Carnahan Group Special Topics Review – CMS Final Rule – Value-Based Arrangements (“VBA”)

Carnahan Group Special Topics Review

CMS Final Rule – Value-Based Arrangements (“VBA”)

Value Based Arrangements


Since the Stark Law was enacted in 1989, the healthcare system has primarily focused on rewarding physicians based on a fee-for-service payment model instead of efficiencies and patient outcomes. However, in the last several years, the healthcare system has recognized that focusing on a value based model may drive down healthcare costs while promoting an improvement in patient health outcomes. Under previous law, value-based care had some elasticity, but only for participants in some of Medicare’s own value-based care programs such as the Medicare Shared Savings Program. The new rule, finalized in November 2020, is intended to provide flexibility to the entire health care system; thus, eliminating the diminishing effect on innovation for government programs and private payers. The new value-based regulatory framework is intended for health care providers to design and enter into legitimate value-based arrangements with expanded flexibility under the Stark Law as well as the Anti-kickback Statute.

Under value-based care, providers are reimbursed based on their ability to improve quality of care in a cost-effective manner or lower costs while maintaining standards of care, rather than solely on the volume of care they provide. Value-based care arrangements may also permit providers to address social determinants of health, as well as other disparities within the healthcare system. Importantly, with the promulgation of new regulations, the Centers for Medicare & Medicaid Services (“CMS”) has attempted to clearly define what a value-based arrangement entails.1 The following section lays out key concepts and definitions relevant to Value-Based Arrangements.

New Definition

Value-Based Activity—means any of the following activities, provided that the activity is reasonably designed to achieve at least one value-based purpose of the value-based enterprise:

  1. The provision of an item or service;
  2. The taking of an action; or
  3. The refraining from taking an action.

Value-Based Arrangement – means an arrangement for the provision of at least one value-based activity for a target patient population to which the only parties are:

  1. The ‘Value-Based Enterprise’ and one or more of its ‘VBE Participants’ (a person or entity
    that engages in at least one value-based activity as part of a Value-Based Enterprise); or
  2. VBE Participants in the same value-based enterprise.

Value-Based Enterprise (VBE) – means two or more VBE Participants:

  1. Collaborating to achieve at least one value-based purpose;
  2. 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;
  3. That have an accountable body or person responsible for financial and operational
    oversight of the value-based enterprise; and
  4. That have a governing document that describes the value-based enterprise and how the VBE participants intend to achieve its value-based purpose(s).

Value-Based Purpose – as 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.

Moving Forward

In addition to Federal efforts, moving toward a more value-driven healthcare system will allow states to provide Medicaid beneficiaries with more efficient, high-quality care, while improving health outcomes. CMS recently issued guidance to state Medicaid directors designed to advance the adoption of value-based care strategies across their healthcare systems and align provider incentives across payers, in turn moving the U.S. health care system closer to a quality-over-quantity methodology. This guidance includes an assessment of key lessons learned from early state and federal experiences in implementing value-based care reforms, as well as a comprehensive toolkit of available federal authorities for states to adopt innovative payment reform efforts within their individual programs. It stresses the importance of multi-payer alignment in value-based care to drive care transformation and supports state efforts to align new payment models in Medicaid with Medicare and other private payers.

In summary, value-based care reimbursement models hold the potential to change the trajectory of health care delivery and spending. Such models should also help ensure that the nation’s healthcare system is better prepared and equipped to handle unexpected challenges, such as the ongoing COVID-19 pandemic. Specifically, payment formulas that reward hospitals and physicians for value will help sustain access to care where fee-for-service models may be compromised when volume is limited.2 If value-based care arrangements are implemented effectively by healthcare organizations, their competitive positions and opportunities for success in the future should be much stronger.

Contact Carnahan Group for additional information on your organization’s value-based options or a focused analysis of a proposed value-based arrangement.

Prepared by Adrian Machin and Dan Stech

Disclosure: Carnahan Group is neither a law or accounting firm. Appropriately qualified accounting and legal advisors should be consulted to help ensure compliance with regulatory, tax and legal compliance requirements.

1 While the focus of this Issue Brief is on the new value-based exceptions to the Stark Law, parallel safe harbors were set forth by the HHS OIG in connection with the Anti-Kickback Statute.

2 Carnahan Group observed that many independent physician practices experienced significant financial hardships due to the cancellation of elective surgical cases at the height of the national health emergency. Similarly, primary care and other office-based specialties saw significantly reduced patient visits (and associated revenue) necessary to support ongoing practice operations.