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New Laws: Proposed Kickback Changes Would Provide Needed Relief But Also Largely Exclude Labs

by | Nov 15, 2019 | Essential, Focus On-nir, National Lab Reporter

In what could be the most significant story in health care fraud and abuse compliance of the past several years, the CMS and OIG proposed new rules (the Proposal) to adapt 20th century kickback laws to 21st century market conditions,

In what could be the most significant story in health care fraud and abuse compliance of the past several years, the CMS and OIG proposed new rules (the Proposal) to adapt 20th century kickback laws to 21st century market conditions, as well as tie up loose ends, inconsistencies and lacks of clarity that have hamstrung deal making by not only labs but all health care players. The new rules, issued on Oct. 9, 2019, are long-awaited and very, very necessary. But they’re also very, very long—386 pages to be exact. And they’re heavy reading for even the most seasoned of lab compliance managers. So, in case you don’t have the time or desire to hack your way through the whole document—or the resources to hire an attorney to do it for you—you can use this overview to orient yourself.

The Bittersweet for LabsAlthough the proposal does offer real kickback relief, it also excludes labs from many of the most important new exceptions, including those covering value-based care, EHR and cybersecurity.

New Kickback Rules Are a Long Time in the Making

The principle that providers must make medical decisions based on patient needs without being influenced by bribes or inducements remains as sound as the day these laws came into being. The problem is that the laws haven’t undergone major change in over three decades. During this time, the market the laws are designed to regulate have changed almost beyond recognition. And kickback laws crafted for fee-for-services just 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 new proposal 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 Proposal

The Proposal suggests 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.

Labs Excluded from the New Value-Based Arrangement Rules

First, the bad news. The proposed changes allowing for value-based (VB) care arrangements don’t apply to labs. Adding insult to injury is CMS’ explanation for excluding labs: “On the basis of our historical enforcement and oversight experience, we are concerned 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 adds, labs aren’t on “the front line of care coordination and treatment decisions” the way physicians and hospitals are.

The Other Excluded Providers Labs aren’t the only ones left out. The proposed new definition of participants who can participate in so-called value-based enterprises also excludes pharmaceutical manufacturers as well as manufacturers, distributors or suppliers of durable medical equipment, prosthetics, orthotics or supplies (DMEPOS).

But don’t be too disappointed. Attorney Kristen Carter of Baker Donelson stresses that these are just proposed rules and that nothing is definite yet. Labs that are interested in participating in VB arrangements may want to comment on the Proposal, she says. The other bit of good news is that labs can take advantage of the other proposed new exceptions, which we’ll discuss below.

The 8 Key Changes

1. New Stark Exceptions for VB Arrangements

The Proposal would create new exceptions to Stark bans for five VB payment models available to providers other than labs, pharma manufacturers and DMEPOS:

  1. Full financial risk, as long as risk is prospective and there are no additional payments covering the cost of patient care, e.g., global budgets or capitated payments based on predetermined rates;
  2. VB arrangements with meaningful downside financial risk, defined as when a physician is responsible for paying “no less than 25% of the value of the remuneration the physician receives” for failing to meet the specified benchmarks;
  3. VB arrangements regardless of risk level, which would allow physicians to enter into VB arrangements, even if they only assume upside risk;
  4. Indirect compensation arrangements, where the compensation doesn’t involve a direct transaction between the payor and provider; and
  5. Price transparency, in which patients will know in advance how much they’ll be expected to pay.  

2. New AKS Safe Harbors for VB Arrangements

Parallel to the Stark exceptions, the Proposal lists three new AKS safe harbors for VB arrangements, all of them which would exclude labs, pharma manufacturers and DMEPOS:

  1. Coordination arrangements to improve quality, health outcomes and efficiency;
  2. VB arrangements with substantial downside financial risk; and
  3. VB arrangements with full financial risk.

3. 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. CMS is proposing to expand the scope of the Stark EHR exception and establish 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% of the donor lab’s costs.

 The bad news is that labs wouldn’t be able to benefit from the new cybersecurity rules. The good news is that CMS indicated its willingness to listen to the case for letting labs into both the current EHR and new cybersecurity rules. Are we being too suspicious, the Proposal asks. That’s why it’s so important for labs with a stake to comment on the Proposal.

4. New AKS Safe Harbor for Patient Engagement Arrangements

Another proposed new AKS safe harbor would allow for patient engagement and support arrangements to improve quality, health outcomes and efficiency. But once again, the Proposal would cut out labs, pharma companies and DMEPOS, unless the comments persuade CMS to revise its terms.

5. New Definitions Making Stark Exceptions Easier to Use

Although labs are cut out of most of the proposed new VB arrangement and other Stark exceptions and AKS safe harbors, they stand to benefit from the new clarification the Proposal provides on terms and rules that providers must meet to qualify for other Stark exceptions, including those for arrangements:

  • Providing “commercially reasonable” compensation: CMS is proposing two possible definitions of “commercially reasonable”: (i)“the arrangement furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements”; or (ii) “the arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty”;
  • In which compensation isn’t based on volume or value of referrals: The Proposal suggests that compensation would not 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 Proposal would redefine 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.”

6. Elimination of Stark “Period of Disallowance” Waiting Period

Under current rules, if an arrangement between a physician and a lab (or other provider) doesn’t meet the requirements of a Stark exception, the physicians must refrain from making referrals to the labs and the lab must refrain from billing Medicare for referred services during a “period of disallowance” after the relationship ends. CMS calls the period of disallowance rule as “impractical and overly prescriptive” and is proposing to eliminate it in favor of a case-by-case assessment depending on the particular relationship involved.

7. Expansion of 90-Day Grace Period for Stark Exceptions

To use a Stark exception, the physician and lab are required to sign the documents subject to a 90-day grace period that applies as long as the parties comply with all the underlying requirements. The Proposal would expand the rule allowing the parties to defer not only signing but executing the required documents for the 90 days.

8. New Annual $3,500 Stark Exception

The Proposal includes a new exception for arrangements in which a lab pays a physician less than $3,500 in a calendar year in exchange for items or services. This proposed 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.

Takeaway: The Need for Labs to Engage

Sadly, the Proposal reaffirms that the OIG’s inveterate suspicion of the lab industry remains. Barring labs from taking advantage of Stark and AKS relief to participate in VB arrangements would hurt not only labs and providers. Excluding labs from EHR interoperability and cybersecurity arrangements is even more puzzling.  

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 4 Things Labs Must Know

  1. CMS and OIG are providing significant Stark/AKS relief for value based care arrangements but want to exclude labs
  2. The same is true for EHR interoperability and cybersecurity relief
  3. Between now and December 31, the agencies will take comments on whether to let labs in on the Stark/AKS relief
  4. Meanwhile, some of the proposed Stark changes, including clarified definitions of crucial terms needed for exceptions, will help labs

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