Drug, Device Companies Urge Stronger Value-Based Payment Protections

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By James Swann

Drug and device companies are eager for more exceptions to an anti-fraud statute for alternative payment models, arguing in comment letters to the government that the health-care system can’t transition away from fee-for-service without new safe harbors..

The Advanced Medical Technology Association, for example, called for two new safe harbors that would protect value-based pricing arrangements as well as value-based warranties, while the Pharmaceutical Research and Manufacturers of America said new safe harbors should accommodate risk-sharing within value-based payment arrangements.

The new safe harbors would help encourage manufacturers and providers develop value-based arrangements by giving them a better sense of what’s permitted under existing regulations, AdvaMed said in an early March letter.

The comment letters represent a comprehensive effort to raise the issue of existing safe harbors not sufficiently encouraging innovation and discouraging the advance of value-based arrangements, Thomas S. Crane, an attorney with Mintz Levin Cohn Ferris Glovsky & Popeo PC in Boston, told Bloomberg BNA.

Value-based pricing arrangements allow for price adjustments based on clinical outcomes, while value-based warranty arrangements allow manufacturers to repay providers when expected clinical outcomes aren’t achieved.

Crane, who also serves on Bloomberg BNA’s Health Care Fraud Report’s advisory board, said the safe harbor proposals will likely create significant challenges for the Office of Inspector General, as one-size-fits-all safe harbors have to be drafted very narrowly.

“The reason is that these safe harbor provisions, if enacted, would need to protect all possible arrangements that fit the standards of that safe harbor, meaning the drafters will need to make sure that no reasonably conceivable abusive arrangement could squeeze in,” Crane said.

As a result, industry stakeholders should consider using the existing OIG advisory opinion process to check the validity of new value-based arrangements, at least until there are details on any safe harbors the OIG releases, Crane said.

The proposals were in response to the Health and Human Services OIG’s annual request for proposals and recommendations for developing or modifying anti-kickback safe harbors.

Safe harbor provisions specify payment and business practices that, although potentially capable of inducing referrals of business reimbursable under Medicare and Medicaid, would not be treated as criminal offenses under the anti-kickback statute or lead to administrative sanctions.

Changes Coming

It’s likely the OIG will get to work on the proposals for new or modified anti-kickback safe harbors some time this year, Eric Fader, a health-care attorney with Day Pitney LLP in New York, told Bloomberg BNA.

“In the current regulatory environment, the likelihood of anything becoming law or adopted in regulation is dependent more than ever on it not offending anyone or triggering a partisan battle, and the value-based safe harbor proposals are generally straightforward and seem like good, constructive ideas,” Fader said.

The Centers for Medicare & Medicaid Services’ adoption of fraud and abuse waivers in 2015 to encourage participation in accountable care organizations demonstrates that the federal government is willing to adjust long-standing law to accommodate the switch to value-based health-care delivery and care coordination, Fader said.

“Although safe harbors by definition need not be complied with, their expansion will encourage even the more risk-averse companies to engage in these sorts of discussions,” Fader said.

Value-Based Arrangements

The rise of a value-based health-care model, and the simultaneous decline of the fee-for-service model, leave the anti-kickback safe harbors ripe for change, Ankur Goel, an attorney with McDermott Will & Emery LLP in Washington, told Bloomberg BNA.

It’s important to remember the anti-kickback statute was developed under the traditional payment model, which provides more reimbursements for physicians who increase the volume of their services, Goel said.

“I expect the OIG will indeed take steps to modernize the safe harbors to align with the direction of payment in the health-care system,” Goel said.

The OIG’s safe harbor proposal solicitation received four other responses in addition to those from AdvaMed and PhRMA, and all were in favor of either creating new anti-kickback safe harbors or modifying existing safe harbors to promote value-based arrangements.

Medtronic, a device company based in Minneapolis, said new safe harbors should protect risk-sharing arrangements between manufacturers and providers. “If all parties are sharing in the financial risk of a certain outcome, the potential for over-utilization or referrals for unnecessary services is significantly reduced,” Medtronic’s early March letter said.

Pharmaceutical manufacturer Eli Lilly took a slightly different stance in its comment letter, calling for the OIG to amend some existing safe harbors. For example, the OIG should amend a safe harbor focused on patient adherence to drug regimens to fit in with a value-based approach.

“Adherence is an important proxy for outcomes and the value of the medicine manufacturers provide,” the Lilly letter said.

To contact the reporter on this story: James Swann in Washington at jswann1@bna.com

To contact the editor responsible for this story: Kendra Casey Plank at kcasey@bna.com

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