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Stark and Anti-Kickback Statute Final Rules: Questions Answered
Building on their enormously popular January 2021 webinar on the Stark and AKS final rules, Robert Homchick, Partner, Davis Wright Tremaine LLP, and Julie Kass, Principal, Baker Donelson Bearman Caldwell & Berkowitz PC, talk with Dave Hesselink, Principal, SullivanCotter, to answer important questions about the rules and dig deeper into issues such as the non-value based changes to Stark, treatment of indirect compensation arrangements, provision for contractual mistakes, and the isolated transaction exception. Sponsored by SullivanCotter.
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Speaker 2:Hello, everybody. Uh, my name is Dave Hassling. I'm, uh, principal with Sullivan Coter. I'm here today to help moderate a follow up podcast to webinar that was hosted by A H L A on January 6th. The title of that webinar was Stark and Anti Kickback Statute Final Rules. What You Need To Know, and the panelists for that webinar were Bob Hoick with Davis Wright Tramaine, and Julie Kass with Baker Ober Health Law. Today's, uh, podcast is really a follow up to take a deeper dive into the, uh, the subject material, uh, around the Stark and a kickback statute final rules. Um, I'd like to, uh, go ahead and ask our speakers, Bob and Julie to take a moment to introduce themselves. So, Bob, go ahead.
Speaker 3:Um, thank you Dave. I am Bob Hoick. I'm in the Seattle office of Davis Wright Tramaine, but really work with hospitals, health systems, and other providers around the country on healthcare regulatory issues. Um, much, uh, the, particularly the Stark Law and, uh, physician compensation issues, uh, take up a reasonable amount of my mental space. So, Julie,
Speaker 4:I am Julie Cass. I am a shareholder in the Baltimore and DC offices of Baker Donaldson. Uh, and I also, uh, focus my practice on fraud and abuse issues, also representing many hospital systems and just looking at ways that, uh, things can be structured appropriately within the Stark and the kickback laws. And so, uh, we'll see how, how that goes under these new laws as we go through this podcast today.
Speaker 2:Great. Thank you both and appreciate your time today to, um, to help the audience understand the impact of the, the, the final rules. I guess my first question overall is, um, there were some specific intents, um, that c m s and the OIG had, uh, in terms of these final rules, specifically, I think to, um, create, uh, more opportunities for value-based, uh, arrangements and for organizations to work together in a more creative fashion, perhaps than they have in the past to improve quality and reduce cost of care. And my question to, um, both of you, I'll start out here with Bob, is how did they do?
Speaker 3:Uh, um, I am not shy about being critical of the, the government when I think, uh, there's, uh, they have made a misstep or whatever. I have to congratulate both agencies. I think C M S and OIG both did, uh, a very good job of trying to understand the issues and of considering, um, the, the barriers posed by the traditional fraud and abuse laws, the anti kickback statute and the Stark Law. Uh, they did a great job as well in general listening to the comments between the proposed and the final rules. And, uh, I really, um, uh, you know, the, some of the problem, or certainly a big part of it is the statutes themselves and both organization, both OIG and C m s, can't undo what Congress has done. So within the parameters that they were working, I thought they did a fine job. Julie.
Speaker 4:Uh, I agree with you, Bob. I think they did listen, and I think one of the things, uh, that's really helpful about these regulations, especially the parts, uh, dealing with value-based care, is they left in a lot of flexibility. Um, they gave criteria and parameters, but there's a lot of places where people asked for specific examples or wanted very specific provisions, and they explained very clearly in the regulations that they weren't going to do that because they really wanted people to be able to be flexible, uh, to be innovative and to see what developed and so that these new regulations could withstand the test of time, uh, not knowing what new kinds of arrangements, uh, the healthcare industry might come up with.
Speaker 2:Great. And, and I think one of the, you know, stated objectives was of course, um, these value-based arrangements and we learned a whole new vocabulary through this final rule of VBAs, VBAs, et cetera. Uh, I, I would assume, Julie, that you would, you would agree that this will give some momentum to VBAs, perhaps starting slowly, but picking up some steam is, is that your assessment?
Speaker 4:I think that's right. I think, uh, once people understand the vocabulary and the structure of the new definitions and the exceptions, I think especially, uh, the exceptions that deal with arrangements that have no risk will be the first that people will explore. Because I don't know that, uh, the providers are really ready to take on risk yet. I think probably the last that people will explore is a full financial risk. Uh, many of our client, my clients tell me they're not there yet, and many aren't even at the meaningful or substantial risk. But certainly there are lots of things, um, that they have been thinking about for some time in terms of care coordination and working on reducing readmission rates and things that really, um, have, have skirted around the issues. And you think, well, they could be okay and we might be able to fit it within an exception, and it might be okay under the kickback statute that now these new, um, exceptions for for care coordination and value-based arrangements really open a pathway to structure these arrangements within those exceptions. And I think those really will take off.
Speaker 3:Uh, I agree. I, my one hesitation on this is the complexity of the definitions and, uh, the no risk exception, particularly under Stark. There, there are a lot of different hoops to jump through, and I do give kudos to c m s for not being overly prescriptive on, you know, you, it has to look a certain way, it has to be structured a certain way, but there are a lot of, uh, there's a lot of detail that has to be included when you're creating a value-based arrangement around a value-based purpose for, uh, with value-based activities for a targeted patient population, all of which are defined terms.
Speaker 4:I think that's really true, Bob. What I've been telling clients is, you know, these likely will work if you're willing to adapt some of your thinking. Some of it's probably things you were thinking that you weren't formalizing, but the only way to really see it work and to make it less complex, is to come up with your example and then literally go through the regulation like it's a checklist and check off each box, each definition, and then each part of the exception as you go. And I think that's the only way you'll really get to see if this is gonna work for a particular arrangement. Otherwise thinking of it globally really does make it very complicated. I agree.
Speaker 2:Along that same line then, Bob, to, you know, branch off a point that you just made, it is a complex set of legislation. There were two agencies involved here and there are differences between the Stark and Kickback statute final rules. Do those differences just add to the complexity, create more confusion and perhaps prevent some of the care coordination that, that the agencies were interested?
Speaker 3:Uh, there's certainly that possibility, but I think though, um, you know, there are common definitions between, um, the O Oig Safe Harbors and the Stark, um, uh, exceptions and the agencies worked, uh, you know, together. I, I believe that, you know, uh, with any, uh, relationship that involves physicians, you're gonna, uh, have to fit within the stark exception. You will structure these, uh, with Stark first, which in my experience is relatively common. That's where we all start, uh, in working through these issues. And then, uh, you know, I think Julie once said, we might need to get comfortable being uncomfortable, uh, that you, uh, may fit within a stark exception, but still have potential, uh, a k s exposure, bluntly, if you've got a, a good set of, you know, value-based purpose structured with a value-based activity intended to, uh, that is aligned with achieving that. Um, in general, I think the level of anti-kickback risk is not gonna be so great that it will prevent people from moving forward who have a good faith idea.
Speaker 4:I tend to agree with that. I think there is a lot of complexity, especially at the meaningful and substantial financial risk exceptions. I do think having common definitions is very helpful, cuz at least you don't have to create two different kinds of DBEs value-based enterprises. So all of that is the same. I think it's really, when you get into the definitions, will you fit into both. And I agree with, with Bob, you would do it the same way you'd start with Stark and then look and see if there is a, uh, a kickback safe harbor that that is also comparable or, or would fit the arrangement. And if not, you know, are you comfortable being uncomfortable?
Speaker 2:Great, thank you Julie. Um, do you think that the value-based arrangement changes are more important than the the other changes that were in the Stark Law? Um, so specifically I think around definitional changes,
Speaker 4:So like I tell my family all, I love all my children equally. Um, I think that both kinds of changes bring really important things, um, to the force. So we've talked a lot about the value-based changes and I think that they really will remove some roadblocks and allow for coordination of care. And so I think those are important, but I do think equally as important are the changes that were made to the definitions and some of the technical changes that were made. So to modernize the Stark regulations allow for, uh, more arrangements that aren't, um, in any way abusive to fit within, uh, exceptions and make them compliant. Whereas, you know, a missing writing previously might have made them non-compliant. They have found ways to look at arrangements, know that they weren't abusive and, and fix the regulations to make it easier to be compliant. And so I think on a day-to-day basis, when you're not looking at how do I structure a big value-based arrangement on a day-to-day for a lot of the questions we get, uh, how do I handle this non-compliant arrangement, it's going to bring a lot of relief to a lot of, uh, health systems and others that have to deal in the day-to-day stark issues.
Speaker 3:I would agree with that. I think the, the other changes, the non-value based changes to stark affect how lawyers compliance officers and people in the field are dealing with the day-to-day application of the Stark Law to relationships with physicians. And in that way I, you know, I would say they're probably gonna be more heavily relied upon, uh, and have a bigger part in our, you know, just the overall analysis of the statute in the, the various and hundred ways that it comes up in, uh, in the variety of different context words when you're dealing with physicians.
Speaker 2:Great. Yeah, that's good to know. Bob. There was some expectation that there would be, um, you know, some codification of the comments on tomy in the regulation text. And do you have any concern that c m s chose not to do that and and will courts pay attention to the commentary?
Speaker 3:I'm glad that they reiterated the commentary. I think, uh, Tomy has created more than its share of havoc, uh, among our clients. And, um, I think C M S handled it appropriately. Uh, it was, I don't think it was necessary to quote Tomy in the regulation itself because they redefined volume value. It is now a mathematical formula and it's pretty clear if a one of the variables in the formula I isn't the, uh, referrals or other business generated, then the relationship or the financial relationship doesn't vary with a volume or value of referrals. And that's really where Tomy got, you know, went off in a cap, you know, that it, the volume or value interpretation was just, you know, far too broad in my opinion. And, you know, called into question W R B U, uh, based comp as well as, you know, anytime there's a shadow sort of, um, uh, facility fee associated with, um, a, uh, professional service. I think if you're paying somebody based on wvu, now to me, you know it, to me's irrelevant, you know that there is no variable there, um, that, uh, reflects either referrals or other business generated by that physician.
Speaker 4:And I think if there's really any question about that and a court is confused or doesn't understand, there is the preamble to rely on because they did restate that. So that's helpful. And I think so, so I agree with Bob, you didn't need to have the two me part in the regulation text itself because they set up an objective test and it's whatever your mathematical formula is and whatever those variables are. I, I mean, I would note that for commercial reasonableness, so that dealt with the volume and value standard for the commercial reasonable definition, which isn't such a bright line test, but really looks at, um, what is the parties, you know, what are they thinking? Is it commercially reasonable for those particular parties? And that particular way if for that particular size, they did put in the regulation text that simply, if you don't have a profit, doesn't mean something isn't commercially reasonable. So, um, where I think it was a more subjective test, they, they did take the opportunity to put in regulation texts what we needed to have, which is profit is not the end all be all of commercial reasonability. So that I think was, was helpful.
Speaker 2:Bob, what if you can create an arrangement that fits with the, the Stark V B A exception, but includes monetary re remuneration? What, what do you do about anti kickback statute in that situation?
Speaker 3:So you've got the no risk v VBA exception. You can, uh, that, um, it can be remuneration can be either cash or, um, or in-kind on the, uh, uh, side of the, uh, anti kickback statute. There no risk side is only, uh, non-monetary compensation in kind, but there is the, um, e exception or safe harbor around, uh, uh, personal services that includes an outcome based, um, payment exception. And I think you may be able to rely on that in appropriate circumstances, or if you can't just kind of take your chances on the kickback statute as we discussed before. Julie,
Speaker 4:I think that, that, I have been looking at that a lot for clients. If you look at, um, typical gain sharing arrangements, but those that include quality components as well, those likely fit within or can be structured at least to fit within the value-based arrangement, exception under Stark as, as Bob was talking about. But because it's a monetary payment that you're gonna make, even if you're just paying for quality, let's say for physicians, that's not going to fit within, um, a kickback safe harbor under the V v, but the outcome-based payment safe harbor, um, if you're paying for quality, then you could use that. So, uh, you may be in A V B A, uh, you know, exception for Stark and a non V b a safe harbor for the anti kickback statute and, and sort of put them and marry them together. So I've often, I've, as I have been looking and paging through these, even though the outcome-based payment safe harbor doesn't require a value-based, uh, enterprise and a lot of the criteria that you need, it's still is kind of a value-based safe harbor. Um, so it doesn't require all those definitional elements, but it does, it does rely on some value-based things. And so I think you, it it's sort of a part of it, it's a, it's a mini part. Um, and so I I look at them together when you're dealing with remuneration that isn't, that is monetary and you're trying to find a way to protect it under the kickback statute.
Speaker 2:Okay. Julie, um, with regard to indirect compensation arrangements, what really changed in the definition and exception?
Speaker 4:So prior to the final rule, there was a definition for indirect comp arrangements, and then there was an exception. And many arrangements, uh, would fall within the definition of an indirect comp arrangement. And then when you looked at the exception would be accepted, so you wouldn't have a problem. And the reason for that is that if you had, uh, compensation, you have an unbroken chain of arrangements between a designated health service entity and a physician, and then you look at the next prong of the indirect compensation definition, if the money wasn't set forth in the aggregate, um, then you still had to go to the exception. So if you either had an hourly rate or a per click rate, it went to the exception. And when you got to the exception, the set in advance definition for the exception, was different than the definition. And in the exception it said as long as the unit was set in advance, you could meet the exception. And what, uh, c m s has done is it collapsed the, that part of the def the exception into the definition. So now, um, if you have an unbroken chain, you go to the next step, and as long as the amount that you are paying per unit per hour is set in advance, uh, you won't need to go to the exception. So I think that there's very few things that if they are not within that fall, if they do fall within the definition, would actually be accepted. Now, I think most arrangements, and I think this is the intent of c m s won't even get to the exception part. If it's something that used to be okay, under the exception, it now won't even fall within the definition of an indirect compensation arrangement. So it's, like I said, it collapsed the, the analysis to the first step, so you didn't have to get to the exception.
Speaker 3:Yeah, I, I actually cannot think of an arrangement that would qualify as an indirect, uh, financial relationship that would fit within the indirect financial relationship exception. I, I I think it's a null set now.
Speaker 2:Interesting. Uh, Bob, uh, the period of disallowance some of the more technical, you know, violations that, when does that period of disallowance end and can you fix errors in an agreement? Now
Speaker 3:The period of disallowance ends whenever you want it to. Um, it<laugh> no seriously what<laugh> c m s spent all this time, effort, and everything else coming up with these very detailed rules on the period of disallowance ends at the latest blank. Um, and at the end of the day, I think they just thought it was too prescriptive. They wanted to give people more flexibility in making an argument that the period of disallowance ended earlier because of X, Y, or Z and it's really facts and circumstances. So in some ways that is great. Uh, I do think that the historical, um, uh, guidance that was given there is, is I don't think it's irrelevant now, even though it's been removed. Uh, it's still some of the, the factors that I would look to, uh, in a conservative analysis of when the period of disallowance has come to a close. Uh, but I think, um, based upon probably some hard lessons in the voluntary disclosure process, c m s decided people are getting too wrapped around the axle. This you gotta, they're looking to these definitions as being the only way, and I think they're afraid the courts would take them very literally and not listen to the arguments that no, the period of disallowance ended earlier and now it's, you're free to make your own arguments, uh, kind of for better or worse. Julie, do you
Speaker 4:Yeah, I, I agree with that. I think that people struggled, and as you said, they would go to the X degree to say, okay, the period of disallowance, you know, was the longest period, even though c m s had said it could be a shorter period, I think people, you know, were conservative and said, well, I think we have to go as far as possible because, you know, the penalties are so great with start right, that people really worry about them, and if you don't get it right, it can turn into a false claim. So because of that, I think that's the reason they, they took them out. I think, um, the preambles previously that talked about when a period of disallowance ends is relevant still to help you figure that out, but I do think it gives more latitude to providers to figure out a shorter period of disallowance that's reasonable as long as you can make, you know, a, a good faith argument as to why the period of disallowance ended when it did, when you say it did. Right.
Speaker 3:Uh, the, the second part of the question I think is really, uh, kind of a, a different question. Um, you know, in the proposed rules, c m s surprised a few people by announcing that if you make a mistake in paying somebody, they never intended that, that would create, uh, that would trigger the um, uh, billing and referral prohibitions under the statute. Now, people had gotten to that point based upon logic and practicality, but stark is a lot of things. It's neither logical nor practical in most of its application. Uh, so having, I think, heard some of the feedback from the proposed rule, C m s decided to be more formal about this and created a new special rule that says essentially if you make a mistake during the term of an agreement or within 90 days of its termination, you can fix it and you will not have any problems with triggering either the referral prohibition or the billing prohibition. For example, I pay somebody, I pay a medical director, I'm a hospital, I pay a medical director$200 an hour. I was supposed to pay him under the contract$175 an hour. Do I have, um, now that contract is still ongoing, I can go in and fix that either by having the physician repay me good luck with that or, uh, by, uh, withholding from future payments the amount that I paid in excess, uh, because of the, uh, technical mistake that I made. Now, I think it's important to note this is for mistakes. If you intentionally pay somebody more than you've contracted to pay them, I don't think that's covered by this special rule. I, uh, and Julie, I'm curious if you had the same belief.
Speaker 4:Yeah, I do think that, because I think that one of the things that caused so much confusion is when the rule first came out, and it really was part of the period of disallowance rule, they talked about the fact that you can't unring the bell, right? So once you have a compliance issue, you can't unring the bell. So a lot of us thought, well, you can't go back and fix it if you've had an agreement, let's say it's a three-year agreement, and for the first year you paid the wrong amount, well, you couldn't go back and fix it and unring the bell, and this makes the well you, you can, but they will still say you can't unring the bell as to errors that are more, um, I don't know what I would say. I would say more deliberate, as Bob said, but, and, and for example, while you can fix mistakes, as Bob explained in his example, if on the other hand, the writing doesn't, uh, address what you're doing. And, and one of my favorite examples that we seem to get all the time is you rent space to a physician and the space next to the physician happens to be vacant, and the physician starts to use that space to store stuff or otherwise, without your knowledge. Um, and we call that space creep. So now he has 1500 square feet instead of 1300 square feet. I don't think that's something that you can fix during the period of the agreement and say, oh, that's an error we were fixing because it's different than what your agreement actually said. And so I think there's still gonna be some, um, vague, you know, vagueness in that, is that fixing an error or is that really changing the contract? Because c m s has also said you can't go back and change the contract and unring the bell by changing the contract, but you can't fix errors. And so between those two things, Bob's is very clear, my is clear, maybe not. And then in the middle you have a scribner's error, right? Everybody thought that the guy was gonna rent, you know, the, the physician guy or gal was going to rent 1300 square feet and the lawyer screwed up and rode 1200 square feet. And so it was really just a scribner's error. Can you fix that?
Speaker 3:So I think, and I just wanted to react to this Space Creek. Um, I think if the physician, uh, you know, starts using space and the hospital doesn't know, I think that's a trespass, I don't think it's a stark violation.
Speaker 4:Agreed. I they, and I think they've called it theft in the, in the
Speaker 3:Yes, it's theft. Um, and what you can't do is watch the physician take over the storage room, say nothing, and then if you get caught, say it's a trespass, you, you have to, once, you know, you have to react and you have to say either, no, that's wrong. You owe me act for this trespass, or we're gonna do a supplemental lease and da da da da. There's ways to fix it. The scriptors error. I have always taken the position that, that that's kind of re contract reformation and that you can avoid a stark problem by reforming the contract, reflect the true intent of the parties. Admittedly, I it would be, that would be a good thing for c m s to stay, stay explicitly some at some point. But, um, the real problem I think is after 90 days your, the agreement ends, you have this 90 day period grace period, and then your s o l you, you know, there's, you can't go back and fix it after 90 days. It does suggest to me that in, you know, organizations that have, um, well-developed compliance programs, that the termination of a contract ought to trigger some sort of review so that during that 90 day grace period, you can address any problems that may have occurred over the co uh, the life of the contract while still avoiding the stark, uh, prohibition.
Speaker 4:And I think one of the reasons the 90 days is so important is that often these issues are found as a contract is ending and you're amending it, or you're renewing it, or you're extending it, and you say, what? That's the space you were using. That's how much we were paying. And so you're at the end of the agreement, you're about to renew it or amend it, and what do you do? Do you extend it as it is so you could fix it? Which wasn't really the intent, right? So you'd stay within your agreement and now you don't have to worry about that. So you've got 90 days to, you know, fix what was going on during that term of the agreement that you've now found out. Cuz a lot of times, like I said, I think you find out towards the end of the agreement as you're trying to wrap it up or renew it or amend it.
Speaker 2:Very interesting. Good suggestion, Bob, on the, uh, post-contract termination 90 day review. I, I think that's a helpful suggestion for the audience. Um, Bob, what, what does the isolated transaction exception do for you? Now, there were some changes to that definition. What does it really do for the health system now?
Speaker 3:This is so sad. You know, most of what C M S did really made my life easier. This is a change that made my life harder. Um, what c m s is concerned about, excuse me, is the use of the isolated transaction exception to cover an ongoing relationship with multiple payment term, uh, periods of payment called for by the agreement. So, um, you have an undocumented arrangement where your physician is providing medical director services and, um, if you are lucky enough not to have paid him or her at the end of the year, you make a lump sum payment and cover everything. Um, that is what they were sort of targeting, uh, with the, uh, change to the definition of financial transaction, which then incorporates it into the isolated, uh, uh, financial, uh, isolated financial transaction exception. The, the tension, uh, in all of this is most of us have used the isolated transaction exception to settle a dispute where the parties don't agree as to, uh, the, the terms of the agreement or there's been some screw up or whatever. You go in, you look at it and you can compromise a disputed claim using the isolated transaction exception. Sometimes that can be used to actually erase the whole problem, and sometimes you're just ending the period of disallowance by using the iso uh, isolated transaction exception. How do you reconcile using it in that context with the new definition that it can't cover, uh, multiple, uh, payments and the, like any arrangement with multiple payments. And I think for me, the touchstone is that there's a bonafide dispute as to the terms of the agreement or how it was performed. If you've got a bonafide dispute, then I think the isolated transaction exception is broad enough to cover it. If you're just, if there's no dispute and you're just trying to fix things, I think isolated transaction isn't, isn't available for a multiple installment sort of arrangement.
Speaker 4:I think that you definitely can use it to end the period of disallowance, as Bob said, and, you know, pay. And, and it, it is also useful because now if you're going to pay someone for something that has been disputed and the amount isn't going to be what it was under that original agreement, you need an exception to cover that financial arrangement. And certainly that's what isolated transaction will do. Still question, depending on the facts and circumstances, whether it means that you still had a period of non-compliance that you have to deal with from before it ended with the isolated transaction. I think that cms, um, is hoping though that on, on what they were targeting, which is again, the multiple services with one payment that they gave Bob a little bit back by giving, um, the ability to provide limited remuneration to physicians up to$5,000 a year plus 90 days to have a writing and a signature so that if you put those together and piggyback them, there'll be fewer arrangements that need a compliance solution, uh, when you've done multiple services and need to make a payment. And so Bob, maybe they were listening too and trying to help you out a
Speaker 3:Little bit. Uh, you know, and I am, uh, I think c m S did a, uh, fine job, uh, in, uh, you know, this whole packet of changes, exception Z, which is the$5,000 a year, uh, with no writing, no signature, um,
Speaker 4:No set in advance,
Speaker 3:No. Yeah, I mean a great, um, flexibility and the fact that you can tack that onto an agreement, you start an agreement, it doesn't fit within an exception. You use exception Z for the first two months, then it comes into compliance, then you can rely on the fair market value exception for the remainder of the term. I think that's going to, uh, clear out some of the underbrush that c m s was seeing in these voluntary disclosures and other, what I call silly, you know, the, the silly stark violations. So, um, well done. And I agree that the 90 day, uh, window for getting a a writing together was also a really helpful and being realistic about set in advance and, you know, creating a, a clear rule that yes, you can amend the amount of the, uh, of compensation as long as you do it prospectively because they've, the rule that they had before had become so convoluted, it defied explanation.
Speaker 4:So, you know, all of those rules together with the value-based rules, I think make for just a much easier regulation to deal with, and one that you have to deal with because there's strict liability that you, you need one of these exceptions or you need, you know, if you have a compensation arrangement. So kudos, I, I agree with Bob. Kudos to C M S and the OIG for creating rules that, you know, can really be used in the real world to, to tackle a lot of the arrangements that we've, we've been seeing.
Speaker 2:Fantastic. Thank you both for your time today and, uh, for, uh, following up with such a deep dive on, on the, on the webinar that you did previously. Really appreciate it.
Speaker 3:You're welcome. Thank you. Our
Speaker 4:Pleasure.