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INDUSTRY INFORMATION


tion if the spoilage was caused by a refrigera- tion failure.) OIG said the arrangement did not fi t in the warranty safe harbor because the replacement could occur even if there was no defect in the product. OIG still approved the arrangement because there appeared to be little risk of overutilization, it had little effect on the purchase decision, and it “bore some similarity to an insurance policy.” Refunds if coverage unavailable (Advisory Opinion 2-06). A seller of a blood-fi ltering device agreed to refund the cost of the device if the purchasing hospital could not obtain reimbursement for the purchase. OIG again found that the arrangement did not fi t within the warranty safe harbor, in this case because it was not related to product failure. Never- theless, OIG approved the arrangement in part because the reimbursement guarantee was limited in time and limited to the cost of item. It did not extend to any other patient care expenses that the hospital incurred related to the therapy. (This is a frequent case where better terms offered to the buyer would have made OIG approval less likely.)


Spotting the legal barriers Several legal barriers may pose challenges to innovative value-based contracts. They include:


State law insurance regulation. If the pro- vider ends up assuming the risk for the costs of healthcare services, state law may treat the provider as subject to insurance regulation and require monitoring of its fi nancial sol- vency or becoming licensed as an insurance entity. HHS is not addressing state law issues, and I do not discuss these below. However, it is important for any entity that can be viewed as assuming risk for the costs of healthcare to consider them. The AKS. The Anti-kickback Statute is


probably the most signifi cant hurdle to over- come because many value-based contracts will provide benefi ts to buyers that could be viewed as an unlawful “inducement.” AKS considerations come up whenever a supplier includes a special provision in a contract that might be viewed as an improper inducement to the hospital to purchase the supplier’s products. It also comes up when the hospital provides benefi ts to physicians that might be viewed as an improper inducement to the physicians to make referrals to the hospital. The Physician Self-Referral Law (Stark). Federal law prohibits certain types of “self- referrals” by providers, e.g., physicians refer- ring patients to another provider owned by the physician or in which she has a signifi cant interest.3 The Civil Monetary Penalties Statute (Beneficiary Inducement). This provision bars remuneration to a benefi ciary that is


likely to infl uence the benefi ciary’s selection of a provider.4


For example, the provision


can bar waiving a Medicare benefi ciary’s cost-sharing.


The Civil Monetary Penalties Statute (Gain- sharing). This provision bars improper payments by a hospital to physicians to reduce utilization.5


For example, innovative


programs by hospitals that compensate phy- sicians to encourage product standardization or use certain treatment protocols may impli- cate this provision.


Lessons from the OIG Opinions The OIG reviews above suggest how the current system makes it more diffi cult to structure value-based contracts. They illus- trate the cumbersomeness of a regulatory system that is based on broad prohibitions and exceptions embodied in “safe harbors.” The broad prohibitions are weighted too heavily toward preventing fraud and abuse compared to the weight given to the potential for reducing costs and improving care. At the same time, the safe harbor exceptions are too narrow and technical. The result of the OIG review in these cases was positive, but the effort required to obtain an advisory opinion and to comply strictly with OIG’s requirements is signifi cant. It will usually be impractical to undergo the time and expense needed for an OIG opinion.


The OIG cases do suggest some lessons for parties considering value-based contracts. • First, try to fi t the contract within an ex- isting safe harbor. If it does not meet the technical requirements of the safe harbor, structure it to come as close as possible.


• Second, if there is an AKS concern, draft the contract to address the underlying policy concerns of the AKS. For example, build in protections to avoid overutilization and to ensure services are medically neces- sary. Avoid exclusivity provisions that tie doctors to a particular product. Limit the benefi ts to the buyer to those essential to accomplishing the objectives of the contract. Ensure that there is transparency in reporting provider savings to CMS and that the dollar fl ows are fully documented. These same considerations apply if there is a “benefi ciary inducement” concern, i.e., encouraging patients to choose a provider based on a waiver of cost-sharing.


• Third, if there is a gainsharing concern, then build in provisions to avoid reducing necessary services to patients. For example, commit to follow recognized treatment protocols and give physicians options to choose any necessary products and ser- vices. Frequently, legal counsel will have to be consulted to navigate the regulatory challenges.


Current legal framework, HHS review challenges


HHS is now conducting a review of two pro- visions, the AKS and the CMP benefi ciary in- ducement provision.6


HHS assumes, probably


correctly, that the regulatory framework will continue to rely on safe harbors that serve as exceptions to these broad prohibitions. Com- ments to HHS include suggestions about how to make the regulatory system more amenable to value-based contracts. These include: 1. Making the discount safe harbor more fl ex- ible by eliminating the requirements that: a) any discount or rebate occur within one year; b) the specifi c value of the discount be specifi ed at the beginning of the contract period; c) the discount must be conditioned only on a simple purchase; and d) all com- ponents of the sale must be reimbursed under the same program.


2. Eliminating the requirement under the safe harbor for gainsharing arrangements that the fair market value of the remuneration be determined in advance.


3. Making the warranty safe harbor more fl exible by extending it to cover bundled products and arrangements in which the trigger for the warranty is not strictly a product defect.


Other suggestions involve creating broad new safe harbors that deal with innova- tive contracts, including a safe harbor for a value-based alternative payment model,7 value-based pricing, value-based warranties and value-based risk-sharing arrangements.8 No doubt, specifying the limitations of these safe harbors and the situations where they apply will present challenges. This area of the law is already plagued by undue complexity and creating more safe harbors (and defi ning them) risks making the regulatory framework even more complicated. Still, there may be no alternative, given the history that has led us to where we are. In the meantime, buyers and sellers must work around these hurdles as best they can. HPN


Editors note: “On October 9, 2019, HHS released proposed rules that address many of the issues discussed in this article. We hope to publish an article soon that will discuss HHS’s proposals and how they would affect the analysis of value-based contracts.”


References online at https://hpnonline.com/21109700


Edward Correia is a Washington, D.C. attorney and partner in Correia & Osolinik. His practice includes antitrust, health care regulation and federal and state accessibility requirements for persons with disabilities. His clients include AdvaMed and the Strategic Marketplace Initia- tive (SMI). He can be reached at 301/943-8647 and ecorreia@correiadc.co m.


hpnonline.com • HEALTHCARE PURCHASING NEWS • Source Guide 2020 7


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