What is a Value-Based Enterprise? — Nixon Gwilt Law (2023)

This is the third article in Nixon Gwilt Law’s Safe Harbors and Exceptions series. Please visit our Innovation Insights page to view other articles in the series.

Dramatic changes to the Anti-Kickback Statute (“AKS”) and the Stark Physician Self-Referral Law (“Stark Law”) regulations set forth in a pair of Final Rules issued by the Office of the Inspector General (“OIG”) and the Centers for Medicare & Medicaid Services (“CMS”) in November 2020 went into effect on January 19, 2021. These Final Rules are key components of the Department of Health & Human Services’ Regulatory Sprint to Coordinated Care, issued with the goal of removing unnecessary barriers to the delivery of value-based care. They present an unprecedented opportunity for healthcare providers and digital health companies to create new business arrangements that align incentives around care coordination and patient engagement – two critical components for success in value-based care delivery.

Under the Fee-For-Service reimbursement model that has been prevalent in the U.S. healthcare system for decades, healthcare providers are compensated based on the number of services performed on a patient rather than the quality of care and outcomes achieved. The AKS and Stark Law were created to guard against over-utilization of healthcare services in a Fee-For-Service world. As our healthcare system shifts to a value- and outcomes-based payment model, the constraints of AKS and Stark fail to recognize that there are certain services (such as care management or preventive service) and arrangements among healthcare entities (such as the exchange of items/services among providers for less than Fair Market Value) that we want to incentivize as a way of improving outcomes and reducing the overall cost of care. Such arrangements are the foundation of the Value-Based Enterprise, described in the Final Rules.

What is a Value-Based Enterprise (“VBE”)?

A Value-Based Enterprise is a new term created by the Final Rules. It is used to describe a contractual arrangement among all types of healthcare providers as well as with other entities such as digital health companies. These VBE arrangements are eligible for safe harbor protection under one of the three new value-based safe harbors to the Anti-Kickback Statute and/or the three new exceptions to the Stark Law. It is worth noting that, unlike some Medicare innovation models such as an Accountable Care Organization under the Medicare Shared Savings Program, a VBE need not be a standalone legal entity – though it may be the case that some standalone entities such as ACOs are particularly well suited for the contractual arrangements that create a VBE. Regardless of its size, a VBE must identify an accountable body responsible for financial and operational oversight and must put into place a governing document that describes the VBE and how it intends to achieve its value-based purpose.

The definition of a VBE includes new terms that are also defined within the Final Rules. Specifically, a VBE is defined in both Final Rules as “two or more VBE participants: (i) Collaborating to achieve at least one value-based purpose; (ii) each of which is a party to a value-based arrangement with the other or at least one other VBE participant in the value-based enterprise; (iii) that have an accountable body or person responsible for financial and operational oversight of the value-based enterprise; and (iv) that have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s).” The OIG Final Rule notes that “[t]he definition of “value-based enterprise” is intended to be broad and flexible to encompass a wide range of VBEs, from smaller VBEs comprised of only two or three parties to large VBEs, such as entities that function similar to ACOs.” The CMS Final Rule notes that the definitions of all terms “are essential to the application of the exceptions, which apply only to compensation arrangements that qualify as value-based arrangements.”

What is a Value-Based Enterprise Participant (“VBE Participant”)?

The Final Rules define a VBE participant as “an individual or entity that engages in at least one value-based activity as part of a value-based enterprise.” However, the Final Rules take care to note that a patient or patients are NOT VBE participants. In addition to healthcare provider entities, the OIG Final Rule mentions non-healthcare entities such as rideshare companies and foodbanks as examples of VBE participants eligible for protection. While all types of entities may be VBE participants, the OIG Final Rule excludes certain entities from AKS safe harbor protection under both the Value-Based safe harbors and the Patient Engagement and Support safe harbor, citing as grounds a history of fraud and abuse. Entities excluded from protection under any of the AKS value-based safe harbors include pharmaceutical companies, Pharmacy Benefit Managers (or “PBMs”), labs, compounding pharmacies, medical supply or device manufacturers DMEPOS companies, and medical device distributors or wholesalers. However, device/supply manufacturers and/or DMEPOS companies may be protected as a “limited technology participant” under the Care Coordination value-based safe harbor for providing digital health technology to a VBE participant.

What is a Value-Based Purpose?

The definition of a value-based purpose in the Final Rules describes the fundamental elements of value-based care. A value-based purpose means: “(1) Coordinating and managing the care of a target patient population; (2) improving the quality of care for a target patient population; (3) appropriately reducing the costs to, or growth in expenditures of, payors without reducing the quality of care for a target patient population; or (4) transitioning from health care delivery and payment mechanisms based on the volume of items and services provided to mechanisms based on the quality of care and control of costs of care for a target patient population.”

What is a Value-Based Activity?

The Final Rules define a value-based activity as one that is designed to achieve at least one value-based purpose of the VBE, such as “(i) The provision of an item or service; (ii) the taking of an action; or (iii) the refraining from taking an action.” While the OIG Final Rule notes that “the making of a referral is not a value-based activity,” the CMS Final Rule does not include this restriction because the Stark Law uses a separate definition of the term “referral.” The Final Rules also take care to state that a value-based activity need not actually achieve a value-based purpose, but instead must be “reasonably designed” to do so.

Examples of value-based activities might include providing remote patient monitoring or chronic care management services to patients in the VBE, providing a data analytics platform to identify trends, or embedding a care coordinator to transition patients between care settings. A value-based activity could also be providing a fitness tracker that does not qualify as a device for purposes of remote patient monitoring to patients as a means of encouraging and tracking preventive exercise. The OIG Final Rule specifically indicates that the definition of a value-based activity is intentionally broad in order encourage innovation. It takes equal care to note that a value-based activity is NOT merely an attempt to disguise “fraudulent referral schemes.”

What is a Value-Based Arrangement?

Per the Final Rules, a value-based arrangement is an arrangement among VBE participants to provide at least one value-based activity for a target patient population. The OIG Final Rule notes that arrangements between entities with common ownership are not prohibited.

Requirements for identifying a Target Patient Population

All VBEs must aimed at serving a target patient population. The criteria for a “target” patient population are broad and varied. For example, a VBE may choose to target patients in a specific geographic region to increase access to certain services. A target patient population might focus on improving outcomes for patients diagnosed with breast cancer or managing patients with congestive heart failure. A VBE might focus on patients of a particular age and socio-economic status.

The formal definition of a target patient population set forth in the Final Rules is “an identified patientpopulation selected by the VBE or its VBE participants using legitimate and verifiable criteria that: (i) Are set out in writing in advance of the commencement of the value-based arrangement; and (ii) further the value-based enterprise's value-based purpose(s).” Interestingly, the OIG Final Rule specifically notes that a target patient population need not be limited to beneficiaries of a federal healthcare program.

Creating a Value-Based Enterprise

The first step towards creating a VBE is to consider what types of behavior you want to incentivize among both providers and patients. For example, you may want to encourage physicians to implement remote patient monitoring programs for their patients with chronic conditions as a means of identifying and addressing health problems before they escalate. You may also want to incentivize patients for whom a remote patient monitoring program is prescribed to take and transmit their physiologic readings on a regular basis. How can you align incentives among all players to move the needle on improving outcomes and reducing costs?

An important step in structuring a VBE is to consult an experienced healthcare attorney who can assist you in developing a business model that is protected by the new safe harbors for AKS and exceptions to Stark, creating the requisite governing body, and drafting contractual arrangements between and among the VBE participants.

Please contact us if you would like to discuss how a Value-Based Enterprise may help your healthcare entity or digital health company achieve its goals.

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