Health Law Insights

April 15, 2021

In This Issue

Updates to Personal Services and Management Contracts Safe Harbor

  • The 2020 Amendments updated the Personal Services and Management Contracts Safe Harbor in two important ways – by eliminating requirements under the existing safe harbor provisions for aggregate compensation to be set in advance and for precise schedules for part-time services – and by adding a secondary safe harbor provision that can be used to protect certain outcomes-based payments. These may be some of the most impactful updates in the 2020 Amendments due to the resulting scope of arrangements that may now be eligible to receive safe harbor protection. 
  • The Personal Services and Management Contracts Safe Harbor historically did not provide safe harbor protection for many, if not most, common services agreements because it required the aggregate compensation paid over the term of the agreement to be set in advance and that parties specify the exact schedule of any services provided on a part-time basis. These requirements effectively excluded any arrangements where compensation was based on a variable, such as the number of hours worked. The 2020 Amendments eliminated the provision requiring specific schedules for part-time services and modified the provision on compensation to now only require that the “methodology for determining the compensation” be set in advance, consistent with fair market value and not determined in a manner that takes into account the volume or value of referrals or other business generated. OIG specifically acknowledged it is now “possible to structure an arrangement to fit within the safe harbor by using an hourly rate or other set, verifiable formula.”
  • The new safe harbor protection for certain outcomes-based payments was aimed at providing enhanced flexibility to undertake innovative arrangements to promote value-based care, and provides a somewhat less complex alternative to the other new safe harbor provisions for value-based arrangements that may be used to protect many existing types of arrangements that include compensation tied to outcomes (such as clinical co-management arrangements). The safe harbor requires a written agreement and compensation that is set in advance and fair market value requirements similar to the existing Personal Services and Management Contracts Safe Harbor, but includes the following notable differences:
    • Payments must be tied to outcome measures that are based on clinical evidence or credible medical support and have benchmarks used to quantify improvements in, or maintenance of improvements in, the quality of patient care and/or material reduction in costs to or growth in expenditures of payors.
    • Payments cannot be related solely to achievement of internal cost savings for the principal or based solely on patient satisfaction or convenience measures.
    • Payments cannot be made directly or indirectly by certain types of health care organizations, including pharmaceutical manufacturers, pharmacy benefit managers, laboratories, compounding pharmacies, medical device manufactures or DME suppliers.
    • The methodology for determining compensation cannot directly take into account the volume or value of referrals or other business generated, but may be indirectly related to volume or value of referrals.
    • The written agreement must include specific terms describing the outcome measures, the clinical evidence relied upon to support the outcome measures and the schedule for the parties to regularly monitor and assess the outcome measures.
    • The parties must regularly monitor and assess performance for each outcome measure and the impact on patient quality of care and must also periodically assess and revise benchmarks and remuneration to ensure the remuneration is consistent with fair market value.
  • Health care providers have long hoped for greater harmonization between OIG safe harbor provisions and CMS Stark Law exception, and the revisions to the Personal Services and Management Contracts Safe Harbor make some strides in this direction. OIG also made several noteworthy comments in the preamble discussion on this topic. First, OIG made clear it is not proposing to define or interpret the meaning of fair market value, commercially reasonable or taking into account volume or value, characterizing them as “well-established” terms. Second, OIG appeared to adopt the CMS view that a signed writing could be established through collections of documents, noting that “the written agreement requirement can be met either through a single, formal, signed agreement or through a collection of documents if such collection of documents includes all of the required elements of the safe harbor and is signed by the parties (e.g., by signing each document that makes up the agreement, or by signing a single signed document that incorporates separate documents by reference).”

New Exceptions Support the Use of Telemedicine and Related Technology

  • Telemedicine has become increasingly important over the past year as a result of the COVID-19 pandemic. The 2020 Amendments encourage its continued use through protections in two new safe harbors.
  • The first excludes from the definition of “remuneration” for purposes of the CMP Law the provision of telehealth technologies to individuals with end-stage renal disease (“ESRD”) receiving home dialysis under certain conditions:
    • The telehealth technologies are provided by a provider of services, physician or renal dialysis facility currently providing the in-home dialysis, telehealth services or other ESRD care to the individual or has been selected or contacted by the individual to schedule an appointment or provide services;
    • The telehealth technologies are not offered as part of an advertisement or solicitation; and
    • The telehealth technologies are provided for the purpose of providing telehealth services related to the individual’s ESRD.
  • The second is a new safe harbor under the AKS protecting the provision of a “patient engagement tool” by a value based enterprise (“VBE”) participant to a patient in the target patient population of a value-based arrangement to which the VBE is a party.
    • The patient engagement tool
      • must be an in-kind item, good or service having a direct connection to the coordination and management of the care of the target patient population;
      • may not result in medically unnecessary or inappropriate items or services reimbursed by a federal health care program;
      • must be recommended by the patient’s licensed health care professional; and
      • advance adherence to a treatment regimen determined by the patient’s licensed health care professional, adherence to a drug regimen determined by the patient’s licensed health care professional, adherence to a follow-up care plan established by the patient’s licensed health care professional, prevention or management of a disease or condition as directed by the patient’s licensed health care professional, and/or ensure patient safety.
    • The patient engagement tool may not be cash or any cash equivalent and may not have an aggregate retail value of more than $500 per patient (subject to annual COP adjustment).
    • The patient engagement tool must be furnished directly to the patient or patient’s caregiver, family member or other person acting on the patient’s behalf by the VBE participant.
    • Certain types of VBE participants are prohibited from providing patient engagement tools or support, such as pharmaceutical manufacturers, distributors, and wholesalers; pharmacy benefit managers; laboratory companies; compounding pharmacies; certain medical device or supply manufacturers, and suppliers of DME, prosthetics, orthotics or supplies covered by a federal health care program.

Changes to the Discount Safe Harbor and Related New Safe Harbors

  • In a final rule published on November 30, 2020, HHS amended the existing discount safe harbor to exclude from protection certain rebate and related practices engaged in by manufacturers of prescription pharmaceutical products when dealing with Medicare Part D plan sponsors directly or indirectly through pharmacy benefit managers (“PBMs”). It also simultaneously created two new safe harbors, one for point-of-sale reductions in price on prescription pharmaceutical products, focusing protection on price reductions that are more likely to benefit patients than the practices carved out of the discount safe harbor, and the other for certain fixed fee arrangements between manufacturers and pharmacy benefit managers (“PBMs”).
  • Collectively, the discount safe harbor amendments and the new safe harbors intend to curb certain problematic existing practices, reduce costs to the federal government and federal health care beneficiaries, and increase price transparency.
  • The new safe harbors became effective on January 29, 2021, with the narrowing of the discount safe harbor to be effective January 1, 2022, allowing parties affected by the modifications time to restructure existing arrangements.
  • Discounts (42 C.F.R. § 1001.952(h))
    • To curb certain practices HHS views as drivers for higher list prices and increased costs to beneficiaries, the final rule amends the discount safe harbor to expressly exclude from a “discount” eligible for protection a price reduction or other remuneration in connection with the sale or purchase of a prescription pharmaceutical product from a manufacturer to a Medicare Part D plan sponsor or a PBM acting under contract with a Medicare Part D plan sponsor, unless it is a price reduction or rebate that is required by law.
    • HHS elected not to finalize its proposal to exclude from protection under the safe harbor similar arrangements involving Medicaid managed care organizations (“MCOs”). “Medicaid MCOs seeking safe harbor protection for discounts have the option to use either the discount safe harbor or the new safe harbor for point-of-sale reductions,” though HHS expressly states that neither safe harbor “protects rebates or other reductions in price from a manufacturer that are retained by a PBM, even if that PBM is operating on behalf of a Medicaid MCO.”
  • Point-of-Sale Reductions in Price on Prescription Pharmaceuticals (42 C.F.R. § 1001.9952(cc))
    • The new point-of-sale safe harbor protects price reductions on prescription pharmaceutical products from a manufacturer to a Medicare Part D plan sponsor or Medicaid MCO, whether offered directly or through a PBM under contract with the plan sponsor or Medicaid MCO, provided certain criteria are met:
      • The price reduction is set in advance, in writing
      • The price reduction does not involve a rebate unless the full value of the price reduction is provided to the dispensing pharmacy through point-of-sale chargeback(s) or is required by law
      • The price reduction is completely reflected in the price of the pharmaceutical product at the time it is dispensed to the beneficiary
    • Due to questions raised by commenters about arrangements linking price reductions to formulary placement, HHS clarified that “reductions in price given to Part D plan sponsors or Medicaid MCOs that are conditioned on formulary placement of a particular drug can qualify for protection under the new safe harbor for point-of-sale reductions in price (and could have been protected for Part D plan sponsors under the discount safe harbor, and can continue to be protected under the discount safe harbor for Medicaid MCOs if all safe harbor conditions are met).”
  • PBM Service Fees (42 C.F.R. §1001.952(dd))
    • The new PBM service fees safe harbor protects certain fixed-fee payments from a pharmaceutical manufacturer to a PBM for services the PBM provides to the manufacturer related to the pharmacy benefit management services that the PBM furnishes to health plan(s) under certain conditions:
    • The PBM and the manufacturer have a written agreement, signed by the parties, covering all of the services the PBM provides to the manufacturer in connection with the PBM’s arrangement with health plans, and specifying the compensation for the services
    • The services do not involve the counseling or promotion of a business arrangement or activity that violates state or federal law
    • The compensation paid to the PBM is (i) consistent with fair market value in an arm’s length transaction, (ii) a fixed payment, not based on a percentage of sales, and (iii) not determined in a manner that takes into account the volume or value of referrals or business otherwise generated between the parties, or between the manufacturer and the PBM’s health plans, and for which payment may be made under a federal health care program
    • The PBM provides an annual written disclosure to each health plan with which it contracts the services it renders to each manufacturer related to the PBM’s arrangements to furnish pharmacy benefit management services to the health plan, and provides the same information as well as fees paid for the services, upon request from the HHS Secretary.