The Office of Inspector General’s (“OIG”) new Anti-Kickback Statute (“AKS”) regulations modify the safe harbor for personal services and management contracts (42 CFR § 1001.952(d)) in a manner that allows providers flexibility in structuring creative and value-based compensation arrangements. The modified safe harbor aligns personal services with the parallel Stark Law exception and reduces the burden placed on providers to determine the aggregate compensation to be paid over the term of the agreement. The modification also allows providers greater flexibility when entering part-time arrangements by removing the requirement that the agreement set forth the specific timing and duration of services. 

Generally, contractual arrangements that provide for the provision of personal services to or for the benefit of a healthcare provider run the risk of violating the AKS if federal healthcare program-covered business may be generated, directly or indirectly, by one party for the other. Examples of “personal services” might include services provided by vendors to a healthcare provider or a contract for a physician group to provide medical services to and for the benefit of a hospital or hospital department. Consequently, the OIG carved out a safe harbor for such arrangements, i.e., the personal services and management contracts safe harbor, to protect compensation payments from a principal to an agent, so long as the compensation arrangement meets a number of requirements. 

In the new final rule, the OIG revised the requirements necessary to qualify for personal services and management contracts safe harbor by: (1) allowing personal services and management contracts to document the compensation methodology, i.e., a compensation formula, rather than the aggregate amount of compensation; (2) eliminating the requirement that personal services and management contracts entered into on a part-time or periodic basis specify the schedule, length, and exact charge for such services; and (3) protecting certain outcomes-based payments. 

Regarding outcomes-based payments, personal services, and management contracts can now provide compensation arrangements that include outcome-based payment models, i.e., payments or reductions in payment, for successfully achieving an outcome measurement, such as the number of emergency room visits, or failing to achieve such measurement, respectively. Outcomes-measurements selected must be based on clinical evidence or credible medical support and have benchmarks that quantify improvements in quality of care and/or material reductions in costs. Moreover, the contract must document the clinical studies or support relied upon for selecting the outcomes-measurement and specify the schedule in which the parties will monitor and assess the outcomes measures, which must occur at least on an annual basis.  

In sum, the OIG’s changes to the AKS safe harbor for personal services and management contracts allows providers to be more flexible and innovative when structuring value-based compensation arrangements for personal services.