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PG Bulletin

​December 18, 2019

OIG’s Proposed Revisions to AKS Safe Harbor Rules: Implications for Life Sciences Stakeholders

David Blank, Leah Tinney, and Christopher J. Frisina (Quarles & Brady LLP)

This Bulletin is brought to you by AHLA’s Life Sciences Practice Group.

On October 9, 2019, the U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) announced the release of its proposed rule modifying and expanding the regulatory safe harbors under the Anti-Kickback Statute (AKS).1 The proposed rule is the OIG’s contribution to HHS’ “Regulatory Sprint to Coordinated Care,” announced in 2018, aimed at modernizing the various regulatory schemes to encourage better coordination of patient care, improve health outcomes, and allow for the adoption of technological advancements that benefit patients and the health care delivery systems at large. 

The proposed rule is a manifestation of HHS’ long-held desire to move away from traditional fee-for-service payment models toward a value-based system where reimbursement correlates with patient and/or population health outcomes. To be successful, value-based payment models rely on close coordination between providers, suppliers, and patients, imposing shared accountability among all parties. Historically, however, value-based arrangements often fell victim to the broad prohibitions governing the exchange of remuneration under the AKS. The proposed rule could be a substantial step in the advancement of the agency’s policy objective. 

The proposed rule seeks to add five additional regulatory safe harbors under the AKS. Three safe harbors address specific value-based arrangements, including: (1) care coordination arrangements to improve quality, health outcomes, and efficiencies; (2) value-based arrangements with substantial downside financial risk; and (3) value-based arrangements with full financial risk. A fourth safe harbor would cover arrangements involving the provision of patient engagement and support furnished by value-based enterprises to patients in a target population designed to improve quality, health outcomes, and efficiency. The fifth safe harbor involves regulatory protection for CMS sponsored innovative payment models. 

The OIG also proposed a modification to the existing personal services and management contracts safe harbor by removing barriers that could interfere with coordinated and value-based arrangements. The new safe harbor would remove the requirement that arrangements involving the provision of part-time or sporadic services be scheduled in advance and the charges identified with specificity. The OIG also proposed replacing the requirement that the contracting parties identify the aggregate compensation in advance with a methodology-based compensation approach. The OIG believes a methodology-based compensation model strikes the right balance to permit flexibility in outcome and value-based arrangements while guarding against a party’s ability to adjust compensation to induce or reward referrals.

While the proposed safe harbors further the ability of health care entities to enter into coordinated and value-based arrangements, not all industry players are included. The OIG explicitly excluded pharmaceutical manufacturers; laboratories; and manufacturers, distributors, or suppliers of durable medical equipment, prosthetics, orthotics, or supplies (DMEPOS) from the definition of value-based participants.

The OIG justified its exclusion of these industries on the basis that they are disproportionally “dependent upon practitioner prescriptions and referrals.”2 The OIG believes this reliance raised the probability the proposed safe harbors could be “misused” and become a vehicle to transfer “remuneration to practitioners and patients to market their products, rather than as a means to increase value for patients and payors by improving the coordination and management of patient care, reducing inefficiencies, or lowering health care costs.”3 The OIG is concerned that these industry sectors could exploit the value-based arrangements “to tether clinicians or patients to the use of a particular product . . . when a different product could be more clinically effective for the patient.”4 The OIG further justified its exclusion of these entities on the basis that they “are less likely to be on the front line of care coordination and treatment decisions” than those entities not explicitly exclude.5

The OIG also acknowledged that the exclusion of pharmaceutical manufacturers, laboratories, and DMEPOS manufacturers, distributors, and suppliers was based, in part, by the agency’s prior oversight and enforcement experience. It is not coincidental that the entities excluded from participating in the value-based care models operate in industries that have historically been subject to large false claims settlements based on allegations of AKS violations. Critics of the proposed rule believe that the exclusion of sectors that make up a significant portion of federal health care spending based on isolated and historical noncompliance is shortsighted and fails to account for the industry’s ability to drive innovation in outcome and value-based arrangements. As an example, pharmaceutical manufacturers commented that the provision of medication adherence and support tools to patients has proven effective at improving care outcomes. Likewise, the provision of data analytics to physicians regarding a patient’s medication usage and adherence allows for improved patient counseling opportunities leading to better results.

The OIG acknowledged the potential difficulties in the categorical exclusion of these three industry sectors and its limiting effect on a fully-integrated coordinated care model. The challenge in excluding large health sectors from the definition of value-based participants is best exemplified by the agency’s discussion regarding medical device manufactures entering the technology space. For obvious reasons, the OIG has a strong desire to protect arrangements involving organizations that “provid[e] mobile health and digital technologies to physicians, hospitals, patients, and others for the coordination and management of patients and their health care.”6 However, this would allow some medical device manufacturers the ability to participate in value-based care as more manufacturers move to develop digital technologies that are used in connection with traditional devices. The OIG is concerned that such companies may misuse these valued-based arrangements to disguise improper payments intended to induce the purchase of the medical devices that they manufacture. The OIG is soliciting comments to determine “the roles that traditional device manufacturers play in care coordination and management.”7 The OIG also seeks public comment regarding the need to define “medical device manufacturer” and “device manufacturer” under the Medicare program and for inclusion in the final rule.

Because of the challenges raised by the categorical exclusion of pharmaceutical and medical device manufacturers, the OIG proposed a potential alternative to determine value-based participation. Instead of an exclusionary definition, the OIG is soliciting comments on the feasibility of a multi-factor test to determine whether a participant, product, or arrangement qualifies for safe harbor protection. This approach would examine the applicability of the safe harbor to particular arrangement factors such as product type, company structure, fraud risk, and other undetermined elements. A factor test could open the coordinated and value-based care arrangements to pharmaceutical or DME manufacturers that offer certain digital technologies. Under this alternative approach, the safe harbors could protect “arrangements involving the use of mobile or digital technology to coordinate care or achieve outcomes-based payments but exclude arrangements for the sale or distribution of implantable medical devices or durable medical equipment.”8 The OIG also suggested, as an additional alternative, explicitly listing what type of entities would be excluded from the definition of a value-based participant for a specific safe harbor, rather than creating a categorical prohibition that would apply to every safe harbor. 

The OIG also signaled a further narrowing of the definition of value-based participants might be forthcoming in the final rule. The OIG is soliciting comments on whether additional health care sectors should be excluded, including pharmacies (including compound pharmacies), pharmacy benefit managers (PBMs), wholesalers, and distributors. The OIG’s concerns about the inclusion of pharmacies in the final rule appear rooted in whether these entities can advance the agency’s goal of promoting outcome and value-based care because pharmacy services are generally limited to dispensing drugs and may not directly impact care coordination and treatment. At the same time, the OIG did acknowledge that pharmacies and pharmacists could “have the potential to contribute to the type of beneficial value-based arrangements this rulemaking is designed to foster.”9 It is unclear at this stage of rulemaking whether pharmacies will be considered value-based participants in the final rule. The OIG hinted that it could split the pharmacy sector into two categories, including retail and community pharmacies in the definition of value-based participants, while excluding compounding pharmacies because of the historical risk of fraud and abuse posed by such entities. 

While the proposed rule is not final, organizations in the life sciences space should take note that the OIG is likely to hold firm on its intent to exclude, in some capacity, pharmaceutical manufacturers, laboratories, and DMEPOS manufacturers, distributors, and suppliers from the final rule. However, if these sectors are excluded in this rulemaking, not all hope is lost. The OIG indicated that it would consider additional safe harbors (for future rulemaking) that would be “specifically tailored” for the protection of value-based and outcomes-based arrangements involving pharmaceutical manufacturers and traditional device manufacturers.

To that end, the OIG has made clear that it strongly desires stakeholder input and will consider all comments before promulgating the final rule. While it is certain that the OIG will finalize safe harbors aimed at protecting coordinated and value-based arrangements, the specific elements of each proposed safe harbor remain subject to change. Organizations in the pharmacy, PBM, wholesale, and distribution sectors should focus comments on how they further the goal of promoting coordinated and outcome-based care. Organizations in the life sciences industries should also consider using this comment period to address the possibility of future OIG rulemaking that would create industry-specific value-based and outcomes-based safe harbors. Public comments must be delivered to the OIG by December 31, 2019.

David Blank is a partner at Quarles & Brady LLP and is the head of the firm’s health care Fraud & Abuse, Compliance, and Litigation Team. Leah Tinney and CJ Frisina are associates at Quarles & Brady LLP.

1 See Revisions to Safe Harbors under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 84 Fed. Reg. 55694 (Oct. 17, 2019).
2 Id. at 55703. 
3 Id. at 55704. 
4 Id.    
5 Id. at 55705.
6 Id.
7 Id.
8 Id. at 55706.
9 Id. at 55704.
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