Paving the Way for Value-Based Health Care Arrangements: Proposed Rules
Legal Sidebari
Paving the Way for Value-Based Health Care
Arrangements: Proposed Rules
April 16, 2020
Last fall, as part of a broader effort to improve health care payment and delivery in the United States, the
U.S. Department of Health and Human Services (HHS) issued two proposed rules to promote value-based
arrangements. Value-based arrangements are health care payment and delivery models designed to reward
health care professionals for the quality of health care provided, rather than the quantity of services
rendered. Some Members of Congress, health care providers, and other stakeholders view the federal
Anti-Kickback Statute and the Physician Self-Referral Law (known as the “Stark Law”) as impediments
to establishing value-based arrangements. To foster the creation of value-based arrangements, the HHS’s
proposed rules would, among other things, establish new safe harbors and exceptions to these two health
care fraud and abuse statutes—safe harbors for the Anti-Kickback Statute and exceptions to the Stark
Law. This Legal Sidebar provides background on the potential interaction between value-based payment
arrangements, the Anti-Kickback Statute, and the Stark Law. The Sidebar also explores central
components of the proposed rules relating to value-based arrangements and selected key takeaways for
the 116th Congress.
Background
Fraud and Abuse Laws Governing Health Care Entities
Several federal statutes address fraud, waste, and abuse in federally funded health care programs, such as
Medicare and Medicaid, by restricting financial relationships among physicians, hospitals, health
insurance plans, and other entities that furnish health care items and services under these programs. The
general idea behind these restrictions is that if health care providers have a financial relationship with
another entity, this relationship can inappropriately incentivize providers to steer patients to that entity,
and treat patients based on economic gain, rather than clinical appropriateness. Two of the more
prominent federal statutes that restrict financial relationships in federal health care programs are the Anti-
Kickback Statute and the Stark Law.
The Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)). This statute establishes criminal penalties for any
person who knowingly and willfully offers, pays, solicits, or receives “remuneration” (i.e., monetary
compensation or non-monetary items of value) in return for a patient referral or other generation of
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business reimbursable under a federal health care program. To illustrate, an arrangement under which a
hospital pays a physician $1,000 each time the physician refers a patient to the hospital for Medicare-
covered services could violate the Anti-Kickback Statute. To allow health care providers to enter into non-
abusive, legitimate business arrangements, the Anti-Kickback Statute authorizes HHS’s Office of
Inspector General (OIG) to issue regulatory “safe harbors” to the Statute.
The Stark Law (42 U.S.C. § 1395nn). Under the Stark Law, if a physician or physician’s immediate
family member has a “financial relationship” with an entity, then (1) the physician may not make a
referral to the entity for the furnishing of designated health services for which payment may be made
under Medicare or Medicaid, and (2) the entity may not submit a claim to these programs or otherwise
bill for designated health services furnished pursuant to a prohibited referral. The Stark Law authorizes
the Centers for Medicare and Medicaid Services (CMS) to establish regulatory exceptions to the law for
financial relationships that “do not pose a risk of patient or program abuse.”
Value-Based Health Care Arrangements
In contrast to traditional fee-for-service models, in which health care providers receive payment for each
item or service provided to program beneficiaries, value-based payment arrangements are designed to
reward health care professionals for the quality of health care provided. While value-based payment
arrangements take various forms, some of these arrangements may seek to offer financial incentives or
non-monetary items of value (such as the donation of telemedicine equipment or software) to health care
providers that meet certain quality metrics or cost savings goals. In exchange for these potential benefits,
under some value-based arrangements, providers have to assume some degree of financial risk (i.e.,
shoulder financially responsibility) if they fail to achieve quality or cost savings-related results.
Many health care providers and others assert that the Anti-Kickback Statute and the Stark Law hinder the
establishment of value-based arrangements, including those arrangements that require the assumption of
risk. The basis for this claim is that if value-based arrangements provide a financial or other incentive to
health care professionals in exchange for taking measures designed to promote better quality health care
while achieving measurable savings targets, then there can be a prohibited financial relationship between
the health care entity paying the incentive and the entity receiving it. For example, a hospital and a
physician group may seek to enter into a financial arrangement that compensates physicians based on
compliance with the hospital’s health screening protocol. The goal of this protocol is to detect more
cancer in patients and reduce overall patient care costs. It is possible that the physicians’ referrals of
patients to the hospital for these screening services and the hospital’s submission of claims to Medicare
could implicate the Anti-Kickback Statute or Stark Law, absent a safe harbor or exception from these
statutes.
Proposed Safe Harbors and Exceptions for Value-Based Care
Arrangements
In October 2019, the HHS OIG issued a proposed rule that would create three Anti-Kickback Statute safe
harbors for value-based arrangements. That same month, CMS issued a proposed rule that would
establish, among other things, three Stark Law exceptions for value-based arrangements that roughly
correspond to the three proposed Anti-Kickback Statute safe harbors as depicted in Table 1. The three
categories of safe harbors and exceptions are tiered so that the more risk health care providers assume
under a value-based arrangement, the fewer conditions would be imposed on the arrangement. The three
Anti-Kickback safe harbors and Stark Law exceptions are: (1) Full Financial Risk; (2) Substantial
Downside Financial Risk Safe Harbor and Meaningful Downside Financial Risk Exception; and (3) Care
Coordination Arrangements Safe Harbor and Value-Based Arrangements Exception.
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Key Proposed Safe Harbors and Exceptions for Value-Based Arrangements
HHS OIG Proposed Safe
Harbors to Anti-
CMS Proposed
Description
Kickback Statute
Exceptions to Stark Law
Health care providers
Highest Risk,
Ful Financial Risk
Ful Financial Risk
responsible for cost of all
Fewest Conditions
covered items and services
for specified patient group
Health care providers
Some Risk,
Substantial Downside
Meaningful Downside
partially financially
More Conditions
Financial Risk
Financial Risk
responsible for failure to
achieve goals
Low/No Risk,
Care Coordination
Available regardless of
assumption of risk by health
Most Conditions
Arrangements
Value-Based Arrangements
care providers
Source: CRS.
Full Financial Risk. Both the OIG and CMS proposed rules would permit compensation between
participants in a value-based arrangement if the relevant parties assume “full financial risk” for the
patients receiving services under the arrangement. As part of these arrangements, health care providers
would be responsible for the cost of all covered items and services for each patient in this group. An
example could include a Medicaid managed care organization that receives a fixed, monthly amount to
cover the cost of all Medicaid-covered items and services furnished to a pre-determined patient group.
Given that the full financial risk safe harbor and exception involve the assumption of the highest level of
risk of financial loss under the proposed rules, health care providers participating in these arrangements
would also have to meet fewer conditions compared to the other value-based safe harbors and exceptions.
Substantial Downside Financial Risk Safe Harbor and Meaningful Downside Financial Risk
Exception. The substantial downside financial risk safe harbor for the Anti-Kickback Statute and the
“meaningful downside financial risk” exception to the Stark Law would cover value-based arrangements
in which a health care provider is partially financially responsible for failure to achieve the value-based
arrangement’s goals. For example, under the Stark Law exception, a physician would be responsible for
repaying at least twenty-five percent of the value of the compensation or other remuneration the physician
receives if the arrangement fails to meet the value-related outcomes. Compared to the full financial risk
exception, these value-based arrangements would have to meet, among other things, enhanced
documentation requirements to enhance transparency and accountability in these arrangements.
Care Coordination Safe Harbor and Value-Based Arrangements Exception. This safe harbor and
exception would apply to value-based arrangements regardless of risk undertaken by the participants.
Value-based arrangements that would meet this Anti-Kickback Statute safe harbor or Stark Law exception
would be subject to the most conditions and limitations. For example, the value-based arrangement safe
harbor would only apply to “in-kind” contributions (i.e., non-monetary remuneration) and recipients
receiving an item of value would have to cover fifteen percent of the donor’s cost as part of the
arrangement. As the OIG notes in its proposed rule, one example of this type of value-based arrangement
could be one between a hospital and a nursing facility in which the hospital provides a nurse to the
nursing facility to follow designated in-patients in an effort to ensure adequate patient care following
transition from one health care setting to another. Under this example, the nursing facility would have to
pay for at least fifteen percent of the hospital’s cost of the nurse’s services. Additionally, this safe harbor
would require parties to end a value-based arrangement within a specified period upon a determination
that, for example, the arrangement is unlikely to further the coordination and management of care for
applicable patients, or it has led to material deficiencies in quality of care.
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Key Takeaways for Congress
The HHS OIG and CMS each received numerous comments about the proposed rules, expressing a
variety of viewpoints. While some commenters generally articulated support for the Trump
Administration’s efforts to promote value-based arrangements, others expressed concerns about
inadequate safeguards in the proposed rules to protect against the potential for program abuse and risk to
patients.
One issue of debate under the proposed rules is whether certain product providers and suppliers should be
excluded from participation in a value-based arrangement. Specifically, under the Anti-Kickback
proposed rule, the OIG proposed to exclude pharmaceutical manufacturers, laboratories, and certain
product suppliers from inclusion as participants in the value-based arrangement safe harbors. CMS,
however, did not exclude particular entities from participation in the proposed Stark Law exceptions, but
the Agency requested comments on the matter.
Issues surrounding inclusion of drug manufacturers and other entities as part of value-based arrangements
generally center on the products these entities provide. For example, value-based arrangements may
involve the provision of technology (for example, providing a smart watch to patients that reminds them
to take their prescribed medications) or other products that might help deliver better quality care or
improve patient health. In the preamble to the Anti-Kickback Statute proposed rule, the OIG explains that,
based on historical enforcement and oversight experience, these types of entities greatly depend on
referrals, and the agency voiced concerns that these entities would use value-based-type arrangements as
a way to anchor clinicians or patients to the use of a particular product, even when a different product
could be more clinically effective. The CMS and OIG will likely address this issue in the forthcoming
final rules.
Additionally, in the proposed rules, both the OIG and CMS seek comments on the definition of “target
patient population,” i.e., the identified patient group that could receive care under the value-based
arrangement. Currently, the proposed rules would define this population broadly as a group that must be
identified in advance and further the value-based purpose of the arrangement. In the preamble to the Anti-
Kickback proposed rule, the OIG indicated that it is considering limiting the target patient population to
patients with a chronic condition or a particular disease who could benefit from care coordination. Both
the OIG and CMS also sought comment on whether third parties outside the value-based arrangement
participants should be involved in selecting the patient group. Changes to the definition of “target patient
population” could substantially affect the scope of arrangements eligible for protection under the value-
based arrangement safe harbors and exceptions.
Author Information
Jennifer A. Staman
Legislative Attorney
Congressional Research Service
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Disclaimer
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