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Playing Catch-Up to Innovation and Value-Based Care: CMS and OIG’s Proposed Fraud and Abuse Regulatory Updates to Physician Self-Referral, Anti-Kickback, and Civil Monetary Penalty Laws

Client Alert | 10 min read | 10.16.19

On October 9, 2019, the Centers for Medicare & Medicaid Services (CMS) and the Office of the Inspector General of the Department of Health & Human Services (OIG) released their proposed rules to modernize the Physician Self-Referral Law1 (CMS NPRM), as well as the Anti-Kickback Statute2 and the Civil Monetary Penalties Law3 regulations (OIG NPRM). Both agencies’ NPRMs focus on creating flexibility for Medicare providers and suppliers to enter into value-based arrangements. The CMS and OIG NRPMs attempt to clarify how these long-standing anti-fraud regulations can be reformed to effect necessary shifts to a more efficient and patient-centered health care system. 

These NPRMs are a culmination of the agencies’ considerations of comments submitted by health care stakeholders in response to two Requests for Information issued by CMS and OIG in 2018 as part of the Regulatory Sprint to Coordinated Care spearheaded by HHS Deputy Secretary Eric Hargan. Comments will be due to the agencies 75 days after each of the NPRMs are published in the Federal Register on October 17, 2019, which is December 31, 2019.

There are a significant number of proposals that the healthcare industry should applaud. For example, there are new exceptions and safe harbors to protect value based arrangements. Under the proposals, those entities who are willing to operate under “substantial” or “full” financial risk will also benefit from stronger protections under both the Physician Self-Referral Law (also known as the “Stark Law”) and the Anti-Kickback Statute. Importantly, with respect to value-based arrangements where the parties undertake full financial risk, CMS is specifically seeking comments as to whether “a value-based enterprise should be considered to be at full financial risk if it is responsible for the cost of only a defined set of patient care services for a target patient population,” and whether CMS “should require a minimum period of time during which the value-based enterprise is at full financial risk (for example, 1 year).” Additionally, as requested by many commenters, CMS has proposed revisions to the terms “fair market value,” “volume and value of referrals,” and” commercial reasonableness.” We encourage providers to review the changes to these definitions carefully as they are complex and do not entirely solve problems created by recent False Claims Act decisions, e.g., U.S. ex rel Bookwalter v. UPMC, 2019 WL 4437732 (3d Cir. Sept. 17, 2019).

While there are a number of changes that are encouraging, all hopes for reform did not materialize. Under the Anti-Kickback Statute-related proposals, for instance, drug and device manufacturers or distributors, laboratories, and DME suppliers, could not enjoy the protection of the proposed value based arrangement safe harbors. The OIG signaled a willingness to revisit this decision, but because of its fraud and abuse concerns with these specific stakeholders, the agency is wary of extending the proposed safe harbor’s protection to all of the aforementioned entities. Further, CMS did not address hot-button issues under the Stark regulations such as the limits on physician-owned hospitals and the in-office ancillary services exception. 

Each of these NPRMs are complex and there are many intended and unintended consequences of these proposed revisions. We will provide additional analysis in the weeks ahead regarding specific industry impacts of these regulatory changes. In the meantime, we provide a high-level summary of some of the most important proposals below.

The CMS NRPM includes, in part, the following notable proposed modifications to the Stark Law regulations:

General Enforcement Policy Changes
  • Removing from the exceptions in 42 CFR Part 411, subpart J the requirement that the arrangement not violate the Anti-Kickback Statute or any Federal or State law governing billing or claims submission. CMS makes this recommendation emphasizing that compliance with one law does not equate to compliance with the other, and that this “in no way affects parties’ liability under the anti-kickback statute.” Interestingly, CMS also stated that, historically, it is unaware of any instances of noncompliance with the Stark Law that solely turned on an underlying anti-kickback violation.
  • Deleting the rules on the period of disallowance at 42 C.F.R. §411.353(c)(1) in their entirety, and acknowledging that parties to a prohibited financial relationship must apply a case-by-case analysis to determine when the period of disallowance has ended with respect to the nature of noncompliance and the amounts in dispute. Furthermore, CMS states that “we believe that parties cannot retroactively ‘cure’ previous noncompliance by recovering or repaying problematic compensation.”
  • Creating a “limited remuneration to physicians” exception for compensation from an entity to a physician for items or services actually provided by the physician to provide “flexibility for nonabusive practices” that does not exceed $3,500 annually in aggregate. 

Modifications of Key Definitions
  • Proposing to clarify the definition of “designated health services” at 42 C.F.R. § 411.351 to state that a service provided by a hospital to an inpatient does not constitute a designated health service if the furnishing of the service does not affect the amount of Medicare’s payment to the hospital under the Inpatient Prospective Payment System (IPPS), e.g., an X-ray would not be a designated health service where the attending physician of an already admitted patient under an established DRG requests a consultation with a specialist who then orders an X-ray. CMS is seeking further guidance on how to include analogous services not paid under the IPPS in this carve-out.
  • Creating a regulatory definition of the term “commercially reasonable” at 42 C.F.R. § 411.351. CMS clarified that a financial relationship that does not earn a profit could still be commercially reasonable. 
  • Revising the definition of “taking into account the volume and value of referrals or other business generated between the parties” by revising the special rules on compensation at proposed 42 C.F.R. §411.354(d)(5) and (6). These changes were in direct response to U.S. ex rel Drakeford v. Tuomey, 976 F. Supp. 2d 776 (D.S.C. 2013) and likely undermine the recent Third Circuit decision, U.S. ex rel Bookwalter v. UPMC, 2019 WL 4437732 (3d Cir. Sept. 17, 2019). Specifically, compensation would be deemed to take into account the volume or value of referrals if (1) the formula used to calculate the physician’s (or immediate family member’s) compensation includes the physician’s referrals to the entity as a variable, and (2) results in an increase or decrease in the physician’s (or immediate family member’s) compensation that positively or negatively correlates with the number or value of the physician’s referrals to the entity. Due to the complexity of these new definitions, further study is necessary to determine if these changes will achieve CMS’s intended result. 
  • Modifying the remuneration definition exception for “items, devices, or supplies that are used solely to collect, transport, process, or store specimens for the entity providing the items, devices, or supplies, or to order or communicate the results of tests or procedures for such entity” under 42 C.F.R. § 411.351.
  • Creating clearer distinctions between the standalone term “transaction” and “isolated financial transaction” under 42 C.F.R. § 411.351.
  • Revising the “fair market value” definition to align it more closely with the definition of “general market value” and be more consistent with market valuation principles, particularly with respect to office space leases and equipment rentals. 

Provisions to Promote and Foster Value-Based and Managed Care Arrangements
  • Creating a new compensation arrangement exception at 42 C.F.R. §411.357(aa) for arrangements that satisfy specified “value-based purpose” requirements applicable to “value-based arrangements,” “value-based enterprises,” and “target patient populations,” the key definitions on which CMS seeks comment. The exception would apply regardless of whether the arrangement “relates to care furnished to Medicare beneficiaries, non-Medicare patients, or a combination of both.” The exception offers the most protection to those entities or arrangements where the parties accept substantial financial risk. CMS is also seeking comment on whether to include requirements in furtherance of price transparency principles in every exception for value-based arrangements at proposed §411.357(aa).
  • Updating the group practice definition at 42 C.F.R. § 411.352 to expand the application of special rules for compensation arrangements involving profit shares and productivity bonuses. CMS also proposes to eliminate all references to Medicaid from the group practice definition. 

Cybersecurity and Technology-Focused Proposals (With Parallel Changes Under the Anti-Kickback Statute)
  • Updating provisions in the electronic health records (EHR) exception pertaining to interoperability (§411.357(w)(2)) and data lock-in (§411.357(w)(3)) to clarify that donations of certain cybersecurity software and services are permitted under the EHR exception, and removing the sunset provision.
  • Seeking comment on possible modifications to the 15 percent contribution requirement under the EHR exception for new donations and donations of replacement technologies. 
  • Creating a new exception at §411.357(bb) to protect arrangements involving the donation of certain cybersecurity technology and related services. 


The OIG NRPM includes the following proposals related to the Anti-Kickback Statute and Civil Monetary Penalties Law:

Value-Based Arrangements and CMS Programs

  • Creating three new safe harbors for certain types of in-kind or monetary remuneration exchanged between or among participants in a value-based arrangement at 42 C.F.R. §§ 1001.952(ee) through 1001.952(gg) for care coordination arrangements to improve quality, health outcomes, and efficiency; for value-based arrangements with substantial downside financial risk; and for value-based arrangements with full financial risk.
  • Creating a “permanent” new safe harbor at 42 C.F.R. § 1001.952(ii) for certain remuneration provided in connection with CMS-sponsored models like the Medicare Shared Savings Program in order to reduce the need for OIG to issue separate and distinct fraud and abuse waivers for such programs where Congress has granted authority to the HHS Secretary to issue waivers. 
  • Creating a regulatory exception at 42 C.F.R. § 1001.952(kk) to implement the statutory exception to the definition of “remuneration” related to the Medicare Shared Savings Program’s ACO Beneficiary Incentive Programs established at section 1128B(b)(3)(K) of the Social Security Act.
  • Adding conditions for permissible outcomes-based payments and part-time arrangements to the existing safe harbor for personal services and management contracts at 42 C.F.R. § 1001.952(d). 

Cybersecurity and Technology-Focused Proposals
  • Creating a new cybersecurity technology and services donation safe harbor at 42 C.F.R. § 1001.952(jj).
  • Updating the existing safe harbor for EHR items and services at 42 C.F.R. § 1001.952(y) to add protections for certain cybersecurity technology included as part of an electronic health records arrangement, to update provisions regarding interoperability, and to remove the sunset date.
  • Revising the “warranty” definition in the existing safe harbor for warranties at 42 C.F.R. § 1001.952(g) to provide protection for warranties for one or more items and related services (taking a page from the OIG’s recent Advisory Opinion).

Promoting Patient Benefits and Incentives
  • Amending the definition of “remuneration” in the regulations implementing the Civil Monetary Penalty Law at 42 C.F.R. § 1003.110 based on a new statutory exception to the prohibition on beneficiary inducements for “telehealth technologies” furnished to certain in-home dialysis patients, in section 50302(c) of the Budget Act of 2018.
  • Creating a new patient engagement and support arrangements safe harbor for tools and supports furnished to improve quality, health outcomes, and efficiency at 42 C.F.R. § 1001.952(hh), which would also be treated as exceptions to prohibited remuneration under the Civil Monetary Penalty Law.
  • Expanding the existing local transportation safe harbor at 42 C.F.R. § 1001.952(bb) to expand and modify mileage limits for rural areas and for transportation for discharged patients, which would also be treated as exceptions to prohibited remuneration under the Civil Monetary Penalty Law.

1 42 U.S.C. § 1395nn and 42 C.F.R. Part 411, Subpart J.

2 42 U.S.C. § 1320a-7b(b) and 42 C.F.R. § 1001.952. 

3 42 U.S.C. § 1320a-7a and 42 C.F.R. Part 1003, subpart A. 

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