June 28, 2022

Volume XII, Number 179

Advertisement
Advertisement

June 27, 2022

Subscribe to Latest Legal News and Analysis
Advertisement

Key Changes to the Personal Services and Management Contracts Safe Harbor of the AKS

As discussed in our Client Alert issued on December 10, 2020, the Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued two long-awaited final rules that modernize and change the Stark Law and Anti-Kickback Statute (AKS) regulations.  The final rule involves numerous changes, including long-awaited changes to the personal services and management contracts safe harbor under the AKS.  This alert addresses key changes to the personal services and management contracts safe harbor of the AKS to enable greater flexibility for payment arrangements in value-based models.  

Personal Services and Management Contracts Safe Harbor

The changes to the personal services and management contracts safe harbor of the AKS now provide protection to certain payment structures that incorporate value-based care models.  The OIG modified the previous safe harbor under the AKS by: (i) replacing the requirement for aggregate compensation to be set forth in advance by now requiring that the methodology for determining the compensation be set forth in advance; (ii) increasing flexibility for part-time or sporadic arrangements and arrangements for which the aggregate compensation is not known in advance; and (iii) adding protections for certain outcomes-based and value-based arrangements.

Part-Time Arrangements: For arrangements that are part-time or less than full-time, there is no longer a requirement for the agreement to specify, in advance, the schedule at which the services will be provided, their length, or the charge for such intervals of service.  This modification is a welcome change for part-time or less than full-time arrangements because it allows these arrangements to be more consistent with how parties typically operate. This change also provides greater flexibility in the establishment of arrangements, like many care coordination relationships, that involve part-time or less than full time arrangements. All in all, these modifications should support a broader range of arrangements in furtherance of the goals set forth in the U.S. Department of Health and Human Services’ Regulatory Sprint to Coordinated Care initiative.

Compensation Methodology: The amendments create a more flexible and less rigid approach for determining the compensation for personal services and management contracts by requiring that the methodology (such as a compensation formula) rather than the aggregate compensation be set in advance.  The OIG has stated that this will “enhance flexibility” for providers to undertake innovative arrangements as they transition to value and better coordination of patient care where the compensation is not always known in advance. This modification also better aligns this safe harbor with the personal services arrangement exception of Stark.

Outcomes-Based Arrangements: The personal services and management contracts safe harbor of the AKS was modified to add a new outcomes-based payments safe harbor. This new safe harbor protects compensation arrangements that are conditioned on the achievement of clinical outcomes and is aimed at facilitating the move towards value-based care.  Protection under this safe harbor is given to payments issued as a reward for successfully achieving an outcome measure as well as to a recoupment or a reduction in payment for a failure to achieve an outcome measure.  An outcomes-based payment must meet all of the following standards to be protected by the safe harbor: 

  • The agent must achieve one or more legitimate outcome measures that are (i) selected based on clinical evidence or credible medical support, and (ii) have benchmarks that are used to quantify improvements in or the maintenance of improvements in the quality of patient care, a material reduction in costs to or growth in expenditures of payors while maintaining or improving the quality of patient care, or both. 

  • The methodology for determining the aggregate compensation, including any outcomes-based payments, must be set in advance, commercially reasonable, consistent with the fair market value, and not determined in a way that takes into consideration the volume or value or referrals or business otherwise generated between the parties. 

  • The agreement between the parties must be set forth in writing and signed by the parties in advance of or contemporaneous with the commencement of the outcomes-based payment arrangement.  The written agreement must include a description of the services to be performed and the outcome measures that the agent must achieve to receive the payment.  It must also identify the clinical evidence or credible medical support relied upon by the parties to determine the outcome measures and a schedule for the parties to regularly monitor and assess the outcome measures. 

  • The agreement must not limit the agent’s ability to make decisions that the agent deems to be in the best interests of the patient or induce any party to limit or reduce medically necessary care and services. 

  • The term of the agreement must be for at least 1 year. 

  • The services performed under the agreement cannot include counseling or promotion of a business arrangement or any other activity that violates state or federal law. 

  • The parties are required to (i) regularly monitor and assess the agent’s performance under the arrangement, including the impact on the outcomes-based payment; and (ii) periodically assess and revise, as necessary, benchmarks and remuneration under the arrangement to ensure that it is consistent with fair market value.

  • The principal must have policies and procedures in place to promptly address and correct material performance failures or deficiencies in the quality of care related to the outcomes-based payment. 

Under the outcomes-based payments safe harbor, an agent is any person who has an agreement to perform services for or on behalf of the principal, except for a bona fide employee of the principal.  This safe harbor specifically excludes payments made to (i) a pharmaceutical manufacturer, distributor, or wholesaler, (ii) a pharmacy benefits manager, (iii) a lab company, (iv) a compounding pharmacy, (v) a manufacturer of a device or medical supply, (vi) a medical device distributer or wholesaler, and (vii) any entity or individual that sells or rents DME, prosthetics, orthotics, or supplies covered by a Federal health care program.  

Key Takeaways

The amendments to the personal services and management contracts safe harbor of the AKS are intended to offer additional flexibility to providers and encourage innovative arrangements in the health care industry’s move towards value-based care. The outcomes-based arrangement safe harbor is “tied to achieving measurable outcomes that improve patient or population health or appropriately reduce payor costs.” It is intended to encourage and protect innovative compensation arrangements that reward providers for achieving quantifiable and demonstrable improved patient or population health, reducing the cost of care, and engaging in care coordination that improves the quality or efficiency of patient care.  The modifications to this safe harbor will allow for greater flexibility for entities contracting with providers in value-based arrangements to achieve protection under the AKS. 

Copyright © 2022 Womble Bond Dickinson (US) LLP All Rights Reserved.National Law Review, Volume X, Number 352
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement

About this Author

Alissa Fleming, Womble Dickinson Law Firm, Charleston, Health Care Law Attorney
Partner

Alissa possesses first-hand knowledge of the healthcare industry as an attorney and registered nurse.  Her legal practice and medical background enable her to advise and represent national, regional and local healthcare providers on a broad and diverse spectrum of legal issues.

She has represented healthcare providers in health law and healthcare litigation throughout the duration of her career.  She regularly represents hospitals, long term care facilities, home health agencies, pharmacies, and professionals in healthcare litigation, regulatory...

843-720-4638
Catherine F. Wrenn Litigation lawyer Womble Bond Dickinson
Partner

Catherine litigates cases for businesses and health care providers, including physicians, hospitals, skilling nursing facilities, and assisted living facilities. Her practice includes advising clients on regulatory compliance and handling matters that involve Medicare fraud, wrongful death, personal injury, negligence, breach of contract, and breach of warranty. Catherine represents clients at all stages of litigation and she has significant trial and appellate experience.

Catherine has been recognized as a Rising Star by South Carolina Super Lawyers.

+1 864.255.5424
Antonia Peck Health Care Lawyer Womble
Partner

Toni Peck is a partner in the firm’s Research Triangle Park office and a member of the firm’s Healthcare Team. Her practice is focused on assisting healthcare providers in a variety of regulatory compliance and corporate matters, including Stark law and federal and state Anti-Kickback Statute compliance, HIPAA, 340B Drug Pricing Program, physician recruitment, medical staff issues, and antitrust concerns. 

She also counsels healthcare entities on transactional and business matters, including mergers and acquisitions, joint ventures, reorganizations, management services organizations...

919.484.2324
Advertisement
Advertisement
Advertisement