On October 9, 2019, the Centers for Medicare and Medicaid Services (CMS) released two proposed rules: Modernizing and Clarifying the Physician Self-Referral Regulations and Fraud and Abuse; Revisions to Safe Harbors under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducement.

The new rules propose changes to the physician self-referral law, or Stark, and the anti-kickback statute, which were implemented to address fraud and abuse by physicians under traditional fee-for-service arrangements. Stakeholders have long argued that Stark and anti-kickback regulations are not only confusing and burdensome, but also limit innovation.

The new proposed rules focus on eliminating Stark and anti-kickback statute barriers for new value-based care payment arrangements. Specifically, the rules propose three new exceptions and safe harbors for value-based compensation arrangements. Whether an arrangement qualifies for the new exceptions and safe harbors is determined by specific characteristics of the arrangement, including the level of financial risk involved.

First, CMS proposes a new exception for value-based arrangements where a value-based enterprise assumes full financial risk from a payor for patient care services for a targeted patient population. CMS also proposes an exception for value-based arrangements under which the physician is at meaningful downside financial risk for failure to achieve the value-based purposes of the value-based enterprise. CMS proposes that meaningful downside risk means the physician is responsible to pay the entity no less than 25 percent of the value of the remuneration. Finally, CMS proposes a general exception for any value-based arrangement provided it satisfies certain requirements, including:

• Remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population;

• Remuneration is not provided as an inducement to reduce or limit medically necessary items or services to a patient in the target patient population;

• Remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered by the value based arrangement;

• The methodology used to determine the amount of the remuneration is set in advance of the furnishing of the items or services for which the remuneration is provided; and

• Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of six years.

The physician self-referral proposed rule also attempts to clarify definitions and create bright line rules in areas that have often required interpretation and analysis from stakeholders. CMS includes substantial discussion and examples around the definition of the terms “commercially reasonable,” “fair market value,” and “not determined in a manner that takes into account other the volume or value of referrals.” For example, CMS proposes a new bright line rule to determine whether a compensation arrangement meets the value or volume standard—compensation from an entity to a physician takes into account the volume or value of referrals only if the formula used to calculate the physician’s compensation includes the physician’s referrals to the entity as a variable resulting in an increase or decrease in the physician’s compensation that positively correlates with the number or value of the physician’s referrals to the entity.

CMS also proposes two alternative definitions for the term ‘commercially reasonable’: 1) the particular arrangement furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements or 2) the arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty. CMS seeks comment on these two possible definitions.

CMS also provides significant elaboration of and examples for definitions and regulations that stakeholders have often found confusing. For example, CMS clarifies that a service provided by a hospital to an inpatient does not constitute a designated health service payment in whole or part by Medicare if the furnishing of the service does not affect the amount of Medicare’s payment to the hospital under the Hospital Inpatient Prospective Payment System.

While most proposals appear to increase leniency for providers under the statutes, a few clarifications may make the statutes slightly more restrictive. For example, CMS makes clear that an “isolated financial transaction” cannot include a single payment for multiple services over an extended period of time.

CMS also proposes to create new exceptions, such as an exception to provide flexibility for non-abusive business practices, by proposing an exception for limited remuneration from an entity to a physician for items or services actually provided by the physician. The exception applies where the remuneration does not exceed an aggregate of $3,500 per calendar year.

The anti-kickback statute proposed rule focuses on establishing protections for beneficiary inducements offered to patients for certain marketing or patient engagement activities in value-based arrangements. It also creates three new safe harbors for remuneration exchanged in value-based arrangements including: (1) care coordination arrangements to improve quality, health outcomes and efficiency; (2) value-based arrangements with substantial downside financial risk and (3) value-based arrangements with full financial risk.

The anti-kickback statute rule also proposes modifications to various safe harbors, such as proposing to expand the distance allowed for residents in rural areas in the local transportation safe harbor, and removing distance requirements for inpatients on discharge. It also proposes to modify the personal services and management safe harbor to add flexibility with respect to outcomes-based payments and part-time arrangements.

Following demands from stakeholders, both proposed rules address the need for better interoperability and data security. The new rules include a safe harbor and exception to protect arrangements involving the donation of certain cybersecurity technology and related services, including the donation of any software or other type of IT other than hardware. The rules also include modifications to the existing safe harbor and exception for electronic health records items and services.

The Administration also continues its focus on price transparency, and seeks further comment from stakeholders on the ability to provide pricing information and out-of-pocket costs to patients, and the burden associated with providing additional information about the factors that may affect the cost of services for which a patient is referred.

Stakeholders can submit comments on the proposed rules until 5 p.m. on December 31, 2019.