Today, the Department of Health and Human Services (HHS) announced proposed changes to modernize the regulations that interpret the Physician Self-Referral Law (the Stark Law) and the Federal Anti-Kickback Statute. In a press release, HHS states these proposed rules are intended to “provide greater certainty for healthcare providers participating in value-based arrangements and providing coordinated care for patients . . . while maintaining strong safeguards to protect patients and programs from fraud and abuse.”

Over the last 30 years, HHS has issued a series of final regulations establishing exceptions and safe harbors that limit the reach of the Stark Law’s strict liability civil penalties and the Anti-Kickback Statute’s criminal penalties to protect from enforcement certain non-abusive and beneficial arrangements. These final regulations have not, however, reflected the significant shift in recent years in health care delivery and payment systems from a fee-for-service model to models based on improving value and quality of care provided to patients. As a result, many in the health care industry identify these laws, as well as the Civil Monetary Penalty (CMP) Law, as barriers to more effective care coordination and management that can deliver value-based care to improve quality of care, health outcomes, and efficiency. In response, on June 25, 2018, the Centers for Medicare & Medicaid Services (CMS) published a Request for Information seeking input on how it could address existing Stark Law barriers to these emerging value-based payment and delivery systems. Similarly, on August 27, 2018, the Office of Inspector General (OIG) published a Request for Information seeking feedback on how OIG could modify or add new safe harbors addressing these barriers. CMS and OIG received more than 350 comments each, which HHS has considered in publishing these proposed rules.

CMS and OIG Coordinated Proposals

The proposed rules, which span hundreds of pages, reflect close coordination between CMS and OIG, which tried to align the regulations, where appropriate, and the proposals are significant. More specifically, the coordinated proposals include:

  1. Three new exceptions and safe harbors for value-based payment arrangements
  2. Modifications to the existing electronic health record (EHR) exception and safe harbor
  3. The addition of a new exception and safe harbor related to the provision of cybersecurity technology and services

Assessment of the value-based arrangement exceptions and safe harbors proposals will require careful scrutiny, but at a high level, CMS and OIG have proposed a “tiered” structure that affords greater flexibility to the parties to these arrangement (referred to as “value-based enterprise participants”) as they assume more financial risk for the cost and quality of care. The Stark Law rulemaking, which would apply to compensation relationships only – not ownership relationships – identifies the three exceptions as: (i) value-based arrangements with full financial risk, (ii) value-based arrangements with meaningful downside financial risk, and (iii) any value-based arrangement provided the enumerated requirements are met. The Anti-Kickback rulemaking proposes a similar framework, albeit in the context of care coordination and management arrangements only: (i) value-based arrangements with full financial risk, (ii) value-based arrangements with substantial downside financial risk, and (iii) care coordination arrangements to improve quality, health outcomes, and efficiency that involve in-kind remuneration. The disparate language to describe those value-based arrangements with something less than full financial risk (i.e., meaningful versus substantial), is intentional as CMS proposes to track the current definition of “substantial financial risk” found in the physician incentive plan rules – at least 25 percent of the remuneration is the responsibility of an entity or physician – while OIG proposes four definitions of its term and solicits comments on alternative definitions. Notably, CMS and OIG propose to expressly exclude, or are seeking comments regarding whether to exclude, certain entities from participating in protected arrangements on the basis of historical enforcement and oversight experience: (i) pharmaceutical manufacturers; (ii) manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS); (iii) laboratories; (iv) pharmacy benefit managers; and (v) other wholesalers and distributors.

CMS and OIG also propose to add a new exception and safe harbor related to the donation of cybersecurity technology and services, and amend the EHR donation exception and safe harbor to clarify that such donations may include certain cybersecurity technology and services and align the EHR donation regulations more closely with the interoperability and information blocking provisions of the 21st Century Cures Act and its implementing regulations. These amendments also would remove the EHR donation current sunset provisions, which are set to expire on December 31, 2021.

Additional Proposals Related to the Stark Law Exceptions

Separately, CMS proposes a new exception to the Stark Law to protect limited remuneration, in an amount that does not exceed $3,500 per year, to a physician for items or services provided by that physician. This exception expands the ability of entities to provide remuneration to physicians on a limited basis where an existing exception would not be available, such as for a short-term medical director arrangement between a hospital and a physician to address an unanticipated opening.

The proposed rule also seeks to clarify certain definitions critical to the application of existing regulatory exceptions, such as providing guidance on how to determine whether an arrangement is “commercially reasonable” or whether compensation is consistent with “fair market value,” and confirming that CMS interprets the terms “based on,” “related to,” and “takes into account” as meaning “takes into account” when used with regard to exceptions requiring compensation not to relate to the volume or value of referrals or business between the parties. For those watching recent court opinions interpreting the Stark Law compliance of productivity based physician compensation formulas, CMS provided a welcome clarification that productivity bonuses for employed physicians do not “take into account” the volume or value of referrals of the physician solely by virtue of the fact that a hospital may bill for designated health services each time the physician personally performs a service at the hospital.

CMS additionally proposes:

  • Decoupling Stark Law exceptions from the Anti-Kickback Statute and billing or claims submission requirements by removing compliance with those laws as a requirement in certain existing exceptions.
  • Making changes to the definition of a “group practice” to clarify circumstances under which the profits of a group practice may be shared with its members, including compensation that relates to participation in a value-based arrangement.
  • Removing its carve-out of surgical devices, items, or supplies from the definition of “remuneration.”
  • Excluding titular ownership from the definition of ownership or investment interests.
  • Revising rules related to signature requirements for certain exceptions (e.g., special compensation).
  • Clarifying certain other definitions.

Additional Proposals Related to the Anti-Kickback Statute Safe Harbors

In addition to the value-based arrangements and cybersecurity technology safe harbors, OIG proposes two additional safe harbors (for a total of six). More specifically, OIG considers new safe harbors related to patient engagement tools and support, as well as streamlining and standardizing safe harbor protection applicable to CMS payment models tested by the Innovation Center or related to the Medicare Shared Savings Program.

OIG additionally proposes modifications to the following existing safe harbors for:

  • Personal services and management contracts to add flexibility with respect to outcomes-based payments (subject to the same value-based enterprise participant exclusions introduced above) and part-time arrangements.
  • Warranties to revise the definition of “warranty” and provide protection for warranties covering bundles of items and related services, rather than only single-item warranties as the OIG permitted in Advisory Opinion 18-10
  • Local transportation to expand and modify mileage limits for rural areas and for transportation for discharged patients.

Finally, the proposed rule incorporates statutory exceptions to the definition of “remuneration” under the Anti-Kickback Statute related to ACO Beneficiary Incentive Programs for the Medicare Shared Savings Program, and under the CMP law for “telehealth technologies” furnished to certain in-home dialysis patients.

Concluding Remarks and Next Steps

HHS’ work is far from done. In fact, OIG makes clear that “no final determination has been made that the arrangements described in the proposals are, or should be, exempt from liability under the anti-kickback statute.” Therefore, industry stakeholders seeking more flexibility in value-based arrangements, or who wish to provide input on the other proposed clarifications and expansions of the Stark Law, the Anti-Kickback Statute, or the CMP Law, should consider submitting comments on the proposed rules. Note that HHS recommends stakeholders submit comments regarding both proposed rules separately, although CMS and OIG acknowledge they may review and consider comments submitted in response to the other agency’s proposed rule. Comments will be due 75 days from the date of publication in the Federal Register, which we anticipate on October 17, 2019, possibly setting up an interesting New Year’s Eve celebration on December 31, 2019.

Reed Smith is conducting a full review of the proposed rules and will release shortly a client alert providing a detailed analysis of both. We will also be fully reviewing this rule making at the 6th Reed Smith Washington Health Care Conference, to be held on December 4, 2019. Please contact Tara McCullough at to receive a copy of the invitation to the conference.

For questions regarding the proposed rules or this post, please contact Nancy Halstead or Nicole Aiken-Shaban, or any Reed Smith attorney with whom you work.