The Race to Modernize Stark and the AKS: Unpacking the Value-based Proposals in HHS Regulatory Sprint Rulemaking

Alerts / December 17, 2019

The U.S. Department of Health & Human Services (HHS) made great strides in its race to modernize and clarify the regulations interpreting the federal physician self-referral law (Stark), Anti-Kickback Statute (AKS) and beneficiary inducement provisions of the civil monetary penalty law (CMPL) through proposed Stark and AKS rules published on October 17, 2019.

The rules are part of the “Regulatory Sprint to Coordinated Care” launched by HHS to address concerns that in the current regulatory landscape it is challenging for providers to (1) enter into innovative arrangements to improve quality outcomes, produce health system efficiencies and lower costs, and (2) help accelerate the transformation of the healthcare system into one that better pays for value and promotes care coordination.

HHS views its Regulatory Sprint as instrumental in advancing new Medicare and Medicaid models and enabling providers to structure similar arrangements with nongovernmental payors. The agency has remained resolute in its efforts to transform the healthcare system from one predicated on fee-for-service reimbursement to a system that rewards quality and outcomes. Through the Quality Payment Program (QPP), Medicare Shared Savings Program, episode-based payment models such as the Bundled Payments for Care Improvement Advanced and other initiatives, including the new Primary Cares Initiative, providers are encouraged and incentivized to participate in alternative payment models. The proposed rules also recognize that providers are increasingly participating in programs with commercial payors that involve care coordination, quality improvement and financial incentives, and seek to support such activities.

The October rulemaking addresses feedback obtained from industry stakeholders on the ways in which current regulations impede efforts to adopt value-based payment and delivery models, including a request for information published by the Centers for Medicare & Medicaid Services (CMS) on June 25, 2018, and a request for information published by the HHS Office of the Inspector General (OIG) on August 27, 2018.

CMS and the OIG coordinated closely to develop the proposed Stark and AKS rules, which contain many common elements. The agencies are accepting comments through December 31, 2019.

Value-Based Proposals

This article provides an overview of the much-anticipated new value-based proposals headlining the rulemaking. CMS proposed a new compensation exception for arrangements that facilitate value-based healthcare delivery and payment that would protect three types of value-based arrangements. Similarly, the OIG proposed three safe harbors. The new protections would broadly apply to arrangements with all payors, including commercial and nongovernmental payors.

Value-Based Definitions

Detailed and circular definitions are both the cornerstones and weakest points of the proposed rules. CMS and the OIG coordinated to propose common definitions that determine the types of arrangements that potentially qualify for the new regulatory protections.

Key Definitions

The following definitions apply under both the Stark and AKS rules, except as noted:

  • Value-based purpose means (1) coordinating and managing the care of a target patient population, (2) improving the quality of care for a target patient population, (3) appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a target patient population, or (4) transitioning from healthcare 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.
  • Value-based activity means 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 of taking an action. The making of a referral is not a value-based activity.
  • Value-based arrangement means an arrangement for the provision of at least one value-based activity for a target patient population between or among (1) the VBE and one or more of its VBE participants or (2) VBE participants in the same value-based enterprise.
  • Value-based enterprise (VBE) means two or more VBE participants (1) collaborating to achieve at least one value-based purpose, (2) 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, (3) that have an accountable body or person responsible for financial and operational oversight of the value-based enterprise, and (4) that have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s).
  • VBE participant means an individual or entity that engages in at least one value-based activity as part of a VBE. The AKS rule also provides that VBE participant does not include a pharmaceutical manufacturer; a manufacturer, distributor or supplier of durable medical equipment, prosthetics, orthotics or supplies (DMEPOS); or a laboratory.
  • Target patient population means an identified patient population selected by a VBE or its VBE participants based on legitimate and verifiable criteria that are set out in writing in advance of the commencement of the value-based arrangement and further the VBE’s value-based purpose(s).

    Each of the AKS safe harbors requires that a purpose of the VBE be coordination or management of care for a target patient population and uses the following definition:
  • Coordination or management of care (or coordinating and managing care) means, for purpose of the AKS safe harbors, the deliberate organization of patient care activities and sharing of information between two or more VBE participants or VBE participants and patients, tailored to improving the health outcomes of the target patient population, in order to achieve safer and more effective care for the target patient population.

Definitional Considerations

The proposed rules request comments on the proposed definitions and additional terms under consideration by the agencies. Ideally, the final rules will provide additional guidance and clarity on the key definitions, since they are crucial to the utility of the value-based proposals.

  • Value-based purpose. CMS requested comments on whether additional interpretation of its value-based purpose definition is necessary.
    • CMS asks whether a definition of “coordinating and managing care” is necessary.
    • CMS is considering requiring a purpose of improving or maintaining quality rather than avoiding a reduction in quality in reducing cost or expenditure growth. This change could require demonstrable quality improvement as a threshold to utilize the exception.
    • CMS also seeks comments regarding (1) permissible ways to determine whether quality of care has improved and (2) a methodology for determining whether costs are reduced or expenditure growth has been stopped.
    • Recognizing the subjective nature of the final purpose, CMS requests comments on what parties must do to show they are transitioning from healthcare 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.
  • Value-based enterprise. The agencies acknowledge that a VBE may take many forms, from an accountable care organization (ACO) to an informal network of providers to just two parties to an arrangement. A governing document describing the VBE and how the VBE participants intend to achieve its value-based purposes is required to provide transparency and serve as a road map for achievement of the value-based purpose, but a specific format, such as bylaws, is not prescribed.

    The OIG is considering additional requirements, including (1) requiring the VBE to implement and maintain a compliance program governing its value-based arrangement, (2) requiring oversight of the compliance program, and (3) requiring the accountable body to be independent of, or have a distinct duty of loyalty to, the VBE to ensure that it acts in furtherance of the value-based purposes and not any one VBE participant’s individual interests.
  • VBE participant. The OIG proposal excludes pharmaceutical manufacturers; manufacturers, distributors and suppliers of DMEPOS; and laboratories from the definition of VBE participant. While the OIG acknowledges that certain arrangements with industry entities may help facilitate care coordination and management, it notes that these types of arrangements likely require different safeguards that may be addressed in future rulemaking. It also notes that arrangements may be eligible for protection under other safe harbors. The OIG is considering exclusion of additional entities, such as pharmacies, compounding pharmacies, pharmacy benefit managers (PBMs), pharmaceutical wholesalers/distributors and medical device companies (potentially including health technology companies) from the definition of VBE participant. While the Stark rule does not carve out specific entities from the definition of VBE participant, CMS is considering whether to exclude pharmaceutical manufacturers, manufacturers and distributors of DMEPOS, PBMs, wholesalers and distributors, and possibly health technology companies, which it acknowledges would be hard to define.
  • Target patient population. The OIG is considering limiting this definition to individuals with a chronic condition or a shared disease state who would benefit from care coordination, which would significantly limit the scope of the value-based safe harbors.
Value-Based Exception and Safe Harbors

The CMS and OIG proposals are similar. Both protect remuneration in arrangements involving full financial risk and substantial or meaningful financial risk, which may include a six-month period prior to the risk arrangement. Both agencies also included a broader exception for other value-based arrangements. Certain common safeguards are required by each of the proposals to mitigate typical fraud and abuse concerns and also protect against limitations on medically necessary care. Because the acceptance of downside financial risk helps mitigate the improper financial incentives Stark and the AKS address, the requirements for the new exceptions are scaled and introduce additional safeguards and requirements as the level of financial risk decreases. However, the proposals include certain requirements addressing other risks, including underutilization from stinting on care, cherry-picking lucrative or adherent patients, lemon-dropping costly or noncompliant patients, and manipulation or falsification of data used to verify performance and outcomes.

Risk Thresholds

The proposed rules include detailed definitions of the risk thresholds.

  • Under both rules, “full financial risk” requires the VBE to be financially responsible on a prospective basis for the cost of all patient care items and services covered by the payor for each patient in the target population.
  • Under the Stark rule, “meaningful downside financial risk” requires a physician to be (1) responsible to pay the entity no less than 25% of the value of the remuneration the physician receives under the value-based arrangement, or (2) financially responsible to the entity on a prospective basis for the cost of all or a defined set of patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time.
  • Under the AKS rule, “substantial downside risk” may take the following forms:
    • Shared savings with a repayment obligation to the payor of at least 40% of any shared losses, where loss is determined based on a comparison of costs with historical expenditures or, to the extent such data is unavailable, evidence-based comparable expenditures.
    • A repayment obligation to the payor under an episodic or bundled payment arrangement of at least 20% of any total loss, where loss is determined based on a comparison of costs with historical expenditures or, to the extent such data is unavailable, evidence-based comparable expenditures.
    • A prospectively paid population-based payment for a defined subset of the total cost of care of a target patient population, where such payment is determined based on a review of historical expenditures or, to the extent such data is unavailable, evidence-based comparable expenditures.
    • A partial capitated payment from the payor for a set of items and services for the target population, where such capitated payment reflects a discount equal to at least 60% of the total expected fee-for-service payments based on historical expenditures or, to the extent such data is unavailable, evidence-based comparable expenditures of the VBE participants to the value-based arrangement.

      The OIG is additionally considering including “advanced APMs” and “other payor advanced APMs” as defined in the QPP rules to qualify for substantial downside risk arrangements.
  • The AKS rule requires the VBE participant to meaningfully share in the substantial financial risk and outlines three methodologies that satisfy the requirement:
    • A risk-sharing payment pursuant to which the VBE participant is at risk for 8% of the amount for which the VBE is at risk under its agreement with the applicable payor.
    • A partial or full capitation payment or similar payment methodology, excluding the Medicare inpatient prospective payment system or other like payment methodology.
    • In the case of a VBE participant who is a physician, a payment that meets the requirements of Stark regulatory exception for value-based arrangements with meaningful financial risk.

Key Requirements

The proposed rules include the following detailed requirements and safeguards for each of the value-based exception options and safe harbors:

General Safeguards

Requirements common to all the proposals require the maintenance of certain records, prohibit inducements to limit medically necessary services and prohibit remuneration conditioned on referrals or business outside the arrangement. The substantial/meaningful financial risk and other value-based proposals contain protections similar to those under current Stark regulations where directed referrals are required. The AKS safe harbors also restrict the arrangement from including marketing to patients or engaging in patient recruitment activities and prohibit the remuneration from being funded by or resulting from the contributions of any individual or entity outside the VBE.


Each of the AKS safe harbors and the Stark proposal for non-risk arrangements requires a signed writing addressing certain material terms of the arrangement. The Stark proposal for meaningful financial risk requires a written description of the nature and type of the physician’s downside risk.


Except in its proposal for full financial risk, the Stark exception requires the methodology used to determine remuneration to be set in advance. The Stark proposal for non-risk arrangements requires performance or quality standards to be objective and measurable. Any changes to such standards must be made prospectively and set forth in writing. The AKS safe harbor covering non-risk arrangements requires the VBE participants to establish one or more specific evidence-based, valid outcome measures that the parties reasonably anticipate will advance the coordination and management of care of the target population. The AKS safe harbor for substantial financial risk requires a description of how the recipient shares in downside risk and the care coordination safe harbor requires a description of the nature and type of remuneration. Notably, the AKS safe harbor for care coordination allows only in-kind remuneration. Additionally, the recipient must pay at least 15% of the offeror’s cost for the in-kind remuneration (similar to the safe harbor for electronic health record (EHR) donation). If it is a one-time cost, the recipient must make such contribution in advance of receiving the in-kind remuneration. If it is an ongoing cost, the recipient must make such contribution at reasonable, regular intervals. While the CMS proposal for non-risk arrangements is not restricted to in-kind remuneration, the agency is considering limiting the scope of the exception to exclude monetary remuneration and requested comments on the possible scope of such limitation, which has the potential to impact incentive payments based on gainsharing metrics.

The proposals also address the purpose of the remuneration and arrangement. The Stark proposals require remuneration to be for or result from value-based activities undertaken by the recipient for patients in the target population. The AKS risk-based safe harbors require the remuneration between the VBE and VBE participant to be (1) used primarily to engage in the value-based activities and (2) directly connected to one or more of the value-based purposes, at least one of which must be the coordination and management of care for the target population. The AKS safe harbor for care coordination arrangement is conditioned on the offeror lacking knowledge that the permitted in-kind remuneration is likely to be diverted, resold or used illegally, and requires it to be directly connected to the coordination and management of care for the target population. It also requires that the value-based arrangement be commercially reasonable, considering both the arrangement itself and all value-based arrangements within the VBE.

Additional Safeguards

The proposed safe harbor for arrangements involving full financial risk requires the VBE to provide or arrange for both (1) an operational utilization review program and (2) a quality assurance program that protects against underutilization and specifies patient goals, including measurable outcomes, where appropriate. Additionally, the VBE participant may not claim payment in any form, directly or indirectly, from a payor for items or services covered under the value-based arrangement. The OIG proposed certain monitoring and assessment obligations for non-risk arrangements, including an affirmative obligation to terminate the arrangement within 60 days upon finding that the arrangement is unlikely to further care coordination and management or achieve the outcome measures or results in material deficiencies in quality of care. The agency solicited comments on whether other termination terms or a remediation option would be appropriate.

In its rulemaking, CMS describes an “implicit ongoing obligation for an entity to monitor its financial relationship with a physician for compliance with an applicable exception.” The preamble reiterates the Stark prohibition against referrals of designated health services by a physician to an entity with which there is a financial relationship that does not fully satisfy a Stark exception. It also reiterates that the entity may not submit claims for services provided pursuant to a prohibited referral and illustrates with two examples. In the first example, a physician fails to timely make a required monthly payment of 15% of EHR costs under the EHR donation exception. In the second example, a hospital in a value-based arrangement with physicians determines a year into the arrangement through its data analytics that a dual modality cancer screening, despite its nationally recognized recommendations, will not achieve goal of improving the quality of care for patients in the service area by detecting more cancers and avoiding false positives. In both cases, at the point the applicable Stark exception ceases to be satisfied, referrals and claims are prohibited. It may be operationally challenging for providers to implement and remediate potential problems, particularly in tracking and maintaining the effectiveness of quality programs. Additionally, even if an opportunity to cure certain lapses is permitted under the Stark rules, certain value-based arrangements may pose the risk of potential gaps in compliance due to the extensive requirements of the exceptions.

The agencies will have the opportunity to respond to comments and provide clarity on these value-based proposals through final rulemaking. Additional certainty on the definitions and other requirements will be especially welcomed by providers seeking to rely on the new Stark exceptions to except them from potential strict liability. Guidance may also be forthcoming through the CMS advisory opinion process. In the 2020 Medicare Physician Fee Schedule final rule, CMS revised its advisory opinion rules to expand possible reliance on advisory opinion guidance beyond just the requesting parties to any party to an arrangement that CMS determines is “indistinguishable in all material aspects” from an arrangement CMS approved. The rule additionally provides that individuals and entities can rely on advisory opinions as non-binding guidance that illustrates the application of the physician self-referral law and regulations to the specific facts and circumstances described in the advisory opinion. Responding to comments submitted to its Stark RFI, CMS noted that a “faster and more robust advisory opinion process facilitates the shift to value-based care arrangements by providing more guidance for parties trying to understand how the physician self-referral law applies in an evolving and innovative marketplace. This will help reduce provider burden by providing insight into what does and does not comply with the law, which encourages innovation.” While such guidance may help providers navigate any murky aspects of the proposed exceptions, the very need for it will demonstrate Stark’s failings as a “bright-line” strict-liability law.

Additional Proposals Focused on Delivery and Payment Reform

The proposed rules include additional new proposals and a number of revisions to current regulations that would further enable value-based arrangements and patient engagement.

Stark Changes Related to the Value-Based Exception

The Stark rulemaking adds a special rule excepting indirect compensation arrangements that include a value-based arrangement in the unbroken chain of financial relationships. CMS also proposes to amend the group practice definition to deem distributions of profits directly attributable to participation in a VBE to not directly take into account the volume or value of the physician’s referrals. This would permit the group practice to distribute directly to a physician in the group the profits from designated health services furnished by the group that are derived from the physician’s participation in a VBE, including profits from designated health services referred by the physician, and such remuneration would be deemed not to directly take into account the volume or value of the physician’s referrals.

CMS-Sponsored Models

The OIG proposed a safe harbor for arrangements between parties in a CMS-sponsored model, program or other initiative to supplement its current waivers and other available safe harbors. On the other hand, CMS declined to create an exception limited to its own models, addressing comments that Stark regulations discourage arrangements outside the Medicare program.

Outcomes-Based Payment Arrangements

The OIG additionally proposed modifications to the safe harbor for personal services and management contracts, including a new exemption from the definition of remuneration for outcomes-based payments that reward a party for improving, or maintaining improvement in, patient or population health by achieving one or more outcome measures that effectively coordinate care across settings or achieve one or more outcome measures that appropriately reduce payor costs while improving or maintaining the improved quality of care for patients. The agreement may not limit any party’s ability to make decisions in a patient’s best interest or induce the reduction or limitation of medically necessary services, and the measures must be selected based on clinical evidence or credible medical support. The parties must regularly monitor and assess the agent’s performance, including the impact of outcomes-based payments on patient quality of care, and rebase the measures periodically to the extent applicable. The principal must have policies and procedures to promptly address and correct material performance failures or material deficiencies in quality of care resulting from the outcomes-based payment arrangement. The methodology for determining aggregate compensation (including any outcomes-based payments) must be set in advance, commercially reasonable, consistent with fair market value, and not determined in any manner that directly takes into account the volume or value of any referrals or other business generated between the parties for which payment may be made, in whole or in part, by a federal healthcare program.

Patient Engagement and Support; Transportation

The OIG is proposing a new safe harbor to protect certain arrangements for VBE participants to provide in-kind patient engagement tools and support to improve quality of care, health outcomes and efficiency if it is directly connected to the coordination and management of care of the target population. “Patient engagement tools and supports” would include preventive items, goods and services, such as health-related technology, patient health-related monitoring tools and tools designed to identify and address social determinants of health. The OIG is considering adding safeguards as well as modifications to its proposal that could extend safe harbor protection outside a VBE, protect certain monetary remuneration, up to a cap, and allow waivers of small beneficiary cost-sharing amounts associated with care coordination services.

The OIG also proposes modifications to the existing transportation safe harbor that would extend the permitted travel distance for rural residents and remove mileage limitations. The preamble clarifies that the safe harbor extends to ride-sharing services (e.g., Uber) and even notes that it would extend to self-driving cars should they become available.

Donation of EHR and Cybersecurity. CMS and the OIG proposed a new exception and safe harbor for donations of cybersecurity technology and related services. The rulemaking also proposed modifications, and extensions to the existing exception and safe harbor for electronic health record (EHR) donation. A more detailed description of these proposals will be included in a separate article in this series.

ACO Beneficiary Incentive Program and Telehealth Technologies for ESRD

The proposed AKS rule adds safe harbor protection for the statutory ACO Beneficiary Incentive Program. The OIG rulemaking also addresses exceptions to the definition of remuneration under the beneficiary inducements provisions of the CMPL for telehealth technologies for end-stage renal disease (ESRD) patients receiving clinical assessments via telehealth. The rulemaking includes a proposed definition of covered “telehealth technologies” and addresses certain limitations and safeguards the OIG is considering adding to the statutory requirements.

False Start or Gold Medal Finish?

It is clear from the Regulatory Sprint rulemaking that both CMS and the OIG worked hard to develop proposals that balance program integrity concerns with changes that may facilitate innovative and value-based arrangements. If finalized, the extensive safeguards contained within the new value-based proposals may compromise their utility. Compliance with the new value-based rules would require extensive oversight, consistent monitoring and a high degree of cooperation between compliance, operational and quality teams. The agencies will have the opportunity to review comments submitted by December 31, 2019 and reevaluate whether to incorporate the full range of safeguards and limitations under consideration into final value-based rules. CMS and the OIG were bolder in proposing changes to, and clarifying, current regulations. CMS in particular performed a thorough job in critically examining 20 years of Stark rulemaking and addressing particularly onerous aspects of the regulations. These changes will be detailed in next article in this series published later this week. While efforts to overhaul the fraud and abuse laws may feel more like a marathon than a sprint, a finish line – or at least the next leg of the race – is on the horizon.

This update is excerpted from a longer article on the Stark and AKS proposed rules that will be published in the Journal of Health Care Compliance January/February 2020.

Authorship Credit: Kristen McDermott Woodrum and Maureen Furino

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