Healthcare organizations and providers are increasingly seeking partnerships (often with healthcare tech companies that have developed a compatible medical device) to facilitate their provision of remote therapeutic monitoring (RTM) services to eligible patients. Because only a licensed healthcare provider can bill for RTM services, these arrangements often involve the provider compensating the device manufacturer for the devices used to perform the RTM. Such arrangements typically fall under the purview of federal fraud and abuse laws such as the Anti-Kickback Statute (AKS) and the Stark Law. This third installment of the five-part series on the valuation of RTM will discuss these regulatory hurdles.
The AKS and Stark Law are generally concerned with the same issue – the financial motivation behind patient referrals. However, while the AKS is broadly applied to payments between providers or suppliers in the healthcare industry and relates to any item or service that may be paid for under any federal healthcare program, the Stark Law specifically addresses the referrals from physicians to entities with which the physician has a financial relationship for the provision of defined services that are paid for by the Medicare program. Additionally, while violation of the Stark Law carries only civil penalties, violation of the AKS carries both criminal and civil penalties.
The AKS makes it a felony for any person to “knowingly and willfully” solicit or receive, or to offer or pay, any “remuneration”, directly or indirectly, in exchange for the referral of a patient for a healthcare service paid for by a federal healthcare program.1 Notably, a person need not have actual knowledge of the AKS or specific intent to commit a violation of the AKS for the government to prove a kickback violation.2 Violations of the AKS are punishable by up to five years in prison, criminal fines up to $25,000, and/or exclusion from Medicare and Medicaid as an alternative civil remedy to criminal penalties.3 Interpretation and application of the AKS under case law has created precedent for a regulatory hurdle known as the one purpose test. Under the one purpose test, healthcare providers violate the AKS if even one purpose of the arrangement in question is to offer illegal remuneration.4
Due to the broad nature of the AKS, legitimate business arrangements may appear to be prohibited.5 In response, the law contains a number of statutory exceptions called safe harbors.6 These safe harbors set out regulatory criteria that, if met, shield an arrangement from regulatory liability, and are meant to protect transactional arrangements unlikely to result in fraud or abuse.7 However, failure to meet all of the requirements of a safe harbor does not necessarily render an arrangement illegal.8 It should be noted that, in order for a payment to meet the requirements of many AKS safe harbors, the compensation must not exceed the range of Fair Market Value and must be commercially reasonable.9
Of note, in December 2020, the Department of Health & Human Services (HHS) Office of Inspector General (OIG) released new revisions in a final rule, many of which are similar to those revisions to the Stark Law proposed by the Centers of Medicare & Medicaid Services (CMS), as discussed below.10 Among the more notable revisions included are new safe harbors for value-based arrangements, wherein the safe harbor requirements lessen as the participants take on more financial risk. Additionally, several already-established safe harbors, such as personal services and management contracts and outcomes-based payment arrangements, were modified by this final rule.11 These arrangements were changed to add more flexibility, e.g., by adding protections to certain outcomes-based payments.12 Notably, the OIG also eliminated the requirement that aggregate compensation under these agreements is set in advance, instead of requiring the compensation methodology in advance; however, that methodology must be consistent with Fair Market Value and not directly take into account the volume or value of referrals or other business generated between the parties.13
The Stark Law prohibits physicians from referring Medicare patients to entities with which the physician or their family members have a financial relationship for the provision of designated health services (DHS).14 Further, when a prohibited referral occurs, entities may not bill for services resulting from the prohibited referral.15 Under the Stark Law, DHS include, but are not limited to, the following:
Certain therapy services, such as physical therapy;
Radiology and certain other imaging services;
Radiation therapy services and supplies;
Durable medical equipment;
Outpatient prescription drugs; and,
Inpatient and outpatient hospital services.16
Under the Stark Law, financial relationships include: (1) ownership interests through equity, debt, other means, and ownership interests in entities which then have an ownership interest in the entity that provides DHS;17 and (2) compensation arrangements, which are defined as arrangements between physicians and entities involving any remuneration, directly or indirectly, in cash or in kind.18 Notably, the Stark Law contains a large number of exceptions, which describe ownership interests, compensation arrangements, and forms of remuneration to which the Stark Law does not apply.19 Similar to the AKS safe harbors, without these exceptions, the Stark Law may prohibit legitimate business arrangements. It must be noted that in order to meet the requirements of many exceptions related to compensation between physicians and other entities, compensation must: (1) not exceed the range of Fair Market Value; (2) not take into account the volume or value of referrals generated by the compensated physician; and, (3) be commercially reasonable.20 Unlike the AKS safe harbors, an arrangement must fall within one of the exceptions in order to be legally permissible under the Stark Law.21
As noted above, in December 2020, CMS released a number of revisions to the Stark Law in a final rule, including:
Revised definitions for Fair Market Value, General Market Value, and Commercial Reasonableness; and,
New permanent exceptions for value-based arrangements.22
Importantly, the new value-based arrangements exceptions protect the following arrangements:
Full financial risk arrangements: Includes capitated payments and predetermined rates or a global budget;
Value-Based Arrangements with Meaningful Downside Financial Risk: Where a physician pays no less than 25% of the value of the remuneration the physician receives when he or she does not meet pre-determined benchmarks; and,
Value-Based Arrangements: Applies regardless of risk level to encourage physicians to enter value-based arrangements, even if they only assume upside risk.23
Notably, a violation of the AKS or Stark is sufficient to state a claim under the False Claims Act (FCA); which prohibits individuals from knowingly submitting false claims to the government. Therefore, in addition to civil monetary penalties paid under the AKS and/or Stark, violation would create additional liability under the FCA, which itself carries civil monetary penalties of up to $25,076 plus treble damages.24
It is important to note that, the regulatory scrutiny of healthcare entities (especially with regard to fraud and abuse violations) has generally increased in recent years. Therefore, under current regulation, the severe penalties that may be levied against healthcare providers under the AKS, the Stark Law, and/or the FCA will likely raise a hypothetical investor’s estimate of the risk of paying for RTM services.
“Criminal Penalties for Acts Involving Federal Health Care Programs” 42 U.S.C. § 1320a-7b(b)(1)
“Health Care Reform: Substantial Fraud and Abuse and Program Integrity Measures Enacted” McDermott Will & Emery, April 12, 2010, p. 3; “Patient Protection and Affordable Care Act” Pub. L. No. 111-148, § 6402, 119, 124 Stat. 119, 759 (March 23, 2010).
42 U.S.C. § 1320a-7b(b)(1); “Medicare and Medicaid Patient and Program Protection Act of 1987” Pub. L. No. 100-93, § 2, 101 Stat. 680, 680-681 (August 18, 1987).
“Re: OIG Advisory Opinion No. 15-10” By Gregory E. Demske, Chief Counsel to the Inspector General, Letter to [Name Redacted], July 28, 2015, http://oig.hhs.gov/fraud/docs/advisoryopinions/2015/AdvOpn15-10.pdf (Accessed 4/24/18), p. 4-5; “U.S. v. Greber” 760 F.2d 68, 72 (3d Cir. 1985).
“Demske, Chief counsel to the Inspector General, Letter to [Name Redacted], July 28, 2015, p. 5.
“Medicare and State Health Care Programs: Fraud and Abuse; Clarification of the Initial OIG Safe Harbor Provisions and Establishment of Additional Safe Harbor Provisions Under the Anti-Kickback Statute; Final Rule” Federal Register, Vol. 64, No. 223 (November 19, 1999), p. 63518, 63520.
“Re: Malpractice Insurance Assistance” By Lewis Morris, Chief Counsel to the Inspector General, U.S. Department of Health and Human Services, Letter to [Name redacted], January 15, 2003, http://oig.hhs.gov/fraud/docs/alertsandbulletins/MalpracticeProgram.pdf (Accessed 5/3/21), p. 1.
“Fundamentals of the Stark Law and Anti-Kickback Statute” By Asha B. Scielzo, American Health Lawyers Association, Fundamentals of Health Law: Washington, DC, November 2014, https://docplayer.net/17313708-Ahla-fundamentals-of-the-stark-law-and-anti-kickback-statute-asha-b-scielzo-pillsbury-winthrop-shaw-pittman-llp-washington-dc.html f (Accessed 5/3/21), p. 9-13, 42.
“Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements” Federal Register, December 2, 2020, Vol. 85, No. 232, p. 77814-77815.
“Avoiding self-referral: Understanding the Stark laws” By Hayden S. Wool, Medical Economics, April 1, 2015, http://www.medicaleconomics.com/medical-economics/news/avoiding-self-referral-understanding-stark-laws?page=full (Accessed 5/3/21); “CRS Report for Congress: Medicare: Physician Self-Referral (“Stark I and II”)” By Jennifer O’Sullivan, Congressional Research Service, The Library of Congress, July 27, 2004, https://www.policyarchive.org/handle/10207/2137 (Accessed 5/3/21), p. 1-5; “Limitation on certain physician referrals” 42 U.S.C. §1395nn.
“Limitation on certain physician referrals” 42 U.S.C. §1395nn(a)(1)(B).
Ibid,; “Definitions” 42 C.F.R. § 411.351 (October 1, 2014). Note the distinction in 42 C.F.R. § 411.351 regarding what services are included as DHS: “Except as otherwise noted in this subpart, the term ‘designated health services’ or DHS means only DHS payable, in whole or in part, by Medicare. DHS do not include services that are reimbursed by Medicare as part of a composite rate (for example, SNF Part A payments or ASC services identified at §416.164(a)), except to the extent that services listed in paragraphs (1)(i) through (1)(x) of this definition are themselves payable through a composite rate (for example, all services provided as home health services or inpatient and outpatient hospital services are DHS).”
“Limitation on certain physician referrals” 42 U.S.C. §1395nn (a)(2).
“Fundamentals of the Stark Law and Anti-Kickback Statute” By Asha B. Scielzo, American Health Lawyers Association, Fundamentals of Health Law: Washington, DC, November 2014, https://docplayer.net/17313708-Ahla-fundamentals-of-the-stark-law-and-anti-kickback-statute-asha-b-scielzo-pillsbury-winthrop-shaw-pittman-llp-washington-dc.html f (Accessed 5/3/21), p. 28-38.
“Health Care Fraud and Abuse: Practical Perspectives” By Linda A. Baumann, Health Law Section of the American Bar Association, Washington, DC: BNA Books, 2002, p.106.
“Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations” Federal Register, Vol. 85, No. 232 (December 2, 2020), p. 77492.
“Civil Monetary Penalties Inflation Adjustments for 2022” Federal Register, Vol. 87, No. 89 (May 9, 2022), p. 27515; “The False Claims Act”; The United States Department of Justice, February 2, 2022, https://www.justice.gov/civil/false-claims-act (Accessed 9/23/22).