Client Alerts

New Final Rules Issued to Reform Stark Law and Anti-Kickback Statute Regulations

By: David E. Schweighoefer

About: Health Care, Health Care & Regulated Industries

The Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services Office of the Inspector General (OIG) issued two highly anticipated (and extensive) final rules to reform the Stark Law and Anti-Kickback Statute (AKS) regulations.

These rule changes and clarifications are aimed at removing regulatory barriers that may hamper innovation in efforts to coordinate healthcare as it continues its shift to a value-based health care system.

The Stark Law

The Stark final rule creates new, permanent exceptions to the Stark Law for value-based arrangements, including arrangements serving all patients, not just Medicare beneficiaries.

Medicare and the private market have implemented many value-based healthcare delivery and payment systems to address unsustainable cost growth in the current volume-based system. A value-based system pays based on the quality of patient care rather than the volume of services provided. The regulations interpreting the Stark Law have not evolved to keep pace with this transition. In its current form, the Stark Law regulations may prohibit some arrangements that are designed to enhance care coordination, improve quality, and reduce waste. Although the regulations that interpret the Stark Law have been updated several times, all previous changes left in place a framework that is tailored to a fee-for-service environment.

The final rule includes a comprehensive package of reforms to modernize the regulations that interpret the Stark Law while continuing to protect the Medicare program and patients from bad actors. Under this final rule, for the first time, the regulations will support the necessary evolution of the American healthcare delivery and payment system.

Exceptions for Value-Based Arrangements

The final rule creates new, permanent exceptions to the Stark Law for value-based arrangements. Providers have explained because the consequences of noncompliance with the Stark Law are so dire, physicians and other healthcare providers may be discouraged from entering into innovative arrangements that would improve quality outcomes, produce health system efficiencies, and lower costs (or slow their rate of growth). The final rule unleashes innovation by permitting physicians and other healthcare 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. The exceptions apply regardless of whether the arrangement relates to care furnished to people with Medicare or other patients.

The new value-based exceptions include a carefully woven fabric of safeguards to ensure that the Stark Law continues to provide meaningful protection against overutilization and other harms. These final policies recognize that incentives are different in a healthcare system that pays for the value, rather than the volume, of services provided.

New Guidance and Clarifications

The final rule provides additional guidance on several key requirements that must often be met in order for physicians and healthcare providers to comply with the Stark Law. For example, compensation provided to a physician by another healthcare provider generally must be at fair market value. The final rule provides guidance on how to determine if compensation meets this requirement. The final rule also provides clarity and guidance on a wide range of other technical compliance requirements intended to reduce administrative burden that drives up costs.

Other New Exceptions

Providers have emphasized to CMS and HHS the need for new exceptions to provide protection for non-abusive, beneficial arrangements between physicians and other healthcare providers. These finalized exceptions provide new flexibility for certain arrangements, such as donations of cybersecurity technology that safeguard the integrity of the healthcare ecosystem, regardless of whether the parties operate in a fee-for-service or value-based payment system.

The Anti-Kickback Statute

The Final Rule implements seven new safe harbors, modifies four existing safe harbors, and codifies one new exception under the Beneficiary Inducements in Civil Monetary Penalties (CMP) law. For example, the Final Rule clarifies how medical device manufacturers and durable medical equipment companies may participate in protected care coordination arrangements that involve digital health technology. It also lowers the level of “downside” financial risk parties must assume to qualify under the new safe harbor for value-based arrangements with substantial downside financial risk. Additionally, in recognition of the urgent problem of cyber threats to the health care industry, it broadens the new safe harbor for cybersecurity technology and services to cover remuneration in the form of cybersecurity-related hardware.

To safeguard against inappropriate incentives, the Final Rule incorporates additional limitations on parties seeking safe harbor protection under the patient engagement and support safe harbor, such as a fixed dollar cap on protected tools and supports provided to patients and enhanced restrictions on marketing and patient recruitment. As proposed, certain categories of entities that are not typically on the front lines of care coordination and that pose a higher risk of fraud or abuse, such as pharmaceutical manufacturers and compounding pharmacies, are ineligible to use the new safe harbors for value-based arrangements, outcomes-based payments, and patient engagement and support. Ineligible entities may be able to use other new or modified safe harbors if an arrangement satisfies all applicable conditions.

These new safe harbors vary by the type of remuneration protected, the level of financial risk assumed by the parties, and the safeguards included as safe harbor conditions.

Ulmer’s Health Care Practice Group keeps a close eye on legal changes affecting the health care industry and is prepared to assist you in understanding these new rules. Please reach out to our attorneys if you have any questions.

The information provided in this client alert speaks only to the information and guidance we have available as of the date of publication and is subject to change. We will continue to follow further issued guidance and regulations and endeavor to post those updates via our website. Please continue to follow these updates at ulmer.com. This legal update was created by Ulmer & Berne LLP, and is not intended as a substitute for professional legal advice. Receipt of this client alert, by itself, does not create an attorney client relationship. For any questions, or for further information, please contact David E. Schweighoefer at dschweighoefer@ulmer.com.