On January 19, 2021, sweeping new regulations related to both the CMS Physician Self-Referral Law (Stark) and OIG’s Anti-Kickback Statute (AKS) went into effect, notwithstanding technical issuance deficiencies.  Related changes to the Civil Monetary Penalty law (CMP) as well as certain provider compensation rules go into effect on Jan 1, 2022.

Stark and AKS violations can result in exclusion from federal programs, criminal liability and monetary penalties. Therefore, the increase in safe harbors, exceptions and other changes that lessen the risk of such violations are of intense interest to the health care industry. The purpose of this article is to provide an overview of Stark and AKS, and to highlight how the recent changes lessen risk for providers and create flexibility for physician compensation arrangements.

INTRODUCTION

The Physician Self-Referral Law (Stark) has always been one of the most complex federal laws that physicians and care providers have had to contend with. Since its enactment in 1989, physicians have been asking for clarity to better understand what was covered and what financial arrangements to avoid.  In simplest terms, Stark was enacted to prohibit a provider from referring patients to an entity offering specific designate health services with whom the provider has a relationship and where the provider will benefit financially from such a referral. However, there were numerous exceptions provided and the guidance offered hampered interpretation. The dire outcomes for failure to comply with Stark or AKS had a chilling effect on provider interest in developing new models to deliver care more efficiently.

The murky relationship between Stark and AKS further added to the confusion for health care providers trying to successfully navigate these regulatory waters. Stark and AKS, while related, as distinctly different statutes, as reviewed below.

Starting in 2017 as part of the “Patients over Paperwork” initiative, CMS sought to gain a clearer understanding of provider frustrations with Stark. Seema Verma, CMS Administrator at the time, stated,

“When we kicked off our Patients Over Paperwork initiative, we heard repeatedly from front-line providers that our outdated Stark regulations saddled them with costly administrative burden and hindered value-based payment arrangements  saddled them with costly administrative burden and hindered value-based payment arrangements.”

In 2019, as part of the “Regulatory Sprint to Coordinated Care”, CMS and the OIG launched their efforts to overhaul the regulations pertaining to not only Stark and AKS but also the Civil Monetary Penalty (CMP) law. As stated by OIG, the rules are intended “to reduce the regulatory barriers to care coordination and accelerate the transformation of the health care system into one that better pays for value and promotes care coordination”.  As part of this joint effort, CMS also sought to create greater flexibility and clarity to the Stark and AKS regulatory requirements while maintaining protections against fraud and abuse.

An overhaul of Stark and AKS regulations was overdue because the health care landscape has changed significantly since both were enacted. When Stark and AKS became law, most provider reimbursement was based on the volume or number of individual services paid on a fee-for- service basis and care coordination was not formalized expectation. Physician reimbursement has shifted to models where providers are largely paid on a value or quality-based arrangement where patient outcomes rather than sheer volume of services drive compensation.  The revised rules were intended to further the value-based care model and to encourage coordination of care.

UNDERSTANDING STARK AND AKS

CMS and the OIG coordinated their recent rulemaking efforts but it is important to recognize that the Stark and AKS rules contain foundational differences. These two laws have been conjoined for decades because both have a common goal and many of the Stark exceptions include a requirement that any arrangement being considered must also not violate AKS or any other state or federal laws. As part of the recent revisions, CMS has largely de-coupled these two laws because the differing bases for liability created unnecessary complexity with enforcement and interpretation.

Below is an overview of how AKS and Stark align followed by key differences. 

Both Stark and AKS prohibit medical providers from entering into certain financial arrangements which can influence referral choices, as well as prohibiting kickbacks or other remuneration (or providers receiving “anything of value”) in exchange for referrals of patients whose treatment is financed by federal programs such as Medicare and Medicaid.  The underlying concern is that providers’ personal gain could drive referral decisions for services not actually needed.  As the Department of Justice has explained, “patients are entitled to be sure that the care they receive is based on their actual medical needs rather than the financial interests of their physician.” This “thing of value” can be anything with intrinsic value to a referring provider, such as rent reductions on office space, a lucrative business opportunity, or increased patient referrals.  These all classify as unlawful inducements under both statutes. Another similarity is that whistleblowers can report violations of both under the Federal False Claims Act.

Notwithstanding these commonalities, Stark and AKS differ in significant ways:  

Both laws offer many exceptions and safe harbors which give providers cover to proceed with certain financial arrangements and which concurrently have created ambiguity for both providers and those that advise them on legalities and risks related to proposed financial arrangements.  Under the recent changes, CMS and the OIG have increased protections for financial programs and arrangements intended to reduce costs and clarified foundational aspects of these laws.   

KEY CHANGES TO STARK AND AKS

Stark Changes:

Changes to Stark fall into two major categories – definitions and new exceptions – but the revisions also address a variety of other historically problematic aspects. The article reviews key definitional changes and new exceptions but does not address these various changes other than several group practice changes.

Definitions. Five definitions that are foundational to interpreting Stark exceptions have been revised or introduced:

• “Commercial reasonableness”: CMS defines commercial reasonableness to mean “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 may be commercially reasonable even if it does not result in profit for one or more parties.” Providers argued and CMS agreed that profit should not solely determine whether an arrangement furthers a legitimate business purpose if a provider serves a need not met by other community physicians.
• “Volume and value of referrals”: CMS offers a more clearcut test to determine whether a physician’s compensation “takes into account the volume or value of referrals or other business generated” between the parties. If the formula used to calculate compensation does include a variable related to volume of referrals, then the financial arrangement is not protected by a Stark exception.
• “Fair market value”: Historically a thorny issue for providers, CMS revised the definition of “fair market value”. CMS has defined “fair market value” as the value in an arm’s-length transaction, consistent with the “general market value” of the subject transaction and then defined this term specifically for compensation, assets, and office space and equipment rentals. assets, compensation, and the rental of equipment or office space. 
• Value-based Enterprise: For protection under by the three new value-based exceptions reviewed below, physicians and DHS entities need to be participants in a value-based enterprise (VBE). A Value-based enterprise (VBE) means two or more VBE participants –
  1. Collaborating to achieve at least one value-based purpose;
  2. Each of which is a party to a value-based arrangement with the other or at least one other VBE participant in the value-based enterprise;
  3. That have an accountable body or person responsible for the financial and operational oversight of the value-based enterprise; and
  4. That have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s).
• Designated Health Services: CMS modified this definition to clarify that physician services furnished to inpatients of hospitals (where furnishing the service does not increase the amount of payment under the Medicare prospective payment system) are now excluded from the definition of “designated health services.” Therefore, these minor physician services provided to an admitted hospital patient will no longer trigger a Stark concern.
  
  New Value-Based Arrangement Exceptions.  CMS created three significant new value-based care exceptions which permit a much broader range of value-based activities. The conditions for each of these exceptions, which are summarized below, are set forth in great detail in the revised regulations.
  
• Full Financial Risk Exception:  Applicable when a value-based enterprise (VBE) is at full financial risk for the entire duration of the arrangement. CMS defines “full financial risk” to mean that the VBE is financially responsible on a “prospective basis for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time.”
• Meaningful Downside Financial Risk Exception: Applicable when a physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the VBE for the entire duration of the arrangement.  CMS defines “meaningful downside financial risk” to mean that the physician is responsible to repay or forgo no less than 10 percent of the total value of the remuneration the physician receives under the value-based arrangement; and
• Value-Based Arrangement Exception: This can be applied to any value-based arrangement that satisfies the applicable extensive requirements set by regulation, regardless of the level of risk.

Modifications to “Group Practice” Provisions.  Under Stark, physician compensation of any sort to a member of a group practice may not directly take into account the volume or value of the physician’s referrals. However, under the revised regulations, CMS allows for distribution of profits from designated health services that are directly attributable to a physician’s participation in a VBE. This distribution enables physicians in a group practice who are participating in value-based arrangements to be rewarded for their participation and also addresses situations where not all of the physicians in the group participate in value-based arrangements.

Also, CMS has not changed its view that the distribution of overall profits of all DHS for the whole group practice must be aggregated (or “pooled”) before distribution. CMS disagreed profits from DHS could be distributed to group practices based on a service-by-service basis, through a process of “split pooling”.  Because modification of practice compensation arrangements can require additional lead time, CMS delayed these changes to January 1, 2022. For more information about group practice changes, see 42 CFR §411.352.

Anti-Kickback Statute Changes

The AKS provides a number of “safe harbors” for provider activities that are not subject to sanctions under the statute. Issued jointly with CMS changes to Stark, these OIG changes to the AKS mirror both the underlying rationale for changes as well as the changes themselves found in the Stark revisions. 

The recent AKS revisions address eleven AKS safe harbors – seven are new and four modify existing safe harbors and provide clarification of other aspects of AKS.  The OIG also made a regulatory change related to civil monetary penalties (CMP) which allows certain telehealth technology to be provided to Medicare patients receiving in home dialysis.

Safe Harbor Revisions

1. New Safe Harbors.
   1. Value-based enterprise (VBE) safe harbors: Three of the new safe harbors relate to VBEs and are identical to those set forth in the CMS rule. However, there are some key differences in how these safe harbors can be utilized under AKS. The OIG has specifically excluded certain types of entities from AKS protection under these new safe harbors, even if they meet the definition of a VBE:
      1. pharmaceutical manufacturers, distributors, and wholesalers;
      2. pharmacy benefit managers (PBMs);
      3. laboratory companies;
      4. pharmacies that primarily compound drugs or primarily dispense compounded drugs;
      5. manufacturers of devices or medical supplies;
      6. entities or individuals that sell or rent durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) (other than a pharmacy or a physician, provider, or other entity that primarily furnishes services); and
      7. medical device distributors and wholesalers.
         
         When an organization or entity has multiple lines of business and some lines may be excluded from relying on a safe harbor’s protections, the OIG has explained the test for whether an entity is excluded is at the “corporate level” and based on the “predominant or core line of business”. Neither of these terms are defined in the new guidance, however.
         
2. Patient Engagement and Support: To support coordinated care, AKS revisions included a new safe harbor that allows VBE participating providers to offer tools and supports, in connection with a value-based arrangement, to patients for the improvement of quality, outcomes and efficiency.
3. CMS-Sponsored Models:  When CMS sponsors a new program model, remuneration related to provider participation as well as patient incentives which are part of that model are now protected.  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:  This 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.
5. Accountable Care Organization (“ACO”) Beneficiary Incentive Programs.: Previously, the “beneficiary inducement” CMP, included incentives provided by providers to encourage adherence to medically necessary protocols or goals by ACO Medicare beneficiaries. This clarification exempts such incentives from the definition of “remuneration” that subjected providers to potential AKS liability.
6. Telehealth for in-home dialysis. The OIG created a new regulatory exception to the Civil Monetary Penalties Law that allow providers to furnish telehealth technologies to patients receiving in-home dialysis or other ESRD care under Medicare Part B under certain circumstances. This safe harbor goes into effect Jan 1, 2022.

CONCLUSION

Notwithstanding the significant recent revisions, Stark and AKS Law will continue to be a compliance challenge due to the complexity of these laws and the appropriate application of exceptions and safe harbors to health care and funding arrangements. Health care providers and those entities to which they refer should carefully review of their existing and potential financial arrangements to both avoid inadvertent violation of Stark and AKS (which can result in exclusion or criminal liability), as well as to leverage the new flexibility offered in these recent revisions.

These revisions have significantly de-coupled Stark and AKS, these two sets of standards remain connected. While only certain health care entities are subject to Stark, all healthcare entities must comply with AKS. As a result, the AKS regulatory requirements will ultimately determine those standards and requirements which health care entities must meet in order to avoid fraud or abuse risk.