Final Rules Offer Real Stark and Kickback Relief But Largely Exclude Labs

With its time apparently running out, the Trump administration completed one of its pet projects by finalizing the kickback reform rules it proposed in October 2019. Issued on November 20, the new final rule (actually a pair of rules, one drafted by CMS and the other the OIG) is designed to modernize the archaic kickback restriction laws in general and facilitate the making of value-based care arrangements in particular. Here’s a rundown of the new rules.

Bottom Line on Top—Impact on Labs

Under the proposed rules, the liberalized regime allowing for value-based care arrangements didn’t apply to labs. Specifically, the definition of “VBE participant” allowed to participate in so-called value-based enterprises excluded labs. Other excluded providers included pharmaceutical manufacturers, as well as manufacturers, distributors or suppliers of durable medical equipment, prosthetics, orthotics or supplies (DMEPOS).

CMS had no qualms in disclosing its reasons for cutting labs out of the value-based relief package: We don’t trust them. Citing its “historical enforcement and oversight experience,” the agency expressed concern “that [some labs], which are heavily dependent upon practitioner referrals, might misuse the proposed safe harbors primarily as a means of offering remuneration to practitioners and patients to market their products, rather than as a means to create value for patients and payors by improving the coordination and management of patient care.” Besides, CMS added, labs aren’t on “the front line of care coordination and treatment decisions” the way physicians and hospitals are.

The good news is that the public comments to the proposed rule persuaded CMS to change its mind. Accordingly, the new definition of VBE participant contained in the final rule removes the reference to labs and other specific types of providers. “We find the commenters’ assertions that laboratories and DMEPOS suppliers may play a beneficial role in the delivery of value-based health care persuasive,” CMS explains. However, it adds, “we will continue to monitor the evolution of the value-based health care delivery and payment system to ensure that the inclusion of all types of providers and suppliers as VBE participants does not create a program integrity risk.”

The bad news, though, is that while labs can benefit from the new Stark Law value-based care exceptions, they’re still excluded from participating in the parallel anti-kickback safe harbors for value-based care arrangements, as well as other new kickbacks for EHR interoperability, cybersecurity donations and patient incentives. 

The Need for Kickback Reform

The principle that providers must make medical decisions purely on the basis of patient needs without self-interest or bribery remains as sound as today as it was when the kickback laws first came into effect three decades ago. The problem is that the prescribed legal restrictions designed to keep referrals untainted haven’t evolved to fit the market they’re intended to regulate. Stated simply, the kickback laws crafted for a fee-for-services market don’t work in today’s value-based care models where care is coordinated to improve efficiency, care quality and health outcomes. Value-based care often calls for providers to make arrangements that, while innocent in intent and essential to efficiency, but raise red flags under the kickback laws. The resulting liability risks chill desperately needed innovation. 

The culmination of years of discussion, the Trump administration reform initiative culminating in the new final rule is the federal government’s first systematic effort to fix the disconnect between the modern market and the antique kickback laws. It also goes beyond value-based care by addressing other newfangled issues adversely affected by the kickback laws including cybersecurity, the electronic health record (EHR) and accountable care organizations (ACOs).  

The 3 Parts of the Rule

The final rule makes revisions to three different kickback laws:

• The Stark Law (Stark), which bans physicians from referring patients to entities with which they or immediate family members have a financial relationship;
• The Antikickback Statute (AKS), which bans physicians and other providers from accepting bribes or other renumeration in exchange for generating business through Medicare, Medicaid or other federal health programs; and
• The Civil Monetary Penalties law (CMP law), which bans providers from inducing beneficiaries to use their services.

New Stark Exceptions for Value-Based Arrangements

The final rule creates three new Stark exceptions allowing for labs and other providers to enter into value-based compensation arrangements with physicians:

1. Value-based arrangements with full financial risk: This exception applies when a VBE assumes full financial risk on a prospective basis for the cost of all patient care items/services covered by a payor for the target patient population within 12 months after the arrangement begins.
2. Value-based arrangements with meaningful downside financial risk: For this exception to apply, at least 10 percent of the physician’s remuneration must be at risk, which can be in the form of paybacks, withholds, incentive bonuses or other payment structures. Under the original proposal, downside risk had to be at least 25 percent of the physician’s remuneration.
3. Other value-based arrangements: There’s also a general exception allowing for any value-based arrangement, regardless of the size or nature of the parties to the arrangement, financial risk undertaken by the VBE or financial risk undertaken by the physician so long as the arrangement meets a detailed list of enumerated requirements.

Impact on Labs: As noted above, labs are not excluded from the new-based exceptions the way they were in the proposed rule. One more important thing to note: To qualify for any of these exceptions, a value-based physician compensation arrangement need only be commercially reasonable. Unlike most other Stark exceptions, the final rule doesn’t require that such arrangements be set in advance, consistent with fair market and not in any factor the volume or value of a physician’s referrals or other business the physician generates for the entity. 

New AKS Safe Harbors for Value-Based Arrangements

Parallel to the new Stark exceptions, the final rule creates three new AKS safe harbors for value-based arrangements:

1. Value-based arrangements with full financial risk: As with the Stark exception, this safe harbor applies when a VBE assumes full financial risk on a prospective basis for the cost of all patient care items/services covered by a payor for the target patient population within 12 months after the arrangement begins, to protect both monetary and in-kind remuneration.
2. Value-based arrangements with meaningful downside financial risk: For this safe harbor to apply, a VBE must assume substantial downside financial risk from a payor and a value-based participant must assume a meaningful share of the VBE’s total risk to protect both monetary and in-kind remuneration exchanged under value-based arrangements between VBEs and participants.
3. Care coordination arrangements to improve quality, health outcomes and efficiency: This safe harbor requires no assumption of downside risk by parties to a value-based arrangement to protect in-kind remuneration exchanged to engage in value-based activities that are directly connected to the coordination and management of care for the target patient population. Recipients must pay at least 15 percent of either the offeror’s costs or the fair market value of the remuneration.

Impact on Labs: Even though labs may now be considered “VBE participants,” the final rule expressly bars them from participating in the AKS safe harbors for value-based arrangements. Other ineligible entities include: pharmaceutical manufacturers, distributors, and wholesalers, pharmacy benefit managers and DMEPOS suppliers. Exception: The rule creates a separate pathway for certain DMEPOS companies to participate in protected care coordination arrangements that involve digital health technology. However, that pathway isn’t open to labs.

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This is an abridged version of an article that originally appeared in G2 Intelligence, Lab Compliance Advisor, December 2020