On October 9, 2019, the Centers for Medicare and Medicaid Services (CMS) released a long-awaited proposed rule making changes to physician self-referral regulations based off the Stark Law and Anti-Kickback Statute. The rule was released in conjunction with a similar rule from the HHS Office of the Inspector General (OIG). Comments on the proposed rule are due on December 31, 2019.

CMS Proposes New Definitions for Value-Related Items

The rule includes new proposed definitions for a variety of terms related to value-based arrangements:

• Value-based enterprise (VBE): two or more participants doing the following:
  • Collaborating to achieve at least one value-based purpose;
  • Each participant is a party to a value-based arrangement with the other or at least one other VBE participant in the enterprise;
  • Have an accountable body or person responsible for oversight of the value-based enterprise; and
  • Have a governing document describing the value-based enterprise and how participants will achieve its value-based purpose(s).
• Value-based activity: any of the following activities provided that it is reasonably designed to achieve at least one value-based purpose of the value-based enterprise. Making a referral is not considered a value-based activity.
  • Provision of an item or service
  • Taking of an action
  • Refraining from taking an action.
• Value-based arrangement: arrangement for providing at least one value-based activity for a target population between the value-based enterprise and one or more of its participants or between VBE participants in the same value-based enterprise.
• Value-based purpose: one of the following-
  • Coordinating and managing the care of a target patient population
  • Improving the quality of care for a target patient population
  • Appropriately reducing costs or growth of expenditures of payors without reducing the quality of care; or
  • Transitioning from volume-based delivery and payment mechanisms to services provided by mechanisms based on the quality of care and control of costs of care.
• VBE participant: individual or entity engaged in at least one value-based activity as part of a value-based enterprise.
• Target patient population: an identified patient population selected based on legitimate and verifiable criteria that are set out in writing in advance of beginning the value-based arrangement and further the enterprise’s value-based purpose(s).

CMS is considering excluding the following from the definition of VBE participant: pharmaceutical manufacturers, DME manufacturers and distributors, PBMs, wholesalers, and distributors. The agency does say that these groups would still be able to participate and contribute to a value-based enterprise however. CMS is seeking feedback on which persons and entities should quality as VBE participants.

New Exceptions to Self-Referral Law for Compensation Agreements Proposed

CMs is proposing three new exceptions to the self-referral law for compensation arrangements that satisfy certain requirements:

• The “full risk exception:” this exception to the physician self-referral law applies to value-based arrangements between VBE participants in a value-based enterprise that has assumed full financial risk for the cost of all patient care items and services covered by the applicable payor for each patient in the target population for the full duration of the value-based arrangement. Financial risk must be prospective.
  • For Medicare beneficiaries, CMS is interpreting this requirement to mean that a value-based enterprise is minimally responsible for items and services covered under Part A and Part B.
• The “meaningful downside financial risk exception:” this exception would protect remuneration paid under a value-based arrangement where the physician is at meaningful downside financial risk for failure to achieve the value-based purpose of the enterprise.
  • In this exception, meaningful downside financial risk would mean the physician is responsible to pay the entity no less than 25 percent of the value of the remuneration received under the value-based arrangement.
  • Remuneration may also not be provided as an inducement to reduce or limit medically necessary items or services to any patients, whether in the target population or not.
• The “value-based arrangements exception:” the exception would permit both monetary and nonmonetary remuneration between the parties of compensation arrangements that quality as value-based arrangements. This would apply regardless of the level of risk undertaken by the VBE or any of its participants.
  • The remuneration, as with the meaningful downside financial risk exception, must be for value-based activities undertaken for patients in the target population.
  • The methodology for the remuneration must be set in advance and cannot be provided as an inducement to reduce or limit medically necessary items or services.
  • This exception would be applicable to value-based arrangements where neither party has undertaken downside financial risk.

CMS Seeks Comments on Price Transparency with Value-Based Arrangements

CMS is also considering a price transparency requirement within the three exceptions and is requesting feedback from stakeholders on the administration’s price transparency objectives in the context of the physician self-referral law and a value-based health care system.

CMS Considers Two Definitions for “Commercially Reasonable”

One of the existing exceptions to the physician self-referral law is that that the compensation arrangement is commercially reasonable. The rule notes that stakeholders have looked for additional guidance from CMS on these requirements and in response, CMS is proposing two alternative definitions for “commercially reasonable:”

• The particular arrangement furthers a legitimate business purpose of the involved parties and is on similar terms and conditions as like arrangements.
• The arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty.

CMS, OIG Considering Changes to EHR Exception

In the proposed rule, CMS acknowledges that changes to the electronic health record (EHR) exception are being considered. These are explored in the OIG proposed rule that was published in conjunction with CMS’ rule while the rule from CMS includes proposed technical updates to the exception. CMS notes that an exception to protect arrangements involving the donation of certain cybersecurity technology and related services is also considered in the OIG rule.