December 2020 |
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Modifications to the Personal Services and Management Contracts Safe Harbor Under the AKS

The Anti-Kickback Statute (AKS) generally makes it illegal to knowingly and willfully solicit, receive, offer, or pay any remuneration in exchange for referrals of services that may be paid by federal health care programs.[1] The AKS is a criminal statute but it can also serve as the predicate for civil cases brought under the federal False Claims Act. The prohibition in the AKS is broad but the statute and its corresponding regulations contain a number of safe harbors that may protect certain types of arrangements. Given the breadth of the prohibition in the AKS, industry participants often strive to fit their business arrangements within one of the AKS safe harbors. However, many of these safe harbors are technical and they often contain criteria that are difficult to satisfy in practice.

On November 20, 2020, The Department of Health and Human Services Office of Inspector General released long-awaited rule changes to the AKS. The rule adds seven new safe harbors, modifies four existing safe harbors, and establishes a new exception to the Civil Monetary Penalties Law. The text of the new rule can be found here. Its overall purpose is to remove potential barriers to more effective coordination and management of patient care and delivery of value-based care. Many of the changes promote a shift away from fee-for-service based arrangements and allow industry participants greater flexibility with value-based arrangements. However, in addition to the new safe harbors, the rule also makes significant changes to the personal services and management contracts safe harbor. Under the new rule, this safe harbor will have broader application and it will be easier for industry participants to meet its requirements, particularly for arrangements involving part-time services. These are welcome changes that provide flexibility to those in the healthcare space.

     A.    Old Personal Services Safe Harbor – Rigid Framework for Part-Time Arrangements

The personal services and management contracts safe harbor generally shields payments from AKS scrutiny if those payments are made pursuant to a written agreement that satisfies a number of enumerated criteria. Under the old rule, two of those criteria included:

  • setting the aggregate compensation paid over the term of the agreement in advance; and
  • for services provided on a part-time basis, the written agreement had to specify the exact schedule, length, and exact charge for each interval.

These are only two of seven criteria under the old rule, but these two are particularly challenging to meet for a number of legitimate and well-meaning business arrangements that involve the provision of part-time services and arrangements involving hourly compensation. For example, medical directors and physician consultants are often part-time independent contractors that provide services which cannot be reasonably reduced to an exact schedule. Additionally, arrangements that involve hourly compensation structures are difficult to fit squarely within the four corners of the old safe harbor because the aggregate compensation is not set in advance in such an arrangement. As a result, under the old rule, medical director agreements, physician consultant agreements, and other similar arrangements often failed to meet all the technical requirements of the personal services safe harbor. This placed industry participants in a difficult position.

     B.    New Personal Services Safe Harbor – Flexible Framework that Opens Doors

Under the modified safe harbor, which will become effective on January 19, 2021, industry participants will no longer have to set “aggregate compensation” in advance to meet the personal services and management contracts safe harbor. Instead, the safe harbor now requires arrangements to set the “methodology for determining the compensation” in advance, not the “aggregate compensation.” This is particularly helpful because it creates more flexibility for arrangements that involve compensation that is difficult to predict at the outset of an arrangement. For example, in responding to comments, HHS specifically acknowledges in the new rule that it is possible to structure an arrangement to satisfy the modified safe harbor by using an hourly rate or other set, verifiable formula. Additionally, and according to HHS:

The intent behind these modifications is to provide enhanced flexibility while mitigating the risks of the parties periodically adjusting the agent’s compensation to reward referrals or to promote unnecessary utilization of services. Parties seeking protection under this safe harbor must evaluate the specific facts and circumstances of their arrangement to determine whether the compensation methodology over the term of the agreement is set in advance before any payment under the arrangement is made. Any remuneration also must meet all other conditions of the safe harbor for protection.[2]

Moreover, under the modified safe harbor, part-time arrangements no longer have to establish an exact schedule of work intervals, their precise length, or the exact charge for such intervals. The new rule does away with this schedule requirement altogether. These changes will broaden the scope of the personal services and managements contracts safe harbor making it easier for arrangements to meet the criteria. They will also create flexibility and predictability for industry participants, particularly those involved in part-time arrangements.

While the modified safe harbor changes the “aggregate compensation” requirement and eliminates the schedule requirement, it does not do away with the other conditions of the safe harbor. For example, compensation must still be consistent with fair market value. Additionally, and among other things, compensation must not be determined in a manner that takes into account the volume or value of any referrals or business for which payment may be made in whole or in part under a federal health care program.

Be on the lookout for updated blogs from us regarding the new rule and its substantial changes to the AKS.  In the meantime, do not hesitate to contact the attorneys at Elliott Sauter if you have any questions regarding the new rule changes or the AKS safe harbors. We can be reached at (469) 758 – 4150.


[1] See generally 42 USC § 1320a-7b(b).

[2] 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 (Dec. 2, 2020).


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