Thus, "compensation substantially above $450,000 per year may be fair market value," according to . Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. 411.357 Exceptions to the referral prohibition related to compensation arrangements. While this exception may be utilized in some instances, it is likely organizations will utilize the employment exception or personal services exception. ; and (3) Does it mean the compensation is not commercially reasonable? According to CMS in the Final Rule, We continue to believe that this determination should be made from the perspective of the particular parties involved in the arrangement. Another key factor to commercial reasonableness is answering the question: Does the arrangement make sense to accomplish the parties goals? On the revenue side, many practices had the benefit of the Paycheck Protection Program, but unfortunately, for many that was not enough to outweigh the additional personal protective equipment cost and lost revenue due to decreased patient volume. Get ready and roll up your sleeves for the work ahead. For example, if a physician is paid at the 75th percentile under a specific survey then fair market value must be met. OIGs proposed new safe harbors are: Additionally, OIG is finalizing changes to the following existing safe harbors: CMS modifications and additions to the Stark Law rules were equally significant. While this expansive list of Stark Law changes will take some time for the industry to digest, we wanted to promptly share three changes and corresponding takeaways as it relates to fair market value and commercial reasonableness in physician/ hospital relationships. Which of the following is a government sanction provided under the Stark regulation? In some cases, the alignment between compensation and production may be distorted. 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. 1320a-7b) prohibit payments and receipt of payments given with an intent to influence the purchase of a product or services for which Medicare or Medicaid reimbursement is sought. ; . 1320a-7b (b) and the regulations and guidance promulgated thereunder. See our dedicated page. Removes the timeframe limitations for modifications to the financial terms of a compensation arrangement. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. These new rules, which significantly amend the existing laws, are a direct result of HHS Regulatory Sprint to Coordinated Care. Special Rules for Profit Shares and Productivity Bonuses ( 411.352(i)) a. Unlike fair market value determination, commercial reasonableness is not as readily determined by standardized methodologies, practices, or sources. In addition, CMS removed the "volume or value" and the "other business generated" standards . Helps identify compensation formulas that take into account the volume or value of a physicians referrals as well as those that are allowed to distribute profits from designated health services within a group practice. Downstream revenue may include referrals for laboratory services, referrals for imaging services, referrals for hospital services, or even referrals to other specialists. Utilizing our extensive experience in fair market value compensation, commercial reasonableness, and physician compensation planning/ strategy, PYA will continue to analyze the final Stark regulations and bring you additional updates and important information. This ensures that there is maximum compliance of regulatory statutes and prevents any violation of healthcare laws. 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. The waivers, which are numerous and fairly broad, offer health care entities significant flexibility to combat COVID-19 in ways . At the advent of the Stark regulations, the federal law placed the referral of prosthetics (as defined by state Medicaid laws . The same is not true for physicians and other entities when the Stark Law applies. However, there are a few core concepts that are applicable when establishing fair market value. It is, however, often the best information that one can find. The AKS Final Rule further codifies statutory revisions by adding the statutory exception to remuneration related to Accountable Care Organization Beneficiary Incentive Programs for the Medicare Shared Savings Program. The Stark statute defines "fair market value" as the value in arm's-length transactions, consistent with the general market value and, with respect to rentals or leases, the value of rental property for general commercial purposes (not taking into account intended use . Clarifies the period of disallowance for referrals and billing following a self-referral law violation, the satisfaction requirements for set-in-advance compensation, when an entity may direct a physicians referrals to a provider, the requirement for exclusive use of office space/ equipment, and the exception for payment by a physician to an entity. The Stark law does maintain a definition of fair market value but it does not dictate actual numbers. You can contact me at 865-673-0844. Sign Up for HSG's Physician Strategy News and Notifications on New Thought Leadership, Advanced Practice Provider (APP) Utilization, Fair Market Value and Commercial Reasonableness Opinions, Advanced Practice Provider (APP) Compensation, Download a PDF Version of the Article as Published in AHLAs 2021 Transactions Resource Guide to Share With Your Team, HSG Advisors Expands Consulting Services and Data Analytics Capabilities in Response to National Outpatient Utilization Trend, Creating a Win/Win System of Advanced Practice Provider Oversight, FPM Practice Pearls: HSG Advisors Shares How to Make APP Reviews Mutually Beneficial, Healthcare Provider Compensation in a Post-COVID, New MPFS Reality, Best Practices in Patient Attraction and Retention Strategies. On December 2, 2020, the Centers for Medicare & Medicaid Services ("CMS") finalized long-awaited changes to the rules under the Physician Self-Referral Law, known as the "Stark Law." As discussed in our publication in 2019, CMS proposed the regulatory revisions in part to resolve uncertainty surrounding the terms "commercially reasonable . Providing additional flexibility related to signature and writing requirements. HAND Children are the Future. The Federal Anti-Kickback Statute, codified at 42 U.S.C. 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. There are numerous laws across the country that have been created to remove this unethical practice. In December 2020, it was stated in the Stark Law Final Rule that the Centers for Medicare & Medicaid Services (CMS) expressly disavowed having any policy that compensation set at or below the 75th percentile of the physician compensation survey data is always appropriate, and that compensation above the 75th percentile is "suspect, if not . Because of increased enforcement, it is very common for organizations to work with legal professionals who specialize in fair market value and the Stark Law for the purpose of creating compliant and defensible financial arrangements. The Court concluded that the payment above fair market value for the services that were actually required to be performed would serve some other purpose, such as compensation for referrals. recently sold and the following computer output was obtained. 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. That determination may be fairly conservative and well within a reasonable range, but if said physician is the second of two medical directors for this service and the duties are already handled by the first medical director so the second is not needed, then the $150 per hour medical directorship, while fair market value is not commercially reasonable. Modifying the definition of set in advance used in many Stark exceptions to allow modification of compensation during the term of an arrangement (including in the first year). bdo.com. CMS-sponsored model arrangements and CMS-sponsored model patient incentives. healthcapital.com. Always engage a competent appraiser who understands the Stark definition of fair market value and be sure the appraisal report addresses that. General market value is the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties who are not otherwise in a position to generate business for the other party. Healthcare employment contracts must: 1) Have a duration of at least a year. Fraud and Abuse Laws. 411.354). 1395nn). The general market value definitions are: What does it mean for a compensation arrangement to be commercially reasonable? The reader is also cautioned that this material may not be applicable to, or suitable for, the readers specific circumstances or needs, and may require consideration of nontax and other tax factors if any action is to be contemplated. Which of the following is TRUE about the Stark Law? thousands of dollars) for apartment buildings. HHS, through the Regulatory Sprint to Coordinated Care, has a stated goal of reducing regulatory barriers within our nations health care system and accelerating the transformation of the health care system into one that better pays for value and promotes care coordination. As HHS statement indicates, value-based arrangements and transactions are the focus of this episode of Stark Law and AKS revisions, but other areas and central ideas of the Stark Law and AKS are significantly impacted as well. Some of those include organizations that have been charged even with compensation levels that are not above the 90th percentile. Healthcare organizations should consider both qualitative and quantitative components for FMV and commercial reasonableness analyses of financial transactions. Documenting the organizations goals with the arrangement or transaction must be a priority. It is important to maintain documents of services provided by healthcare professionals and have agreements in writing, along with documents supporting the financial transaction at FMV, for actual duties performed to standardize financial transactions and to prevent violation of fraud and abuse laws. a non-profitable arrangement) may present a problem, it is not expressing a definitive opinion on the matter as each arrangement is facts and circumstances specific, and it could see certain arrangements with facts and circumstances whereby a non-profitable arrangement is commercially reasonable. \text{The regression equation is}\\ J. William Bookwalter, III, M.D. What is downstream revenue? 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. The best practice that a health system can adopt for establishing financial arrangements without getting penalized is consulting with a third-party valuation expert to not only rationalize the compensation rate, but to justify the community need. The Stark and AKS Final Rules became effective January 19, 2021, with the exception of certain changes to the definition of a group practice that have an effective date of January 1, 2022 to give physician practices time to adjust their compensation methodologies. Fair Market Value ( 411.351) C. Group Practices ( 411.352) 1. On December 2, 2020, OIG published its Final Rule, Revisions to the Safe Harbors Under the Anti-Kickback Statute and Rules Regarding Beneficiary Inducements, and CMS published its Final Rule, Modernizing and Clarifying the Physician Self-Referral Regulations in the Federal Register. At WilliamsMarston, our team of valuation experts are readily available to assist you with your most important financial transactions, including navigating Stark Law and fair market value (FMV) matters. Finalized a new exception to protect compensation not exceeding an aggregate of $5,000 per calendar year to a physician for the provision of items and services, without the need for a signed written agreement and compensation that is set in advance if certain other conditions are met (i.e., fair market value and does not take into account volume and value of referrals). The Anti-Kickback Statute. For most Stark Law exceptions to apply, a(n) ___________________ is required. Since the Stark Law was enacted in 1989 this been a compliance concern in the back of the minds of hospital executives. <p> Fair Market Value (FMV) has become an industry standard in accordance with regulations and statutes such as the US Sunshine Act, False Claims Act, and Anti-Kickback Statute, as well as international transparency reporting and anti-corruption legislations. Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. While CMS has indicated that the presence of losses does not automatically call into question an arrangements commercial reasonableness, the agency noted that each arrangement or transactions circumstances will ultimately determine its commercial reasonableness. Its criminal penalties include fines up to $25,000 per violation, and up to 5 years in federal prison. The writing specifies the compensation that will be provided under the arrangement. Thanks for reaching out. This would be incorrect. Thanks for reaching out. 1320a-7b. United States. Guidance on reconciliation of payment variances. Three new safe harbors for remuneration exchanged between or among participants in value-based arrangements: Value-based arrangements with full financial risk. The three types of transactions are asset acquisition, compensation, and rental of equipment or office space. A factor that is certain to affect fair market value determination during the coming year is not new or revised legislation. Rely on Our Experts for Stark Law and Fair Market Value Matters. 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. Close the income statement accounts with debit balances. This has also been true in markets in which the demand and competition for CRNAs has exploded. In the final Stark rule, despite being asked by commenters, CMS specifically refused to establish a rebuttable presumption or safe harbor that guaranteed an arrangement was within fair market value if the arrangements compensation was set at a certain salary survey percentile. In the Court's opinion, the excess payments would violate the Stark Law and would make claims made to Medicare for those services false claims. On February 9, 2018, Congress passed and President Trump signed into law H.R. 98810.3;2988 \div 10.3 ; 298810.3;2 significant digits. May 10, 2022 at 11:37 AM 6 minute read In addition to fair market value, most applications of the anti-kickback statute and Stark law also require commercial reasonableness. Modified the rule related to profit sharing and productivity bonuses such that distribution of profits from designated. Carnahan Group. 411.354 Financial relationship, compensation, and ownership or investment interest. 411.357 Exceptions to the referral prohibition related to compensation arrangements. Sales of comparable assets: When a real estate agent presents a prospective home seller with a list of recent sales prices for similar nearby homes, known as . Many of the changes in the Stark Law are aimed at eliminating regulatory restrictions that could deter or even potentially eliminate some novel arrangements as the industry continues its move towards a value-based health care system. Structuring legally compliant hospital-physician leases and establishing fair market value (FMV) rental rates can be challenging. The exception permits both monetary and nonmonetary remuneration between the parties. Specialties like critical care, hospital medicine, emergency medicine, and pulmonary medicine may have experienced increases in patient volume due to the pandemic. The Final Rule provided key guidance on the "Big 3" Stark Law requirements of (1) fair market value; (2) commercial reasonableness; and (3) the volume or value of referrals. We also think this is an appropriate reflection and representation of what CMS recognized and articulated when it said: It is not CMS policy that salary surveys necessarily provide an accurate determination of fair market value in all cases.. Expands the 411.357(1) exception to fair market value payments for rental office space, notably when the arrangement is for less than one year. Commercial Reasonableness Analysis for an Increasingly Regulated Healthcare Environment | BDO Healthcare Industry Blog . Allows agreement participants to reconcile payment variances in compensation arrangements without violation of physician self-referral law. americanbar.org. Likewise, a belief that paying a provider above the 75th percentile is not fair market value is also misplaced. A Stark violation is punishable by civil money penalties; an anti-kickback violation is punishable by exclusion from federal health care programs, criminal penalties of up to $25,000 in fines or . The same survey data that many compensation valuators rely on as a central component to their fair market value analysis and opinion. The primary reasons that the Stark Law prevents organizations and individuals from including downstream revenue are numerous. et al. 4) Have a payment or salary provision that is reasonable and is at fair market value. 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 . A qualitative analysis of the nature and scope of services performed, necessity of services, and comparability of services should be performed. \text{Total} & \text{8} & \text{51984.1}\\ Due to a complex regulatory environment, an in-depth analysis should be performed to ensure that the healthcare transactions are legally permissible at FMV and are commercially reasonable. The arrangement is commercially reasonable (taking into account the nature and scope of the transaction) and furthers the legitimate business purposes of the parties. As you can see, the definition of fair market value does not provide details with respect to what is fair market value. Care coordination arrangements to improve quality, health outcomes, and efficiency without requiring the parties to assume any financial risk. Documentation of all aspects of relationship. 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. Too often, they have hindered, rather than . 22-14.HHS OIG was responding to a written request for an advisory opinion regarding a proposed continuing medical education program for local optometrists conducted by an ophthalmology group practice and four potential funding options for the programs. It says, . B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation . June 14, 2022; salem witch trials podcast lore Previous Definition of Fair Market Value (42 U.S.C. For more information on Stark Law Exceptions, see our dedicated page. For the past 30 years, a key consideration for health care organizations entering into transactions and arrangements for the employment and compensation of physicians has been the profitability of the practices in which the physicians, their staff, and other practicerelated resources are housedor more precisely the losses of the practices in which physicians and APPs are housed. Although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to An arrangement may be renewed any number of times if the terms of the arrangement and the compensation for the same items or services do not change. the value in an arm's-length transaction that is consistent with general market value. On December 2, 2020, the Department of Health and Human Services ("HHS") Office of Inspector General ("OIG") issued final rules including a host of reforms to the AKS, including three changes to the personal services and management contracts safe harbor ("Safe Harbor"). Catherine Short converses with Rachel V. Rose, JD, MBA, principal with Rachel V. Rose - Attorney at Law, P.L.L.C. Many organizations are frequently asking: Do we have greater compliance risk because our practices are losing money according to our internal financial statements and accounting? Data were collected on several properties Grabbing a 2021 survey and finding a percentile might be enough, then again, it might not. 6 Mark O. Dietrich, CPA/ABV Stark II -Statutory Guidance Stark Statute - 42 U.S.C. 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. These are two critical questions that must be answered. The reason the simplicity of this is not correct is that many lawsuits and government enforcement actions have established what are the risks associated with fair market value. 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. v. UPMC et al.In particular, the court held that the relators had made out a plausible allegation of an indirect compensation . Stark defines fair market value (FMV) as ______________________________ . While the hypothetical fair market value is $450,000, the general market value may exceed that. ; ; If base or guaranteed compensation does not exceed the 75th percentile for the physicians specialty, as published by a survey source like the Medical Group Management Associations Provider Compensation Survey, then they do not seek a fair market value opinion because they consider the compensation to be fair market value. Download a PDF Version of the Article as Published in AHLA's 2021 . The primary regulations governing physician compensation arrangements are the Stark Law and AKS. Building High-Performing Physician Networks. Key PYA Takeaway: Guidance from prior court decisions, as well as certain previous governmental representatives, have questioned commercial reasonableness if arrangements are not profitable. 7. 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. This piece concludes with thoughts regarding the COVID-19 pandemics effect on the immediate future of physician and APP compensation valuation.