the physicians included in their component. As noted below, CMS delayed the effective date for this portion of the rule to January 1, 2022, to give physician practices additional time to adjust their compensation methodologies.

  • Modifications to Various Compensation Exceptions. CMS finalized a series of modifications to various compensation exceptions, including the space and equipment lease exceptions (to clarify that the lessor is the only party that must be excluded from using the space or equipment for purposes of exclusive use), recruitment exception (to eliminate the requirement that the practice sign the writing if the practice receives no financial benefit under the agreement), fair market value exception (which can be used for the rental of office space) and others. Most, though not all, of these modifications will likely liberalize the applicability of these exceptions to provider compensation arrangements. Unlike its approach with other exceptions, CMS declined to finalize its proposed modification to the fair market value exception that would have removed a requirement that the arrangement otherwise comply with the AKS. CMS acknowledged that since this exception may now be available to protect lease arrangements, the AKS requirement should be retained as an additional guard rail against “sham leases.”

  • Temporary Non-Compliance. CMS finalized its proposal to expand the 90-day grace period for signature requirements to the requirement for a written agreement.

  • Period of Disallowance. CMS finalized its proposal to delete the goal posts for when an entity would know the period of disallowance has ended. CMS also finalized additional guidance surrounding a party’s ability to “cure” non-compliance in ongoing arrangements in certain circumstances, in order to avoid triggering a period of disallowance under the Stark Law. CMS also created a special rule that allows parties to “reconcile discrepancies” for compensation arrangements within 90 days of termination of the arrangement.

  • Limiting the Applicability of Isolated Financial Transaction Exception. CMS finalized changes to the Stark regulations clarifying that CMS does not consider the isolated financial transaction exception to apply to payments for multiple services provided over an extended period of time, even if there is only a single payment for all the services. However, CMS confirmed that this exception is available to cover the forgiveness of an amount owed in settlement of a bona fide dispute, if certain conditions are met, including that the amount is fair market value and not determined in a manner that takes into account the volume or value of referrals or other business generated.

  • Revitalization of Payments by a Physician Exception. Currently, the Payments by a Physician Exception is of limited utility because it cannot be used if another exception applies. The final rule removes some of the restrictions by permitting use of the exception outside those arrangements specifically addressed by one of the Stark Law’s statutory exceptions codified at 42 CFR § 411.357(a)-(h).

  • Abandonment of Proposed Changes to Exception for Remuneration Unrelated to the Provision of DHS. CMS originally proposed to expand the exception’s limited application in the Stark Proposed Rule. Specifically, CMS proposed to clarify that remuneration from a hospital to a physician does not relate to the provision of DHS if the remuneration is for items or services that are not related to patient care services. However, citing certain commenters’ concerns regarding patient or program abuse, CMS decided not to finalize the proposed expansion.

  • Recalibrating the Special Rule for Directed Patient Referrals to Align with Broader Regulatory Changes. CMS also added new “directed referral” rules in an effort to further protect patient choice, professional medical judgment and managed care organization operations. CMS finalized its proposal to restructure the special rule surrounding directed referrals to include an affirmative requirement that a compensation arrangement meet the conditions of the special rule, which now include a provision that more explicitly addresses permitted compensation if an entity were to require referrals. Specifically, CMS stated that neither the existence of the compensation arrangement nor the amount of the compensation may be contingent on the number or value of the physician’s referrals to the particular provider, practitioner or supplier, but that the requirement to make referrals to a particular provider, practitioner or supplier may require that the physician refer an established percentage or ratio of the physician’s referrals to a particular provider, practitioner or supplier. CMS also included this affirmative requirement in many exceptions, including the new Limited Remuneration to a Physician exception.

  • Clarification for Electronic Health Records Items and Services Exception. CMS finalized many proposed changes to the exception, including modifying the timing of certain required physician contributions, permitting certain donations of replacement technology and removing the sunset provision, thereby making the exception permanent. Notably, however, CMS did not finalize its proposal to modify the provision addressing the concept of information blocking and instead removed that provision from the exception entirely.

The AKS Rule

The AKS Rule also finalizes many of OIG’s proposals that modify existing AKS safe harbors, create new AKS safe harbors and create a new CMPL exception. We have summarized the key changes below:

• New AKS Safe Harbors

  • Value-Based Arrangements. OIG finalized three new safe harbors to protect certain payments among individuals and entities in a value-based arrangement. The three new safe harbors vary in terms of the type of remuneration that can be provided, the level of financial risk the parties assume (full, substantial downside and no risk), and the types of safeguards required to satisfy the safe harbor. As mentioned above, the value-based safe harbors are generally narrower than the Stark exceptions. For example, OIG finalized several restrictive requirements in the care coordination, or no-risk, safe harbor, including that the remuneration exchanged can be in-kind only and that participants must contribute 15% of the offeror’s costs or fair market value of the remuneration, and that coordination and management of the care of the target patient population must be at least one of the value-based purposes of the value-based enterprise, among other requirements. OIG also prohibits the following entities from being able to rely on the value-based safe harbors:

    • Pharmaceutical manufacturers, distributors and wholesalers

    • Pharmacy benefit managers

    • Laboratory companies

    • Compounding pharmacies

    • Medical device and supply distributors and wholesalers.

  • In recognition of the value that digital technology can have in achieving better care coordination, outcomes and reduced costs, OIG created a limited pathway for certain non-physician-owned medical device or supply manufacturers and entities or individuals that sell or rent DMEPOS (other than a pharmacy or a physician, provider or other entity that primarily furnishes services) to contribute digital health technology in reliance on the care coordination arrangements safe harbor.

  • Patient Engagement and Support. OIG finalized a safe harbor to protect furnishing certain tools and support to patients in order to improve quality, health outcomes and efficiency. Importantly, this safe harbor is only available for value-based enterprise participants. The remuneration can be in-kind only and is limited to a $500 annual cap, adjusted for inflation, among several other requirements.

  • CMS-Sponsored Models. OIG finalized a safe harbor to protect certain remuneration provided in connection with certain models sponsored by CMS, thereby reducing the need for HHS to issue individualized fraud and abuse waivers for each model.

  • Cybersecurity Technology and Services. OIG finalized a standalone protection for donations of cybersecurity technology and services, including certain cybersecurity hardware donations.

• Modifications to Existing AKS Safe Harbors

  • Personal Services and Management Contracts Safe Harbor. OIG finalized a proposed modification to add greater flexibility by removing the part-time schedule requirement and the aggregate compensation set-in-advance requirement, which resulted in this safe harbor having limited practical use. OIG also created a new outcomes-based payments safe harbor to protect payments, outside of a value-based enterprise context, for the achievement of one or more legitimate outcomes measures that were selected based on clinical evidence or credible medical support to improve quality, reduce costs (but not solely internal costs) or both. These measures must be reassessed periodically. This safe harbor has the familiar fair market value, commercial reasonableness and volume/value requirements and excludes the entities deemed ineligible to take advantage of the value-based safe harbors, including medical device manufacturers and DMEPOS companies.

  • Local Transportation. OIG finalized its proposal to expand and modify mileage limits applicable to patient transportation in rural areas (expanded from 50 to 75 miles) and patient transportation from inpatient facilities post-discharge (removed all mileage limits). OIG did not extend safe harbor protection to transportation of patients to any location of their choice or for nonmedical purposes.

  • Electronic Health Records Items and Services Safe Harbor. Like CMS, OIG finalized many proposed changes to this safe harbor, including modifying the timing of certain required recipient contributions, permitting certain donations of replacement technology and removing the sunset provision. OIG also chose not to finalize its proposal to modify the provision addressing the concept of information blocking, and, consistent with CMS’s approach, instead removed that provision from the safe harbor entirely.

  • Warranties. OIG finalized its proposal to expand the warranty safe harbor to protect warranties covering a bundle of one or more items and related services. Specifically, the warranty safe harbor protects the remedies offered and given if the bundled items and services fail to perform as warranted. The bundled items and services must be reimbursed by the same federal healthcare program and the same federal healthcare program payment. Although manufacturers are not eligible for protection of value-based arrangements under the value-based safe harbors described above, the revised warranty safe harbor provides an avenue for manufacturers to offer value-based arrangements through structuring warranties to guaranty product performance in conjunction with services intended to enhance clinical effectiveness.

  • Accountable Care Organization (ACO) Beneficiary Incentive Programs. OIG codified the Bipartisan Budget Act of 2018 statutory exception for ACO Beneficiary Incentive programs for the Medicare Shared Savings Program.

• New CMPL Exception

  • Telehealth for In-Home Dialysis. OIG finalized its proposal to interpret and incorporate the Bipartisan Budget Act of 2018 statutory exception for furnishing telehealth technologies to certain in-home dialysis patients.

Implications of the Final Rules

The vast majority of the provisions finalized by CMS and OIG are welcome updates that may present significant opportunities for new arrangements as the march toward value-based care continues, and even outside of the value-based context. It may take time, however, for stakeholders to become fully comfortable with the new value-based care exceptions and safe harbors. CMS recognized commenter leeriness toward the utility of the “full financial risk” exception given the amount of financial risk physicians are willing to accept. Notably, the differences between the Stark and AKS value-based care rules mean that organizations will likely continue to find themselves in a compliance “grey zone” where an arrangement satisfies a Stark Law exception—because it must—but is unable to meet an AKS safe harbor because the safe harbor is too restrictive.

Outside of the value-based issues, the Stark and AKS Rules contain many clarifications and burden reduction measures. Stakeholders pleaded with CMS for additional definitional clarity surrounding the Big Three for years. Compliance professionals and healthcare lawyers will find welcome relief in many of CMS’s regulatory updates regarding “technical non-compliance.” With the addition of the special rules, guidance on curing arrangements and the new limited remuneration exception, many arrangements that previously necessitated a self-disclosure to CMS will no longer be non-compliant. The expansion of the AKS personal services and management contracts safe harbor will enable many common arrangements, such as per-hour payments, to finally fully comply with the safe harbor. The warranty safe harbor expansion likewise should encompass many beneficial and non-abusive arrangements that manufacturers offer to their customers as part of warrantying their increasingly sophisticated products.

However, not everything in the final rules can be correctly classified as “burden reducing.” Certain changes to the Stark Law, such as the modification to “overall profits” in the Stark Law’s group practice definition, may require practices to change their current compensation methodologies. The clarification of the isolated transaction exception may require finding other compensation exceptions to protect financial relationships with referring physicians to ensure compliance when the final rule becomes effective. The AKS patient engagement safe harbor is only available for non-value-based enterprise participants, which may chill the activities of individual organizations to address patient needs and social determinants of health, especially during the pandemic and economic downturn.

Effective Date Note

The Stark and AKS Rules state an effective date of January 19, 2021, for most of the provisions, with the exception of certain changes to the definition of a “group practice,” which have an effective date of January 1, 2022. However, the official scheduled publication date of these rules is listed as December 2, 2020, which creates doubt under the Congressional Review Act about whether the rules can go into effect prior to the Biden Administration’s inauguration on January 20, 2021. Under the Act, the 60-day clock begins to tick upon the date of publication in the Federal Register, not the informal public display of a final rule. Typically, new administrations institute a hold on any regulation that has not gone into effect by inauguration day or shortly thereafter in order to have time to review those regulations. Given the largely technical and bipartisan nature of many of the issues in the Stark and AKS Rules, the rules may go into effect despite the change in administration. We will continue to monitor this issue.

Chelsea M. Rutherford also contributed to this article.