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Significant Changes to Stark Law and Anti-Kickback Statute Finalized

Gavel and StethoscopeThe U.S. Department of Health and Human Services (“HHS”) recently issued two highly-anticipated final rules (collectively, the “Final Rule”) to modernize and clarify the regulations that interpret the Physician Self-Referral Statute (“Stark”) and the Anti-Kickback Statute (“AKS”). According to HHS, the Final Rule was intended to provide greater flexibility for healthcare providers to participate in value-based arrangements, ease unnecessary compliance burdens, and maintain safeguards to protect patients and Federal healthcare programs from fraud and abuse. The Final Rule will become effective on January 19, 2021.

The Final Rule implements extensive changes to both the Stark Law and the AKS. This article provides a brief overview of some of the changes.

Changes to the Stark Law

Stark generally prohibits a physician from referring patients for designated health services that are reimbursable by a Federal healthcare program to entities with which the physician (or an immediate family member) has a direct or indirect financial relationship, unless an exception applies. The Final Rule adds new exceptions and provides additional clarification to existing guidance.

A. New Exceptions

  1. Value-Based Arrangements. The Final Rule creates three new exceptions that permit a broad range of value-based activities. The three exceptions are:
    • Full Financial Risk Exception - applies if the value-based enterprise is at full financial risk (or is contractually obligated to be at full financial risk within the 12 months following the commencement of the value-based arrangement) for the entire duration of the arrangement;
    • Meaningful Downside Financial Risk Exception - applies if the physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the value-based enterprise for the entire duration of the arrangement; and
    • Value-Based Arrangement Exception - applies to any value-based arrangement that satisfies the applicable requirements, regardless of the level of risk.
  2. Limited Remuneration to a Physician. The Final Rule creates a new exception that permits limited remuneration to a physician that does not exceed an aggregate of $5,000 per calendar year (as adjusted for inflation) if certain requirements are met.
  3. Cybersecurity Exception. The Final Rule creates a new exception that permits the donation of technology and services that are necessary and used predominantly to implement, maintain, or reestablish cybersecurity if certain conditions are met. Unlike the existing exception for electronic health records, there is no requirement for physicians to share in the cost of such technology or services.

B. Additional Clarifications and Revisions

  1. Fair Market Value. The Final Rule clarifies the definition of “fair market value” by dividing the definition into three parts: (1) the general definition; (2) the definition relating to the rental of equipment; and (3) the definition relating to the rental of office space. The Final Rule eliminates the statement that a rental payment does not take into account intended use if it takes into account costs incurred by the lessor in developing or upgrading the property or maintaining the property or its improvements. Additionally, the Centers for Medicare & Medicaid Services (“CMS”) reiterated in the preamble to the Final Rule that fair market value may not always align with published physician salary surveys.
  2. Commercial Reasonableness. The Final Rule adds a definition of the term “commercially reasonable,” a term that is referred to in many of the exceptions. The Final Rule provides that an arrangement is “commercially reasonable” if it furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. The Final Rule also notes that an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.
  3. Amendments to Compensation Terms. The Final Rule permits amendments to physician compensation terms at any time (including during the first year) if certain requirements are met.
  4. Period of Disallowance. The Final Rule eliminates the rules regarding how to determine the “period of disallowance,” which is the period of time during which a physician may not make prohibited referrals. In the preamble to the Final Rule, CMS notes that “although the rules were initially intended merely to establish an outside, bright-line limit for the period of disallowance, in application, they appear to be overly prescriptive and impractical.” The preamble clarifies the general principle that the period of disallowance “should begin on the date when a financial relationship fails to satisfy all the requirements of any applicable exception and end on the date that the financial relationship ends or satisfies all the requirements of an applicable exception remains true.” The preamble further notes that the determination of the period of disallowance must be made on a case-by-case basis.
  5. Group Practice Requirements. The Final Rule codifies several changes to the requirements that apply to group practices. One of those changes includes a “deeming” provision relating to the distribution of profits from designated health services that are directly attributable to a physician's participation in a value-based enterprise. Such distribution is deemed not to directly take into account the volume or value of the physician's referrals, thereby enabling physicians in a group practice who are participating in value-based arrangements to be rewarded for their efforts.
  6. Electronic Health Records (“EHR") Exception. The Final Rule eliminates the December 31, 2021 sunset provision, thereby making the exception permanent. Additionally, the Final Rule specifies that cybersecurity software and services may be donated under the exception (subject to the cost-sharing requirement).

Changes to the Anti-Kickback Statute

The AKS generally prohibits anything of value being exchanged to induce or reward referrals of services payable by federal health care programs such as Medicare and Medicaid. The AKS provides a number of safe harbors for permitted activities that are not subject to sanctions under the statute. The Final Rule adds new safe harbors, and provides clarifications and revisions to existing guidance.

A. New Safe Harbors

  1. Value-Based Arrangements. The Final Rule creates three new safe harbors: care coordination arrangements, value-based arrangements with substantial downside risk, and value-based arrangements with full financial risk. Each safe harbor permits a broad range of potential value-based activities. The safe harbors vary based on the type of remuneration, the entities involved, the financial risks, and the relevant safeguards. The new safe harbors allow for flexibility and use of innovative technology.
  2. Patient Engagement and Support. To further support coordinated care, the Final Rule provides a safe harbor that allows providers to offer tools and supports to patients for the improvement of quality, outcomes and efficiency. The tools and supports may be provided by a value-based enterprise, as defined in the Final Rule, to a target patient population.
  3. CMS-Sponsored Models. This safe harbor is specific to programs sponsored by CMS and permits limited remuneration to be provided consistent with the requirements of the CMS program model.
  4. Cybersecurity Technology and Services. The Final Rule includes a new safe harbor that allows for the donation of cybersecurity technology and services to assist providers who lack the resources to invest in or obtain their own cybersecurity and technology services.

B. Additional Clarifications and Revisions

  1. EHR Safe Harbor. The Final Rule eliminates the December 31, 2021 sunset provision, thereby making the EHR safe harbor permanent. The Final Rule also modifies the EHR safe harbor by adding protections for certain related cybersecurity technology and by updating interoperability requirements.
  2. Outcomes-Based Payments and Part-Time Arrangements. The Final Rule modifies the safe harbor for personal services and management contracts by adding flexibility for certain outcomes-based payments and part-time arrangements.
  3. Warranties Safe Harbor. The Final Rule revises the definition of “warranty” and provides protection for bundled warranties for one or more items and related services.
  4. Local Transportation Safe Harbor. The Final Rule expands mileage limits for rural areas and for transportation for patients discharged from an inpatient facility or released from a hospital after being placed in observation status for at least 24 hours.
  5. Accountable Care Organization (“ACO”) Beneficiary Incentive Programs. The Final Rule codifies the statutory exception to the definition of “remuneration” under the AKS related to ACO Beneficiary Incentive Programs for the Medicare Shared Savings Program.

If you have any questions about how the Final Rule affects your organization or practice, please contact a member of our health care practice group.

Categories: Alerts and Updates, Health Care Reform


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