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New Stark and Anti-Kickback Rules – A Platform for Innovation Part 4: Anti-Kickback as an Innovation Backstop

December 29, 2020

Stark Law – Part 4: Anti-Kickback as an Innovation Backstop

While Part I: Introducing the Platform, Part II: Defining the Platform and Part III: Facilitating Innovation, of this series introduced the new rules, explored the new value-based definitions and summarized the value-based exceptions under the Stark Law, this article explores the role of the Anti-Kickback Statute in the overall effort to shift the health care industry’s paradigm from volume-based to value-based.

As an initial matter, these two bodies of law, the Stark Law and the Anti-Kickback statute, have some critical differences that govern why the new rules treat them the same in some cases and differently in other cases. For example, while the Stark Law requires a physician referral to a DHS entity, the Anti-Kickback Statute applies to anyone involved in making or paying for Medicare or Medicaid referrals. In addition, while Stark Law is a strict liability law, the Anti-Kickback Statute is intent-based. This means that, unlike the Stark Law, an arrangement implicating the Anti-Kickback Statute may fall outside of a safe harbor and still not violation the statute. However, this also means some uncertainty over how a court will view the arrangement when looking at the facts and circumstances of an arrangement that falls into the Anti-Kickback Statute’s “twilight zone” existing between clear violations and safe harbors.

Ultimately, the Stark Law captures a subset of defined, high-risk referral issues impacting patients and government payors, and the Anti-Kickback Statute is intended to address everything else. This makes the Anti-Kickback Statute the backstop of fraud and abuse laws. So it is with the new rules. If an innovative value-based model falls outside of the Stark Law (e.g., no physician referral to a DHS entity), the new Anti-Kickback rules likely govern the analysis. Therefore, the OIG (which regulates Anti-Kickback issues) coordinated closely with CMS (which regulates Stark issues) when drafting its new rules to address the overarching policy goals of coordinated care. Even so, while the OIG maintained a parallel structure in some regards, the backstop function and structure of the Anti-Kickback Statute resulted in numerous differences. This article will address those similarities and differences.

Defining Purposes and Participants – As an initial matter, mercifully, the OIG kept the core definitions of the value-based structure, with a few significant differences. For example, “Value-Based Purpose”, though virtually identical to the Stark definition, must be read in conjunction with a new definition of “Coordination and Management of Care”, which, in turn, works in conjunction with the new “Care Coordination Arrangements” safe harbor. “Coordination and management of care (or coordinating and managing care) means the deliberate organization of patient care activities and sharing of information between two or more VBE participants, one or more VBE participants and the VBE, or one or more VBE participants and patients, that is designed to achieve safer, more effective, or more efficient care to improve the health outcomes of the target patient population.” This definition makes a critical point: actual achievement of outcomes is not required to fulfill this purpose.

Similarly, “VBE Participant”, which is also virtually identical to the Stark definition, must be read in conjunction with lists of ineligible entities associated with each of the safe harbors. In other words, despite the definition, certain entities are separately and categorically excluded from using the new value-based exceptions. In addition, recognizing that the Anti-Kickback Statute covers a much broader range of participants than the Stark Law, the definition itself categorically excludes patients from being VBE participants. Ultimately, the new rules create three categories of individuals and entities: (i) those eligible to rely on any of the new exceptions; (ii) those eligible to rely on a limited number of exceptions; and (iii) those ineligible to rely on any exception. For example, the following entities fall into this last category: (a) pharmaceutical companies; (b) PBMs; (c) laboratory companies; (d) compounding pharmacies; (e) medical device manufacturers or suppliers; (f) certain DMEPOS companies; and (g) non-manufacturer medical device distributors or wholesalers

Value-Based Safe Harbors – Another Sliding Scale Similar to the Stark Law, the Anti-Kickback Statute presents three new safe harbors, including a common set of do’s and don’ts relating to remuneration, and the new safe harbors follow a tiered framework based on the parties’ assumption of risk.

Remuneration Do’s and Don’ts.

The list of do’s and don’ts is longer than the Stark counterparts, but contains many similar features. Remuneration must be: (i) connected to certain Value-Based Purposes; (ii) exchanged for Value-Based Activities directly tied to the assumption of risk; and (ii) be described in a signed writing that is kept for six years. The documentation should include descriptions of the Value-Based Activities, the Target Patient Population, the risks assumed by the VBE and VBE participants and the type of remuneration. Remuneration must not: (a) include an offer of ownership, investment or distributions; (b) be exchanged for marketing or patient recruiting; (c) be volume-based; (d) interfere with patient or insurance company preferences or provider judgment regarding the patient’s best interests; (e) induce parties to reduce or limit medically necessary items or services; or (f) take into account business with ineligible entities.

Full Financial Risk.

At the top-risk tier, the VBE must assume the full financial risk from a payor through a written contract or Value-Based Arrangement. The contract or arrangement may specify assumption immediately or within one year. In addition to the remuneration restrictions outline above, there must also be a quality assurance program that protects against underutilization and assesses the quality of care furnished to the Target Patient Population. Similar to the Stark counterpart, “full financial risk” must be assumed on a prospective basis for the cost of all items or services covered by the applicable payor for each patient in the Target Patient Population. The arrangement must last at least one year.

Substantial Downside Financial Risk.

In the middle-risk tier, the Value-Based Enterprise has to assume substantial downside financial risk from a payor through a written contract or a Value-Based Arrangement. The contract or arrangement may specify assumption immediately or within 6 months. Also, the VBE participant must assume a meaningful share of this risk relating to providing items and services for the Target Patient Population. “Substantial” means either 20% or 30%, depending on which formula the VBE chooses. “Meaningful” means either 5% or a prospective, per-patient payment for a predefined set of items and services. The arrangement must last at least one year.

Care Coordination Arrangements. In the lowest tier, similar to its Stark counterpart, neither the VBE nor its participants assume any risk, but the trade-off is that there must be extensive documentation and monitoring requirements. Documentation includes the purposes, the activities, the term, the Target Patient Population, the remuneration, the cost (or accounting methodology used to determine cost) or fair market value, the percentage and amount contributed by the recipient, the frequency of the recipient’s contribution payments for ongoing costs; and the outcome or process measures against which the recipient will be measured. The process measures and benchmarks must be set prospectively and monitored at least annually to ensure that they advance the coordination and management of care of the Target Patient Population. If the review detects material deficiencies in the quality of care or the arrangement is unlikely to further coordination and management of care for the Target Patient Population, the parties must take action within 60 days. The corrective actions include termination or developing and implementing a corrective action plan within 120 days. A final feature of this safe harbor is that the remuneration recipient must share at least 15% of the offeror’s cost of the remuneration or the fair market value of in-kind remuneration.

While this series of articles does not exhaust the scope of the new Stark and Anti-Kickback rules regarding value-based exceptions and safe harbors (indeed, both sets of rules include other exceptions, safe harbors and revisions), they address a pivotal concept overarching recent and forthcoming regulatory changes in Stark, Anti-Kickback, HIPAA and 42 CFR Part 2: the demand for facilitating coordinated, value-based care. The new definitions establish the participants, purposes and activities that act as a gateway to these value-based exceptions and safe harbors. The Stark exceptions create space for innovation in relationships involving physician referrals to DHS entities. And, the Anti-Kickback safe harbors provide a backstop against potentially fraudulent and abuse arrangements that fall outside of the Stark Law, primarily through establishing groups of eligible and ineligible participants. The sheer volume of new regulations ensures that practitioners, regulators and lawyers will be digesting and navigating many of the practical issues relating to these new rules for some time to come. However, the hope remains that innovative arrangements will begin to emerge in 2021.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 3 – New Stark Rules – A Platform for Innovation: Facilitating Innovation


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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