The proposals are finally here (available at federalregister.gov). Nearly 18 months after the Department of Health and Human Services (HHS) announced its “Regulatory Sprint to Coordinated Care” to remove regulatory barriers to effective care coordination and management, the Centers for Medicare & Medicaid Services (CMS) and the HHS Office of Inspector General (OIG) published the highly anticipated proposed changes to modernize the regulations under the Physician Self-Referral Law (the Stark Law), the federal Anti-Kickback Statute (AKS), and the Civil Monetary Penalties Law (CMP Law). These proposals represent HHS’ most significant effort to date to align the AKS safe harbors, CMP Law, and Stark Law exceptions with a value-based health care delivery system that relies less on volume-based payment models in favor of health care delivery and payment systems focused on paying for quality, outcomes, and efficiencies.

The proposed changes are expansive, encompassing (i) four new AKS safe harbors and three new Stark Law exceptions for value-based arrangements, (ii) a new AKS safe harbor related to patient engagement tools, (iii) a new AKS safe harbor to streamline and standardize protection for CMS payment models tested by the Innovation Center or related to the Medicare Shared Savings Program, (iv) a new AKS safe harbor and Stark Law exception for the donation of cybersecurity technology and services, and (v) a number of changes meant to ease compliance with existing safe harbors and exceptions. And HHS’ work is far from done. Throughout the proposed rulemakings, CMS and OIG solicit comments from stakeholders on alternative frameworks and safeguards that vastly differ from the language of the proposed regulations, while hinting at potential additional rulemaking in this area. As a result, industry participation in this rulemaking is critical to help shape the scope and application of the final rules.

Reed Smith is providing a series of client alerts and teleseminars that focus on analyzing key aspects of the proposals and significant areas for comment. Part One, presented here, focuses on the new value-based arrangement framework proposed by OIG and CMS and the new safe harbors and exceptions that would be available to persons and entities participating in those arrangements. We will discuss these proposed changes further in a teleseminar on October 31, 2019. Part Two will dive into additional CMS proposed changes to the Stark Law regulations, including clarifications to fundamental terminology, with a teleseminar following on November 12, 2019. Finally, given the emphasis on technology to facilitate and establish new value-based arrangements and drive policy initiatives, Part Three will focus on what these proposals mean for digital health arrangements and companies, with a teleseminar following on November 21, 2019. We hope this series will give clients the context needed to consider and submit comments well before the due date, which HHS kindly set for New Year’s Eve (December 31, 2019).

New value-based protections

The proposed rulemakings establish, for the first time, specific regulations aimed at shielding from enforcement beneficial arrangements that facilitate and reward value-based care under the AKS, CMP Law, and Stark Law. This is a significant step toward recognizing how changes to the health care payment and delivery systems have fundamentally altered the fraud and abuse risks that gave rise to the existing safe harbors and exceptions. At the same time, the proposed regulations focus narrowly on arrangements that qualify as precisely defined value-based arrangements, leaving unaddressed many beneficial arrangements for the purchase of products and services.

In general, OIG and CMS coordinated proposals for three new tiered safe harbors and exceptions that offer increasing flexibility with increasing financial risk, and OIG proposed an additional new safe harbor related to patient engagement tools, in the context of value-based arrangements. The proposals incorporate new terminology and definitions. As a threshold matter, to be protected, the value-based arrangements covered by these proposals must be for the provision of at least one value-based activity1 for a target patient population2 that is reasonably designed to achieve a value-based purpose3 and must be between a “value-based enterprise”4 and one of its participants, or between participants in the same value-based enterprise. CMS and OIG propose coordinated definitions for each of these terms, but in short:

 Two or more persons or entities must collaborate, and be accountable, to achieve improved care coordination, quality, or efficiency for a defined patient population by taking, or refraining from taking, an action tailored to that improvement.

Notably, this framework does not include “value-based contracting and outcomes-based contracting for the purchase of pharmaceutical [or medical device] products.”5 Moreover, HHS does not consider necessary modifications to the AKS discount safe harbor to facilitate these arrangements or align the requirements of that safe harbor with present-day reimbursement methodologies.6 For purposes of the proposed AKS safe harbors, the proposals go even further and would exclude from safe harbor protection pharmaceutical manufacturers; manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics, or supplies (DMEPOS); and laboratories that participate in a value-based arrangement. The proposed regulatory language under the Stark Law does not exclude these entities, but CMS seeks comments on whether to include the same exclusion in its final rule.

Outside the context of value-based arrangements, OIG does propose separate protection for certain outcomes-based payments through proposed revisions to the personal services safe harbor. This proposal, however, incorporates the above exclusions for certain entities as well.

Below we outline key aspects of the proposals and areas for comment related to (i) the three-tiered value-based arrangement safe harbors and exceptions, (ii) the patient engagement tools safe harbor, and (iii) themodifications to the personal services safe harbor for outcomes-based payments.

1. The “tiered” value-based arrangement safe harbors and exceptions

CMS and OIG have proposed a “tiered” structure that affords greater flexibility to the parties (referred to as “value-based enterprise participants”) of value-based arrangements that assume more financial risk for the patients covered by those arrangements. Both CMS and OIG view a value-based enterprise’s assumption of financial risk as an incentive to manage patient care appropriately and to avoid conduct that could constitute fraud and abuse, such as the ordering of unnecessary services7; thus, the proposal would adopt more flexible requirements for arrangements with greater risk.

The Stark Law rulemaking would apply to compensation relationships only – not ownership relationships. It proposes three exceptions: (i) any value-based arrangement provided the enumerated requirements are met, (ii) value-based arrangements with meaningful downside financial risk, and (iii) value-based arrangements with full financial risk. The AKS rulemaking proposes a similar framework, albeit in the context of care coordination and management arrangements only, with proposed exceptions for: (i) care coordination arrangements to improve quality, health outcomes, and efficiency that involve in-kind remuneration, (ii) value-based arrangements with substantial downside financial risk, and (iii) value-based arrangements with full financial risk.

 AKS Safe Harbors
 Care coordination arrangements Substantial downside financial risk  Full financial risk
 Stark Exceptions
 Any value-based arrangements Meaningful downside financial risk Full financial risk

The proposed value-based safe harbors and exceptions would apply broadly to any value-based arrangements in which additional requirements are satisfied, including that the value-based arrangement is set forth in writing, signed by the parties, and includes a description of certain details of the arrangement. In addition, any performance or quality standards against which the recipient of remuneration would be measured must be objective and measurable.

Key takeaways:

  • As noted, the proposed rules expressly exclude certain entities from participating in protected arrangements: (i) pharmaceutical manufacturers; (ii) manufacturers, distributors, or suppliers of DMEPOS; and (iii) laboratories. The OIG seeks comment on whether to exclude these entities, and the potential expansion of this exclusion to pharmacy benefit managers (PBMs) and other wholesalers and distributors. The rationale cited for exclusion of these entities is historical enforcement and oversight experience. The OIG’s position in this regard is questionable since such entities clearly can play an important and legitimate role in value-based care and activities. Indeed, even as OIG proposes to exclude pharmaceutical manufacturers and certain device manufactures from the definition of value-based enterprise participant, OIG acknowledges that some manufacturers may help facilitate care coordination and management, such as through the provision of data analytics associated with their products to purchasers of their products.8 Entities currently excluded from participating in protected value-based arrangements would be well served to provide substantive comments in response to the proposed rules, detailing the legitimate role they can play in the coordination and management of patient care, including specific examples.
  • Similarly, none of the value-based safe harbors and exceptions, and indeed nothing in the proposed rulemakings, addresses purchase and sale arrangements for covered items and services – issues that may directly involve manufacturers, distributors, or suppliers. However, OIG notes that it is considering future safe harbor rulemaking to address specifically tailored protection for value-based and outcomes-based contracting for manufacturers.9
  • None of the proposed rules for value-based arrangements include a requirement that remuneration provided under such arrangements be consistent with fair market value.
  • The protections under the OIG’s proposed rule related to value-based arrangements are potentially narrower than those protections proposed by CMS for similar arrangements under the Stark Law. Each of the value-based arrangement safe harbors proposed by OIG requires that the protected arrangement include value-based activities that, at a minimum, directly further coordination and management of care for the target patient population (TPP). CMS’s proposed regulations do not include the same limitation. Unlike the AKS safe harbors, the proposed Stark Law regulations do not define the term “coordinating and managing care,” but CMS seeks comments on whether such a definition is desirable. OIG, on the other hand, seeks comments on whether it should follow a similar approach as CMS – that is, only require that value-based activities be directly connected to, or reasonably designed to achieve, any of the enumerated value-based purposes.
  • Both OIG and CMS seek comments on the definition of a TPP, changes to which could impact the scope of arrangements eligible for protection under the value-based arrangement safe harbors and exceptions. OIG is considering limiting TPPs to patients with a chronic condition or shared disease state who would benefit from care coordination. Furthermore, OIG seeks comments on whether and how parties other than the value-based enterprise participants should or could be involved in selecting the TPP. CMS seeks comments on whether there are additional or substitute criteria that it should include in the definition of TPP, and whether it should specify in regulation text a nonexhaustive list of selection criteria.
  • With respect to all three of the tiered value-based arrangement safe harbors, OIG seeks comments on an additional requirement to submit certain data to HHS about the value-based enterprise, value-based participants, and value-based arrangements, and whether such a reporting requirement would present compliance or operational burdens for value-based enterprises. OIG also solicits comments regarding the types of data that would need to be submitted. Certainly, a reporting requirement, if finalized, could create significant compliance and operational burdens, depending on what and how relevant data must be reported, so stakeholders are advised to consider commenting on the same.
  • In lieu of these value-based AKS safe harbors, the OIG is considering whether to rely solely on the personal services safe harbor, discussed below. Under this alternative approach, OIG would create a tiered protection under the personal services safe harbor for value-based arrangements – not unlike the approach taken with respect to the proposed new value-based arrangement safe harbors. That is, the personal services safe harbor would be revised to remove certain conditions in order to allow greater flexibility for innovations, as arrangements become more closely aligned with value-based purposes and as the parties take on more downside financial risk.
  • CMS is considering and soliciting comments regarding the creation of a new exception for indirect value-based arrangements. As an alternative, CMS would require parties to such arrangements to rely on the existing indirect compensation arrangement exception.

A. No financial risk – care coordination safe harbor and any value-based arrangement exception

At the lowest point of the risk continuum, CMS and OIG propose a care coordination safe harbor and a value-based arrangement exception to protect certain value-based arrangements that do not involve the assumption of downside financial risk by the value-based enterprise or its value-based participants. To mitigate the perceived heightened risk of fraud and abuse inherent in arrangements without financial risk, both agencies impose a number of specific requirements not found in the other value-based arrangement safe harbors and exceptions including, for example, augmented documentation requirements. OIG’s care coordination safe harbor proposal contains a number of requirements not found in CMS’s value-based arrangement exception proposal. Among the meaningful differences between the CMS and OIG proposals, OIG’s care coordination safe harbor proposal seeks to protect in-kind remuneration only, while CMS proposes to protect in-kind or monetary remuneration in its value-based arrangement exception. OIG imposes a “buy-in” under which recipients of remuneration would have to cover 15 percent of the donor’s cost of the in-kind remuneration, similar to the existing electronic health records donation safe harbor – a requirement that CMS is considering, but has not proposed. OIG also requires parties to terminate a care coordination arrangement within 60 days of a determination by the value-based enterprise’s accountable body or responsible person that the arrangement is unlikely to further the coordination and management of care for the TPP, that it has resulted in material deficiencies in quality of care, or that it is unlikely to achieve its evidence-based, valid outcome measures – a requirement not found in the other risk continuum safe harbors or in the CMS proposal, although CMS is considering imposing the same requirement pending comments. And while OIG requires protected remuneration to be used primarily to engage in care coordination or management activities, CMS does not impose the same requirement or otherwise require that the protected value-based arrangement further a care coordination or management purpose.

The care coordination safe harbor and value-based arrangement exception proposals reflect a considerable number of “choose your own adventure” options for the final rulemakings. Of these, some noteworthy areas on which stakeholders should considering commenting include:

  • Limiting the care coordination safe harbor and value-based arrangement exception to in-kind remuneration only. OIG has proposed, and CMS requests feedback regarding whether to impose, a requirement that protected remuneration be in-kind only. If finalized, this limitation would restrict applicability of these proposals to items and services, such as the services of a care coordinator; they would not be available for shared savings or bundled payments.
  • Whether there should be a requirement that aggregate compensation not be determined in a manner that takes into account the volume or value of referrals or business generated by the parties for which payment may be made under a federal health care program. OIG solicits feedback on whether its long-standing volume or value prohibition should extend to all business reimbursed by federal programs, and not just business outside the value-based arrangement.
  • Requiring the recipient of protected remuneration to be responsible for a percentage of the costs of the contribution. OIG has proposed to require recipients to cover 15 percent of the cost of received in-kind remuneration, and CMS also is considering doing so. Both agencies seek comments on whether this requirement furthers the reduction of potential fraud and abuse risk and, if so, what constitutes the appropriate level of contribution. This requirement, if finalized, could be particularly challenging for certain recipients, including smaller physician practices or rural providers.
  • The inclusion and scope of monitoring requirements. OIG has proposed a requirement that the value-based enterprise, one of its participants, or another accountable body or responsible person acting on its behalf, monitor whether the arrangement is furthering its value-based purposes, and CMS also is considering imposing such a requirement. If finalized, this requirement would impose regular oversight and reporting requirements that could prove onerous to less robust value-based arrangements.
  • Creating and “rebasing” objective outcomes measures. Both agencies seek comments regarding the definition of outcomes measures, and OIG specifically seeks comments on whether and how often parties should be required to “rebase” (that is, reset) existing benchmarks in a value-based arrangement.

B. Meaningful/substantial final risk safe harbor and exception

Next in the risk continuum, the proposed rules would protect certain value-based arrangements with substantial or meaningful downside financial risk. Specifically, subject to enumerated proposed requirements, the new proposed safe harbor and exception would protect the exchange of monetary payments or anything of value between a value-based enterprise and a value-based enterprise participant pursuant to a value-based arrangement. In the case of the AKS, the value-based enterprise would have to assume substantial downside financial risk, and the value-based enterprise participants would have to meaningfully share in the same. In the case of the Stark Law, the physician would have to be at a meaningful downside risk for failure to achieve the value-based purpose of the value-based enterprise, for the entire term of the arrangement.

The proposed rules include detailed and distinct proposed definitions for what would constitute “substantial downside financial risk”11 and “meaningfully sharing,” in the context of the AKS, and “meaningful downside risk,”12 in the context of the Stark Law. As such, if the proposals are finalized, parties seeking to protect arrangements under this safe harbor and exception would be required to ensure proper financial risk assumptions separate and apart from ensuring compliance with the standards otherwise enumerated under the safe harbor and the exception.

On the continuum proposed by CMS and OIG, this proposed safe harbor and related exception would offer greater flexibility to structure arrangements than the safe harbor and exception discussed above, under which the value-based enterprise would not have to assume financial risk – although not as much flexibility as the proposed safe harbor and exception related to full financial risk.

Some noteworthy areas on which stakeholders should consider commenting with respect to this proposed safe harbor and exception include:

  • The proposed definitions of “substantial downside financial risk” and “meaningful downside risk.” Both OIG and CMS seek comments regarding the proposed definitions of these terms, respectively. OIG solicits comments on whether the benchmarks in the definition should be higher or lower to ensure appropriate incentive; whether there are other methodologies not captured by the definition that should qualify as a substantial downside financial risk; and whether any benchmarks should be omitted or modified to better capture true assumption of substantial downside financial risk. OIG also seeks comments on whether alternative payment models should be included in the definition of “substantial downside financial risk.” CMS seeks comments on whether the proposed 25 percent threshold is appropriate, and specifically whether a downside risk of 25 percent of only a nominal amount of remuneration would be sufficient to curb the potential fraud and abuse concerns with traditional fee-for-service, volume-based payments.
  • The proposed definition of “meaningfully share” in the downside risk. OIG solicits comments on whether it should adopt additional or alternative specific thresholds (other than 8 percent of the value-based enterprise’s risk).
  • How much “lead time” is appropriate to develop and implement arrangements in anticipation of assuming financial risk. With respect to both this safe harbor/exception and the safe harbor/exception below related to full financial risk, the proposed regulations would allow value-based enterprises six months from the commencement of the value-based arrangement to assume the requisite financial risk, but the agencies seek comments on whether a different lead time would be appropriate. Specifically, OIG solicits comments on whether six months is sufficient or whether a longer or shorter timeframe would be appropriate, whereas CMS solicits comment on whether six months is a sufficient time period for parties to construct arrangements and begin preparations.

C. Full financial risk safe harbor and exception

Finally, subject to enumerated proposed requirements, both proposed rules would protect the exchange of monetary payments or anything of value between a value-based enterprise and a participant pursuant to a value-based arrangement, if the value-based enterprise assumes, or is contractually obligated to assume, full financial risk from a payor for a TPP. “Full financial risk” would mean that the value-based enterprise is financially responsible for the cost of all items and services covered by an applicable payor for each patient in a patient population, and is prospectively paid (for example, through capitation payments, global budget payments, or under contracts with Medicaid managed care organizations that provide for a fixed per-patient, per-month amount) to manage that population’s care.

The proposed full financial risk safe harbor and related exception require value-based enterprises to assume the highest level of risk contemplated in the proposed rulemaking and, as a result, also include more “flexible” conditions than the other two proposals discussed in this section. The agencies recognize that value-based enterprises that have assumed full financial risk from the payor present few traditional fee-for-service fraud and abuse risks. According to OIG, this proposed safe harbor is intended to offer value-based enterprises the greatest ability to innovate with respect to coordinated care arrangements.

Some noteworthy areas on which stakeholders should consider commenting with respect to this proposed safe harbor and exception include:

  • Whether the proposed requirement for full financial risk would make this safe harbor practically unavailable to the vast majority of value-based enterprises. OIG states that a value-based enterprise receiving a prospective, capitated payment for all items and services covered by Medicare Parts A and B for TPP would satisfy its proposed requirement, but the proposal would not protect a capitation arrangement for a limited set of items or services.13 This potentially might limit the availability of this proposed safe harbor to value-based enterprises that include a large integrated delivery system capable of providing nearly all Medicare or Medicaid covered services to a TPP.
  • Other ways to define or consider “full financial risk.” OIG seeks comments regarding other ways to define “full financial risk” (for example, actuarial equivalence standard) and whether there exist other circumstances that stakeholders believe should qualify as a value-based enterprise assuming “full financial risk.” CMS solicits comments on what other types of full financial risk payment models may currently exist or could come to exist as the transition to a value-based health care delivery and payment system progresses.
  • Whether this AKS safe harbor should extend to downstream contractors. OIG solicits comments regarding whether to extend safe harbor protection to remuneration that passes from a value-based enterprise participant to a downstream contractor (which also could be, but may not be required to be, a value-based enterprise participant), subject to additional safeguards. In the proposed rule, OIG recognizes that increased flexibility at the value-based enterprise participant level may foster innovation, but is concerned that because there may be no assumed financial risk, downstream arrangements could present higher risks of fraud and abuse (for example, incentives to order medically unnecessary or overly costly items and services). The OIG solicits comments on whether downstream arrangements should be protected and, if so, what additional safeguards should apply.

2. Patient engagement tools

Key takeaways:

  • The patient engagement tools safe harbor would operate in conjunction with the above value-based arrangement safe harbors and protect certain in-kind remuneration furnished by value-based enterprise participants directly to patients in a TPP.
  • OIG proposes a flexible approach to identifying protected patient engagement tools or supports, provided that the tool or support (i) is recommended by the patient’s licensed health care provider, (ii) has a direct connection to care coordination and management, and (iii) advances specifically enumerated goals, including, for example, adherence to a treatment regimen or disease management.
  • The aggregate retail value of the patient engagement tools or supports furnished to a patient by a value-based enterprise participant would be limited to $500 per year except where furnished based upon a good faith, individualized determination of the patient’s financial need.
  • Health-related technology and patient health-related monitoring tools and services could be protected, although the DMEPOS suppliers, health information technology (IT) companies, and medical device manufacturers developing, hosting, and furnishing such items and services may themselves be excluded from participating in, or contributing to, the value-based enterprise.

The proposed patient engagement tools safe harbor would operate alongside the above value-based arrangement safe harbors, offering participants in those arrangements protection under both the AKS and CMP Law for certain in-kind patient engagement tools or supports furnished to patients in a TPP. By limiting this safe harbor protection to value-based arrangements, OIG intentionally limits approved offerors to value-based enterprise participants, thus excluding pharmaceutical manufacturers, manufacturers, distributors, and suppliers of DMEPOS, and laboratories. Any potential expansion of excluded participants to include medical device manufacturers or health IT companies, as outlined above, would likely impact this safe harbor as well, though OIG does not specifically discuss either category in this section of the rulemaking. OIG also would incorporate safeguards to prevent excluded participants from indirectly furnishing tools and supports to patients by requiring that the tool or support (i) be furnished directly to the patient by a value-based enterprise participant, and (ii) not be funded or financed by any person or entity outside of the value-based enterprise. As a result, these proposals may create the difficult situation of effectively excluding from participation the very companies that manufacture, develop, host, and maintain the “health-related technology” and “patient health-related monitoring tools and services” that the safe harbor seeks to protect.

In addition to protecting “health-related technology” and “patient-health related monitoring tools and services,” OIG proposes a flexible approach that would broadly protect in-kind (i) preventive items, goods, or services, or (ii) supports and services designed to identify and address a patient’s social determinants of health, provided that the item or service (a) is recommended by the patient’s licensed health care provider, (b) has a direct connection to care coordination and management, and (c) advances specifically enumerated goals including, for example, adherence to a treatment regimen or disease management. OIG acknowledges that “[t]here is substantial evidence that unmet social needs related to . . . transportation, nutrition, and safe housing, play a critical role in health outcomes and expenditures,” and it solicits comments on whether certain categories of social determinants should be included or excluded.14 Further, while the current proposal currently excludes cash or cash equivalents and waiver or reduction of cost-sharing obligations, OIG specifically seeks comments on whether to protect such remuneration if related to “maintaining patient engagement and encouraging and reinforcing positive behavioral changes,” like quitting smoking.15

Similar to the other value-based arrangement safe harbors, OIG’s proposal includes a significant number of requirements for compliance (six in total, with seven subparts addressing permissible tools and supports), and offers several alternative proposals for consideration by commenters. Critical areas on which stakeholders should consider commenting include:

  • Whether protection should be limited to value-based enterprises, and the proposed exclusions from the definition of value-based enterprise participants. For instance, commenters may want to address protection for arrangements such as a single health care provider or hospital that wishes to furnish remote patient monitoring tools to its patients, or partner with the manufacturer of such tools or the developer of an associated portal, to facilitate ongoing care coordination and management following discharge or between office visits.
  • Patient engagement specifics. The scope of protected patient engagement tools and supports, including those that address social determinants of health, such as transportation to medical appointments, nutrition to address clinical conditions, and safe housing for patients discharged to their home, and the monetary cap.
  • Remote patient monitoring issues. The interplay between this safe harbor and reimbursement for remote patient monitoring services, including the provision of devices to monitor physiologic parameters remotely, if OIG excludes from protection federally reimbursable items and services.

3. Personal services safe harbor for outcomes-based payments

Key takeaways:

  • The proposed new subsection of the personal services safe harbor for “outcomes-based payments” could protect shared savings and shared loss, gainsharing, pay-for-performance, and episodic or bundled payment programs and initiatives likely excluded from the value-based arrangement safe harbors.
  • OIG proposes that outcomes-based payments would be protected only if they constitute fair market value – a criterion not previously applied to many of the types of payments that OIG states would be eligible for protection (for instance, under the OIG waivers for shared savings payments).16 Health care entities seeking to rely on the outcomes-based payment protections would need to consider working closely with valuation experts and counsel to develop support for the fair market value of any outcomes-based payments.
  • OIG proposes to exclude from its outcomes-based payments safe harbor the majority of those entities it seeks to exclude from the value-based arrangements safe harbors.
  • Compliance requirements imposed on compensation methodologies and part-time arrangements for providers subject to both the AKS and Stark Law would be streamlined with respect to personal services arrangements.

Furthering its effort to remove regulatory obstacles to value-based payment arrangements, OIG proposes to exclude certain outcomes-based payments from the definition of “remuneration” under a section of the existing personal services and management contracts safe harbor (Personal Services Safe Harbor). Specifically, the proposal would protect an outcomes-based payment by a principal to an agent as fair market value compensation to “reward the agent for improving (or maintaining improvement in) patient or population health by achieving one or more outcome measures that effectively and efficiently coordinate care across care settings” or to “achieve one or more outcome measures that appropriately reduce payor costs while improving, or maintaining the improved quality of care for patients.”17 This proposed change complements the three risk continuum safe harbors discussed above by providing protection to arrangements that do not pertain specifically to care coordination and management, and therefore would not fall within a risk continuum safe harbor. The proposed change could apply to shared savings and shared loss, gainsharing, pay-for-performance, and episodic or bundled payment programs and initiatives. Interestingly, the arrangement does not have to include the provision of services by either party in order to qualify for protection. As with the value-based arrangement safe harbor proposals, OIG expects that the parties to an outcomes-based payment arrangement would establish each outcome measure based on evidence-based, credible medical support; would monitor and assess performance on each measure; and would reset such measures as needed to account for improvements achieved over the course of the arrangement. A notable difference from the value-based arrangement safe harbor proposals is that any measures would have to be met prior to receiving an outcomes-based payment related to the measure.

One challenge of OIG’s proposal to require outcomes-based payments to be consistent with fair market value is that, as OIG acknowledges, “there are not industry standards yet developed to determine fair market value for some outcomes-based payment arrangements in the value-based care arena.”18 OIG does not view this challenge as prohibitive, because it anticipates that the health care industry would develop a methodology for determining the fair market value of these outcomes-based payments over time. Even so, OIG is soliciting comments on whether it should take a different approach, including whether it should define value differently for outcomes-based payments or whether it should use a safeguard other than a fair market value requirement to protect against abuse.

As proposed, outcomes-based payments would constitute “remuneration,” and therefore would not be protected by the outcomes-based payment portion of the Personal Services Safe Harbor, if those payments were (1) made, directly or indirectly, by a pharmaceutical manufacturer; a manufacturer, distributor, or supplier of DMEPOS; or a laboratory; or (2) related solely to the achievement of internal cost savings for the principal. Thus, any arrangement involving a pharmaceutical manufacturer, a manufacturer, distributor, or supplier of DMEPOS, or a laboratory would continue to need to fit within another existing safe harbor, such as the discount safe harbor, in order to receive protection. Moreover, OIG is considering also excluding pharmacies, PBMs, wholesalers, and distributors from this safe harbor, and it seeks comment on whether these exclusions would be appropriate. The proposed safe harbor also would not protect arrangements in which shared financial risk or savings only related to items or services reimbursed under a prospective payment system for certain providers (for example, hospitals, hospices, and skilled nursing facilities).19

OIG also proposes important modifications to the existing Personal Services Safe Harbor. Most notably, OIG proposes to require only that the methodology – not the aggregate compensation – be set in advance, and to eliminate the requirement that agreements for services provided on a periodic, sporadic, or part-time basis specify exactly the intervals and charges for such intervals.20 Both proposals are consistent with the treatment of similar requirements in the Stark Law’s personal services arrangement exception,21 which would streamline compliance oversight of these arrangements for health care providers subject to both laws, and could have far-reaching effects on the structure of a large number of arrangements for the provision of items and services among referral sources.

Some noteworthy areas on which stakeholders should consider commenting on the proposed Personal Services Safe Harbor revisions include:

  • Exclusions. As with the other value-based arrangement safe harbors, the proposed provisions would exclude pharmaceutical manufacturers; manufacturers, distributors, or suppliers of DMEPOS; laboratories; pharmacies (including compounding pharmacies); distributors; wholesalers; and PBMs. OIG specifically seeks examples of beneficial or problematic outcomes-based payment arrangements that could be affected by these proposed exclusions.
  • Developing and maintaining oversight of outcome measures. Specifically, commenters should consider providing input on whether outcomes-based payments can reward continued high quality or performance, not only initial achievement of quality benchmarks, and whether measures must be evaluated and reset at specific timeframes (for instance, every three years).
  • FMV issues. Commenters may consider addressing whether the outcomes-based payment protections proposed to be added to the Personal Services Safe Harbor should require that such payments be consistent with fair market value and, if so, how to define that value. Given the inherent difficulties in defining fair market value for outcomes-based payments, providers should consider submitting comments proposing other safeguards, rather than a fair market value requirement, to protect against abuse.

4. Conclusion

The proposed rules related to value-based arrangements are significant and reflect close coordination between CMS and OIG, which evidently attempted to align their proposals where appropriate. These proposals represent the agencies’ attempt to accommodate and further incentivize the shift from volume-based health care delivery and payment systems to value-based health care delivery and payment systems. At the same time, the proposed regulations focus on narrowly defined value-based arrangements and participants, potentially leaving out many beneficial arrangements for the purchase of products and services. Put simply, these proposals would have a significant impact on health care providers, suppliers, and manufacturers as they attempt to develop value-based health care arrangements.

Stakeholders who want to provide input on the scope and substance of the proposed value-based expansions of these laws must submit comments on the proposed rules by 5 p.m. on December 31, 2019. While HHS recommends stakeholders submit comments regarding both proposed rules separately, CMS and OIG acknowledge that each agency may consider comments submitted in response to the other agency’s proposed rule.