Published April 9, 2021

Lest We Forget Changes to the AKS: Three Key Implications for Fair Market Value and Commercial Reasonableness

With a priority of transforming our healthcare system to one based on value-driven care, federal agencies have recently amended safe harbors to the federal Anti-Kickback Statute (AKS) final rule as well as revised civil monetary penalty (CMP) rules. PYA has reviewed these modifications and has identified the following key implications specific to fair market value and commercial reasonableness: 1) key clarifications and guidance including alignment with the final Stark Law terminology, 2) commercial reasonableness and fair market value considerations regarding value-based safe harbors, and 3) finalized modifications to select existing safe harbors. 


On December 2, 2020, the Office of Inspector General (OIG) and the Department of Health and Human Services (HHS) issued a 212-page final rule to amend the safe harbors to the AKS by modifying existing and adding new safe harbors that protect certain payment practices and business arrangements from sanctions under the AKS. Further, the rule also amended CMP rules by codifying a revision to the definition of “remuneration” added by the Bipartisan Budget Act of 2018.   

Amidst changes to the 2021 Medicare Physician Fee Schedule and implementation of the finalized Stark Law, the AKS final rule was issued in conjunction with the HHS Regulatory Sprint to Coordinated Care and became effective January 19, 2021.

What’s Changed

Among a bevy of other additions and modifications, the AKS final rule expands safe harbor protection to several types of arrangements that may not fit squarely, or with certainty, in existing safe harbors. Examples of such arrangements include:

    • “A hospital, recognizing that clinical collaboration and care coordination may improve patient transitions from one care delivery point to the next, may wish to provide care coordinators that furnish individually tailored case management services for patients requiring post-acute care.”
    • “A medical device manufacturer may wish to offer a physician practice or hospital a data analysis service to track clinical practices, clinical outcomes, and patient impact as they relate to hospital- or health-care-acquired pressure injuries.”
    • “A primary care physician, dialysis facility, or another provider could furnish a smart tablet that is capable of two-way, real-time interactive communication between the patient and his or her physician. In turn, the Federal health care program beneficiary’s access to a smart tablet could facilitate communication through telehealth and the provision of in-home dialysis services.”

The provision of such examples, combined with the following highlighted implications, is intended to deliver a meaningful “quick hit” of the way fair market value and commercial reasonableness will continue to stay top of mind for arrangements impacted by the AKS.

Key Implications

Key Implication #1 – Seeks to align value-based terminology and safe harbor conditions with those adopted by the Centers for Medicare & Medicaid Services (CMS) in the final Stark Law wherever possible. For example, the value-based terminology that describes the value-based enterprises (VBE) and value-based arrangements (VBA) eligible for protection under an AKS value-based safe harbor, or a Stark Law value-based exception, are aligned in nearly all respects, except the definition of “value-based activities.” The definition required slightly different language to integrate the new rules into the existing regulatory structures. Specifically, the OIG states that “as a practical matter, this means that the same VBE or VBA can seek protection under both regulatory schemes, provided the relevant conditions of a safe harbor and an exception are satisfied.” 

Key Implication #2 – Addresses key commercial reasonableness, fair market value, and other considerations in the context of value-based safe harbors. Specific to the Care Coordination Arrangements Safe Harbor (CCASH), the OIG provided the following clarifications and guidance including examples of arrangements that could be structured to satisfy the conditions of the CCASH including, but not limited to, those involving items and services provided by specialty physician practices to primary care physician practices and by hospitals and medical technology companies to physician practices.

    • Specifies that parties seeking to structure an arrangement to satisfy the CCASH are required to ensure that multiple standards are met, including but not limited to, the establishment of one or more legitimate outcome or process measures that the parties reasonably anticipate will advance the coordination and management of care for the target patient population (TPP) based on clinical evidence or credible medical or health science support. Specifically, the measures must include one or more benchmarks related to improving, or maintaining improvement, in the coordination and management of care for the TPP, relate to the remuneration exchanged under the VBA, and not be based solely on patient satisfaction or patient convenience. Further, the outcome or process measure and its benchmark must be monitored, periodically assessed, and prospectively revised, as necessary, so that working toward the measure continues to advance the coordination and management of care of the TPP.
    • Requires the care coordination arrangement be commercially reasonable to ensure the arrangement intends to achieve legitimate objectives, rather than merely to induce or reward referrals. The OIG specifies that the inclusion of a commercial reasonableness condition in safe harbors “is not new” and that inclusion of this as a condition of the CCASH will not “impose significant additional burden.” However, the OIG notes it is not specifically defining the term “commercially reasonable arrangement,” and instead states that “there are multiple dimensions to commercial reasonableness, including both the financial and non-financial terms of an arrangement.” Consistent with the clarifications outlined in the final Stark Law, the OIG states that the fact that “an arrangement generates a loss for a party is one factor, among many, that could be considered in analyzing whether an arrangement is commercially reasonable” and that “an arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.” Any determination of whether a particular value-based arrangement is commercially reasonable would be based on the “totality of the facts and circumstances of such arrangement, and the financial aspects of the value-based arrangement would be relevant to that inquiry.”

In addition to requiring that the VBA itself be commercially reasonable, the final regulation includes a “second prong” stating that the VBA must be commercially reasonable when considering all VBAs in the VBE. The OIG states its rationale for including this second prong is to address the risk that parties might use a series of VBAs to effectuate a payment-for-referral scheme.

Further, the OIG provides specific examples illustrating what may constitute the achievement of “legitimate business purposes,” situations where lack of a two-pronged approach may present challenges, and circumstances where arrangements may be based on the value or volume of referrals. For example, if VBE participants were to enter into a VBA to facilitate the sharing of patient-outcome data, it may be commercially reasonable for a hospital VBE participant to donate technology to a group practice VBE participant to facilitate this process. However, it may not be commercially reasonable for that same hospital VBE participant to donate technology substantially more sophisticated, or with enhanced functionality, beyond that necessary for the two parties to communicate data on shared patients.

    • Clarifies several considerations specific to the in-kind remuneration requirement, including that income guarantees are not in-kind remuneration and would therefore not qualify for protection under the CCASH.

Retains a 15% contribution requirement to increase the likelihood that the recipient would use the care coordination items and services, among other considerations, and states that the contribution can be determined either by the offeror’s cost of the remuneration, as determined using any reasonable accounting methodology, or the fair market value of the remuneration. The OIG states it is not requiring parties to obtain an independent fair market valuation; however, it selected fair market value rather than reasonable value because fair market value is a more specific standard, a widely used term in valuation, and common to many existing safe harbors such that many stakeholders and the government have experience with it. Additionally, the OIG states it expects parties seeking protection under this safe harbor would use generally accepted valuation methodologies and principles in any determination of fair market value.

    • Requires the VBE, a VBE participant in the VBA on the VBE’s behalf, or the VBE’s accountable body or responsible person to reasonably monitor and assess:
      • The coordination and management of care for the TPP in the VBA.
      • Any deficiencies in the delivery of quality care under the VBA.
      • Progress toward achieving the legitimate outcome or process measure(s) in the VBA.

Such monitoring and assessment is to occur no less frequently than annually (or once during the term of the VBA for arrangements with terms less than one year). The OIG does not prescribe a one-size-fits-all approach for monitoring and assessment, nor does it specify the reporting, auditing, and general oversight requirement of each VBE participant. In other words, such parties are given the flexibility to establish a monitoring and assessment program that is reasonable in relation to the complexity and sophistication of the VBE, VBE participants, and VBA.

Key Implication #3 – Finalizes modifications to the existing safe harbor for personal services and management contracts, including the addition of two new paragraphs intended to protect certain outcomes-based payments. Since the CCASH does not protect monetary payments (including payments for services such as radiology or imaging), parties to arrangements inclusive of monetary remuneration could seek protection under this safe harbor. Key changes to this existing safe harbor follow:

    • Substitutes the requirement that aggregate compensation be set in advance with a requirement that the methodology for determining compensation be set in advance. This change is intended to address concerns that in certain incentive compensation arrangements that strive to further the provision of value-based care (such as co-management or bundled payment arrangements, which are often structured based on formulaic arrangements), it is often not possible for hospitals and physicians to know at an arrangement’s inception the actual amount of compensation available.
    • Eliminates the requirement that if an agreement provides for the services of an agent on a periodic, sporadic, or part-time basis, the contract must specify the schedule, length, and exact charge for such intervals. The OIG is purposely removing the requirement to specify the exact schedule of part-time arrangements, noting that the change should accommodate a broader range of arrangements. One example it includes is that the change as proposed (and finalized) could apply to dialysis facility medical directors who provide services on a part-time basis. The unpredictable nature of dialysis care involves the frequent need to respond to urgent medical emergencies that could impede the ability of nephrologists serving as dialysis facility medical directors to adhere to predetermined schedules.
    • Creates new provisions to protect certain outcomes-based payments, including certain arrangements that reward improving patient or population health by achieving one or more outcome measures that effectively and efficiently coordinate care across care settings, or by achieving one or more outcome measures that appropriately reduce payer costs while improving, or maintaining the improved, quality of care. Specifically, the new provisions clarify the definition of “outcomes-based payment” and outline the safeguards specific to what constitutes “acceptable outcomes measures.” For example, to receive a protected outcomes-based payment, a party must achieve one or more legitimate outcomes measures selected based on clinical evidence or credible medical support and with specified benchmarks related to quality of care, a reduction in costs, or both. Additionally, parties must “rebase” outcomes, meaning that they must periodically assess and revise benchmarks and that remuneration under the agreement is consistent with fair market value in an arm’s-length transaction. Parties must also periodically assess and, as necessary, revise the benchmarks and remuneration under the arrangement to ensure consistency with fair market value.
    • Provides insights regarding below fair market value services. Of particular interest related to fair market value specific to this modified safe harbor, was a concern that Indian healthcare service providers cannot utilize this safe harbor because of the requirement that each party in the arrangement pay fair market value for services — expressly that fair market value for Indian health facility jobs and services may not align with fair market value elsewhere. In response, the OIG stated it understands the concerns but are neither defining fair market value nor specifying the appropriate methodologies to use when determining fair market value. However, it did provide several responses including that “based on our law enforcement experience, arrangements in which parties offer or provide free or below fair market services to those in a position to refer federally payable business to the offeror can be problematic under the AKS,” and that “for example, an hourly rate for certain specialist services in Manhattan likely would be higher than the hourly rate for the same services in rural Mississippi or at an Indian health facility.”

While this Insight provides an executive summary of just one of several complex regulatory changes recently enacted, PYA offers numerous resources on our website, including articles and webinars specific to the Stark Law and the 2021 Medicare Physician Fee Schedule changes. For more information on these AKS changes, or to discuss a fair market value or commercial reasonableness issue specific to your organization, contact a PYA executive below at (800) 270-9629.

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