The Regulatory Sprint to Value-Based Care: The New Safe Harbors and Stark Exceptions

On November 20, 2020, the Centers for Medicare & Medicaid Services (“CMS”) and the Office of the Inspector General (“OIG”) finalized the rules modifying the safe harbors under the Anti-Kickback Statute and exceptions under the Stark Law. These new rules take effect as of January 19, 2021. Due to their complexity, this article will focus on the common elements and main points of each safe harbor and exception, but does not present a comprehensive description of each safe harbor or exception.

Value-Based Rules

Common Elements

CMS and OIG coordinated many aspects of the value-based rules. While there are differences in the following definitions between CMS’s rules and OIG’s rules, this section will align these definitions as much as possible.

Value-Based Arrangements. Value-based arrangements (“Arrangement”) can generally be defined as an arrangement for the provision of an item or service or taking or refraining from taking an action to reasonably designed to achieve one or more value-based purposes (“Purposes”) for a target patient population (“TPP”) between or among the value-based enterprise (“Enterprise”) and/or one or more of the value-based participants ( “Participants”).

Value-Based Purposes. The Purpose of the Arrangement has to be either: (i) coordinating and managing the care of a TPP; (ii) improving the quality of care for a TPP; (iii) appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a TPP; or (iv) transitioning from mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a TPP. Cost savings or limitations in the growth of expenditures that are not passed on payors “do not further this goal sufficiently to warrant protection under the third value-based purpose definition.”[1]

Value-Based Participants. Participants can be an individual (other than a patient acting as a patient) or entity that engages in at least one Activity of the Enterprise. Participants can include entities that have common ownership (such as entities in an integrated health system).

Value-Based Enterprises. An Enterprise requires two or more Participants collaborating to achieve a Purpose There are no specific requirements to demonstrate who is a Participant. Time spent on Activities, records of collaboration between parties, and participation in applicable meetings, could all be relevant factors.

Accountable Body or Person. The Enterprise must have a body or person responsible for the financial and operational oversight of the Enterprise. There is no required form for this body, but it must be appropriate for the size, resources, and capabilities of the Enterprise. The responsible body or person could be an existing body or person from a Participant, such as the board of a joint venture or compliance officer.

Governing Document. There must be a governing document for the Enterprise as to how to achieve a Purpose(s). The document can be a single document with the agreement for the Arrangement, but cannot be established through multiple documents.

Target Patient Population. A TPP is an identifiable patient population, developed through “legitimate and verifiable criteria,”[2] set out in advance in writing, and selected to further the Purpose(s) of the Enterprise. A TPP does not need to be limited only to the federal health care program beneficiaries, but can include private payors and self-pay patients.[3] TPP criteria cannot be targeted to only particularly lucrative patients (“cherry-picking”) or avoid high cost or unprofitable patients (“lemon-dropping”).[4] In certain circumstances, a TPP may include the entirety of a provider’s patient population.

The remuneration must be directly connected to the Purposes of the Arrangement and cannot be used for marketing items or services to patients or patient recruitment activities. The terms “marketing” and “patient recruitment” are used per their commonsense meaning.[5] The remuneration cannot take into account the volume or value of, or condition the remuneration on referrals of patients who are not part of the TPP or on business not covered under the Arrangement. The Arrangement must be commercially reasonable and in writing. The Arrangement must not limit the Participant’s ability to make decisions in the best interests of its patients; (ii) direct or restrict referrals to a particular provider, practitioner, or supplier if a patient expresses a preference; (B) the payor makes the determination; or (C) is otherwise contrary to applicable law. Nor can the Arrangement induce parties to furnish medically unnecessary items or services, or reduce or limit medically necessary items or services furnished to any patient. For a period of at least 6 years, all materials and records sufficient to establish compliance with the conditions of the safe harbors.

The Value-Based Safe Harbors

OIG finalized three value-based arrangements safe harbors. As an initial matter, OIG decided, based on its perceived risk of fraud and abuse and the level of front line care provided, that certain entities could participate in an Arrangement, but could not be protected by the value-based safe harbors.[6] Thus, remuneration exchanged with these “ineligible entities” would not be protected by the safe harbors. These entities are: (i) pharmaceutical manufacturers, distributors, and wholesalers; (ii) pharmacy benefit managers; (iii) laboratory companies; (iv) pharmacies that primarily compound drugs or primarily dispense compounded drugs; (v) manufacturers of devices or medical supplies (except as a limited technology participant for a Care Coordination Arrangement); (vi) entities or individuals that sell or rent DMEPOS as its primary business line; and (vii) medical device distributors or wholesalers that are not otherwise manufacturers of devices or medical supplies. Entities, such as hospitals, which may have ineligible entities as a part of them (e.g., laboratories, compounding pharmacies, etc.) can still be protected, so long as the “predominate or core line of business” is not as an ineligible entity.[7]

1.       Care Coordination Safe Harbor

The Care Coordination Safe Harbor is the only value-based safe harbor that is limited to in-kind, not monetary, remuneration. Where there is monetary remuneration that does not rise to the levels of “substantial downside” or “full” financial risk, the parties will need to look to other safe harbors for protection.

The remuneration must be predominantly used to engage in Activities that are directly connected to the coordination and management of care for the TPP and cannot provide more than incidental benefits to persons outside of the TPP; cannot be exchanged or used more than incidentally for the recipient’s billing or financial management services. The recipient must pay at least 15% of the offeror’s costs related to the remuneration, determined by the offeror’s reasonable costs or the reasonable fair market value of the remuneration.

There must be one or more legitimate outcome measurements reasonably anticipated to advance Purpose(s) based on clinical evidence or credible medical or health sciences support. Under the Care Coordination Safe Harbor, the outcome measurements cannot be based solely on patient satisfaction or convenience. The outcome measurements can consider clinical and nonclinical measurements, and can be internally or externally developed.

The Arrangement must be reasonably monitored and assessed, no less frequently than annually or at least once during the term if the Arrangement is for less than 1 year, for deficiencies and the progress toward achieving the legitimate outcome measure(s) in the Arrangement. If the Arrangement has resulted in material deficiencies, the parties must, within 60 days, either: (i) terminate the Arrangement; or (ii) develop and implement a corrective action plan designed to remedy the deficiencies within 120 days. If the corrective action fails, they must terminate the Arrangement.

2.       Substantial Downside Financial Risk Safe Harbor

A “substantial downside financial risk” means the recipient of the payment has a financial risk equal to at least (A) 30% of any loss for all items and services furnished to the TPP (“Shared Savings and Losses”); (B) 20% of any loss for all items and services furnished to the TPP for a clinical episode of care and the clinical episode of care is in more than one care setting (“Episodic Payment”); or (3) the Enterprise receives from the payor a prospective, per patient payment that is designed to produce material savings and is paid on a monthly, quarterly, or annual basis (“Capitation”). Remuneration under this safe harbor cannot include an ownership or investment interest in an entity or any distributions from such ownership or investment interest.

The Enterprise must assume under one of the methodologies through a written contract. The Participant(s) must each accept a meaningful share of the substantial downside financial risk, meaning the Participant either (i) assumes two-sided risk for at least 5% of the losses and savings realized by the Enterprise under the Shared Savings and Losses or Episodic Payment methodologies or (ii) the Enterprise adheres to the Capitation methodology and does not submit a claim for fee-for-service payment in any form from the payer.

OIG has established a six month grace period, wherein the Enterprises does not need to assume any risk for six months after the Arrangement is made. Remuneration made in that time frame would still be protected, even if the Enterprise ultimately cannot assume the risk, so long as the other requirements of this safe harbor were met.

3.       Full Financial Risk Safe Harbor

“Full financial risk” requires the Enterprise engaged in the Purpose to be financially responsible on a prospective basis for the cost of all items and services provided to the TPP for at least one year. To be financially responsible on a perspective basis means the Enterprise assumes full financial responsibility before the provision of any items and services to the patients. Some or all of the Participants can combine their respective risks to satisfy the requirement.[8] Examples OIG provided include global payments or capitated payments that cover all of the items or services provided.[9]

Like the Substantial Downside Risk Safe Harbor, remunerations under this safe harbor cannot include an ownership or investment interest in an entity or any distributions related to such ownership or investment interest. Because of the amount of risk the Enterprise is taking on, OIG provided a 1-year grace period before the Enterprise assumes the risk.

The Stark Value-Based Exceptions

The value-based exceptions to the Stark Law are located in the regulation for exceptions to compensation arrangements and, thus, would not apply to ownership or investment interests. Additionally, all of these exceptions can apply to in-kind and monetary remuneration. The remuneration can be conditioned on referrals to a particular provider, if the requirement is set out in the writing and the requirement does not apply to the situations described above.

1.       Full Financial Risk Exception

Like the safe harbors, there is a “full financial risk” exception. To satisfy this exception, the Enterprise must assume full financial risk or be contractually obligated to assume the risk within 12 months following the commencement of the Arrangement. The definition of “full financial risk” is substantially similar to the definition under the safe harbors.

2.       Meaningful Downside Financial Risk to the Physician Exception

Unlike the safe harbors, there is an exception for Arrangements with “meaningful downside financial risk.” This means that a physician is responsible to repay or forgo at least 10% of the total value of the remuneration paid under the Arrangement for failing to achieve a Purpose. CMS did not specify the form this risk must take. The physician’s assumed financial risk could be tied to the achievement of the Purpose(s) of the Enterprise of which the physician and the entity are Participants. The requirement should be based on the total amount of remuneration possible. Thus, if a physician is guaranteed a payment of $50,000 and the possibility to receive $25,000 for achieving the Purpose, then the 10% risk is based on $75,000.[10]

Unlike the financial risk safe harbors and the Full Financial Risk Exception, there is no grace period for this exception.

3.       Value-Based Arrangements Exception

The final exception is the more general Value-Based Arrangement Exception to achieve the outcome measures of  (1) improvements in or maintenance of the quality of patient care; or (2) reductions in the costs to or reduction in growth in expenditures of payors while maintaining or improving the quality of patient care. The outcome measurements must be based on objective, measurable, and clinical evidence or credible medical support. Changes can be made to the outcome measurements, but only on a prospective basis. The Arrangement must be monitored at least annually or once during the term, if less than 1 year.


The new value-based rules are designed to be broad and encourage innovation in patient care. As parties begin to utilize these value-based rules, it will be important that they have a clear understanding of the legal requirements of the safe harbor or exception. Parties should ensure to work with experience health care attorneys to ensure such compliance.


[1] Medicare and State Health Care Programs: Fraud and Abuse; Revisions to Safe Harbors Under the Anti-Kickback Statute, and Civil Monetary Penalty Rules Regarding Beneficiary Inducements, 85 Fed. Reg. 77684, 77720-21 (Dec. 2, 2020).

[2] Id. at 77702.

[3] Id.

[4] Id.

[5] Id. at 77744-47.

[6] Id. at 77706.

[7] Id. at 77718.

[8] Id. at 77773.

[9] Id.

[10] Id. at 77517.



Jeremy Belanger is an Associate in Dickinson Wright’s Troy office. He can be reached at 248-433-7542 or