On January 19, 2021, reforms to the Anti-Kickback Statute (AKS) and the Stark Law (Stark) took effect. On November 20, 2020 HHS published the final rules noting the aim of the reforms was to:

“reduce regulatory barriers to care coordination and accelerate the transformation of the healthcare system into one that pays for value and promotes the delivery of coordinated care.”

The AKS final rule was issued by the Office of Inspector General (OIG), while the Stark final rule was issued by the Centers for Medicare & Medicaid Services (CMS). In the Stark Law were three key changes to Fair Market Value (FMV), Commercial Reasonableness (CR) and the Volume and Value (VoV) standard, commonly referred to in the industry as “The Big 3.”

1. Fair Market Value

Three separate definitions of FMV and General Market Value (GMV) were finalized. With respect to compensation for services the definition is now as follows:

“Fair market value means the value in arm’s-length transactions consistent with the general market value of the subject transaction.”

“General market value means the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other.”

A key addition to the new definition was the phrase “of the subject transaction.” Which is reinforced by several comments made in the final rule that the specific facts and circumstances of an arrangement must be considered.

2. Commercial Reasonableness

A definition of CR was finally codified. Previously, healthcare entities relied upon commentary issued in 1998 stating an arrangement is CR if it “appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals.” The codified definition of CR is now:

“Commercially reasonable means that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. An arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.”

A key addition to the definition is consideration of the characteristics, “size, type, scope, and specialty,” of the parties. Again, emphasizing the specific facts and circumstances regarding the parties is essential in determining if an arrangement is CR.

Further, CMS has clarified in the definition an arrangement can be CR even if it is not profitable. Though CMS did note profitability is still relevant in evaluating CR.

3. Volume or Value

CMS has now made it clear the volume or value standard (i.e., that arrangements cannot “take into account the volume or value of referrals or take into account other business generated between the parties, respectively”) is a distinct, separate, third test. In addition to FMV and CR, arrangements must meet the VoV standard to fit within most mandatory Stark exceptions and voluntary AKS safe harbors. CMS further provided a bright-line, two-part test for meeting the VoV standard. Ultimately noting an arrangement will only be considered to violate the VoV standard:

“when the mathematical formula used to calculate the amount of the compensation includes referrals or other business generated as a variable, and the amount of the compensation correlates with the number or value of the physician’s referrals to or the physician’s generation of other business for the entity, is the compensation considered to take into account the volume or value of referrals or take into account the volume or value of other business generated.”

 

In addition to addressing The Big 3, the final rules established Stark exceptions and AKS safe harbors for Value-Based Arrangements where the party is a Value-Based Enterprise, composed of two or more VBE participants, engaging in Value-Based Activities for a Target Patient Population to achieve one of more Value-Based Purpose. All of these terms are defined in the final rule. More to come on this area from LBMC in future publications. Key requirements absent from the Stark final rule Value-Based Arrangement exceptions are FMV and VoV, providing needed flexibility for the transformation from paying for volume to paying for value. CMS stated:

“We remain concerned that the inclusion of such requirements in the exceptions for value-based arrangements […] would conflict with our goal of addressing regulatory barriers to value-based care transformation […] Instead, we are finalizing a carefully woven fabric of safeguards, including requirements incorporated through the applicable value-based definitions.”

Finally, it is important to note there is additional helpful guidance in the commentary in final rules which we will be exploring in further resources on this topic.

For more information on these and other changes to the Stark Law or to discuss FMV, CR or VoV for a particular arrangement between specific parties, contact me at 615-690-1944 or ktarr@lbmc.com. I, along with my colleagues, Josh Brummett and Price Rainer, are happy to assist you or your clients.