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In June 2022, the United States Department of Health and Human Services Office of Inspector General (HHS OIG) released OIG Advisory Opinion No. For example, the guaranteed compensation for a physician under an employment arrangement would have to be at levels consistent with what other physicians make within those specialties. Home Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions, An Informational Article Attendees may ask questions in advance. However, we agree with the commenter that asserted that a hospital may find it necessary to pay a physician above what is in the salary schedule, especially where there is a compelling need for the physicians services. Despite the request and urging of commenters, CMS declined to establish rebuttable presumptions that compensation is fair market value or safe harbors that would deem compensation to be fair market value if certain conditions are met. Bottom line, CMS affirmed that there is no guarantee to fair market value determinationthere is no universal formula or proverbial rubberstamp as it pertains to provider compensation. A comprehensive, but not all inclusive, list of the items covered in the final rule follows. Value-based arrangements with substantial downside financial risk (at least 5%). In healthcare, the patient would have received the care regardless of the physician and the complexity of healthcare with patients moving to different sites of service and within different specialties creates impossible scenarios for tracking who is responsible for what. Allows agreement participants to reconcile payment variances in compensation arrangements without violation of physician self-referral law. While this exception may be utilized in some instances, it is likely organizations will utilize the employment exception or personal services exception. Provides new exceptions for value-based compensation arrangements that meet certain financial risk requirements and provides new definitions for value-based activity; value-based arrangement; value-based enterprise (VBE); value-based purpose; VBE participant; and target patient population. The fair market value exception is a compensation exception that is flexible depending on the arrangement. Documentation of all aspects of relationship. 4) Have a payment or salary provision that is reasonable and is at fair market value. 6 Carnahan Group provides a unique platform FMVMD,which allows healthcare organizations to analyze physician compensation arrangements for fair market value and commercial reasonableness instantly. CMS recently issued the Stark Law Final Rule ("Final Rule"), which makes numerous significant changes and provides important clarifications to the Stark Law. HAND Children are the Future. Building High-Performing Physician Networks. 57 The amended provisions are for the Stark Law exceptions for academic medical centers, bona fide employment relationships, personal service arrangements, certain physician incentive plans, group practice arrangements with a hospital, fair market value compensation, indirect compensation arrangements, and the new exception for limited . Civil penalties of the AKS include False Claims Act liability, civil monetary penalties (CMP) and program exclusion, up to $50,000 CMP per violation, and civil assessment of up to three times the amount of kickback. The concept of fair market value under the Stark Law is different than the concept of fair market value in an otherwise normal business arrangement (where parties do realize they can generate business for one another). The bottom line is that in the context of fair market value and the Stark Law, normal business negotiations allowing for leverage between parties is not necessarily the same in the healthcare context (because the parties cannot take into account that they generate business for one another). In turn, CMS is willing to accept any commercially reasonable methodology that demonstrates compensation is comparable to what is ordinarily paid for services in an arms-length transaction. Fair Market Value ( 411.351) C. Group Practices ( 411.352) 1. With respect to the rental of office space, fair market value means the value in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), without adjustment to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee, and consistent with the general market value of the subject transaction. Compensation arrangements that are required to be representative of . Assessing Fair Market Value. Second, downstream financial incentives in healthcare, as in most industries, is extremely hard to quantify. The exception cannot be utilized for the rental of office space though. 7. Carnahan Group assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. According to CMS, we continue to believe that the fair market value of a transactionand particularly, compensation for physician servicesmay not always align with published valuation data compilations, such as salary surveys. What are your reasons? The Department of Health and Human Services (HHS) defines commercial reasonableness as a sensible, prudent business arrangement, from the perspective of the particular parties involved, even in the absence of any potential referrals. ; (2) How can it be fixed? With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. In the interim, for more information regarding these matters, contact a PYA executive below at (800) 270-9629. 411.362 Additional requirements concerning physician ownership and investment in hospitals. Finalized new, permanent exceptions for value-based arrangements that will permit physicians and other health care providers to enter into value-based arrangements without fear that their legitimate activities to better coordinate care, improve quality, and lower costs would violate the Stark Law. The CMS Self-Referral Disclosure Protocol (SRDP). An extension has been granted until January 1, 2022 for compliance related to certain changes required in group practice compensation methodologies. Allows the electronic health records (EHR) exception to be unending and allows limited donations of cybersecurity that are necessary for EHR, flexible physician payment schedules, and donations of replacement EHR items. 5, A regular assessment should be conducted to determine if the healthcare transactions are commercially reasonable. There is no fair market value calculator that takes in a couple datapoints and spits out a positive or negative fair market value answer. Commercial Reasonableness Analysis for an Increasingly Regulated Healthcare Environment | BDO Healthcare Industry Blog . This has also been true in markets in which the demand and competition for CRNAs has exploded. Catherine Short converses with Rachel V. Rose, JD, MBA, principal with Rachel V. Rose - Attorney at Law, P.L.L.C. Reflecting on Recent Regulatory Changes to the Stark Law: A Real Estate and Equipment Valuation Perspective, Part 2. The services to be performed under the arrangement do not involve the counseling or promotion of a business arrangement or other activity that violates a Federal or State law. Electronic health records (EHR) safe harbor updates and removes provisions regarding interoperability; removes the December 31, 2021 sunset provision and prohibition on donation of equivalent technology; and clarifies protections for cybersecurity technology and services included in an EHR arrangement. Stark Law provides this definition: The term "fair market value" means the value in arm's length transactions, consistent with the general market value(42 USC 1395nn) 42 CFR 411.351 -"general market value" means the price that an asset would bring or that would be included in a Strategy, market growth, and larger referral bases were not among the examples. Unfortunately though, although certain information is useful for business planning purposes, it is irrelevant for the purpose of establishing fair market value and compensation paid to a physician. With respect to the rental of equipment, fair market value means the value in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), consistent with the general market value of the subject transaction. The reader should contact his or her Carnahan Group or other tax professional prior to taking any action based upon this information. For a vast number of health care entities, employment of physicians and APPs is the only option for attracting and maintaining providers in their community. \text{Regression} & \text{1} & \text{41587.3}\\ 411.357 Exceptions to the referral prohibition related to compensation arrangements. This Stark Law exception applies to physician compensation arrangements that qualify as value-based arrangements, regardless of the level of risk undertaken by the VBE or any of its VBE participants. HIPAA Compliance 03: Privacy Rule Introduction, Administrative, Physical and Technical Safegu, Compliance - Documentation, Billing and Reimb, HIPAA Compliance 04: Protected Health Informa, Calculus for Business, Economics, Life Sciences and Social Sciences, Karl E. Byleen, Michael R. Ziegler, Michae Ziegler, Raymond A. Barnett, Fundamentals of Engineering Economic Analysis, David Besanko, Mark Shanley, Scott Schaefer. The primary regulations governing physician compensation arrangements are the Stark Law and AKS. 411.355 General exceptions to the referral prohibition related to both ownership/investment and compensation. In some cases, the alignment between compensation and production may be distorted. With regard to fair market value (FMV), industry best practice suggests that you _____ in order to better withstand government scrutiny. the value in an arm's-length transaction that is consistent with general market value. The previous definition of fair market value stated that physician compensation "must be set in advance, consistent with fair market value, and not determined in any manner that takes into account the volume or value of referrals or other business generated by the referring physician.". Under the Stark Law, one of the critical elements of compliance for many exceptions includes the requirement that the financial arrangement is representative of fair market value. Compliant compensation methodologies: Advanced Stark. 3) Specify an aggregate payment, which is set in advance. A general journal is given in the Working Papers. bdo.com. HSG is not a law firm; we are a health care consulting and compensation valuation firm, so this article is not an exhaustive legal interpretation, summary, or review of all of CMS and OIGs updates, but rather a review of selected areasparticularly those elements and areas we view as having the most impact in the world of physician and advance practice provider (APP) compensation and transactions valuation. Via the Final Rule, CMS has also indicated that salary surveys, regardless of percentile, are not automatic determinates of fair market value, stating, Consulting salary schedules or other hypothetical data is an appropriate starting point in the determination of fair market value, and in many cases, it may be all that is required. Our hypothesis is that COVID-19 will appreciably affect the salary, production, and other data reported by physicians and their practicesin some instances, to a significant degree. Using the example of celebrities above, many contracts with celebrities include a portion of ticket sales to that movie. 1320a-7b. For most Stark Law exceptions to apply, a(n) ___________________ is required. B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation. Which of the following are exceptions under Stark? Noteworthy 2021 stark law revisions and modifications: specifically areas impacting provider compensation and transactions valuation. A regular assessment should be conducted to determine if the healthcare transactions are commercially reasonable. If an appraiser is hired, the appraiser's qualifications and experience must be considered if that appraisal will be relied upon. New Arrangement Best Practices Consult with a valuation expert on whether financial arrangements satisfy the new Stark Law fair market value and commercial reasonableness standards. \text{Residual} & \text{Error} & \text{7}\\ Many hospitals and health systems around the country have employed physicians and then struggled, or at least had to come to grips with the fact that, the practices are losing money. \text{SOURCE} & \text{DF} & \text{SS}\\ 411.354). Which of the following is a government sanction provided under the Stark regulation? Personal services and management contracts and outcomes-based payments safe harbor creates protection under safe harbor for part-time or intermittent arrangements and arrangements for which total compensation is not known in advanceit eliminates a requirement that part-time arrangements have a schedule of services specifically set out in advance in the agreement. The writing specifies the timeframe for the arrangement, which can be for any period of time and contain a termination clause, provided that the parties enter into only one arrangement for the same items or services during the course of a year. The Situation: The isolated transactions exception under the Stark Law has been used by some providers and entities to retroactively protect services arrangements that do not qualify for personal services or fair market value compensation exceptions because, for example, the arrangements were not reduced to writing before services were rendered. which allows healthcare organizations to analyze physician compensation arrangements for fair market value and commercial reasonableness instantly. Local transportation safe harbor was revised to expand mileage limits for rural areas (to 75 miles) and eliminate mileage limits for transporting patients discharged from the hospital to their home. For example, celebrities and professional athletes negotiate contracts without any specific compensation regulations. Interested in learning about what is a referral? https://www.healthlawyers.org/Events/Programs/Materials/Documents/PHS15/kk_homchick_hutzler_shay.pdf, https://www.bdo.com/blogs/healthcare/april-2015/commercial-reasonableness-analysis?feed=8799bc52-2237-4688-aeac-83e40e623b56, http://www.americanbar.org/content/dam/aba/events/health_law/2015_Meetings/DocLaw/Papers/10_valuation_03.authcheckdam.pdf, http://www.worldservicesgroup.com/publications.asp?action=article&artid=2086, http://www.healthcapital.com/hcc/newsletter/10_12/HCVAL.pdf, New Timeshare Arrangement Exception under Stark Law. On February 9, 2018, Congress passed and President Trump signed into law H.R. Further, the concept of fair market value has become much more than a financial analysis. On Wednesday, October 9, HHS proposed highly anticipated reforms to regulations implementing the Physician Self-Referral Law and the Federal Anti-Kickback Statute, as well as related civil . Typical compensation per Work Relative Value Unit rates could be significantly off from traditional levels for given specialties. Through the Final Rule, CMS has addressed the topic of losses and profitability, stating the determination that an arrangement is commercially reasonable does not turn on whether the arrangement is profitable; compensation arrangements that do not result in profit for one or more of the parties may nonetheless be commercially reasonable. CMS offers several examples of reasons parties may enter into an arrangement or transaction despite financial losses to one or more parties. According to CMS, those reasons include, community need, timely access to health care services, fulfillment of licensure or regulatory obligations, including those under the Emergency Medical Treatment and Labor Act, the provision of charity care, and the improvement of quality and health outcomes. In our opinion, this means health care organizations must go the extra mile to document their reason(s) for compensating physicians and APPs, if those arrangements and transactions are exhibiting or are expected to yield financial loses. Thursday, October 20, 2022. An assessment of transactions should be done to analyze if it is reasonable to pay for the services in the first place, in order to prevent violation of the Anti-Kickback Statute. Many hospitals and health systems across the country have drawn a line in the sand and set a base compensation threshold at the 75th percentile for physician compensation. Which of the following is TRUE about the Stark Law? You can contact me at 865-673-0844. Get ready and roll up your sleeves for the work ahead. Stark requires that a lease with a referring physician be in writing, signed by both parties, for a term of at least one year, at a fair market value rental rate. As stated above in our discussion of fair market value, CMS continues to make it clear that the commercial reasonableness determination is also accomplished through consideration of an arrangements context and from the perspective of those involved. It is inaccurate for a hospital or health system to believe that just because base compensation is below the 75th percentile there is no risk and that the compensation they are providing is automatically fair market value. The same survey data that many compensation valuators rely on as a central component to their fair market value analysis and opinion. CMS has stated that compensation between certain percentiles does not provide a safe harbor. On the other hand, an arrangement must be considered fair market value in order to be commercially reasonable. Current Definition of General Market Value (42 C.F.R. Some providers in these four specialties may have seen an increase in compensation to reflect their increased workload, while others, those paid salary and shift rates, may not have seen an increase in compensation. Warranties safe harbor was modified to revise the definition of warranty and provide protection for bundled warranties for one or more items and related services provided they are paid for under the same payment. The waivers, which are numerous and fairly broad, offer health care entities significant flexibility to combat COVID-19 in ways . healthlawyers.org. The Department of Health and Human Services has released extensive and significant revised final rules governing the Physician Self-Referral Law 1 (the Stark law) and the Medicare Anti-Kickback Statute 2 (AKS) in furtherance of its efforts to create a more hospitable regulatory climate for innovation in health care. The Stark Law safe harbor provision has seven components. Finalized protection for arrangements that will apply regardless of whether the parties operate in a fee-for-service or value-based payment system, such as donations of cybersecurity technology. On November 20, the Centers for Medicare & Medicaid (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued a 627-page final rule which will serve to modernize and clarify Stark Law regulations. United States. (i) Consistent with the fair market value of . In addition, CMS removed the "volume or value" and the "other business generated" standards . In doing so, CMS offered helpful commentary for health care entities structuring real estate arrangements. This revenue generation includes downstream revenue. Key PYA Takeaway: Guidance from prior court decisions, as well as certain previous governmental representatives, have questioned commercial reasonableness if arrangements are not profitable. On November 20, the Centers for Medicare & Medicaid (CMS) and the Department of Health and Human Services Office of Inspector General (OIG) issued a 627-page final rule which will serve to modernize and clarify Stark Law regulations. As a result, fair market value, commercial reasonableness, and the volume or value standard are separate and distinct requirements, each of which must be satisfied when included in an exception to the physician self-referral law. CMS refers to these three cornerstones of the exceptions to the Stark Law as the Big Three. CMS redefined the Big Three as follows: In addition to the general definition of fair market value above, CMS revisions to the Stark Law also provide definitions of fair market value that are specific to the rental of equipment and the rental of office space. The definitions are as follows: Central to the definition of fair market value is the definition of general market value. General market value is also restated in the Final Rule. 1 The payments that exceed FMV are viewed as potential referrals, which is a violation of Stark Law that can lead to penalties and a healthcare systems exclusion from participation in federal health programs. 5. B and C only - False Claims Act liability & Exclusion from the Medicare and Medicaid programs. However, since the law was enacted in 1989, the regulations implementing it have become woefully outdated. We also believe there has to be a limit to what is reasonable in terms of losses. As you can see, the definition of fair market value does not provide details with respect to what is fair market value. Therefore, the analysis is recommended to be conducted by an independent valuation expert to establish a value that is consistent with independently published surveys that are comparable for similar services. Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute.