In an effort to modernize the federal fraud and abuse laws by “reduc[ing] regulatory barriers and accelerat[ing] the transformation of the healthcare system into one that better pays for value and promotes care coordination,”1 the OIG released a proposed rule2 (proposed rule) in the fourth quarter of 2019 that would amend the Anti-Kickback Statute safe harbors, as well as regulatory requirements under the Civil Monetary Penalty Law regarding beneficiary inducements. The CMS also simultaneously released a proposed rule that would amend and make clarifications to the Stark Law regulations. Below I highlight the standards for two of the OIG’s proposed rule’s new, proposed safe harbors that would be applicable to value-based arrangements with substantial downside financial risk and value-based arrangements with full financial risk. At the end of this Alert, I include relevant definitions from the proposed rule to assist in understanding the proposed scope and applicability of these two safe harbors.

The two proposed value-based arrangement safe harbors would protect arrangements between a VBE (e.g., an ACO, health systems comprised of hospitals and physician practices) and a VBE participant (e.g., physician practices) involving the exchange of monetary and/or in-kind remuneration as long as certain enumerated requirements are met.

Generally, the requirements for value-based arrangements with substantial downside financial risk include:

  1. VBE’s assumption of substantial downside financial risk from a payor;
  2. VBE participant must meaningfully share such risk (there are three ways for the VBE to satisfy this requirement);
  3. remuneration provided by or shared among the VBE and VBE participant must satisfy five additional criteria (i.e. it must be “used to primarily engage in value-based activities”);
  4. the arrangement must be in writing, signed by the VBE and VBE participant;
  5. neither the VBE nor the VBE participant offering remuneration can “take into account the volume or value of, or condition remuneration on” business or patients not covered under or part of the arrangement;
  6. the arrangement may not (i) limit the VBE participant’s decision making regarding the best interest of their patients, (ii) direct or restrict referrals if one of three enumerated circumstances occurs; or (iii) include marketing of items or services to patients, or engage in patient recruitment activities; and
  7. the VBE or VBE participant must make documentation demonstrating compliance with the conditions of this exception under proposed 42 CFR 1001.952(ff) available to the Secretary of Health and Human Services upon request. Proposed Rule, 55762-63.

This safe harbor could apply, for example, to “an arrangement between an accountable care organization (the VBE) and a network provider (the VBE participant) to share savings and losses earned or owed by the [ACO].” Proposed Rule, 55716.

The other proposed value-based arrangement safe harbor would apply to arrangements with full financial risk. This safe harbor would allow for more flexibility than the substantial financial risk safe harbor because the VBEs would assume full financial risk, which the OIG believes would “present fewer traditional FFS fraud and abuse risks.” Proposed Rule, 55719. Generally, the requirements include:

  1. VBE’s assumption of full financial risk from a payor for at least one year, which risk arrangement must be documented in a signed writing that also specifies the target population;
  2. the arrangement must be in writing, signed by the parties and be for at least a one-year term;
  3. VBE participant may not claim direct/indirect payment from a payor for items or services covered under the arrangement;
  4. remuneration exchanged between the VBE and VBE participant must satisfy five additional criteria (i.e. it must be “used to primarily engage in value-based activities”);
  5. neither the VBE nor the VBE participant offering remuneration can “take into account the volume or value of, or condition remuneration on” business or patients not covered under or part of the arrangement;
  6. VBE must provide or arrange for operational utilization review and quality assurance programs;
  7. the arrangement may not include: marketing of items or services to patients, or “engaging in patient recruitment activities”; and
  8. the VBE or VBE participant must make documentation demonstrating compliance with the conditions of this exception under proposed 42 CFR 1001.952(gg) available to the Secretary of Health and Human Services upon request. Proposed Rule, 55763-64.

For a VBE to be at full financial risk and protected under this safe harbor, it would need to receive a “prospective, capitated payment for all items and services covered by Medicare Parts A and B for a target population.” Proposed Rule, 55719. To the contrary, a VBE receiving partial capitated payments to cover only a limited set of items or services would not be protected under this safe harbor because full financial risk would not exist. Proposed Rule, 55719.

The OIG closed the comment period on the proposed rule at the end of 2019, and stakeholders across the country now await the release of the final rule.

Useful Definitions

Full Financial Risk: the VBE is financially responsible for the cost of all items and services covered by the applicable payor for each patient in the target patient population and is prospectively paid by the applicable payor. Proposed Rule, 55764.

Substantial Downside Financial Risk: risk, for the entire term of the value-based arrangement that can be in four possible forms: (A) shared savings with a repayment obligation to the payor of at least 40 percent of any shared losses; (B) episodic or bundled payment arrangement with a repayment obligation to the payor of at least 20 percent of any total loss; (C) prospectively paid population based payment for a defined subset of the total cost of care of a target patient population; or (D) partial capitated payment from the payor for a set of items and services for the target patient population, where such capitated payment reflects a discount equal to at least 60 percent of the total expected fee-for-service payments. Proposed Rule, 55763.

Target patient population: an identified patient population selected by the VBE or its VBE participants using legitimate and verifiable criteria that: (A) are set out in writing in advance

of the commencement of the value-based arrangement; and (B) further the value-based

Value-Based Activity: any of the following activities, provided that the activity is reasonably designed to achieve at least one value-based purpose of the value-based enterprise: (1) the provision of an item or service; (2) the taking of an action; or (3) the refraining from taking an action. A value-based activity does not include making a referral.

Value-Based Arrangement: an arrangement for the provision of at least one value-based activity for a target patient population between or among: (A) the value-based enterprise and one or more of its VBE participants; or (B) VBE participants in the same value-based enterprise.

Value-Based Enterprise or VBE: two or more VBE participants: (A) collaborating to achieve at least one value-based purpose; (B) 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; (C) that have an accountable body or person responsible for financial and operational oversight of the value-based enterprise; and (D) that have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s).

Value-Based Enterprise Participant or VBE Participant: an individual or entity that engages in at least one value-based activity as part of a value-based enterprise.

Value-Based Purpose: (A) coordinating and managing the care of a target patient population; (B) improving the quality of care for a target patient population; (C) appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a target patient population; or (D) transitioning from health care delivery and payment mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a target patient population.