| Daily Briefing

CMS finalizes reforms to Stark law and anti-kickback rule

CMS and HHS' Office of Inspector General (OIG) recently finalized two new rules that will update anti-kickback physician-referral regulations, aiming to ensure the regulations don't impede health care providers from participating in value-based payment arrangements.


The regulations at the center of the newly finalized rules are intended to ensure health care providers base medical decisions on the needs of their patients, not on the financial interests of providers. The regulations typically bar insurers and health care providers from offering free or discounted goods and services to Medicare and Medicaid beneficiaries.

For example, the Stark Law bans physicians from referring Medicare beneficiaries they are treating to entities in which they have a financial stake. The law contains certain exemptions—including one for "in-office ancillary services" that originally was intended for routine procedures, such as in-office blood tests—to allow for more efficient care delivery.

Stark Law violations can result in civil monetary penalties, and physicians can be held liable for unintentionally violating the statute. In 2018, CMS Administrator Seema Verma acknowledged that the Stark Law can inhibit providers' transition toward value-based payments and said CMS was forming an interagency group to examine the statute.

Meanwhile, the Federal Anti-Kickback Statute dictates criminal penalties for providers who knowingly and willfully ask for, offer, pay, and/or receive remuneration intended to generate or reward referrals for services that are paid for by federal health care programs. The statute includes certain safe harbors.

In addition, the Civil Monetary Penalties Law allows for civil monetary penalties against any person who offers or provides remuneration to Medicare or state health care program beneficiaries if the person knows, or should know, that the remuneration likely could influence the supplier or provider the beneficiary selects, if that provider or supplier gives the beneficiary items or services covered by Medicare or the state health care program.

Health care executives and providers have long called for updates to the federal anti-kickback and physician-referral regulations, saying the regulations are complex and pose barriers to doctors transitioning toward value-based payment models. Providers raised concerns about the regulations when CMS and HHS' OIG in 2018 sought public feedback on ways to address regulatory obstacles to transitioning toward value-based payment arrangements, and the agencies last year proposed two rules to update the statutes.

Details on final rules

CMS and HHS' OIG finalized those rules on Nov. 20, with relatively few changes.

Finalized changes to the Stark Law

The final rule adds new exceptions under the Stark Law for value-based care.

Payment arrangements eligible for the proposed exceptions will have to have a "value-based purpose," with central goals pertaining to:

  • Coordinating and managing patients' care;
  • Lowering costs or spending growth without reducing care quality;
  • Improving quality of care; and
  • Transitioning from volume-based payments to payments based on cost control and care quality.

The rule refers to such payment arrangements as "value-based enterprises," which CMS defines as "essentially a network of participants … that have agreed to collaborate with regard to a target patient population to put the patient at the center of care through care coordination, increase efficiencies in the delivery of care, and improve outcomes for patients."

To qualify for the new exceptions to the Stark Law, the rule states that health care entities participating in value-based enterprises will need to provide "written documentation recording the arrangement" and describing "how the parties intend to achieve [their] value-based purpose(s)." CMS said the exceptions will apply regardless of whether applicable value-based payment arrangements deal with care provided to Medicare beneficiaries or to patients covered by other payers.

According to CMS, the final rule also includes protections for certain "non-abusive, beneficial arrangements" that will "apply regardless of whether the parties operate in a fee-for-service or value-based payment system—such as donations of cybersecurity technology that safeguard the integrity of the health care ecosystem." In addition, CMS in the final rule provides new guidance on several requirements providers must meet to comply with the Stark Law.

Finalized changes to anti-kickback laws

HHS' OIG issued the second final rule, which will update the Civil Monetary Penalties Law and Federal Anti-Kickback Statute, aiming to give providers more flexibility to coordinate patients' care and implement specific safe harbors for outcomes-based payment arrangements.

According to HHS' OIG, the final rule will:

  • Amend the definition of "remuneration" under a section of the Civil Monetary Penalties Law to incorporate a new statutory exception to the ban on beneficiary inducements for telehealth technologies for certain in-home dialysis patients;
  • Codify a statutory exception to the definition of "remuneration" in relation to Accountable Care Organization (ACO) Beneficiary Incentive Programs under the Medicare Shared Savings Program;
  • Implement a new safe harbor for certain remunerations provided under specific CMS-sponsored payment models;
  • Implement a new safe harbor for donations of cybersecurity services and technology;
  • Implement a new safe harbor for specific tools and supports provided to patients that are intended to bolster efficiency, health outcomes, and quality;
  • Implement three new safe harbors for certain remunerations between eligible participants under "care coordination arrangements to improve quality, health outcomes, and efficiency"; "value-based arrangements with substantial downside financial risk"; and "value-based arrangements with full financial risk";
  • Modify the existing safe harbor for EHRs to include protections for certain EHR-related cybertechnology, update provisions related to interoperability, and remove the current sunset date;
  • Modify the existing safe harbor for local transportation to update and expand mileage limits in rural areas and for patients discharged from inpatient facilities;
  • Modify the existing safe harbor for personal services and management contracts to increase flexibility for outcomes-based payments and part-time agreements; and
  • Modify the existing safe harbor for warranties to update the definition of "warranty" and include protections for certain bundled warranties.

The final rules are scheduled to take effect on Jan. 19, 2021, with the exception of one provision of the Stark law reform rule, which is scheduled to take effect on Jan. 1, 2022.


CMS Administrator Seema Verma said concerns about the Stark Law and anti-kickback regulations were among the top concerns providers brought to CMS during listening sessions.

"When we kicked off our Patients Over Paperwork initiative in 2017, we heard repeatedly from front-line providers that our outdated Stark regulations saddled them with costly administrative burden and hindered value-based payment arrangements," Verma said. She added that the newly finalized rules should bring "mingled cheers and exclamations of relief from doctors and other health care professionals across the county as [CMS] lift[s] the weight of our punishing bureaucracy from their backs."

Tom Nickels, EVP of the American Hospital Association, praised the new final rules. "Outdated regulations created unnecessary roadblocks to the kind of collaboration and coordination that enables caregivers to meet all of their patients' health care needs, whether in the hospital, the doctor's office, or their own homes," Nickels said. "The changes finalized should help to replace numerous waivers of these same regulations needed to experiment with collaborative and innovative care and remove 'impediments to robust, innovative programs' noted in a 2016 report from [HHS] to Congress."

Some experts said health care organizations will need more clarity on the new rules, because certain administrative, clinical, financial, and operational changes may be necessary to ensure value-based arrangements qualify for the exceptions.

Mollie Gelburd, associate director of government affairs for the Medical Group Management Associate, said without uniform guidance, the changes could be difficult to bring into line with "arrangements that exist in the real world." She added, "I don't know how many groups exist in today's environment that could actually [use the full-risk exception]" she added (CMS release, 11/20; CMS fact sheet, 11/20; CMS final rule, 11/20; HHS' OIG fact sheet, November 2020; Stein, Inside Health Policy, 11/20 [subscription required]); Morse, Healthcare Finance News, 11/21; Paavola, Becker's Hospital Review, 11/20; Brady, Modern Healthcare, 11/20).

Advisory Board's take

What the changes mean for value-based care 


By Yulan Egan
The changes to Stark Law and anti-kickback regulations will come as welcome news for hospitals and health systems that participate in value-based care models. Greater flexibility in how those systems may work with physicians is especially critical right now—as small practices grapple with the financial consequences of the Covid-19 pandemic, and as physicians have a growing number of potential partners (such as private equity firms and health plans) to turn to for financial support. 
While much attention will be given to how these rules change the nature of health system-physician partnerships, the inclusion of other entities is notable as well. We're particularly interested to see whether the addition of pharmacies to the new safe harbors improves the ability of health systems to manage drug spending—and whether this could eventually increase provider willingness to accept risk for pharmaceutical spending, in addition to medical spending. 
Although these changes are a boon for health systems already committed to value-based arrangements, they are unlikely to significantly increase the overall number of health systems participating in such models. Hospitals that haven't already made the leap are wary of taking on additional financial risk right now—it's financial considerations, much more than regulatory barriers, that are holding them back. 
Finally, the structure of the rule also reinforces the Trump administration's commitment to improving the performance of value-based models by increasing the numbers of participants in downside risk models. The new rule ties the amount of flexibility participants are eligible for to the amount of risk they take on. This is one thing we'll be keeping an eye on with the future Biden administration: whether they maintain the current administration’s focus on performance and downside risk, or loosen model requirements to boost overall participation numbers.







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