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 Nov. 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 […]
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 Nov. 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.
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 new 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; andThe Civil Monetary Penalties law (CMP law), which bans providers from inducing beneficiaries to use their services.
The 9 Key Changes
- 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:
- 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.
- 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.
- 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:
- 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.
- 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.
- 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.
- New Exception/Safe Harbor for Cybersecurity Donations
Current Stark exceptions and AKS safe harbors allow providers—other than labs—to donate EHR products and services to physicians for purposes of interoperability. The final rule expands the scope of the Stark EHR exception and establishes a new AKS safe harbor to cover cybersecurity products and services. To qualify for the exception/safe harbor:
- The donation must be made under a written agreement;
- The donated products/services must be certified as interoperable and not equivalent to products/services the physician already has; and
- The physician must contribute 15 percent of the donor’s costs.
Impact on Labs: The bad news is that both the expanded Stark exception and new AKS safe harbor excludes labs.
- New AKS Safe Harbor for Beneficiary Incentives
Another new CMP exception and AKS safe harbor allows for beneficiary incentives under patient engagement and support arrangements designed to improve quality, health outcomes and efficiency.
Impact on Labs: Labs aren’t allowed to use the new beneficiary incentives safe harbors. The exclusion list includes the usual suspects but as with the new value-based care safe harbor, leaves a pathway open for DMEPOS companies.
- New Outcomes-Based Payments Safe Harbor
The final rule expands the current personal services and management contracts safe harbor to payments tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs. The definition of “outcomes-based payment” permitted includes a reward for successfully achieving an outcome measure or a recoupment or reduction in payment for failure to achieve an outcome measure.
Impact on Labs: Once again, the new safe harbor specifically excludes labs.
6. New Definitions Making Stark Exceptions Easier to Use
Although labs are cut out of most of the new Stark exceptions and AKS safe harbors, they stand to benefit from the new clarification the final rule provides on terms and rules that providers must meet to qualify for other Stark exceptions, including those for arrangements:
- Providing “commercially reasonable” compensation: In the final rule, CMS clarifies that an arrangement is “commercially reasonable,” a key criterion for determining if the arrangement qualifies for a Stark exception, if it furthers a legitimate business purpose of the parties and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty.
- In which compensation isn’t based on volume or value of referrals: The final rule clarifies that compensation doesn’t meet that criterion if:
- It uses a mathematical formula that includes referrals or other business generated as a variable; and
- The compensation amount correlates with the number or value of a physician’s referrals to an entity;
- In which compensation reflects fair market value: The final rule redefines this critical term to match the definition that applies to the exception for equipment or property rentals, i.e., the “value in an arm’s-length transaction with like parties and under like circumstances, of assets or services, consistent with the general market value of the subject transaction.”
- Elimination of Stark “Period of Disallowance” Waiting Period
Previously, if an arrangement between a physician and a lab (or other provider) didn’t meet the requirements of a Stark exception, the physicians had to refrain from making referrals to the lab and the lab refrain from billing Medicare for referred services during a “period of disallowance” after the relationship ends. In the proposed rule, CMS called the period of disallowance rule as “impractical and overly prescriptive” and the final rule eliminates it in favor of a case-by-case assessment depending on the particular relationship involved. CMS also created a special rule that allows parties to “reconcile discrepancies” for compensation arrangements within 90 days of termination of the arrangement.
- New 90-Day Grace Period for Stark Exceptions
CMS is providing a new period for reconciling non-compliance issues of within 90 calendar days of the expiration or termination of a compensation arrangement, if after the reconciliation, the entire amount of remuneration for items or services is paid as required under the terms and conditions of the arrangement.
- New Annual $5,000 Stark Exception
The final rule includes a new exception for arrangements in which a lab pays a physician less than $5,000 in a calendar year in exchange for items or services. This exception doesn’t require a writing, signature or that the compensation be set in advance. Nor does it ban either or both parties profiting from the deal. But it does require that:
- The physician actually provides the services or items the compensation covers;
- The arrangement furthers a legitimate business purpose;
- The terms and conditions are similar to like arrangements;
- The remuneration isn’t based on the value or volume of referrals; and
- The remuneration reflects fair market value for the items or services.
Although the final rule leaves the door open for labs to use the new value-based Stark exceptions, it bars them from the other new exceptions and AKS safe harbors, including those related to EHR, cybersecurity donations and patient engagement. Still, labs will benefit from CMS’ general clarification of Stark terminology and expanded grace periods. The other key question is whether all of this is a moot point. The final rule is scheduled to take effect on Jan. 19, 2021, the day before the inauguration of the new president. But while there’s always the chance of a new administration’s peeling back all or part of a new regulation adopted by its predecessor, particularly when that regulation goes into effect on the eve of the transition, it’s pretty unlikely that the Biden administration will tamper with the final rule, which has the general support of the American Hospital Association and other major medical groups, although several are disappointed that it doesn’t go further in reforming the antiquated referral rules.
The good news is that there’s still time to right these wrongs. It can’t be overemphasized that the Proposal is just that, a proposal. The agencies are quite candid throughout the Proposal, freely admitting that they don’t trust labs and calling on stakeholders to weigh in and try to change their mind before the comment period ends on Dec. 31, 2019. Bottom Line: The lab industry has a unique and crucial opportunity to dispel old prejudices and make its case for being allowed into the VB care and cybersecurity arrangements that will define medicine in the decades to come.
At A Glance: The 3 Things Labs Must Know
- The final rule provides significant Stark/AKS relief for value-based care arrangements but largely excludes labs
- The same is true of relief for EHR interoperability, cybersecurity donations and patient engagement arrangements
- The good news is that labs will benefit from the general Stark changes, including clarified definitions of crucial terms needed for exceptions
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