This is the fourth in a five-part series discussing the new Value-Based Regulations adopted last year by the Centers for Medicare & Medicaid Services and the Office of Inspector General. Click here for a full list of related posts. 

The Stark Meaningful Downside Financial Risk Arrangement exception is designed to accommodate alternative payment models that provide for potential financial gain in exchange for undertaking some level of downside financial risk. CMS believes that financial risk, when tied to the achievement, or failure to achieve, value-based purposes, will incentivize the type of behavior-shaping necessary to transform our healthcare delivery system into one that improves outcomes and controls the costs of the healthcare services.

Under the Stark Meaningful Downside Financial Risk exception, a participating physician must have meaningful downside financial risk for the duration of the value-based arrangement.  Withholds, repayment requirements or incentive pay tied to meeting goals or outcome measures are all permissible options for structuring the financial risk terms, provided that the downside risk is tied to the achievement of value-based purposes.  

The methodology used to determine the compensation (or other remuneration) must be set in advance before the furnishing of the items or services for which the remuneration is provided.  

Importantly, the new exception does not include the traditional Stark Law requirements that compensation must be set at fair market value, or must not take into account the volume or value of a physician’s referrals or the other business generated by the physician for the entity.

The Anti-Kickback Statute Substantial Downside Financial Risk Arrangement safe harbor requires that a value-based enterprise assume substantial downside financial risk from a payor under one of three methodologies, and a value-based participant must assume a “meaningful share” of the value-based enterprise’s substantial downside risk.  The safe harbor protects both monetary and in-kind remuneration exchanged pursuant to the value-based arrangements between the value-based enterprise and its participants.

To read more about the Partial Risk Models click here. Be on the lookout in the coming days for Part 5 of the series, How to Create a Full Financial Risk Value-Based Enterprise.