Newly Proposed AKS and Stark Law Protections

Newly Proposed AKS and Stark Law Protections For Value-Based Care Models

In Short

The Situation: The Department of Health and Human Services has introduced the Regulatory Sprint to Coordinated Care Initiative in order to revise regulations associated with the anti-kickback statute, Stark Law, HIPAA, and 42 C.F.R. Part 2 to promote a shift to value-based care models.

The Action: In the simultaneously released proposed rules, the Office of the Inspector General ("OIG") and the Centers for Medicare and Medicaid Services ("CMS") introduced new safe harbors from the anti-kickback statute ("AKS") and new exceptions from the Stark Law. Certain of these newly proposed protections are directed at protecting certain value-based arrangements among newly defined "value-based enterprises" and promise to provide opportunities for industry stakeholders to further develop coordinated care models using value-based arrangements.

Looking Ahead: OIG and CMS are currently reviewing submitted comments to the proposed rules. Stakeholders should carefully review the final rules, when published, to determine whether the adopted safe harbors and/or exceptions provide opportunities to more closely align industry participant interests in value-based care arrangements.


On October 9, 2019, the OIG and the CMS simultaneously released proposed rules revising the AKS and Stark Law, respectively. These proposed rules, introduced as part of the Regulatory Sprint to Coordinated Care initiative, aim to facilitate care coordination and development of industry-driven, value-based care delivery models while striking "the right balance" between the flexibility needed for innovation with the fraud and abuse risks. In addition to other proposed safe harbors and exceptions, OIG and CMS have collectively proposed four new safe harbors to the AKS and three new exceptions to the Stark Law, dedicated to protecting certain value-based arrangements among newly defined "value-based enterprises."

The Value-Based Terminology

A "value-based enterprise" or "VBE" would consist of a delineated network of individuals and/or entities eligible for protection by virtue of their participation as parties to a written agreement memorializing the details of a qualifying value-based arrangement. The VBE would be required to have a governing body that exercises financial and operational control over the value-based arrangement including, in some instances, responsibility for monitoring required outcome measures and terminating arrangements that fail to meet such measures. A VBE would also be required to execute a "governing document" (which can be incorporated within the written agreement described above) outlining how the VBE and each of its participants intends to achieve its value-based purpose(s). As proposed, a VBE may consist of multiple, protected value-based arrangements, but all arrangements must further the value-based purpose(s) of the VBE. CMS and OIG also proposed definitions of other key value-based terms:

  • A value-based arrangement is an arrangement for the provision of at least one value-based activity tailored to meet the needs of a target patient population between or among VBEs or VBE participants.
  • A value-based activity is an action or inaction reasonably designed to achieve at least one value-based purpose of the VBE. A value-based activity does not include making a referral, and OIG is considering also excluding any information-blocking activities.
  • A target patient population is the patient population selected by a VBE using "legitimate and verifiable" criteria and described in writing (and need not consist of federal health program beneficiaries). Though "legitimate and verifiable" is not otherwise defined in either proposal, OIG indicated that "cherry-picking" patients to manufacture desired outcomes would not be considered "legitimate and verifiable." For purposes of the anti-kickback safe harbors, OIG is considering narrowing this definition to limit target patient populations to patients with "chronic conditions."
  • A VBE participant is an individual that engages in at least one value-based activity as part of a VBE. Notably, OIG and CMS propose excluding certain types of entities from participating as VBE participants (pharmaceutical manufacturers; DMEPOS manufacturers, distributors, or suppliers; and laboratories) due to concerns that arrangements involving such entities may be utilized to market products rather than create value for patients. Both agencies sought comments related to whether such exclusion restricts beneficial relationships and arrangements.
  • A value-based purpose can include one or more of four objectives for modifying target population outcomes. These include: (i) coordinating and managing care; (ii) improving care quality; (iii) reducing care costs while maintaining or improving quality; or (iv) transitioning to payment models based upon optimizing care quality and cost as opposed to volume-based payment models such as fee-for-service. For purposes of the AKS, OIG proposed to include care coordination and management as a required value-based purpose for a VBE to receive protection. To that end, OIG proposed that to receive protection, a VBE must undertake significant and deliberate efforts to coordinate patient care or facilitate information sharing in a manner tailored to improve target population outcomes. CMS, on the other hand, expects most VBEs will involve care coordination and management as a value-based purpose, but does not propose that it be an express requirement for achieving protection under a Stark Law exception.

The Proposed Safe Harbors and Exceptions Value-Based Arrangements with no Downside Financial Risk

Both OIG and CMS propose to protect certain value-based arrangements in which neither party undertakes downside financial risk (42 C.F.R. 1001.952(ee) and 42 C.F.R. 411.357(aa)(3), respectively). In order to achieve protection under either, the arrangement must satisfy a number of requirements, including: It must be memorialized in writing; any remuneration must not function as an inducement to reduce or limit medically necessary items or services; and any remuneration must not be conditioned on referrals of patients who are not part of the target patient population or business not covered by the value-based arrangement. Further, both OIG and CMS propose to require that the value-based arrangement be designed to meet specific, evidence-based outcome measures that have a close nexus to the value-based activities, against which performance or quality of care will be measured for the target population.

OIG proposes a host of additional requirements for arrangements to achieve protection under the AKS:

  • In-Kind Remuneration Only: The safe harbor would be limited to protect only non-monetary (i.e. in-kind) remuneration (as opposed to both monetary and non-monetary remuneration);
  • Contribution Requirement: A contribution requirement would be imposed whereby a party receiving in-kind remuneration under the arrangement would be required to pay 15% of the offeror's cost of the in-kind remuneration. OIG would require this contribution be paid in advance for in-kind remuneration with a one-time cost (e.g. hardware) and at regular intervals for in-kind remuneration involving ongoing costs (e.g. software updates).
  • Commercial Reasonableness: Only commercially reasonable arrangements would be protected;
  • No Unlawful Purpose: Arrangements would not be afforded protection if the offeror of any remuneration under the arrangement knows or should know that the remuneration is likely to be diverted, resold, or used for unlawful purposes; and
  • No Patient Marketing or Recruitment: Protected arrangements could not include marketing to patients or active patient recruitment.

Although CMS has not officially proposed any of these additional requirements, CMS has expressly indicated that it is considering incorporating all of OIG's proposed requirements under the corresponding Stark Law exception.

The Proposed Safe Harbors and Exceptions

Value-Based Arrangements with Substantial or Meaningful Downside Financial Risk

Both OIG and CMS propose to protect certain value-based arrangements in which the VBE (under the AKS) or physician (under the Stark Law) has assumed less than full downside financial risk for failure of the VBE to achieve its value-based purpose(s) (42 C.F.R. 1001.953(ff) and 42 C.F.R. 411.357(aa)(2), respectively). For protection under the AKS, OIG proposes that the VBE must assume "substantial" downside financial risk and the VBE participants must "meaningfully share" that risk; whereas for protection under the Stark Law, CMS proposes that the physician must assume "meaningful" downside financial risk.

To satisfy criteria for "substantial" downside financial risk for purposes of the AKS safe harbor, OIG proposes that an arrangement must include specific financial benchmarks to align VBE goals with participant incentives and must assign meaningful shared accountability to VBE participants for any unmet goals. For purposes of the Stark Law exception, CMS proposes that a physician may satisfy "meaningful" downside financial risk if that physician either: (i) pays 25% or more of the value of the remuneration the physician receives; or (ii) is responsible on a prospective basis for the cost of a defined set of patient care items and services for each patient within the target population. Both agencies propose protecting arrangements resulting in the exchange of either monetary or non-monetary remuneration.

OIG and CMS have proposed a number of additional requirements to achieve protection under the AKS or Stark law, respectively. Both agencies propose to require that: (i) the nature and extent of the financial risk be set out in writing; (ii) the remuneration not take into account the volume and value of referrals; (iii) the methodology for determining the remuneration be set in advance; (iv) the remuneration not function as an inducement to reduce or limit medically necessary services; and (v) the VBE maintain documentation for specified periods of time that sufficiently establishes compliance with all requirements.

Value-Based Arrangements with Full Financial Risk

Both OIG and CMS propose to protect certain arrangements under which a VBE assumes full financial risk (42 C.F.R. 1001.953(gg) and 42 C.F.R. 411.357(aa)(1), respectively). VBEs qualify as assuming "full financial risk" for purposes of either proposal if 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 (i.e., capitated) by the applicable payor.

The capitated payments must represent the total cost of care of the target patient population—VBE participants must not be able to claim separate payment in any form for items or services provided under the value-based arrangement. While OIG proposes requiring that any remuneration paid under the value-based arrangement be used primarily for implementing a value-based activity and be directly connected to a value-based purpose, CMS proposes requiring that remuneration be paid for or result from value-based activities. Under either proposed regulation, the remuneration must not function as an inducement to reduce or limit medically necessary services.

While the proposed protections are largely otherwise aligned, OIG has proposed additional limitations on the proposed AKS safe harbor that CMS has not proposed under the Stark Law corollary. For example, while CMS encourages documenting the arrangement terms as a best practice, OIG proposes to require a signed writing to memorialize the target patient population, the arrangement terms that demonstrate full financial risk for at least one year, and the specific value-based activities contemplated. OIG additionally proposes that the VBE be required to establish or arrange for utilization review and quality assurance programing to protect against underutilization.

Value-based Arrangements for Patient Engagement and Support

In addition to the above protections, OIG has proposed a safe harbor to the AKS to protect the provision of certain patient engagement tools and support (42 C.F.R. 1001.953(hh)). CMS did not propose a corollary Stark Law exception. The proposed safe harbor would protect the provision of in-kind patient engagement "tools and supports" provided directly by a VBE participant to a patient in a target patient population that are directly connected to the VBE purpose of care management and coordination.

OIG proposes defining "eligible tools and supports" broadly to provide flexibility but has indicated that this could include in-kind preventative items, goods, and services or other health-related technologies, monitoring services, or services to identify and address a patient's social determinants of health. These tools or supports must be used to directly advance specified goals, such as improving patient adherence to certain treatment regimens or improving evidence-based health outcomes for a target patient population. OIG also has indicated that this proposed safe harbor may be subject to additional limitations pending further comment, including monetary caps, demonstrated effectiveness in achieving goals, or uniform distribution to all patients in an identified target patient population.


The proposed protections outlined above promise to facilitate innovation in the value-based care space and to sharpen the focus of providers on care quality and cost containment by potentially reducing some regulatory uncertainty that may have discouraged prior innovation. While the final rules will ultimately dictate the utility of the protections, the proposed rules seem to offer new opportunities to create flexible health care delivery models for those stakeholders that can successfully navigate complex contractual arrangements and the strict proposed regulatory requirements. Furthermore, CMS has indicated that it expects these rules, if finalized, to reduce the need for entities to seek waivers for ACO-related activities (though such waivers will still be available and do cover a broader range of activities than contemplated under these proposed rules).

Despite the promise of these proposed protections, however, providers should be aware that VBEs may raise other legal issues, including significant tax and antitrust considerations—neither of which is addressed in CMS or OIG proposed regulations. For example, nonprofit hospitals participating in value-based arrangements with private physicians or taxable entities must consider whether the activity would be treated as an unrelated trade or business, subjecting them to income tax under sections 511-514 of the Code (or, if the activity is substantial, potentially poses an exemption risk). To date, the IRS has issued guidance in the area of population health management and coordinated-care activities focused primarily on participation in the Medicare Shared Savings Program or networks serving Medicaid beneficiaries. As for antitrust implications, if the physicians participating in the network are not clinically integrated in those activities, or financially and structurally integrated with each other, they may be precluded from jointly negotiating payor contracts through the VBE and be precluded from sharing competitively sensitive information.

Three Key Takeaways

  1. OIG and CMS have collectively proposed numerous new safe harbors and exceptions, including four new safe harbors to the AKS and three new exceptions to the Stark Law dedicated to protecting certain value-based arrangements among newly defined "value-based enterprises."
  2. The proposed protections include value-based arrangements where the parties assume no downside financial risk, less than full downside financial risk, or full downside financial risk.
  3. While these newly proposed protections promise to reduce regulatory barriers to innovation in the value-based care space, providers are cautioned that participation as a value-based enterprise may subject them to other tax or anti-trust exposures.

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