Published 12/31/2019
Alix Braun, MPH; Julie Williams

HHS: Relaxed Fraud and Abuse Rules Create Flexibilities for Value-based Models

For the past several years, the American Association of Orthopaedic Surgeons (AAOS) has been working to modernize both the Stark physician self-referral law and the Antikickback Statute (AKS) to permit coordinated care and level the playing field between independent practices and large hospital systems. AAOS has worked with Congress on bipartisan legislation and provided significant input to the administration, urging changes that recognize value-based delivery models.

Currently, Stark law and AKS restrict the ability of hospitals to reward or penalize nonemployed physicians for their efforts to improve patient outcomes, such as decreasing hospital-acquired infections. Penalties for violating either Stark law or AKS are substantial, and the risk of incurring such penalties may stifle the growth of value-based payment models.

If a hospital compensates a physician for his or her success in coordinating a care team, this could potentially violate the Stark law prohibition against compensation based on volume or value of services rendered. In addition, compensation linked to patient outcomes could be considered “something of value” that could be misconstrued as improper inducement of referrals between the physician and hospital, thereby violating AKS.

In October 2019, historic proposed rules were released to reform these cumbersome, outdated laws. The Centers for Medicare & Medicaid Services (CMS) and the Department of Health and Human Services (HHS) Office of Inspector General issued reform proposals that will facilitate innovative arrangements for coordinating care. The changes are consistent with the healthcare industry’s ongoing shift toward a value-based payment and delivery model and away from the traditional fee-for-service model.

Although both rules have a similar intent, they vary in language and enforceability. Whereas the Stark law proposal creates flexibility by offering new exceptions for value-based care models with strict liability and civil enforcement, the AKS proposal uses the proposition of safe harbors to protect against unintentional criminal prosecution. In addition to those value-based arrangement changes, other proposed changes are likely to ease certain burdens for healthcare professionals and offer greater flexibility under these federal fraud and abuse rules, particularly regarding the donation of electronic health record (EHR) and cybersecurity items and services.

Stark law proposed rule

The Stark proposed rule would create new exceptions to Stark law for value-based arrangements that would apply to care delivery for all patients, not just Medicare beneficiaries. In addition, the proposed rule includes changes to the definition of “fair market value,” which would eliminate the connection to the volume or value standard, which has been an impediment to developing alternative payment models and other value-based care initiatives.

Perhaps the most crucial aspect of the proposed rule is the new definitions designed to guide the exceptions for value-based enterprises. New definitions were offered for the following terms: value-based activity, value-based arrangement, value-based enterprise, value-based purpose, value-based enterprise participant, and target population. Using these terms as the framework, the rule goes on to propose new exceptions for three categories of compensation.

The value-based care exception seeks to protect value-based arrangements to a degree corresponding to the financial risk taken by the value-based enterprise or professional. These range from full financial risk by a payer for patient care services in a target population to value-based arrangements that meet certain requirements other than downside financial risk. CMS is proposing that these exceptions apply to both commercial and public payers.

The other new exceptions would cover limited remuneration to a physician and the donation of EHR and cybersecurity technology. CMS is proposing to allow entities to reimburse physicians up to an aggregate of $3,500 per year for items and services provided by the physician. As for technology, the proposed rule clarifies that cybersecurity services and software donations are permitted under the exception.

AKS proposed rule

Thoughtfully written to mirror many of the proposals in Stark law, the AKS proposed rule offers three new exceptions for value-based arrangements, along with new exceptions for cybersecurity technology and services. Updates to the warranties, local transportation, EHR, and personal services and management contracts safe harbors are also proposed. A similar universe of new definitions for value-based arrangements is proposed, and the definitions of EHR and interoperability are clarified to ensure uniformity with the 21st Century Cures Act. Unlike the Stark law proposed rule, the AKS proposal offers new safe harbors for certain remuneration related to CMS-sponsored models and patient engagement.

The CMS-sponsored models safe harbor would allow remuneration between “parties to arrangements under a model or other initiative being tested or expanded by the Innovation Center and the Medicare Shared Savings Program,” while also allowing for remuneration from model participants in the form of incentives and supports to be reimbursed within the model. It would remove the need for model-by-model waivers and allow the use of existing waivers or restructuring of arrangements to comply with safe harbors.

There is also no limitation to the In-office Ancillary Services Exception (IOASE) in the proposed rule. (The IOASE allows physician practices to furnish designated health services—such as physical therapy and diagnostic imaging—in their offices. The extent of the exception seeks to maintain balance between patient convenience, service efficiency, quality, and continuity of care with abusive self-referral arrangements.) In essence, CMS has granted new exceptions to Stark law in addition to the IOASE for entities participating in a “value-based purpose.”


The proposed changes to Stark law and AKS offer promising updates to the existing laws and highlight opportunities for future innovation in patient care and professional flexibility. Information on the Medicare Care Coordination Improvement Act (H.R. 2282 and S 966) can be found at www.congress.gov/bill/116th-congress/house-bill/2282. The Academy looks forward to sharing further progress on this issue.

Take action at www.aaos.org/starklawreform.

Alix Braun, MPH, is a regulatory advocacy specialist in the AAOS Office of Government Relations (OGR).

Julie Williams is a senior manager in the AAOS OGR.