A Holiday Gift for the Health Care Industry? Value-Based Care and Related Final Rules for Stark, Anti-Kickback, and Civil Monetary Penalties Regulations

December 4, 2020
10 minutes

Executive Summary

Introduction. On November 20, 2020, the U.S. Department of Health and Human Services Office of the Inspector General (“OIG”) and Centers for Medicare & Medicaid Services (“CMS”) released their long-awaited final rules describing changes to the “safe harbor” regulations implementing the federal anti-kickback statute (the “AKS”), the beneficiary inducement provisions of the civil monetary penalty law (the “CMPL”), and the physician anti-self-referral law (“Stark”) and its exceptions. OIG’s final rulemaking (the “OIG Final Rule”) and the final rulemaking from CMS (the “CMS Final Rule”) each include three new provisions for value-based care arrangements presenting different financial risk profiles. These value-based care safe harbors and exceptions promote the use of innovative reimbursement arrangements and are designed to accelerate the transformation of the health care system into one that incentivizes coordinated care. Both rules also contain additional safe harbors and exceptions focused specifically on cybersecurity technology and patient engagement, and a number of substantial “cleanup” changes to several of the existing safe harbors and exceptions that, for the most part, should also be well-received by the health care industry.

Click here for the OIG Final Rule and here for the CMS Final Rule. Unless otherwise noted, these regulations are effective January 19, 2021.

This Alert is divided into two parts: an Executive Summary and several tables addressing key elements of the rule:

  • Value-Based Care AKS Safe Harbors and Stark Exceptions [p. 1]
  • Patient Engagement and Support Safe Harbor [p. 13]
  • Glossary of Terms for the Value-Based Safe Harbors and Exceptions [p. 15]
  • Electronic Health Records AKS Safe Harbor and Stark Exception [p. 17]
  • Cybersecurity Technology and Related Services AKS Safe Harbor and Stark Exception [p. 20]
  • Warranties AKS Safe Harbor [p. 22]


Value-Based Changes at a Glance. The AKS Safe Harbors and Stark exceptions permit certain care coordination and value-based care arrangements, providing standards for the configuration of such arrangements and the use of remuneration based on the level of financial risk the participants assume. The agencies organized the safe harbors and exceptions into the following three categories:

  • Care Coordination. The safe harbor and exception allow for arrangements through which value-based enterprise (“VBE”) participants (“VBE Participants”) exchange in-kind remuneration. To ensure the integrity of these arrangements, parties must use in-kind remuneration predominantly to engage in value-based activities that are directly connected to their coordination and management of care for the target patient population.
  • Substantial (or Meaningful) Downside Risk. The safe harbor and exception allow for exchange of monetary and in-kind remuneration between VBE Participants in a VBE if (1) for the AKS safe harbor, the VBE directly, or through a VBE Participant, assumes substantial downside risk from a payor, or (2) for the Stark exception, the physician accepts meaningful downside risk for failure to achieve the value-based purpose(s) of the VBE.
  • Full Financial Risk. The safe harbor and exception allow for exchange of monetary and in-kind remuneration from a VBE to its VBE Participants if the enterprise assumes full financial responsibility for the cost of all items and services covered by a payor for each patient in the target population.

Not all potential participants in value-based arrangements can meet the safe harbor requirements. The safe harbors exclude pharmaceutical manufacturers, distributors, and wholesalers; DMEPOS suppliers; laboratories; pharmacies that primarily compound drugs or dispense compounded drugs; pharmacy benefit managers; manufacturers of devices or medical supplies, and medical device distributors or wholesalers (with a narrow exception for DMEPOS suppliers and manufacturers of medical devices or supplies relating to exchanges of digital health technology under a care coordination arrangement). However, the exclusions do not extend to subsidiaries or corporate affiliates, so long as the “predominant” or “core line of business” of the entity seeking protection—standards that OIG does not further define—does not find itself on the carve-out list. Additionally, an eligible entity (e.g., a payor) may perform functions of ineligible entities (e.g., pharmacy benefit manager services) as ancillary to their core business functions without being rendered ineligible or losing safe harbor protections for the arrangement.

We describe in detail at the end of this article:

  • The provisions highlighted above;
  • A new patient engagement and support safe harbor that protects tools and supports provided to improve quality, health outcomes, and efficiency;
  • Changes to the EHR/cybersecurity safe harbor and exception, which clarify the scope of protected donations and make the safe harbor permanent through elimination of the sunset provision; and
  • Changes to the warranty safe harbor, which clarify the scope of protected warranties.

Overview of Other Final Rule Changes. In addition to the changes noted above, the following are further changes made by the OIG Final Rule and CMS Final Rule:

  • Personal Services and Management Contracts and Outcomes-Based Payments. The OIG Final Rule: (1) modifies the existing safe harbor for personal services and management contracts to protect arrangements with compensation formulae that are set in advance, even if aggregate compensation is not known in advance; and (2) creates new protections for outcomes-based payments tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs.
  • Patient Engagement and Support. The OIG Final Rule establishes a new safe harbor to protect in-kind remuneration (limited by a $500 annual aggregated cap) in the form of patient engagement tools and support furnished directly by VBE Participants or indirectly through eligible agents (e.g., other third parties such as technology vendors or retailers) to patients in a target patient population.
  • Local Transportation. The OIG Final Rule expands mileage limits under the safe harbor for rural areas (up to 75 miles) and eliminates mileage limits to transport patients discharged from the hospital to their place of residence. OIG also clarified that the safe harbor is available for transportation provided through rideshare arrangements.
  • CMS-Sponsored Model Arrangements and CMS-Sponsored Model Patient Incentives. The OIG Final Rule creates a new safe harbor that protects: (1) remuneration among parties to arrangements (e.g., distribution of capitated payments, shared savings or losses distributions) under a model or other initiative being tested or expanded by the Innovation Center or under the Medicare Shared Savings Program (collectively “CMS-sponsored models”); and (2) in the form of incentives provided to patients covered by the CMS-sponsored model. Importantly, CMS has sole authority to determine the specific types of financial arrangements and incentives to which safe harbor protection will apply, and safe harbor protection will not necessarily apply to every possible financial arrangement or incentive that CMS-sponsored model parties may wish to implement.  Protected patient incentives must have a direct connection to the patient’s health care unless the participation documentation expressly specifies a different standard.
  • ACO Beneficiary Incentives. The OIG Final Rule codifies the statutory exception under Social Security Act § 1128B(b)(3)(K), which allows for an accountable care organization (“ACO”) to make incentive payments to beneficiaries, up to $20 per qualifying service, to encourage utilization of medically necessary primary care services so long as certain eligibility, recordkeeping and notification requirements under Social Security Act §1899(m) are met. In recognition of the programmatic value of the ACO Beneficiary Incentives, such payments are protected explicitly under this safe harbor or the new patient engagement and support safe harbor does not prevent participation in and protection of remuneration pursuant to, an ACO Beneficiary Incentive Payment program.
  • Telehealth Technologies for In-Home Dialysis Patients. The OIG Final Rule codifies the statutory exception to remuneration under the CMPL for “telehealth technologies” furnished to certain in-home dialysis patients, pursuant to section 50302(c) of the Budget Act of 2018.

In the CMS Final Rule, the agency made a number of changes to the Stark regulations:

  • Special Rules Accounting for the Volume or Value of a Physician’s Referral or the Other Business Generated by a Physician. The CMS Final Rule articulates a revised (and more straightforward) standard for determining when compensation takes into account the volume or value of referrals or the value of other business generated. As amended, compensation will result in violation of the volume or value standard only when the resulting remuneration is contingent on referrals or other business generated by the referring physician and incorporates the volume or value of such as a specific element within the formula for the total compensation.
  • Special Rule on “Set in Advance” Requirements. The CMS Final Rule permits changes and modifications to compensation (or the formula for determining compensation), so long as it is deemed to be “set in advance” of the performance of the applicable transaction. More specifically, modifications: (1) must satisfy all requirements of an applicable Stark exception on the effective date of the modification; (2) must be sufficiently documented in writing so that it can be verified; and (3) must be modified before the relevant items, services, office space, or equipment are furnished. The ninety (90) day grace period does not apply to this requirement.
  • Special Rule on Writing and Signature Requirements. The CMS Final Rule codifies a longstanding policy that the writing requirement in various compensation arrangement exceptions may be satisfied by a collection of documents, including contemporaneous documents evidencing the course of conduct between the parties. Further, the revisions confirm that the signature requirement may be satisfied by an electronic or other signature that is valid under applicable federal or state law. Separately, the special rule for temporary noncompliance with signature requirements at 42 C.F.R. § 411.353(g) was amended to remove the limitation that this special rule may apply only once every three years with respect to the same physician.
  • Isolated Transactions. In one of the few changes the industry may dislike, the CMS Final Rule clarifies that the isolated transaction exception protects only one-time transactions, including one-time service arrangements and settlements of bona fide disputes, and would not be available to protect payments for multiple services that were provided over an extended period of time, even if there is only a single payment for all these services.
  • Limited Remuneration. The CMS Final Rule creates a new exception for limited remuneration to a physician, in acknowledgement of non-abusive industry practices, such as short-term medical director services. The exception allows limited remuneration without a written arrangement in place if: (1) the remuneration is for items or services actually provided by the physician and is limited (not exceeding $5,000/year, adjusted for inflation); (2) the compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated by the physician; (3) the compensation does not exceed fair market value; (4) the arrangement would be commercially reasonable even if no referrals were made between the parties; (5) if the arrangement is for the lease or use of the premises, office space, or equipment, the compensation is determined using a formula not prohibited by the applicable standard exception; and (6) if the remuneration to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the arrangement satisfies the conditions of the special rules on compensation.
  • Period of Disallowance. The CMS Final Rule finalizes the deletion of the provisions setting forth the outside ends of the periods of disallowance for noncompliance. CMS stated that, although the rules were initially intended merely to establish an outside limit for the period of disallowance, in application, they were seen to be overly prescriptive and impractical.
  • Exceptions for Rental of Office Space and Rental of Office Equipment. The CMS Final Rule clarifies that the lessor (or any person or entity related to the lessor) is the only person that must be excluded from using leased space or equipment.
  • Exception for Physician Recruitment. The CMS Final Rule eliminates the signature requirement for a physician practice that receives no financial benefit under the recruitment arrangement. Physician practices need not sign recruitment agreements if all remuneration passes through to the recruited physician.
  • Group Practices. The CMS Final Rule revises the group practice rules to address value-based revenue earned by groups. The effective date of these revisions is January 1, 2022.

Click here to view our detailed summaries of the value-based rules.

If you have questions about any topic covered in this Alert, please contact your regular Ropes & Gray advisor.