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October 15, 2019

HHS OIG's Proposed Rule Revising the AKS Safe Harbors and Beneficiary Inducement CMP Rules: Information for Drug and Device Manufacturers


On October 9, 2019, the Department of Health and Human Services (HHS) Office of the Inspector General (OIG) released a Proposed Rule, "Revisions to Safe Harbors under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements."1 The Proposed Rule will be published in the Federal Register on October 17, 2019, and comments are due December 31, 2019.2

OIG proposes, for example, to add safe harbor protections under the federal Anti-Kickback Statute (AKS) for certain coordinated care and value-based arrangements among clinicians, providers, and others. As proposed, however, these new safe harbors would explicitly exclude from protection: pharmaceutical manufacturers; durable medical equipment, prosthetics, orthotics, and supplies (DMEPOS) manufacturers, suppliers, and distributors; and laboratories.

OIG also proposes to modify the requirements of certain current safe harbors. Of particular relevance to manufacturers, OIG proposes to expand the types of arrangements that would be protected under the safe harbors for services arrangements and warranties.

OIG's proposals that may be of particular interest to drug and device manufacturers are summarized below. A forthcoming Arnold & Porter Advisory will discuss the healthcare provider-focused proposals in greater detail, as well as a companion proposed rule, issued simultaneously by the Centers for Medicare and Medicaid Services (CMS), that would address exceptions under the Physician Self-Referral (Stark Law) regulations.3

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Value-Based Enterprises

In the Proposed Rule, OIG proposes three new safe harbors for certain remuneration exchanged between eligible participants in a "value-based enterprise" (VBE) that fosters better coordinated and managed care. The safe harbors would provide greater flexibility in designing an arrangement as the participants in the VBE take on greater downside financial risk for costs and quality of care. At a high level, the three proposed safe harbors are:

  1. A safe harbor for certain in-kind remuneration exchanged between qualifying VBE participants for value-based activities that are directly connected to care coordination and care management;
  2. A safe harbor for certain in-kind and monetary arrangements where the VBE assumes substantial downside risk from a payor; and
  3. A safe harbor for certain in-kind and monetary arrangements where the VBE assumes full downside financial risk from a payor.

Under OIG's proposal, "VBE participants" eligible for safe harbor protection would include: "clinicians, providers, and suppliers" and "companies . . . providing mobile health and digital technologies to physicians, hospitals, patients and others for the coordination and management of patients and their healthcare." OIG proposes to exclude pharmaceutical manufacturers; manufacturers, distributors, or suppliers of DMEPOS; and laboratories from the definition of this term and therefore from the proposed safe harbors. OIG seeks comment on whether it should also exclude pharmacies, device manufacturers (beyond just DMEPOS manufacturers), pharmacy benefit managers, drug wholesalers, and/or drug distributors. OIG also seeks comment on whether it should exclude entities from protection under the proposed safe harbors on the basis of product type, company structure, heightened fraud and abuse risks, or other features, as opposed to by broad category of entity. Citing its understanding of historical enforcement and oversight experience, OIG argues that the entities proposed to be excluded are "heavily dependent upon practitioner prescriptions and referrals" and therefore

"might misuse the proposed safe harbors primarily as a means of offering remuneration to practitioners and patients to market their products, rather than as a means to increase value for patients and payors by improving the coordination and management of patient care, reducing inefficiencies, or lowering health care costs."

OIG solicits comment on whether these assumptions are correct. OIG also solicits examples of the specific roles played by these entities in coordinating and managing care for patients and providing beneficial health technology used to coordinate and manage care and improve health outcomes.

OIG acknowledges that it may not be possible to distinguish clearly a "traditional device manufacturer" from a health technology company, given that many companies pursue multiple lines of business, and that digital technologies are being integrated into traditional medical devices. As OIG considers whether and to what extent to exclude device manufacturers from safe harbor protection, OIG solicits comment on the definition of "device manufacturer" for purposes of this Proposed Rule.

Finally, OIG notes that it is "considering pharmaceutical manufacturers' role in coordination and management of care and may address it in future rulemaking" and that OIG may consider, in future rulemaking, safe harbor protection for "value-based contracting and outcomes-based contracting for the purchase of pharmaceutical products (and potentially other types of products)."4 Relatedly, during a press call regarding the Proposed Rule, HHS Secretary Alex Azar affirmed that HHS is "working on protections to enable value-based outcome payments for pharmaceutical products. That is not included in these proposed changes to Stark and anti-kickback statute, which are focused instead on provider-based arrangements."5

Patient Engagement and Support

In the Proposed Rule, OIG proposes a new safe harbor for patient engagement and support to improve quality, health outcomes, and efficiency. Under the proposed safe harbor, in-kind patient engagement tools or supports furnished directly by a VBE participant to a patient in a target patient population would not be considered "remuneration" for purposes of the AKS—if directly connected to the coordination and management of care and all other conditions of the safe harbor are met. OIG proposes that the aggregate retail value of the patient engagement tools and supports furnished by a VBE participant to a patient could not exceed $500 annually, with certain limited exceptions.

Because only patient engagement tools and supports furnished by a "VBE participant" would receive protection, pharmaceutical manufacturers; DMEPOS manufacturers, suppliers, and distributors; and laboratories would not be eligible for protection under this proposed safe harbor.

Personal Services and Management Contracts and Outcomes-Based Payment Arrangements

OIG proposes to expand the existing safe harbor for personal services and management contracts6 and create a new provision to protect certain outcomes-based payments. As proposed, drug and DMEPOS manufacturers, suppliers, and distributors would not be able to avail themselves of the outcomes-based payment safe harbor provisions.

Proposed Changes to the Existing Safe Harbor Provisions

First, OIG proposes to replace the current safe harbor requirement that the aggregate compensation payable under the services arrangement is set in advance with a requirement that the "methodology for determining the compensation paid to the agent over the term of the agreement is set in advance." (Emphasis added.) OIG would continue to require that the compensation reflect fair market value, be commercially reasonable, and not take into account the volume or value of referrals of business otherwise generated between the parties.

Second, OIG proposes to eliminate entirely the current requirement that, if any agreement provides for services on a periodic, sporadic or part-time basis, the contract must specify the schedule, length and the exact charge for such intervals. OIG believes removing these requirements will afford parties additional flexibility in designing bona fide business arrangements, including care coordination and quality-based arrangements, and that the safe harbor as amended would still provide sufficient safeguards against the manipulation of these arrangements to reward referrals.

Proposed Safe Harbor Protection for Certain Outcomes-based Payments

Within the services safe harbor, OIG proposes to add a new provision to protect "outcome-based payments," which it would define as "payments from a principal to an agent that: (i) reward the agent for improving (or maintaining improvement in) patient or population health by achieving one or more outcome measures that effectively and efficiently coordinate care across care settings; or (ii) achieve one or more outcome measures that appropriately reduce payor costs while improving, or maintaining the improved, quality of care for patients." As in its approach to the proposed safe harbors to protect value-based arrangements, OIG proposes to exclude pharmaceutical manufacturers; manufacturers, distributors, and suppliers of DMEPOS; and laboratories from the safe harbor for outcomes-based payments. OIG is also considering excluding pharmacies (including compounding pharmacies), PBMs, wholesalers, and distributors from the new safe harbor protections. OIG is soliciting comments about these proposed exclusions.


The warranties safe harbor protects the exchanges of value pursuant to a warranty agreement "provided by a manufacturer or supplier of an item to a buyer (such as a health care provider or beneficiary)," as long as certain conditions are met. The proposed rule would make four changes to the safe harbor:

  1. Update the definition of "warranty";
  2. Expand the safe harbor to encompass warranty arrangements for one or more items (i.e., bundled items) and related services, where certain conditions are met;
  3. Introduce additional safeguards and requirements as a condition of safe harbor protection; and
  4. Exclude beneficiaries from the reporting requirements applicable to buyers of products with warranties.

Definition of Warranty

The warranty safe harbor currently defines the term "warranty" through reference to the definition of "written warranty" in the Magnuson-Moss Act.7 OIG proposes to remove this cross reference, and instead define "warranty" directly, using language similar to the Magnuson-Moss Act definition. OIG states that the new definition would continue to include agreements promising that warranted items or services "will meet a specified level of performance over a specified period of time," which OIG interprets to include arrangements conditioned on clinical outcome guarantees (provided the arrangements meet all of the safe harbor's requirements). OIG intends this proposal to clarify that the safe harbor applies to FDA-approved drugs and devices.

Bundled Warranties

OIG interprets the current safe harbor as limited to warranties on single items, and not covering bundled items or services.8 OIG proposes to extend protection to warranty arrangements that apply to one or more items and related services, provided that the warranty covers at least one item. However, OIG warns that the proposal "would not protect free or reduced-price items or services that sellers provide either as part of a bundled warranty or ancillary to a warranty agreement." OIG notes that items or related services with an independent value to the buyer would require the protection of a different safe harbor should they be offered to the buyer for free or at a discounted price in connection with a warranty, and cites laboratory testing and medication adherence services as potential examples:

[L]aboratory testing required for patient care may be necessary to determine if a warranted outcome was achieved, but the laboratory test would have independent value to the buyer. A seller's provision of laboratory testing for free or at a reduced charge as part of a warranty agreement would implicate the anti-kickback statute. Additionally, the provision of medication adherence services for free or below fair market value would implicate the anti-kickback statute. In contrast, if sellers provide items and services with no independent value to a buyer, other than to determine whether the conditions of a warranty have been satisfied, the items and services may not constitute remuneration under the anti-kickback statute, and thus, may not implicate the statute.

Regarding medication adherence services, OIG further notes:

Using medication adherence services offered by drug manufacturers as an example, we are concerned that manufacturers may promote patients' adherence to prescribed medications, even when a patient is experiencing harmful side effects, or the medication is not achieving the purpose for which it was prescribed. Because manufacturers have financial incentives for patients to use and reorder their medications but do not have the medical expertise the prescribing physicians have to determine whether continued use of medications is clinically appropriate for a specific patient, medication adherence services offered by manufacturers, such as phone or message communications directing patients to take their medications, could result in patient harm or inappropriate utilization of drugs.

Additionally, the proposal would not protect warranties covering only services, although OIG is considering extending protection to such arrangements if sufficient safeguards exist.

Finally, OIG would also condition protection for bundled warranties on the requirement that all federally reimbursable items and services subject to the warranty are reimbursed (1) by the same federal health care program, and (2) in the same payment (e.g., where items or services are reimbursed by Medicare Part A in the same DRG payment). However, OIG is considering modifying this proposal to protect items and services reimbursed under the same payment methodology. OIG is also considering permitting warranties where the bundled items are reimbursed under the same payment by Medicare but reimbursed separately by Medicaid. OIG seeks examples of circumstances that merit an exception to the proposed same-program, same-payment requirement.

Additional Safeguards and Reporting Requirements

First, OIG proposes to continue its requirement limiting remuneration provided under a warranty to the cost of the items and services subject to that warranty. Additionally, OIG proposes to prohibit manufacturers and suppliers from conditioning warranties on either the exclusive use of one or more items and services or on minimum purchase requirements.

OIG also proposes to exclude beneficiaries from the reporting requirements applicable to other buyers of products under warranty, since beneficiaries do not report costs to the government. Further, OIG seeks input on whether the current reporting requirements keep buyers from receiving warranty payments over several years, and recognizes the need for delayed reporting if, for example, a drug's efficacy is not known until several years after the initial purchase.

Cybersecurity Technology and Services and Electronic Health Records Items and Services

The Proposed Rule contains two related safe harbor proposals with respect to donations of certain technology.

  • First, OIG proposes a new cybersecurity technology safe harbor to protect certain donations of software and other non-hardware technology that is "necessary and used predominantly" to "protect information by preventing, detecting and responding to cyberattacks." OIG also solicits comments on whether to expand safe harbor protection to hardware donations in instances where a donor determines that a donation of hardware is reasonably necessary based on a "risk assessment" of its own organization and that of a potential recipient.
  • Separately, OIG proposes modifications to the existing electronic health records (EHR) safe harbor that would add protections for certain related cybersecurity technology, update provisions regarding interoperability, and remove the safe harbor's sunset date.

OIG solicits comments on the extent to which OIG should include manufacturers in these safe harbors. Currently, the EHR safe harbor excludes manufacturers and instead protects only entities that "provide[] services . . . and submit[] claims or requests for payment."9 In the Proposed Rule, OIG indicates that it is considering either eliminating this provision, or revising it to include entities with "indirect" patient care responsibility (e.g., health systems and Accountable Care Organizations (ACOs)).

For the cybersecurity safe harbor, OIG does not propose restrictions on the types of donors that could receive protection, so manufacturer donations could be protected. However, OIG indicates that it is considering limiting protection to donations by entities with "direct and primary patient care relationships that have a central role in the healthcare delivery infrastructure," such as hospitals and physician practices, and [not] providers and suppliers of ancillary services such as pharmaceutical, device, and DMEPOS manufacturers, and other manufacturers or vendors that indirectly furnish items and services used in the care of patients."10

CMS-Sponsored Model Arrangements and CMS-Sponsored Model Patient Initiatives

The OIG proposes a new safe harbor for "CMS-sponsored model arrangements and CMS-sponsored model patient incentives." "CMS-sponsored models" are defined as Phase I and II Center for Medicare and Medicaid Innovation (CMMI) models and the Medicare Shared Savings Program. The proposed safe harbor would protect: (1) certain arrangements between or among "parties" to certain CMS-sponsored models; and (2) certain beneficiary incentives furnished by "participants" to certain CMS-sponsored models. It appears unlikely that drug or device manufacturers in practice would be "parties" or "participants" that would fall within this safe harbor.11

Additional Proposals

In addition to the proposals described above, OIG proposes:

  • Modifications to the existing safe harbor for local transportation to change mileage limits for rural areas and transportation for patients discharged from inpatient facilities;
  • To codify the statutory exception to the definition of "remuneration" related to ACO Beneficiary Incentive Programs for the Medicare Shared Savings Program; and
  • To codify a new statutory exception to the prohibition on beneficiary inducements for telehealth technologies furnished to certain in-home dialysis patients.

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If you have any questions about any of the topics discussed in this Advisory, please contact your Arnold & Porter attorney or any of the authors.

© Arnold & Porter Kaye Scholer LLP 2019 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.

  1. HHS OIG, Proposed Rule, Revisions to Safe Harbors under the Anti-Kickback Statute and Civil Monetary Penalty Rules Regarding Beneficiary Inducements.

  2. Comments are due 75 days after the expected Federal Register publication date of October 17, 2019.

  3. CMS, Proposed Rule, Medicare Program; Modernizing and Clarifying the Physician Self-Referral Regulations.

  4. See Proposed Rule, at 54, 63

  5. See Michelle M. Stein, "Azar: HHS Working on Protections for Value-Based Drug Contracts," Inside Health Policy (October 9, 2019).

  6. 42 C.F.R. § 1001.952(d).

  7. 15 U.S.C. § 2301(6).

  8. See OIG, Advisory Opinion No. 18-10 (September 17, 2018).

  9. 42 C.F.R. § 1001.952(y)(1)(i).

  10. In a footnote, OIG cites the 2006 final rule implementing the EHR safe harbor, 71 Fed. Reg. 45110, 45128 (Aug. 8, 2006), noting that the EHR safe harbor final rule excludes pharmaceutical, device and DMEPOS manufacturers because "{OIG} enforcement experience demonstrates that unscrupulous manufacturers have offered remuneration in the form of free goods and services to induce referrals of their product" and because manufacturers lack "a direct and central patient care role that justifies safe harbor protection for the provision of electronic health records technology."

  11. The proposed safe harbor text defines a model "participant" as "an individual or entity that is subject to, and is operating under, participation documentation with CMS to participate in a CMS-sponsored model," and defines a model "party" as a participant or "other individual or entity who the participation documentation specifies may enter into a CMS-sponsored model arrangement." Finally, "participation documentation" means "the participation agreement, cooperative agreement, regulations, or model-specific addendum to an existing contract with CMS that "is currently in effect" and "specifies the terms of a CMS-sponsored model."