Special Report: Long-Awaited Kickback Relief Rules Leave Labs Out in the Cold

The final rule for value-based care kickback relief that HHS and the OIG published on Nov. 20 is slightly more favorable to labs than the proposed rule published in October 2019. But with a limited exception, the agencies decided to stick with the original plan to exclude labs (along with pharmaceutical manufacturers and DMEPOS suppliers) from the most significant new exceptions and safe harbors, including those covering value-based care. Here’s a rundown of the key changes and how they affect labs.

The Government Still Doesn’t Trust Labs

CMS was totally open about why it decided to cut labs out of the original value-based relief proposal. Citing its “historical enforcement and oversight experience,” the agency expressed concern “that [some labs], which are heavily dependent upon practitioner referrals, might misuse the proposed safe harbors primarily as a means of offering remuneration to practitioners and patients to market their products, rather than as a means to create value for patients and payors by improving the coordination and management of patient care.” Besides, CMS added, labs aren’t on “the front line of care coordination and treatment decisions” the way physicians and hospitals are.

But after hearing the public comments, CMS relented. But just a little bit. The agency revised the definition of value-based enterprise (VBE) participant entitled to benefit from the new Stark exceptions to include—or, to be more precise, so as not to expressly exclude—labs and DMEPOS suppliers. However, the OIG was less generous and decided to stick to its original decision to exclude labs from the new parallel Anti-Kickback Statute (AKS) safe harbors for value-based care arrangements, EHR interoperability, cybersecurity donations and patient incentives.

The 9 Key Changes

When you boil down the 1,000+ pages of the final rule, there are nine key changes that most labs need to be aware of:

1. New Stark Exceptions for Value-Based Arrangements: Labs Included

The final rule creates three new Stark exceptions allowing labs and other providers to enter into value-based compensation arrangements with physicians:

• Value-based arrangements with full financial risk: This exception applies when a VBE assumes full financial risk on a prospective basis for the cost of all patient care items/services covered by a payor for the target patient population within 12 months after the arrangement begins.
• Value-based arrangements with meaningful downside financial risk: For this exception to apply, at least 10 percent of the physician’s remuneration must be at risk, which can be in the form of paybacks, withholds, incentive bonuses or other payment structures. Under the original proposal, downside risk had to be at least 25 percent of the physician’s remuneration.
• Other value-based arrangements: There’s also a general exception allowing for any value-based arrangement, regardless of the size or nature of the parties to the arrangement, financial risk undertaken by the VBE or financial risk undertaken by the physician so long as the arrangement meets a detailed list of enumerated requirements.

Impact on Labs: As noted above, labs are not excluded from the new-based exceptions the way they were in the proposed rule. One more important thing to note: To qualify for any of these exceptions, a value-based physician compensation arrangement need only be commercially reasonable. Unlike most other Stark exceptions, the final rule doesn’t require that such arrangements be set in advance, consistent with fair market and not in any factor the volume or value of a physician’s referrals or other business the physician generates for the entity.

2. New AKS Safe Harbors for Value-Based Arrangements: Labs Excluded

The final rule creates three new AKS safe harbors for value-based arrangements that mirror the new Stark exceptions, including for arrangements with full financial risk, meaningful downside financial risk and care coordination arrangements to improve quality, health outcomes and efficiency regardless of whether downside risk is assumed.

Impact on Labs: Being “VBE participants” enables labs to participate in the Stark exceptions but not the AKS safe harbors. Exception: The rule creates a separate pathway for certain DMEPOS companies to participate in protected care coordination arrangements that involve digital health technology. However, that pathway isn’t open to labs. 

3. New Exception/Safe Harbor for Cybersecurity Donations: Labs Excluded

Current Stark exceptions and AKS safe harbors allow providers—other than labs—to donate EHR products and services to physicians for purposes of interoperability. The final rule expands the scope of the Stark EHR exception and establishes a new AKS safe harbor to cover cybersecurity products and services. To qualify for the exception/safe harbor:

• The donation must be made under a written agreement;
• The donated products/services must be certified as interoperable and not equivalent to products/services the physician already has; and
• The physician must contribute 15 percent of the donor’s costs.

 Impact on Labs: The bad news is that both the expanded Stark exception and new AKS safe harbor exclude labs. 

4. New AKS Safe Harbor for Beneficiary Incentives: Labs Excluded

Another new CMP exception and AKS safe harbor allows for beneficiary incentives under patient engagement and support arrangements designed to improve quality, health outcomes and efficiency.

Impact on Labs: Labs aren’t allowed to use the new beneficiary incentives safe harbors. The exclusion list includes the usual suspects but as with the new value-based care safe harbor, leaves a pathway open for DMEPOS companies.

5. New Outcomes-Based Payments Safe Harbor: Labs Excluded

The final rule expands the current personal services and management contracts safe harbor to payments tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs. The definition of “outcomes-based payment” permitted includes a reward for successfully achieving an outcome measure or a recoupment or reduction in payment for failure to achieve an outcome measure.

Impact on Labs: Once again, the new safe harbor specifically excludes labs.

6. New Definitions Making Stark Exceptions Easier to Use: Labs Included

Although labs are cut out of most of the new Stark exceptions and AKS safe harbors, they stand to benefit from the new clarification the final rule provides on terms and rules that providers must meet to qualify for other Stark exceptions, including those for arrangements:

• Providing “commercially reasonable” compensation: In the final rule, CMS clarifies that an arrangement is “commercially reasonable,” a key criterion for determining if the arrangement qualifies for a Stark exception, if it furthers a legitimate business purpose of the parties and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty.
• In which compensation isn’t based on volume or value of referrals: The final rule clarifies that compensation doesn’t meet that criterion if:
  • It uses a mathematical formula that includes referrals or other business generated as a variable; and
  • The compensation amount correlates with the number or value of a physician’s referrals to an entity;
• In which compensation reflects fair market value: The final rule redefines this critical term to match the definition that applies to the exception for equipment or property rentals, i.e., the “value in an arm’s-length transaction with like parties and under like circumstances, of assets or services, consistent with the general market value of the subject transaction.”

7. Elimination of Stark “Period of Disallowance” Waiting Period: Labs Included

Previously, if an arrangement between a physician and a lab (or other provider) didn’t meet the requirements of a Stark exception, the physicians had to refrain from making referrals to the lab and the lab refrain from billing Medicare for referred services during a “period of disallowance” after the relationship ends. In the proposed rule, CMS called the period of disallowance rule as “impractical and overly prescriptive” and the final rule eliminates it in favor of a case-by-case assessment depending on the particular relationship involved. CMS also created a special rule that allows parties to “reconcile discrepancies” for compensation arrangements within 90 days of termination of the arrangement.

8. New 90-Day Grace Period for Stark Exceptions: Labs Included

CMS is providing a new period for reconciling non-compliance issues of within 90 calendar days of the expiration or termination of a compensation arrangement, if after the reconciliation, the entire amount of remuneration for items or services is paid as required under the terms and conditions of the arrangement. 

9. New Annual $5,000 Stark Exception: Labs Included

 The final rule includes a new exception for arrangements in which a lab pays a physician less than $5,000 in a calendar year in exchange for items or services. This exception doesn’t require a writing, signature or that the compensation be set in advance. Nor does it ban either or both parties profiting from the deal. But it does require that:

• The physician actually provides the services or items the compensation covers;
• The arrangement furthers a legitimate business purpose;
• The terms and conditions are similar to like arrangements;
• The remuneration isn’t based on the value or volume of referrals; and
• The remuneration reflects fair market value for the items or services.

Takeaway

The final rule is scheduled to take effect on Jan. 19, 2021, the day before the inauguration of the new president. But while there’s always the chance of a new administration’s peeling back all or part of a new regulation adopted by its predecessor, particularly when that regulation goes into effect on the eve of the transition, it’s pretty unlikely that the Biden administration will tamper with the final rule, which has the general support of the American Hospital Association and other major medical groups—although several are disappointed that it doesn’t go further in reforming the antiquated referral rules.