This is the fifth 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 Full Financial Risk Arrangement exception protects participants in a value-based arrangement with a value-based enterprise that has assumed “full financial risk.” This risk must be on a prospective basis, for the cost of all patient care items and services covered by the applicable payor for each patient in the target patient population, and for a specified period of time.

This exception allows the parties to be contractually obligated to become financially responsible for all items and services covered by the applicable payor within a 12 month phase-in period following the commencement date of the value-based arrangement.

Full financial risk can include capitation payments (a predetermined payment per patient per month or other period of time) or a global budget payment from a payor, which compensates the value-based enterprise for providing all patient care items and services for a target patient population for a pre-determined period of time. The new exception does not prescribe a specific manner to structure the compensation to the parties for the assumption of full financial risk.

The value-based enterprise can include stop-loss protection, reinsurance, global risk adjustment, or risk corridors, all designed to limit exposure to significant or catastrophic losses related to high-cost items or services or overall expenses.

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 Full Financial Risk Arrangement’s safe harbor is similar to the Stark Law exception for Full Financial Risk Arrangements. For a value-based arrangement to be protected under this safe harbor, the value-based enterprise must assume “full financial risk” from a payor.  For this purpose, full financial risk means that the value-based enterprise is at risk on a prospective basis for the cost of all items and services covered by a payor, for a term of at least one year.

The Full Financial Risk Safe Harbor also allows the participants to be contractually obligated during a 12 month phase-in period to assume full financial risk in the subsequent 12 month period. Significantly, during this phase-in period the parties may have a value-based purpose to transition from a fee-for-service payment mechanism to a mechanism based on the quality of care for a target patient population. 

To read more about the Full Financial Risk Model click here.