As discussed in a previous McGuireWoods alert, on Oct. 9, 2019, the Department of Health and Human Services announced two proposed rules to significantly amend the Physician Self-Referral Law (Stark Law), the federal Anti-Kickback Statute (AKS) and the Civil Monetary Penalties Law. This client alert, the first in McGuireWoods’ summary series on these proposed rules, focuses on the HHS Office of Inspector General’s (OIG’s) proposed revisions to ease certain requirements under existing AKS safe harbors related to: (i) electronic health records (EHR) arrangements, (ii) warranties, (iii) local transportation and (iv) personal services and management contracts.

The proposed rules stem from HHS’ Regulatory Sprint to Coordinated Care (discussed in a Sept. 26, 2018 client alert), intended to incentivize value-based arrangements and patient care coordination by expressly permitting certain activities that could be deemed problematic under current law. Collectively, the proposed rules, respectively released by HHS’ Centers for Medicare & Medicaid Services (CMS) and the OIG, would add new value-based exceptions to the Stark Law and additional safe harbors under the AKS, as well as revise existing safe harbors under the AKS (as described in more detail throughout this alert).

The proposed changes are likely to reduce burdens for healthcare providers and other stakeholders within the healthcare industry and provide greater flexibility under these federal fraud and abuse rules while, at the same time, ensuring that the revisions are not misused to perpetrate fraud and abuse. The following alert outlines the OIG’s proposed changes to existing AKS safe harbors and provides five key takeaways to assist healthcare providers in navigating these potential revisions.

  1. Among other changes, the proposed modifications to the EHR safe harbor would extend protections for cybersecurity technology. Since the EHR safe harbor’s creation in 2006, the OIG has amended it several times. In the proposed rule, the OIG introduced various potential changes to the AKS safe harbor. Specifically, the OIG’s primary proposed revisions would: (i) add protections for certain cybersecurity technology, (ii) update provisions regarding interoperability and (iii) remove the existing sunset date. More information regarding OIG’s proposed modifications will be presented in a forthcoming McGuireWoods alert.
  2. Proposed revisions to the warranty safe harbor would expand the scope of protected warranties. The OIG proposed several key revisions to the warranties safe harbor, including but not limited to: (i) extending coverage for bundled warranties (as described in more detail below); (ii) capping the amount of warranties and prohibiting terms that condition warranties on exclusive use or minimum purchase requirements, which the OIG considers improper inducements; (iii) addressing clinical outcome-based warranties on conditions that will be forthcoming (i.e., comments were solicited to develop this provision); and (iv) developing a definition of “warranties” that incorporates items or services critical to the healthcare industry but which are not currently encompassed by other statutes or case law. In the proposed revisions, the parameters around bundled warranties received considerable attention. Prior guidance from the OIG had effectively limited the safe harbor to warranties for single items, thereby excluding warranty arrangements that pertain to bundled items and services. To promote beneficial and innovative arrangements, the OIG proposed expanding the safe harbor to protect bundled items and services. The proposed rule demonstrates OIG’s caution with respect to this proposal and includes various safeguards that could practically limit the use of this safe harbor on a broader level. For example, the OIG proposed that all federally reimbursable items and services in a bundled warranty arrangement be reimbursed by the same federal healthcare program and in the same payment. The OIG also proposed that (i) the bundled arrangement include at least one item in the bundle (i.e., cannot bundle only services); (ii) the remuneration a manufacturer or supplier may pay to any party (other than a beneficiary) must be limited to the cost of the warrantied items or services; (iii) manufacturers and suppliers must not be allowed to condition bundled warranties on the exclusive use of such items or services; and (iv) manufacturers and suppliers not be allowed to impose minimum-purchase requirements. The OIG further clarified that the proposed modifications would not protect free or reduced-priced items or services that sellers provide either as part of a bundled warranty agreement or ancillary to a warranty agreement. The OIG specifically requested responses from commentators on the conditions and safeguards that should be included in a final rule with respect to the warranty safe harbor to ensure flexibility and use of this safe harbor while simultaneously mitigating fraud and abuse risks.
  3. The OIG proposed to ease rural mileage and other restrictions under the local transportation safe harbor. In recognizing the importance that transportation often plays in patient access to care, quality of care and care coordination, the OIG proposed to modify certain conditions that currently limit use of the local transportation safe harbor. Specifically, the OIG proposed to: (i) increase the distance patients residing in rural areas may be transported, from 50 miles to 75 miles; and (ii) remove all mileage limits on transporting a patient from a healthcare facility from which the patient has been discharged to the patient’s place of residence. In connection with these proposals, the OIG requested from commenters information regarding patients within the commenters’ communities who cannot obtain care within the existing mileage restrictions and whether eliminating the distance limitation on transporting discharged patients should be extended to cover any destination of such patient’s choice. In addition to these proposed revisions, the OIG explicitly clarified that this safe harbor historically has applied to ride-sharing services. Lastly, in recognizing that transportation for non-medical purposes may help improve patients’ health, the OIG expressed a willingness to potentially expand the safe harbor to permit transportation for certain non-medical purposes (e.g., transportation to apply for food stamps or housing assistance) as a means to foster innovative arrangements that could improve health outcomes. In weighing this consideration, the OIG requested that commenters provide insight as to whether such expansion should be limited to certain beneficiary populations.
  4. The proposed rule would add flexibility to the personal services and management contracts safe harbor by eliminating and modifying existing restrictions and potentially extending protections to outcomes-based payments. The OIG proposed several modifications to the personal services and management contracts safe harbor in an effort to remove barriers to care coordination and value-based arrangements. Specifically, the OIG proposed to: (i) remove the requirement that contracts for part-time arrangements specify the schedule, length and exact charge for the intervals of time worked under the arrangement; (ii) substitute the requirement that aggregate compensation paid under an arrangement be set in advance, with a new requirement that only the methodology for determining compensation be set in advance; and (iii) permit outcomes-based payments under an arrangement if certain conditions are met. Notably, the proposed removal of the part-time arrangement restrictions would permit providers to receive safe harbor protection for services provided on an as-needed basis and more closely align the safe harbor with the personal arrangements exception to the Stark Law. Similarly, the proposed modification of the “set-in-advance” compensation requirement would more closely align with the Stark Law in that the parties would no longer be required to specify the total compensation to be paid over the duration of an arrangement. If finalized, these changes would provide regulatory protection (assuming all other elements are met) to providers that need periodic management and personal services arrangements but are unable to predict the exact frequency (e.g., call coverage). The proposal to permit outcomes-based payments would align the personal services and management contracts safe harbor with the current evolution of payment models for healthcare. While the outcomes-based payments proposal opens the door for rewarding agents for improving patient or population health, or reducing payor costs while improving quality of care, the proposed safe harbor would exclude arrangements that relate solely to achievement of internal cost savings for the principal. The OIG, however, proposed to limit the scope of this protection, specifically excluding pharmaceutical manufacturers; manufacturers, distributors and suppliers of durable medical equipment, prosthetics, orthotics and supplies; and laboratories. The OIG is also considering, but requested comment regarding, whether to also exclude pharmacies (including compounding pharmacies), wholesalers and distributors of pharmaceutical products, and pharmacy benefit managers from this safe harbor.
  5. In addition to modifications of existing safe harbors, the OIG proposed creating new, value-based safe harbors. As will be discussed in greater depth in a forthcoming McGuireWoods alert, the OIG, in an effort to foster a greater emphasis on value-based care, also proposed creating several new AKS safe harbors. Specifically, the OIG proposed: (i) three new safe harbors for remuneration exchanged between or among participants in certain value-based arrangements (e.g., care coordination arrangements designed to improve quality, health outcomes and efficiency); (ii) a new safe harbor for certain patient engagement and support arrangements; (iii) a new safe harbor for remuneration provided in connection with a CMS-sponsored mode; and (iv) a new safe harbor for donations of cybersecurity technology and services. In proposing these new safe harbors, the OIG hoped to strike an effective balance in achieving its goals of clarity, objectivity, flexibility, necessary safeguards and ease of implementation.

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In an era of increased government enforcement and whistleblower activity, situations where new care-delivery models conflict with precise adherence to safe harbor conditions create uncertainty. Through these proposed changes, the OIG attempted to balance a need for innovation with the potential for improper inducements, by removing some elements while adding safeguards for others. Providers and industry stakeholders examining new models of care delivery, outcomes-based metrics and enhancement of access to care will find value in these changes, if finalized.

The proposed changes are subject to a public comment period, which is open until Dec. 31, 2019. Please do not hesitate to contact a McGuireWoods attorney, including any of the authors of this alert, for more information regarding these proposed changes to existing AKS safe harbors or for assistance in preparing a comment to these rules. After the open comment period, the government will review and may finalize the rule with any desired changes to reduce AKS burdens on providers as soon as early 2020.