On November 20, 2020, the Centers for Medicare & Medicaid Services (CMS) published a draft of its final rule regarding Medicare’s physician self-referral law, colloquially known as the Stark Law.  On the same day, CMS also issued a press release and fact sheet regarding the Rule and how it modernizes and clarifies the Stark Law.  

Concurrently, the Office of Inspector General for the Department of Health and Human Services (OIG) published a draft of the final revisions to safe harbors under the Anti-Kickback Statute (AKS). 

Stark Law Background 

The Stark Law, originally enacted in 1989, generally prohibits physicians from making referrals for certain designated healthcare services payable by Medicare or Medicaid to entities with which the physician (or an immediate family member of the physician) has a “financial relationship,” which is defined broadly to include ownership interests and compensation arrangements.  The Stark Law also prohibits the entity receiving the referral from filing claims with Medicare or Medicaid for services that result from a prohibited referral.      

Stark Law violations can be punished through an action by the DOJ or a private whistleblower under the federal False Claims Act (FCA), or through an action by the OIG under the Civil Monetary Penalties Law.  The government may also pursue administrative actions against providers who violate the Stark Law, including exclusion from federal healthcare programs.  The Stark Law is a strict liability statute, meaning no specific intent to violate the Stark Law is required.  Although the Stark Law contains numerous exceptions (including, among others, exceptions for bona fide employment, rental agreements, and personal service arrangements), these exceptions must be followed strictly.  

The Stark Law and its exceptions are complex, ambiguous, and levy significant administrative demands.  As CMS noted, “ambiguities in the Stark law have frozen many providers in place, fearful that even beneficial arrangements might violate the law, which can come with dire and costly consequences.” 

Overview of New Stark Law Rules

According to CMS, the Stark Law (before the recently-released Rule) had not evolved with the change from volume-based healthcare delivery to value-based healthcare delivery, and would “prohibit some arrangements that are designed to enhance care coordination, improve quality, and reduce waste.”  On October 17, 2019, CMS issued proposed reforms to the regulations that interpret the Stark Law, which CG Attorneys wrote about.  The draft final Rule includes numerous reforms to modernize the Stark Law, such as new exceptions and new definitions that must be interpreted carefully.

New Exceptions 

The Stark Law Rule contains new exceptions that apply to compensation arrangements that qualify as “value-based arrangements.” A value-based arrangement is “an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are: (1) a value-based enterprise [“VBE”] and one or more of its VBE participants; or (2) VBE participants in the same value-based enterprise.” There are at least six new definitions related to value-based exceptions. These definitions are interconnected and should be read together, according to CMS. 

1. VBE Assumes Full Financial Risk.  This exception applies to value-based arrangements where a value-based enterprise has (during the arrangement) “assumed full financial risk from a payor for patient care services for a target patient population.”


2. Physician Assumes Meaningful Downside Financial Risk.  This exception applies to a value-based arrangement where the physician “is at meaningful downside financial risk for failure to achieve the value-based purposes of the value-based enterprise” during the entire arrangement period.  The physician must be responsible to pay or forego no less than 10% of the value of the remuneration the physician receives under the value-based arrangement.


3. Value-based Arrangement with Any Level of Risk.  This exception applies to value-based arrangements undertaken by the VBE or the VBE participants, regardless of the level of risk. 

The value-based compensation exceptions also apply to indirect compensation arrangements that include a value-based arrangement if a physician or physician organization is a direct party.  Nothing in the Rule requires that the value-based purpose(s) be achieved for a value-based arrangement to be protected under an applicable exception.  However, the government implemented safeguards to avoid willful avoidance and gamesmanship.  If the parties engage in an action (or inaction) knowing it “will not further the value-based purpose(s) of the value-based enterprise, it will cease to qualify as a value-based activity.”  Members of a value-based arrangement must also monitor whether they have provided value-based activities required under their arrangement and how continuation of the value-based activities is expected to further the purposes of the value-based enterprise.  

CMS also provided new special rules on compensation arrangements.  Under the new rules, for compensation arrangements that are required to be in writing, the writing requirement may be satisfied with a collection of documents (including contemporaneous documents) if such documents evidence the course of conduct of the parties.  Regarding temporary noncompliance, parties may obtain required writings within 90 calendar days after the compensation agreement becomes non-compliant with an exception.  The 90-day grace period for satisfying signature requirements is also contained in the Rule. 

CMS also created a new exception to protect arrangements involving donations of certain cybersecurity technology (and related services) and to protect limited remunerations to a physician.  The new exception for limited remunerations to a physician protects compensation or remuneration not exceeding an aggregate of $5,000 per calendar year for the provision of certain limited services.  

According to CMS, the new Stark Law exceptions allow providers “to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the Stark Law.” As with any exception, the provider, entity, and parties to an arrangement must satisfy the requirements of each exception strictly – and many of the new exceptions include significant requirements, new or revised definitions, and include protections against overutilization and other harms.  

New and Revised Definitions

To reduce compliance-related burdens with the Stark Law, CMS has provided clarification, defined new terms, revised the definition of terms fundamental to many aspects of the Stark Law, and provided guidance on technical compliance requirements.  

For many Stark Law exceptions, the compensation arrangement must be commercially reasonable.  Before the current Rule, commercial reasonableness was addressed only in the 1998 proposed rule.  The new Rule provides that “commercially reasonable means that the particular arrangement 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.” An arrangement can be commercially reasonable even if it does not result in profit for one or more parties.  The requirement to meet commercial reasonableness is based upon an objective standard, according to a response to comment on the proposed rule.

Many exceptions to the Stark Law require the determination of fair market value. Determining fair market value has been a significant area of debate with varying interpretations.  In the new Rule, CMS revises the definition of fair market value to mean “the value in an arms-length transaction, consistent with the general market value of the subject transaction.”  Regarding equipment rental, “fair market value means the value in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), consistent with the general market value of the subject transaction.” And regarding rental of office space, “fair market value means the value in an arm’s length transaction of rental property for general commercial purposes (not taking into account its intended use), without adjustment to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee, and consistent with the general market value of the subject transaction.”

The new Rule also clarifies and revises parts of the definition of “remuneration.”  Although remuneration has been broadly defined, there are exceptions, and some activities are not considered remuneration.  “Furnishing of items, devices, or supplies” for statutorily identified purposes is one such exception.  This exception did not include furnishing surgical items, devices, or supplies.  Under the new Rule, the exception no longer excludes furnishing surgical items, devices, or supplies for statutorily identified purposes.  CMS also revised the meaning of
“designated health service (DHS).”  Under the new Rule, hospital services furnished to inpatients are not considered designated health services if the service does not increase the Medicare payment amount to the hospital under certain prospective payment systems. 


Anti-Kickback Statute Background

The Federal Anti-Kickback Statute (“AKS”) prohibits, among other things, knowingly and willfully paying or receiving, remuneration in exchange for federal healthcare program referrals.  Remuneration is defined broadly and includes anything of value (e.g. cash, discounted rent, meals, or excessive compensation, etc.).  The AKS is a criminal statute and violators may be subject to criminal penalties, civil monetary penalties, and administrative actions like exclusion from federal healthcare programs.  Similar to Stark Law, the AKS has exceptions ordinarily called “safe harbors,” which allow for payments and business practices that would otherwise violate the AKS to not be treated as offenses under the statute.  

Overview of New AKS Rules

In its new Rule, the OIG implemented three new safe harbors for remuneration exchanged between or among participants in value-based arrangements “that fosters better coordinated and managed patient care.”  

1. Care Coordination Arrangements.  This safe harbor protects in-kind remuneration between value-based enterprise participants when the remuneration is used predominately to engage in value-based arrangements and other important factors are met.  


2. VBE Assumes Substantial Downside Financial Risk.  This safe harbor protects in-kind and monetary remuneration between a VBE and VBE participant, however, the VBE must assume substantial downside financial risk from a payer if the VBE participant assumes a meaningful share of the risk.  The VBE participant must share at least 5% of the financial risk to qualify.


3. VBE Assumes Full Financial Risk.  The safe harbor protects in-kind and monetary remuneration from a VBE to a VBE participant if the VBE assumes full financial responsibility for the costs items and services covered by a payor. 

The AKS value-based safe harbors are generally stricter than the value-based Stark Law exceptions.  Pharmacy benefit managers, laboratory companies, compounding pharmacies, medical device and supply distributors/wholesalers, and pharmaceutical manufacturers, distributors, and wholesalers are excluded from the AKS value-based safe harbors.  The protections associated with the value-based safe harbors vary depending on numerous factors, including the level of risk assumed, eligible entities, the remuneration protected (in-kind, monetary, etc.).  Only value-based arrangements with substantial risk protect monetary remuneration (e.g. care coordination arrangements do not protect monetary remunerations).

In addition to value-based safe harbors, the OIG also finalized a new Cybersecurity Technology and Services Safe Harbor to help improve cybersecurity in healthcare.  The OIG also provided new exceptions for outcome-based activities and Point-of-Sale Price Reductions that may be considered improper remunerations. 

1. Cybersecurity Technology and Services Safe Harbor.  The new cybersecurity safe harbor applies to nonmonetary donations of certain cybersecurity technology and related services that are necessary and used predominately to implement, maintain, or reestablish effective cybersecurity. The cybersecurity safe harbor contains four requirements.  Donors of cybersecurity are prohibited from considering the volume or value of referral or other business generated between the parties when deciding whether to donate cybersecurity or services. Another requirement prohibits donors from conditioning donations on future referrals.  Likewise, the recipients are prohibited from conditioning the receipt of technology on doing business in the future.  There must a written description of the technology or services being donated and the recipient’s contribution, if applicable.  Finally, the donor may not shift the cost of the donated technology or services to any federal healthcare program.  


2. Outcome-Based Remuneration Exclusion.  One of the key elements of AKS culpability is remuneration.  Under the new rule, certain outcome-based activities meeting specific requirements are not considered remuneration under AKS.  Some requirements include the achievement of outcome measures that are (1) selected based on clinical evidence or credible medical support, and (2) meet certain benchmarks involving patient care or cost reduction (or both).


3. Point-of-Sale Remuneration Exclusion.  Under the new rule, a reduction in price by a manufacture, Medicare Part D plan sponsor, or Medicaid Managed Care Organization for certain prescriptions otherwise payable by a Medicare Part D plan sponsor or Medicaid Managed Care Organization will not be considered a remuneration under AKS when certain requirements are met. 


Overall, the new rules and revisions to the Stark Law and AKS provide new exceptions, safe harbors, new and revised definitions, protection for beneficial arrangements that are non-abusive, and mechanisms to reduce administrative burdens.  Although the Stark Law and AKS often operate in tandem, there are significant distinctions between the two laws.  Many commenters to the proposed rules sought uniformity to ease compliance burdens.  However, the new rules clarify these laws are distinct enforcement tools.

These rules and revisions focus heavily on value-based care, technology, and flexibility.  However, the substantive details of these rules are extensive.  Considering the significance of the changes and the breadth of the material (over a thousand pages), the government may provide clarification and additional guidance as the healthcare industry works to interpret the new rules.  The Stark Law and AKS rules will be officially published on December 2, 2020.

The attorneys at Chilivis Grubman represent healthcare providers and entities of all types and sizes in connection with a wide variety of regulatory matters, including those involving the Stark Law and the Anti-Kickback Statute.  For any questions, or if we can assist you in connection with a healthcare regulatory or compliance issue, please contact us today.