Federal Government Fraud and Abuse Series – Annual Report of the Departments of Health and Human Services and Justice Health Care Fraud and Abuse Control Program FY 2021 (FY 2021 HCFAC Report)

OGC Assists and Advises CMS on Stark Law Reform

The Federal Government Fraud and Abuse Series explores key issues and takeaways from the Departments of Health and Human Services’ and Justice’s FY 2021 Annual Report. 

The Annual Report of the Attorney General and the Secretary of the Department of Health and Human Services details the expenditures and revenues under the Health Care Fraud and Abuse Program as is required under Section 1817(k)(5) of the Social Security Act. The Health Care Fraud and Abuse Program was created as a far-reaching program to combat fraud and abuse in health care – both in public and private health plans. The Program is led under the joint direction of the Attorney General and Secretary and aims to  “(1) coordinate federal, state, and local law enforcement efforts relating to health care fraud and abuse with respect to health plans; (2) conduct investigations, audits, inspections, and evaluations relating to the delivery of and payment for health care in the United States; (3) facilitate enforcement of all applicable remedies for such fraud; and (4) provide education and guidance regarding complying with current health care law.” 

As is required under the Act, the Attorney General and Secretary must submit a joint annual report to Congress identifying the amounts appropriated to the Medicare Trust Funds for the previous fiscal year under specific categories and the source of such amounts, and the amounts appropriated from the Medicare Trust Funds for such year for use by the Attorney General and Secretary, including the justification for such expenditure amounts. 

Per the FY 2021 HCFAC Report, the federal government won or negotiated more than $5 billion USD in healthcare fraud judgments and settlements. Additionally, the Department of Justice opened 831 new criminal health care fraud investigations, filed criminal charges in 462 cases (involving 741 defendants), and convicted 312 defendants; and opened 805 civil health care fraud investigations and reported 1,432 civil health care matters pending at the end of the fiscal year. Similarly, the Office of Inspector General investigations led to 504 criminal actions and 669 civil actions during the fiscal year and excluded 1,689 individuals from participation in the federal health care programs.  

Introduction

According to the FY 2021 HCFAC Report, the Office of Inspector General (“OIG”), the Office of the General Counsel (“OGC”) provided continued assistance to the Centers for Medicare and Medicaid Services (“CMS”) on several measures related to the Physician Self-Referral Law (hereinafter the “Stark Law”). Specifically, OGC provided “extensive counsel” to CMS in the ongoing implementation efforts for the Medicare Physician Self-Referral Disclosure Protocol. Per OIG, the Medicare Physician Self-Referral Disclosure Protocol was created to enable Medicare providers to self-disclose “technical violations” of the Stark Law’s physician self-referral prohibition. OGC also assisted CMS in its issuance of blanket waivers of sanctions under the Stark Law for purposes of COVID-19, designed to provide flexibility for physicians and providers in the pandemic. Further, OGC provided guidance to CMS and the Department of Justice (“DOJ”) in “navigating the complexities of the physician self-referral law in [False Claims Act] FCA cases” which, according to OIG, help builds stronger cases and focus investigatory efforts ultimately leading to more successful results for the government. The FY 2021 FCFAC Report states the OGC efforts on all FCA matters helped the government recover approximately $712.53 million in FY 2021.

Notably, throughout FY 2021 OGC also continued to assist and advise CMS on reform efforts to the Stark Law. Per OIG, the reform efforts followed the Modernizing and Clarifying the Physician Self-Referral Regulations Final Rule (85 FR 77492) (referred to hereinafter as the “Final Rule”), which was published to modernize and clarify the Stark Law regulations.

Background

On November 20, 2020, CMS issued the Final Rule, the first significant update to the law since it was enacted in 1989. According to CMS, the Final rule supports the CMS “Patients over Paperwork” initiative by “reducing the unnecessary regulatory burdens on physicians and other healthcare providers while reinforcing the Stark Law’s goal of protecting patients from unnecessary services and being steered to less convenient, lower quality, or more expensive services because of a physician’s self-interest.”

The Stark Law prohibits physicians from referring Medicare patients for certain “designated health services” (“DHS”) to entities with which the physician (or an immediate family member of the physician) has an ownership or compensation relationship unless a specific exception applies permitting the referral. In turn, the DHS entity must not submit claims for items or services arising from prohibited referrals.

CMS makes clear that the Final Rule is in response to innovations made within health care delivery since the initial promulgation of the Stark Law in 1989. Namely, the transition from a fee-for-service basis to value-based healthcare delivery and payment systems. CMS notes that since the Law’s inception, Medicare and the private market have implemented many value-based healthcare delivery and payment systems to address “unsustainable cost growth in the current volume-based system” and that the Stark Law regulations have not evolved to keep pace with the transition. Specifically, CMS stated that in its original form, the Stark Law regulations may prohibit some arrangements that are designed to enhance care coordination, improve quality, and reduce waste. Further, prior updates to the Stark Law regulations were done under a framework tailored to the fee-for-service system.

On June 25, 2018, CMS published a Request for Information (“RFI”) seeking input from stakeholders about how to address regulatory barriers to a value-based healthcare payment and delivery system under the Stark Law. According to CMS, the feedback received requested guidance on fundamental requirements and other changes to help ease burdens and make compliance more straightforward in a value-focused health system. In response, CMS published a Notice of Proposed Rulemaking (the “Proposed Rule”) on October 17, 2019 (84 FR 55766).

The Final Rule spans nearly 200 pages and provides a “comprehensive package of reforms to modernize the regulations that interpret the Stark Law while continuing to protect the Medicare program and patients from bad actors.” According to CMS, the Final Rule focuses modifications to the Stark Law in three key ways: (1) exceptions for value-based arrangements; (2) new guidance and clarifications; and (3) other new exceptions. This article provides a brief, high-level overview of key aspects of those changes.

Exceptions for Value-Based Arrangements

The Final Rule creates “new, permanent exceptions” to the Stark Law for “value-based arrangements and definitions for terminology integral to such a system.” According to CMS, the Final Rule “unleashes innovation by permitting physicians and other healthcare providers to design and enter into value-based arrangements without fear that legitimate activities to coordinate and improve the quality of care for patients and lower costs would violate the Stark Law.” The exceptions apply regardless of whether the arrangement relates to care furnished to persons with Medicare or other patients.

Specifically, the Final Rule establishes three new exceptions specific to value-based arrangements, codified at new 42 CFR Sections 411.357(aa)(1)-(3). These three exceptions are designed as a “tiered” or sliding scale approach based upon the degree of risk sharing that is incorporated into a particular agreement. The greater the amount of risk sharing that is incorporated into an arrangement, the more flexibility is afforded under the Stark Law exception. The first exception applies to value-based arrangements with “full financial risk” – it protects certain arrangements involving a value-based enterprise (“VBE”) that has assumed full financial risk for a target patient population. The second exception applies to a value-based arrangement with “meaningful downside financial risk”. The third exception is more general and applies to any value-based arrangement provided that the arrangement comports with the enumerated requirements under this exception in their entirety. Essential to the application and compliance with these three exceptions are the following new definitions:

• Value-based activity – the provision of an item or service, the taking of an action, or the refraining from taking an action, provided that the activity is reasonably designed to achieve at least one value-based purpose of the valued-based enterprise of which the parties to the arrangement are participants.

• Value-based arrangement – an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are: (1) a value-based enterprise and one or more of its VBE participants; or (2) VBE participants in the same value-based enterprise.

• Value-based enterprise (“VBE”) – two or more VBE participants: (1) collaborating to achieve at least one value-based purpose; (2) each of which is a party to the 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 the 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 purposes(s). CMS did clarify in the Final Rule that a VBE may be a distinct legal entity (e.g., an accountable care organization) or consist of two parties to a value-based arrangement.

• Value-based purpose – (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 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.

• VBE participant – a person or entity that engages in at least one value-based activity as part of a value-based enterprise.

• Target patient population – an identified patient population select by a value-based enterprise or its VBE participants based on legitimate and verifiable criteria that: (1) are set out in writing in advance of the commencement of the value-based arrangement; and (2) further the value-based enterprise’s value-based purpose(s).

The Final Rule makes clear that the value-based exceptions are only available to parties that qualify under the above value-based definitions.

Full Financial Risk Exception

The full financial risk exception applies to remuneration paid under a value-based arrangement provided:

• (i) The VBE is at, or contractually obligated within 12 months following the commencement of the value-based arrangement to assume, “full financial risk” for the entire duration of the VBE;

• (ii) The remuneration is for, or results from, the value-based activities undertaken by the recipient of the remuneration for patients in the target patient population;

• (iii) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient;

• (iv) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement;

• (v) If remuneration paid to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier then, the value-based arrangement must comport with both of the following conditions:

• The requirement to make referrals to a particular provider, practitioner, or supplier must be set out in writing and signed by the parties; and
  • The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier, the patient’s insurer determines the provider, practitioner, supplier, or the referral is not in the patient’s best medical interests in the physician’s judgment.

; and

• (vi) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary of Health and Human Services (“HHS”) upon request.

The Final Rule goes on to provide that for purposes of this exception, “full financial risk” is defined as the “value-based enterprise is financially responsible on a prospective basis for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population for a specified period of time.” Further, “prospective basis” is defined as “the value-based enterprise has assumed financial responsibility for the cost of all patient care items and services covered by the applicable payor prior to providing patient care items and services to patients in the target patient population.”

Meaningful Downside Financial Risk Exception

The meaningful downside financial risk exception applies to remuneration paid under a value-based arrangement provided:

• (i) The physician is at meaningful downside financial risk for failure to achieve the value-based purpose(s) of the value-based enterprise during the entire duration of the value-based arrangement;

• (ii) A description of the nature and the extend of the physician’s downside financial risk is set forth in writing;

• (iii) The methodology used to determine the amount of the remuneration is set in advance of the undertaking of value-based activities for which the remuneration is paid;

• (iv) The remuneration is for or results from the value-based activities undertaken by the recipient of the remuneration for patients in the target patient population;

• (v) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient;

• (vi) The remuneration is not condition on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement;

• (viii) The remuneration paid to the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the value-based arrangement complies with both of the following conditions:

• The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.

• The requirements to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s best medical interests in the physician’s judgement.

• (viii) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary of HHS upon request.

CMS clarifies that for purposes of the exception, “meaningful downside financial risk” is defined as the physician is responsible to repay or forgo no less than 10 percent of the total of the value of the remuneration the physician receives under the value-based arrangement.

Other Value-Based Arrangements Exception

The general exception for other value-based arrangements is by far the most complex of the new additions. The general exception applies to remuneration paid under a value-based arrangement where a variety of conditions are satisfied:

• (i) The arrangement is set forth in writing and signed by the parties. The writing must include a description of:

• The value-based activities to be undertaken under the arrangement;

• How the value-based activities are expected to further the value-based purpose(s) of the value-based enterprise;

• The target patient population for the arrangement;

• The type or nature of the remuneration;

• The methodology used to determine the remuneration; and

• The outcome measures against which the recipient of the remuneration is assessed, if any.

• (ii) The outcome measures against which the recipient of the remuneration is assessed, if any, are objective, measurable, and selected based on clinical evidence or credible medical support;

• (iii) Any changes to the outcome measures against which the recipient of the remuneration will be assessed are made prospectively and set forth in writing;

• (iv) The methodology used to determine the amount of the remuneration is set in advance of the undertaking of the value-based activities for which the remuneration is paid;

• (v) The remuneration is for or results from value-based activities undertaken by the recipient of the remuneration for patients in the target patient population;

• (vi) The arrangement is commercially reasonable;

• (vii)(A) No less frequently than annually, or at least once during the term of the arrangement if the arrangement has a duration of less than 1 year, the value-based enterprise or one or more of the parties monitor:

• Whether the parties have furnished the value-based activities required under the arrangement;

• Whether and how continuation of the value-based activities is expected to further the value-based purpose(s) of the value-based enterprise; and

• Progress toward attainment of the outcome measure(s), if any, against which the recipient of the remuneration is assessed.

• (vii)(B) If the monitoring indicates that a value-based activity is not expected to further the value-based purpose(s) of the value-based enterprise, the parties must terminate the ineffective value-based activity. Following completion of monitoring that identifies an ineffective, value-based activity, the value-based activity is deemed to be reasonably designed to achieve at least one value-based purpose of the value-based enterprise:

• For 30 consecutive calendar days after completion of the monitoring, if the parties terminate the arrangement; or

• For 90 consecutive calendar days after completion of the monitoring, if the parties modify the arrangement to terminate the ineffective value-based activity.

• (vii)(C) If the monitoring indicates that an outcome measure is unattainable during the remaining term of the arrangement, the parties must terminate or replace the unattainable outcome measure within 90 consecutive calendar days after completion of the monitoring;

• (viii) The remuneration is not an inducement to reduce or limit medically necessary items or services to any patient;

• (ix) The remuneration is not conditioned on referrals of patients who are not part of the target patient population or business not covered under the value-based arrangement;

• (x) If the remuneration paid the physician is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the value-based arrangement complies with both of the following conditions:

• The requirement to make referrals to a particular provider, practitioner, or supplier is set out in writing and signed by the parties.

• The requirement to make referrals to a particular provider, practitioner, or supplier does not apply if the patient expresses a preference for a different provider, practitioner, or supplier; the patient’s insurer determines the provider, practitioner, or supplier; or the referral is not in the patient’s best medical interests in the physician’s judgment.

• (xi) Records of the methodology for determining and the actual amount of remuneration paid under the value-based arrangement must be maintained for a period of at least 6 years and made available to the Secretary of HHS upon request.

The Final Rule states that “outcome measure” is defined as a benchmark that quantifies improvements in or maintenance of the quality of patient care or reductions in the costs to or reductions in growth in expenditures of payors while maintaining or improving the quality of patient care.

New Guidance and Clarifications

CMS states that in response to comments on the Proposed Rule and the RFI, the Final Rule provides additional guidance on several key requirements that must be met for compliance with the Stark Law. By way of example, CMS highlights that the Final Rule provides clarification that compensation provided to a physician by another healthcare provider generally must be at fair market value and further specifies instruction for how physicians should determine if compensation comports with same. Additionally, CMS notes that the Final Rule includes direction and explanations on a wide range of “other technical requirements intended to reduce administrative burden that drives up costs.”

Other New Exceptions

In response to comments on the Proposed Rule and RFI, CMS finalized exceptions to provide “flexibility for certain arrangements” between physicians and other healthcare providers that, in its opinion are non-abusive and beneficial. Such exceptions include certain donations of cybersecurity technology, which apply to both fee-for-service and value-based payment systems.

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