Will today’s ‘kickback’ be tomorrow’s ‘value-based arrangement?’

Proposed rules from HHS could change what’s accepted and what’s not in today’s expanding continuum of care

On October 9, the U.S. Department of Health and Human Services released proposed rules that would revamp parts of the Anti-Kickback Statute and Stark Law. The proposed rules are intended to protect against overutilization of medical services while giving physicians and other healthcare providers flexibility to coordinate care for patients. And they are intended to protect outcomes-based payment arrangements that reward improvements in patient health.

Much of the rules are directed at providers and what they can or cannot do to coordinate care. But medical products manufacturers, distributors and providers might be affected too, particularly as digital and connected technologies become a standard part of their repertoire.

HHS is seeking comments on what role – if any – suppliers should play in value-based arrangements. The agency has reservations.

“We are concerned … and solicit public comments about the risk that some companies that manufacture medical devices covered by Federal health care programs, particularly implantable devices used in a hospital or ambulatory surgical center setting, might misuse value-based arrangements to disguise improper payments for care coordination intended as kickbacks to purchase the medical devices they manufacture,” HHS writes.

But HHS raises questions about how the term “device manufacturer” should be defined. Does it include digital tech companies? How about companies that offer traditional devices as well as software? The answers they ultimately arrive at will affect the supply chain.

Terry Chang

Share Moving Media – publisher of the Journal of Healthcare Contracting – asked AdvaMed, the Washington, D.C.-based association for medical manufacturers, to comment on the proposed rules and their potential importance to suppliers. Terry Chang, M.D., vice president, assistant general counsel, director, legal and medical affairs, responded in writing.

Share Moving Media: The proposed rules issued by the HHS Office of Inspector General (OIG) include a discussion about how to define “device manufacturers.” What’s the issue?

Terry Chang M.D.: In sum, the discussion by the OIG about defining “device manufacturer” is about two issues: 1) the perceived risk of abuse and 2) the role and value of device manufacturers in care coordination and management.

More specifically, OIG seeks input on whether there is a way to exclude manufacturers of traditional medical devices (e.g., implants) from final rule safe harbor protections, while preserving the inclusion of manufacturers of medical technologies that have an obvious and promising role in care coordination and management, through the way that “device manufacturer” is defined for the purposes of exclusion.

References to remote patient monitoring, mobile health and digital technologies make it clear that such technologies are very much included (see Section III.B.5.b. Health Technology Companies).

OIG is considering excluding all device manufacturers from safe harbor protection based on 1) historic enforcement experience with manufacturers of implantable devices in fee-for-product arrangements (assuming an increased risk of abuse that would not be safeguarded against in the proposed frameworks) and 2) the assumption that “traditional device manufacturers” would not have a role in care coordination and management.

However, today’s medtech companies don’t just produce devices and diagnostics that save and improve lives. They provide solutions that comprise a range of products and services to improve care coordination and management, and patient outcomes. They are true partners working to diagnose, treat and manage disease, as well as share accountability for achieving better outcomes and managing costs. HHS’s proposed anti-kickback-statute changes in particular would help make that happen.

The preamble in particular recognized that some manufacturers of traditional medical devices also manufacture care-coordinating type “health technologies.” However, there did not appear to be an appreciation for the substantial overlap that exists. Many manufacturers of DMEPOS [durable medical equipment, prosthetics, orthotics or supplies] and “traditional medical devices” also manufacture “health technologies” that are valued for their capabilities and promise to advance the coordination and management of care, improving clinical outcomes, and reduce costs.

Share Moving Media: As things stand today, are manufacturers barred from entering into arrangements with providers in which the manufacturer can be rewarded for improved outcomes associated with its device or equipment?

Chang: As things stand today, manufacturers are deterred from entering into value-based arrangements (centered around achieving a clinical and/or economic outcome target) due to the risk, time and cost associated with developing value-based arrangements (VBAs) to fit within today’s volume-based guardrails. We want to modernize the Safe Harbors to enable manufacturer engagement in more comprehensive, patient-centric VBAs, in a simpler, less time consuming, and less costly fashion.

The federal Anti-Kickback Statute (AKS) is exceptionally broad and criminalizes offering or providing anything of value to induce or reward the utilization of any item or service covered in part by a federal health care program. The enormous breadth of this prohibition understandably left providers and suppliers uncertain about the applicability of the statute, and in order to address this confusion, Congress amended the statute in 1987 to mandate OIG’s promulgation of regulatory safe harbors (Safe Harbors). The 28 safe harbors created to date were designed with volume-based guardrails for a fee-for-service and fee-for-item payment framework.

Aspects of VBAs at tension with the AKS include: 1) the bundled infrastructure and services needed to develop and operationalize a VBA (data collection, tracking, analysis, reporting); 2) the bundled services and technology that are part of the solution to achieve the targeted outcome; and 3) elements of outcomes-based pricing, risk-sharing, and warranties. (E.g., rebates, performance payments, penalty withholds, and underperformance payments can be considered to have value that induces or rewards referrals or utilization of an item or service covered in part by a federal health care program.)

Share Moving Media: HHS suggests it might change existing safe harbors for warranties. What is the issue?

Chang: Previously, the Warranties Safe Harbor only applied to a warranty on single items against product failure.

The modified warranties safe harbor in the proposed rule expands the protection to cover more than one item and also cover related services bundled with an item or items against a warranted clinical or cost outcome. The protection for bundles is limited—the federally reimbursable items and services subject to the warranty must be reimbursed by the same Federal health care program and in the same Federal health care program payment. Another important limitation is that the warranty remedy is capped at the cost of the items and services under the warranty. Lastly, this safe harbor only protects services when they are bundled to an item (i.e., there is no coverage for standalone services).

The discussion regarding potential future rulemaking on additional modifications to the warranties safe harbor is about another potential way that OIG may address purchase/sale arrangements for covered items and services, which are not addressed in this set of proposed rules. For example, through additional modifications, the warranties safe harbor could also protect outcomes-based pricing arrangements, where the net price is determined by the actual outcome relative to the targeted outcome.

Share Moving Media: Simply put: What would the proposed changes – if incorporated into the final rule – allow manufacturers to do that they cannot do today?

Chang: We are still exploring the implications of the language in the proposed rule. The topline change is that potential avenues for device manufacturer engagement in value-based arrangements would be opened. In addition to providing the framework to contribute to value-based care, utilizing protected arrangements would remove deterrents to VBAs.

Again, today’s medtech companies don’t just produce devices and diagnostics that save and improve lives, they provide solutions that comprise a range of products and services to improve care coordination and management, and patient outcomes.

Share Moving Media: What does AdvaMed think the final rule should allow manufacturers to do that the proposed changes do not address?

Chang: We are still studying the implications of the proposed rule and do not have a complete assessment of the limitations in the protections provided in the proposed rule relative to AdvaMed’s proposals. Ideally, the final rule would protect the same scope of arrangements covered under the AdvaMed proposals, including value-based pricing arrangements, to enable outcomes-based pricing of items and services (i.e., protecting arrangements that provide for price adjustments based on the achievement of a pre-identified, measurable clinical or cost outcome targets).