United States: HHS Proposes Sweeping Changes To AKS And Stark Law, Part 3: Personal Services And Management Contracts, Outcomes-Based Payments, And Warranties

This post is the third installment of our blog series on recent proposed rules from the Department of Health & Human Services (HHS) that, if finalized, would implement major changes to the Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (commonly known as the Stark Law). Below is an in-depth summary of the Office of Inspector General's (OIG) proposed modifications to the safe harbors for personal services and management contracts, which includes a proposed new provision protecting outcomes-based payments. We also cover the OIG's proposed modifications to the warranties safe harbor.

Personal Services and Management Contracts

The OIG's proposed rule includes changes that, if implemented, would more closely align this safe harbor with the personal service arrangements exception to the Stark Law and alleviate some of the difficulties associated with satisfying this safe harbor.

  • Aggregate Compensation. The OIG proposes to loosen the requirement that aggregate compensation itself must be set in advance to require only that the methodology for determining the compensation be set in advance. This change would allow an arrangement to meet the safe harbor even if the compensation is set on a per-unit or hourly basis, which are compensation mechanisms that technically do not comply with the current safe harbor. To mitigate against the risk of parties periodically adjusting the compensation as a reward for referrals, the compensation methodology must be set in advance. Additionally, the compensation must still be fair market value, commercially reasonable, and not take into account the volume or value of referrals or other business generated between the parties.
  • Periodic, Sporadic, or Part-Time Services. The OIG proposes to eliminate the requirement that, if an agreement provides for services on a periodic, sporadic, or part-time basis, the contract must specify the schedule, length, and the exact charge for such intervals. The OIG has had a long-standing concern that part-time agreements are vulnerable to abuse, as they can be easily modified based on changing referral patterns. However, the OIG believes that existing safeguards (i.e., term of one year, compensation set at fair market value and commercially reasonable) would provide sufficient safeguards.

Outcomes-Based Payment Arrangements

In response to new payment models such as shared savings, episodic payments, gainsharing, and pay-for-performance, the OIG proposes a new section to the personal services and management contracts safe harbor that would protect certain outcomes-based payments. Outcomes-based payments would be defined as "payments from a principal to an agent that: (i) reward the agent for improving (or maintaining improvement in) patient or population health by achieving one or more outcome measures that effectively and efficiently coordinate care across care settings; or (ii) achieve one or more outcome measures that appropriately reduce payor costs while improving, or maintaining the improved, quality of care for patients."

As with the value-based safe harbors, the OIG proposes to exclude any outcomes-based payments, directly or indirectly, by a pharmaceutical manufacturer; DMEPOS manufacturer, distributor, or supplier; or a laboratory. The OIG is also considering excluding pharmacies, pharmacy benefit managers, wholesalers, and distributors. Alternatively, the OIG may limit this safe harbor to value-based enterprise participants only. "Value-based enterprise" is broadly defined as an arrangement where the participants have agreed to collaborate for value-based purposes, which includes coordinating and improving the quality of care of a target patient population and appropriately reducing the costs to payors without reducing the quality of care for a target patient population. For more information on HHS's proposed changes to reduce barriers to value-based arrangements, please see our first installment to this blog series.

The outcomes-based payment provision also would not protect any payment that relates solely to internal cost savings for the principal. For example, it would not protect an outcomes-based payment arrangement between a hospital and physician group, where the parties share financial risk only with respect to items or services for which the hospital receives reimbursement. However, an outcomes-based payment arrangement that involves a hospital and a physician group sharing financial risk across care settings would be protected.

The OIG is soliciting comments on whether it should further define the specific types of payments arrangements that would qualify, such as shared savings payments, gainsharing payments, and episodic or bundled payments.

The proposed protection for outcomes-based payments also contains a number of proposed conditions:

  • Foster Goals of Improving Quality of Patient Care, Reducing Costs, or Both. Protection would extend only to outcomes-based payment arrangements that foster the goals of improving quality of patient care, or that appropriately and materially reduce costs to, or growth in expenditures of, payors while improving, or maintaining the improved quality of care for patients, or both.
  • Evidence-Based Outcome Measures. Outcomes-based payment arrangements must include one or more specific evidence-based, valid outcome measures that the agent would need to satisfy to receive the payment. These outcome measures would need to be measurable and valid. Benchmarks for the outcome measures would be required to be reset periodically, and the OIG is seeking comments on the appropriate timeframe to require resetting of benchmarks (e.g. every one, three, or five years).
  • Methodology for Determining the Compensation. The OIG proposes conditions for the outcomes-based payment safe harbor similar to the conditions set forth in the existing personal services and management contracts safe harbor. Under the proposed rule, the methodology for determining the aggregate compensation must be set in advance, commercially reasonable, consistent with fair market value, and not determined in a manner that directly takes into account the volume or value of any referrals or business otherwise generated between the parties. The OIG recognizes that there are not yet industry standards to determine fair market value for many outcomes-based payment arrangements, and that parties may need to establish payment methodologies that at least indirectly take into account the volume or value of referrals.
  • Written Agreement. The outcomes-based payments safe harbor would require a written agreement with a term of at least one year and signed by the parties in advance of or contemporaneous with the commencement of the arrangement. The written agreement must include the outcome measures, the evidence-based data or information relied upon to select the outcome measures, and the schedule for the parties to regularly monitor the outcome measures.

Warranties

The warranties safe harbor protects the exchanges of value pursuant to a warranty agreement "provided by a manufacturer or supplier of an item to a buyer (such as a health care provider or beneficiary)," as long as certain conditions are met. The proposed rule includes the following changes to the safe harbor:

  • Bundled Warranties. The OIG proposes to expand the safe harbor to protect warranty arrangements that pertain to bundled items and services rather than just warranties for a single item. In the proposed rule, the OIG discusses two relevant advisory opinions, 01-08 and 18-10, which involved warranty programs offered by manufacturers of wound care products. The warranty program in advisory opinion 01-08 covered items and services, and the warranty program in advisory opinion 18-10 covered a bundle of three items. Although the OIG ultimately determined that it would not impose sanctions for either proposed arrangement, the OIG also found that neither warranty program technically satisfied the warranty safe harbor because it does not protect warranties of bundled items or a combination of items or services. If the OIG's proposal to expand the safe harbor to protect bundled items and service is implemented, arrangements like the ones proposed in advisory opinions 01-08 and 18-19 would qualify for protection.
  • Conditions on Bundled Warranties. In order for bundled warranties to qualify for protection under the safe harbor, all federally reimbursable items or services subject to a bundled warranty arrangement must be reimbursed by the same federal health care program and in the same payment to qualify for the safe harbor. (This factor was key in the OIG's decision not to impose sanctions in advisory opinion 18-10; the bundled items were not separately reimbursable.) The safe harbor would not protect warranties covering only services; services must be tied to one or more items. The proposal does not protect free or reduced-price items or services that a seller provides as part of a warranty or ancillary to a warranty. For example, OIG notes that the provision of medication adherence services for free or below fair market value would implicate the AKS. Specifically noting its concern about drug manufacturers' offers of medication adherence services, the OIG is considering a safeguard that would prohibit direct patient outreach by a seller offering a warranty but that would allow the seller to pay an independent intermediary to perform the patient outreach so long as the intermediary is not paid based on the volume or value of referrals.
  • Capped Amount of Warranty Remedies. The OIG proposes to limit the amount of remuneration a manufacturer or supplier may pay any individual (other than a beneficiary) or entity for any medical, surgical, or hospital expense incurred by a beneficiary to the cost of the items and services subject to the warranty.
  • Prohibition on Exclusivity and Minimum-Purchase Requirements. Manufacturers and suppliers could not condition bundled warranties on the exclusive use of one or more items or services or impose minimum-purchase requirements of any items or services. Manufacturers will likely want to comment on this prohibition and explain the legitimate need for minimum purchase requirements under certain circumstances in order to adequately assess outcome measures.
  • Revisions to the Definition of Warranty. The OIG proposes to revise the definition to clarify that the warranties safe harbor applies to FDA-regulated drugs and devices. This definitional change confirms that the warranty safe harbor can protect guarantees of clinical outcomes, in addition to product defects, if the other safe harbor conditions are met.

Despite the proposed expansion of the warranties safe harbor, the OIG continues to impose strict requirements for compliance and remains concerned about the fraud and abuse risk associated with broad manufacturer warranty arrangements.

For more information please see our high-level overview of key provisions in both proposed rules, Part 1 on value-based arrangements, and Part 2 on cybersecurity technology and related services and electronic health records. Stay tuned for more installments of this blog series, which will cover (i) a new safe harbor for patient support tools and modifications to existing safe harbors related to beneficiary inducement, and (ii) clarification and guidance on key Stark Law terminology and requirements.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions