OIG Proposes Modifications to Personal Services Safe Harbor Under the AKS

In October 2019, the OIG proposed a host of reforms to the AKS including three proposed changes to the personal services and management contracts safe harbor ("Safe Harbor"). Under current regulations, the Safe Harbor shelters arrangements with written services contracts that: (i) include a term of at least one year; (ii) specify aggregate payment set in advance; (iii) provide fair and reasonable compensation that does not take into account the volume or value of referrals; (iv) set forth the exact services required; (v) include all arrangements between the parties; and (vi) serve a commercially reasonable business purpose. And, for part time or periodic services arrangements, the Safe Harbor will only shelter those that clearly specify the timing, duration, and expected aggregate compensation in the services contract. OIG's proposed changes would modernize these Safe Harbor requirements to provide health care entities increased flexibility for engaging in coordinated care and value-based compensation arrangements. 

The Proposed Rule 

OIG proposes to revise the Safe Harbor in three meaningful ways: (i) to require that the compensation methodology be set in advance as opposed to the current requirement that actual aggregate compensation be set in advance; (ii) to eliminate the requirement that part-time or periodic contracts specify the timing, duration, and expected aggregate compensation of the transaction; and (iii) to extend safe harbor protection to certain outcome-based payment arrangements. 

Compensation Methodology. By requiring that parties set forth the compensation methodology in advance rather than the actual aggregate compensation as currently required, OIG would align the AKS Safe Harbor with the equivalent exception under the Stark Law in hopes that "the healthcare industry [is provided] enhanced flexibility to undertake innovative arrangements." Unsurprisingly, OIG has not proposed any directives about how such methodologies should look but will require that the methodology be commercially reasonable, consistent with fair market value, and not take into account referrals or other business implicating federal health care programs. OIG also stated its intent to align the Safe Harbor more closely with the equivalent Stark Law exception for personal services arrangements. 

Part-Time Periodic Arrangements. The current Safe Harbor requirement that contracts for part-time or periodic services specify the exact schedule, length, and charge for services is not consistent with the reality of how parties may be operationalizing such part-time or periodic services arrangements. OIG now proposes to eliminate this requirement on the predicate that other Safe Harbor requirements sufficiently guard against fraudulent exchanges. This elimination would afford health care entities greater flexibility to implement value-based payment structures and greater security with regard to part-time or periodic arrangements and improve alignment with the corresponding Stark Law exception. 

New Protections for Outcome-Based Payments. OIG proposes to extend Safe Harbor protection to arrangements that incorporate innovative outcome-based payment models, subject to certain performance measurement requirements. 

OIG proposes that outcome-based payment models include those that improve patient health, coordinate care across settings, or reduce payer costs while maintaining improved care quality. Although OIG anticipates such payment models would mirror similar previously designed models, such as shared savings/loss, pay-for-performance, or episodic or bundled payment models, Safe Harbor protection would not be limited to such models. Importantly, however, arrangements that solely reduce internal costs, or arrangements with pharmaceutical manufactures; DMEPOS manufacturers, distributors, or suppliers; or laboratories are not eligible for outcome based payments Safe Harbor protection. Furthermore, Safe Harbor protection will only be afforded to outcome-based payment arrangements subject to valid outcome measurement.

OIG proposes to require parties to regularly monitor and assess performance under the arrangement to detect: (i) whether the arrangement has measurably improved care quality; (ii) any deficiencies in the delivery of quality care; and (iii) whether the agent has satisfied the outcome measures used to evaluate clinical performance. OIG proposes to require that the arrangement be measured with clinical outcome measures that: (i) relate to the stated goals of improving care quality or reducing payor costs; (ii) are evidence-based; and (iii) are periodically rebased to account for improvements already achieved. The written agreement codifying the arrangement must specify the relevant clinical outcome measures, cite to the evidence, data, or information supporting the use of such clinical outcome measures, and delineate the schedule by which the parties will measure performance under the arrangement.

Finally, in accordance with other Safe Harbor protected arrangements, the methodology for determining any outcome-based payment must be set in advance, commercially reasonable, consistent with fair market value, and not be determined in a manner that directly takes business referrals into account. 

Conclusion

In October 2019, OIG proposed a package of reforms to regulations implementing the federal AKS, which include several proposed reforms to the personal services and management contracts safe harbor. OIG's proposed reforms would reduce the specificity required to achieve shelter under the Safe Harbor and would extend protection to certain compensation arrangements using outcomes-based payment methodologies. We expect the proposed reforms, if adopted in similar form, to result in greater flexibility for entities contracting with health care providers.