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New Stark and Anti-Kickback Rules – A Platform for Innovation Part 3: Facilitating Innovation

December 29, 2020

Stark Law – Part 3: Facilitating Innovation

In Part II: Defining the Platform, I outlined what I call the boundaries of the value-based sandbox, which is a space created by CMS in the new Stark law rules for parties to innovate new arrangements that could reduce health care costs and increase patient value. An understanding of these defined terms is critical to exploring the new value-based exceptions CMS created to facilitate innovation. I also reviewed the importance of contemporaneous documentation, clear analysis and patience as providers begin the process of navigating the vague boundaries standing between them and strict liability. 1.       A Common Theme: Reducing Risk to PayorsThe purpose of this article is to outline the basic legal structures and considerations of the three new value-based exceptions to the Stark law’s application to compensation arrangements. As discussed in my introductory  article on the new rules, the Stark law essentially (i) prohibits physicians from referring patients to any entity with which the physician has a direct or indirect financial relationship, (ii) prohibits such entity from filing claims for services resulting from a prohibited referral. The Stark law defines a “financial relationship” as including any direct or indirect “compensation arrangement”, meaning any arrangement involving remuneration between a physician and an entity. In short, the three new value-based exceptions are arrangements that will not be deemed financial relationships under the Stark law. These exceptions are possible, generally speaking, because (i) someone other than the payor is taking on some of all of the downside financial risk, or (ii) the arrangement is monitored so closely by the participants that, within a short window of time, they either root out activities that fail to add value or terminate the arrangement entirely. As an initial matter, each exception shares common elements that outline what the remuneration under a Value-Based Arrangement can or can’t do. Beyond that, the exceptions essentially create a sliding scale, where the greater the risk assumed by the arrangement, the fewer additional requirements are imposed. Therefore, this article will introduce these exceptions by first introducing the common elements relating to remuneration, followed by a summary of each exception in order of greatest assumption of risk to lowest.2.       Do’s and Don’ts of Remuneration Let’s begin with the don’ts. There are two: (i) do not use remuneration to induce a provider to reduce or limit medically necessary items or services for patients in the Target Patient Population; and (ii) do not condition remuneration on receiving referrals of patients who are not part of the Target Patient Population or other business not covered under the Value-Based Arrangement, unless the requirement is in a writing signed by both parties and the requirement does not interfere with patient choice, insurance requirements or the physician’s professional judgment of what is in the best interests of the patient. Now the do’s. There are also two: (i) do use the remuneration for (or resulting from) a Value-Based Activity undertaken by the recipient for patients in the Target Patient Population; and (ii) do keep records of the methodology and amount of remuneration under the Value-Based Arrangement for at least six years and make such records available for regulator review. 3.       The Exceptions – A Sliding Scale of RiskFull Risk. At the high end of the assumption-of-risk scale is the “Full Financial Risk” exception. Under this exception, the Value-Based Enterprise must take on the full financial risk beginning either at the commencement of the Value-Based Arrangement or under a contract to assume the risk within 12 months of commencing the Value-Based Arrangement. The Value-Based Enterprise must hold the full risk for the duration of the arrangement. Under this exception, “Full Financial Risk” is defined as full financial responsibility for all patient care items or services covered by the applicable payor for each patient in the Target Patient Population, on a prospective basis. For clarity, the rule defines “prospective basis” to mean prior to providing the items or services. This could take the form of capitation payments or global budget payments from a payor, though other models are also permitted. This exception also permits payors to make payments to offset losses by the Value-Based Enterprise above those agreed to, or to make incentive payments to the Value-Based Enterprise for achieving savings, quality or other benchmarks. Given that the Value-Based Enterprise assumes the entire risk, there are no additional documentation or monitoring requirements.Meaningful Risk. In the middle is the “Meaningful Downside Risk” exception. Here, it is the physician participant in the Value-Based Arrangement who must assume risk. However, the risk is established at the level of “meaningful,” meaning the physician must be willing to forgo or repay no less than 10% of the total value of the remuneration the physician receives under the Value-Based Arrangement. Unlike the prior exception, there must be documentation describing the nature and extent of the physician’s downside financial risk, and the methodology used to determine the amount of the remuneration must be set in advance of undertaking the Value-Based Activities for which the remuneration is paid. Value-Based. At the low end of the spectrum is the broad “Value-Based Arrangements” exception. Here, the documentation and monitoring requirements are rather extensive. The arrangement must include a signed writing describing the Value-Based Activities, how such activities are expected to further the Value-Based Purposes of the Value-Based Enterprise, the Target Patient Population, the type or nature of remuneration, and the methodology used to determine the remuneration. These arrangements are further required to monitor and assess the “outcome measures” (meaning benchmarks quantifying improvements in quality of care or reduction of costs) against which the recipient of the remuneration is assessed, if any, and the impact of the Value-Based Activities undertaken by the Value-Based Enterprise (e.g., how well do they further the Value-Based Purposes). Finally, the Value-Based Arrangement must be “commercially reasonable”, meaning the arrangement furthers a legitimate business purpose and is sensible when considering all of the characteristics of the arrangement (e.g., the parties’ size, type, scope and specialty). Interestingly, an arrangement may be commercially reasonable even if it does not result in a profit for one or more of the parties.As its name suggests, this last exception is only available to the extent it adds value. The monitoring requirements detail what to monitor and which actions to take if an arrangement fails to provide value. Therefore, monitoring must take place at least once per year, or at least once if the arrangement term is less than one year. When monitoring remuneration, any changes to the remuneration and outcome measures must be set in advance and applied before providing the items or services for which compensation is to be paid. If the outcome measures prove to be unattainable, the outcome measures must be terminated or replaced within 90 days after completing the monitoring. When monitoring the impact of the Value-Based Activities, those activities that do not further the Value-Based Purposes of the Value-Based Enterprise must be terminated. Termination of the activity must occur within 30 days after completion of monitoring if the parties terminate the entire Value-Based Arrangement, or within 90 days if the parties simply modify the Value-Based Arrangement.3.       ConclusionCMS believes it can safely make room to innovate new remuneration models, because it believes these new exceptions have built-in safeguards against harms such as overutilization, care stinting, patient steering and other negative impacts on the medical marketplace. CMS clarified that the exceptions are not intended to replace existing fraud and abuse waivers or to replace the traditional exceptions. Nor are these exceptions intended only to benefit large providers. Rather, CMS is attempting to allow for a variety of models from a variety of providers by removing regulatory obstacles.Additional Articles in the SeriesPart 1 – New Stark Rules – A Platform for Innovation: Introducing the PlatformPart 2 – New Stark Rules – A Platform for Innovation: Defining the PlatformPart 4 – New Stark Rules – A Platform for Innovation: Anti-Kickback as an Innovation Backstop


Attorney Author

Joseph M. Miller

Joseph Miller is an Attorney at Shuttleworth. His work primarily focuses on representing both companies and individuals in matters relating to business and health care. Some of the health law services he provides include compliance training and programs, HIPAA compliance planning (Business Associate Toolkit, Stark and anti-kickback analysis, CHOW analysis for business transactions, and review of employment and recruitment agreements). Joseph’s business law services include M&A, securities and venture capital, and corporate formation (nonprofits, commercial contract review and outside general counsel). Helping people is the central focus of Joseph’s career. He is licensed to practice in Iowa and Arizona, and is fluent in Spanish.

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