Stark and Anti-Kickback Statute Get Modern Updates to Account for Value-Based Arrangements

Michael Manganelli

Associate Editor

Loyola University Chicago School of Law, JD 2021

On October 17, 2019, the U.S. Department of Health and Human Services (HHS) published two proposed rules in the Federal Register that could potentially transform key federal laws restricting health care arrangements. These rules address perceived or actual barriers to care coordination and value-based care under Stark Law, the Anti-Kickback Statute, and the Civil Monetary Penalty (“CMP”) law. The proposals are intended to “modernize and clarify” the regulations that implement and interpret these laws in order to drive innovation and more towards a more affordable health care delivery and payment system, while also maintaining barriers to prevent fraud and abuse. The proposed rules “will improve outcomes by moving away from the old modes of inpatient hospitalizations.”

Stark Law

42 U.S.C §1395nn, also known as the Stark Law, prohibits a physician from referring Medicare patients for designated health services to an entity with which the physician or immediate family member has a financial relationship with, unless an exception applies. Since the implementation of Stark Law when health care payment was predominately fee-for-service, Medicare and the private market have switched to more value-based systems to address the cost of health care. The Stark Law has not evolved to keep pace with this modernization and as a result, Stark Law may prohibit some arrangements that are designed to enhance care coordination, improve quality, and reduce waste.

The Centers for Medicare and Medicaid Services (“CMS”) proposed several modifications and clarifications to existing exceptions under the Stark Law. Normally, the Stark Law has exceptions related to direct and indirect compensation with physicians when at least one of the following is present: compensation arrangement itself is commercially reasonable; the amount of the compensation is fair market value; and the compensation paid is not determined in a manner that takes into account the volume or value of referrals. In response to requests for more clarity, the proposals attempt to establish clear rules regarding “commercially reasonable,” “Fair Market Value,” and “Volume or value of referrals.” The new clear definitions are aimed to permit value-based arrangements that would otherwise be prohibited.

CMS proposed two potential definitions for “commercially reasonable.” First, it could mean “that the particular arrangement furthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements.” Alternatively, it could mean “the arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty.”

In regard to fair market value (“FMV”), CMS proposed that FMV should simply be defined as “value in an arm’s-length transaction with the parties under like circumstances, of assets or services, consistent with the general market value of the subject transaction.”

]Lastly, CMS proposed an objective test for determining whether the compensation is determined by any manner that takes into account the volume or value of referrals. According to the test, compensation will be considered to be based on volume or value of referrals if 1) it uses a mathematical formula that includes referrals as a variable; and 2) the compensation amount correlates with the number or value of a physician’s referrals to an entity.

Anti-Kickback Statute

42 U.S.C §1320 a-7b(b), also known as the Anti-Kickback statute (“AKS”), prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate federal health care program business. The Office of the Inspector General (“OIG”) contends that adding three new safe harbors will encourage more value-based arrangements from providers and managed care organizations. These three new safe harbors for value-based arrangements are: (1) coordination arrangements to improve quality, health outcomes, and efficiency; (2) value-based arrangements with substantial downside financial risk; and (3) value-based arrangements with full financial risk.

OIG proposes an additional AKS safe harbor to promote value-based arrangements now known as “patient engagement and support.” This new safe harbor seeks to remove barriers that are preventing providers from entering into arrangements that offer patients tools and support that promote patient engagement in their care, and in turn, improves quality, health outcomes, and efficiency. This proposal specifically is only available to value-based providers. Next, OIG aims to remove the requirement that the aggregate compensation be set in advance. Rather, OIG proposed that the rule require that the only method for computing compensation be established in advanced in order to increase flexibility. Additionally, OIG has added a new cybersecurity safe harbor in order to effectively respond to cyberattacks that infiltrate data systems and corrupt or prevent access to health records and other information essential to the delivery of health care.


These proposed regulatory changes are expansive and complicated. All changes come as a result of a series of HHS Requests for Information from stakeholders in regards to Stark Law burdens, AKS and CMP refinements; and potential reforms to HIPAA. The goal of these changes is to provide flexibility to providers and encourage more value-based arrangements. Additionally, these proposed rules provide greater certainty for healthcare providers participating in value-based arrangement and providing coordinated care for patients.  CMS administrator Seema Verna said “[W]e are updating our antiquated regulations to decrease the burden for providers and helping bring down these increasingly escalating costs.” For hospitals and physicians, these proposals would permit more data sharing and care coordination, essentially easing the burden placed upon providers by strict regulations. These changes will not take effect anytime soon, likely until later in 2020 because the comment period is still active.