HHS’s Proposed Modification to the Personal Services Safe Harbor Under the Anti-Kickback Statute

On October 9, 2019, the U.S. Department of Health and Human Services (“HHS”) released newly proposed modifications to the safe harbor provisions for the Federal Anti-Kickback Statute. Among other proposals, HHS is proposing three substantive changes to the personal services safe harbor.

Section 1128B(b) of the Social Security Act (commonly referred to as the “Anti-Kickback Statute”) made it a criminal act for any person to “knowingly and willfully” offer, pay, solicit, or receive remuneration to induce or reward a referral for a service paid for by a Federal health care program (e.g., Medicare, Medicaid, Tricare, etc.). Violations can result in criminal fines up to $100,000, up to 10 years in prison, or both per violation. Civil Monetary Penalties of $50,000 per violation and assessments of three times the amount of the remuneration can also be imposed. Because of the potentially broad reach of the Anti-Kickback Statute, Congress granted HHS the power to establish safe harbors, which if the requirements were strictly met, would automatically protect an arrangement between persons.

The personal services safe harbor was designed to offer protection to independent contractor relationships between a principal and a contractor or agent. HHS proposes three substantive modifications: (1) elimination of the requirement that aggregate compensation be set in advance; (2) elimination of the requirement to specify a part-time schedule; and (3) development of an outcomes-based payment protections.

Under HHS’s proposal, aggregate compensation would no longer need to be set in advance, so long as there is a methodology for determining compensation which is set in advance. This is meant to give contracting parties more flexibility in designing innovative compensation arrangements. However, the methodology used must still reflect fair market value, be commercially reasonable, and not take into account the volume or value of referrals or other business generated.

Currently, under the safe harbor, a part-time contractor must have his or her schedule specified in the written agreement, including the interval of work, length of each interval, and the charge paid for such interval. HHS’s proposal would eliminate this requirement and give contracting parties more flexibility in designing arrangements that meet their needs for coverage, without having to undergo a burdensome process to create a detailed schedule that may not always meet the needs of the parties.

Finally and most significantly, HHS is proposing to protect certain outcome-based payments.  Expressly excluded from receiving outcome-based payments are (1) pharmaceutical manufacturers; (2) manufacturers, distributors, or suppliers of DME, prosthetics, orthotics, or supplies; and (3) laboratories. To qualify as an outcome-based payment, the payments must be designed to measurably improve or maintain the quality of care, to reduce costs to payors, or both. Payments that solely create internal cost-savings for a provider or suppliers do not qualify. HHS identified several types of outcome-based payment models that may apply, such as shared savings payments, shared losses payments, garnishing payments, episodic or bundled payments, or pay for performance arrangements for the achievement of a legitimate cost, quality, or operational performance metric. The outcome-based measurements must be based on clinical evidence or credible medical support that they will lead to improvements in patient care or cost reduction. The contracting parties must regularly monitor and assess the contractor’s performance and resetting the benchmark (“rebasing”) to obtain payment.

HHS published the Proposed Rule on October 17, 2019, and gave stakeholders 75 days to comment on the proposed changes. Until the Final Rule is released, these changes are only tentative and HHS has advised that these changes would only have prospective effect; they would not protect arrangements prior to becoming effective. While the proposals appear to favor increased flexibility for contracting parties to design arrangements more to their benefits, there are still many burdensome requirements that require careful scrutiny when structuring a transaction.

About the Author:

Jeremy Belanger, Associate, is a health care attorney in the Troy, Mich. office and can be reached at 248-433-7542, jbelanger@dickinsonwright.com and his biography is available here.