Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. Included in the changes are definitions and special rules related to: (1) commercial reasonableness, (2) the volume or value standard and other business generated standard, and (3) fair market value and . Further, even if the physician under the arrangement is paid, in part, based upon his or her productivity, any rates under those models must be consistent with benchmark data. Likewise, a belief that paying a provider above the 75th percentile is not fair market value is also misplaced. Fair market value is defined to mean the "value in an arm's length transaction, consistent with general market value of the subject transaction" (42 CFR 411.351). The AKS Final Rule creates new safe harbors for entities participating in a value-based enterprise (VBE) and amends existing safe harbors. We are uncertain why the commenters believe that it is CMS policy that compensation set at or below the 75th percentile in a salary schedule is always appropriate, and that compensation set above the 75th percentile is suspect, if not presumed inappropriate. Directions \end{matrix} 5, A regular assessment should be conducted to determine if the healthcare transactions are commercially reasonable. If ever there was a time in which that is true on so many levels, this is it. General market value means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement. The Federal Anti-Kickback Statute, codified at 42 U.S.C. In our prior article, we provided a basic overview of Fair Market Value (FMV) assessments and how these have become a key aspect in compensation contracts for cardiologists.We also reviewed how practices should focus on demonstrating their value to hospitals and health systems by showcasing leadership efforts within the practice and hospital, attention to strategy, financial performance . In some cases, the alignment between compensation and production may be distorted. Unlike fair market value determination, commercial reasonableness is not as readily determined by standardized methodologies, practices, or sources. First, it delineated that salary surveys or salary survey percentiles may not be appropriate to use in all circumstances. CMS removed "general market value" from the definition of "fair market value" at 42 C.F.R. 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 . 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. How can we lose so much money and still consider our arrangement commercially reasonable? 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. Current, Three-Part Definition of Fair Market Value (42 C.F.R. To determine what is commercially reasonable, we first must start with a basic definition. Organizations who may have carte blanche physician compensation review policies set at certain thresholds should be careful that the totality of the facts and circumstances support each transaction (versus the entirety of all transactions). What are your goals? 2) Be in writing and signed by both parties. The Stark "in-office ancillary" exception permits a physician or group practice to order and provide DHS in the office, provided that the DHS is ancillary to the professional medical services provided by the practice. 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). 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. 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. Thursday, October 20, 2022. stark law fair market value industry best practice. Referring to survey data regarding practice losses per physician and per provider can be enlightening. ; and (3) Does it mean the compensation is not commercially reasonable? If the AKS is addressing criminal penalties, the consequences include fines up to $25,000 per violation and up to a five-year . Bob concentrates his . Within the Healthcare industry, there are rules and regulations to ensure that . Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. New "Fair Market Value" and "General Market Value" Definitions. Which of the following is a government sanction provided under the Stark regulation? Thus, "compensation substantially above $450,000 per year may be fair market value," according to . 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"). The Stark law does maintain a definition of fair market value but it does not dictate actual numbers. Rather, each case must be evaluated and considered in the context of the situation. Non-profit hospitals face additional requirements under the Internal Revenue Code that they must satisfy to maintain their tax-exempt status. Suite 201 With regard to fair market value (FMV), industry best practice suggests that you ____________________________ in order to better withstand government scrutiny. Some of those include organizations that have been charged even with compensation levels that are not above the 90th percentile. Our fixed asset valuation services serve a variety of purposes for our clients, including: Anti-Kickback Statute and Stark Law Compliance In fact, studies done by the government in the 1980s and early 1990s discovered that this was a real issue and it not only represented a significant increase in costs but also created significant patient risk. 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. The exception cannot be utilized for the rental of office space though. "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 . Documenting the organizations goals with the arrangement or transaction must be a priority. Posted on October 27, 2016August 15, 2022. The same is not true for physicians and other entities when the Stark Law applies. 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. New Value-Based Exceptions. This has also been true in markets in which the demand and competition for CRNAs has exploded. Specifically, the Final Rule includes new or modified regulatory definitions for the terms "commercially reasonable," "fair market value," and "general market value" as well as terms particular to the definition of a "Group Practice." The arrangement is in writing, signed by the parties, and covers only identifiable items or services, all of which are specified in writing. 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. 6 Mark O. Dietrich, CPA/ABV Stark II -Statutory Guidance Stark Statute - 42 U.S.C. For example, celebrities and professional athletes negotiate contracts without any specific compensation regulations. The Stark Law prohibits physicians from referring a patient to an entity with which the physician has a financial relationship when the referral is for the furnishing of certain designated health services (e.g., lab, PT, OT, radiology, DME . They go as follows: Cost or selling price: If the item has been recently bought or sold, that can be a good indicator of its fair market value. As it relates to the updated definition of fair market value, CMS continues to emphasize that its determination should be based on any appropriate method depending on the kind of transaction, its location, and other factors. 411.357 Exceptions to the referral prohibition related to compensation arrangements. Carnahan Group. At the advent of the Stark regulations, the federal law placed the referral of prosthetics (as defined by state Medicaid laws . Healthcare employment contracts must: 1) Have a duration of at least a year. Reflecting on Recent Regulatory Changes to the Stark Law: A Real Estate and Equipment Valuation Perspective, Part 2. This safe harbor is designed to facilitate improved cybersecurity in health care through donations of cybersecurity technology and services. 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 . 411.354 Financial relationship, compensation, and ownership or investment interest. This field is for validation purposes and should be left unchanged. 1395nn, and the regulations and guidance promulgated thereunder. 4, 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. 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. Too often, they have hindered, rather than . Healthcare transactions must be commercially reasonable and should be comparable to what is paid ordinarily for similar services in the area. 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. 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. 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. For example, if a physician is paid at the 75th percentile under a specific survey then fair market value must be met. Yes, consulting multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value, as stated in Stark II, Phase III, but salary surveys are not automaticregardless of the percentile at which the compensation in question falls. 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. The Stark law prohibits a physician with a financial relationship in an entity from making a referral for designated health services covered by Medicare and Medicaid to that entity even if the services are billed to an individual or other third party payer. The primary reasons that the Stark Law prevents organizations and individuals from including downstream revenue are numerous. 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. According to CMS in the Final Rule, commercially reasonable means that the particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. In the Final Rule, CMS also reiterated that the determination of commercial reasonableness is not one of valuation. An arrangement can be fair market value, but that does not mean that it is commercially reasonable. ; . A significant part of compliance with Stark and Anti-Kickback is the concept of Fair Market Value. Distribution of Profits Related to Participation in a Value-Based Enterprise; b. This revenue generation includes downstream revenue. In what situation is a written agreement NOT required under Stark? According to CMS, some of the commenters on the Final Rule asserted that, a safe harbor based on a range of values in salary surveys would be consistent with what they stated was established CMS policy that compensation set at or below the 75th percentile in a salary schedule is appropriate and compensation set above the 75th percentile is suspect, if not presumed inappropriate. To these comments CMS responded, For the reasons explained in Phase I, Phase II, and Phase III, we decline to establish the rebuttable presumptions and safe harbors requested by the commenters. thousands of dollars) for apartment buildings. Proceduralists such as dermatologists, orthopedic surgeons, ophthalmologists, otolaryngologists, plastic surgeons, urologists, etc. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. On January 19, long-awaited adjustments to the Centers for Medicare and Medicaid Services' ("CMS") Physician Self-Referral Law (commonly referred to as the "Stark Law") and the Department of Health and Human Services Office of Inspector General's ("OIG") Anti-Kickback Statute ("AKS") took effect that make it easier for hospitals and health systems to transition from volume . J. William Bookwalter, III, M.D. TheregressionequationisY=20.0+7.21XPredictorCoefSECoefTConstant20.0003.22136.21X7.2101.36265.29AnalysisofVarianceSOURCEDFSSRegression141587.3ResidualError7Total851984.1\begin{matrix} document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); 9850 Von Allmen Court The Anti-Kickback Statute (AKS), 42 U.S.C. As an industry, the Life Sciences has nearly uniformly adopted . For example, in the past some arrangements where physician compensation exceeded professional collections have received considerable scrutiny for commercial reasonableness. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); PYA Repeats Forbes Listing as a Top Tax and Accounting Firm in the Nation, PYA: Healthcare Consulting, Audit & Accounting, Financial Institutions Audit & Accounting, Alternative Payment Model Design & Strategy. In addition, CMS removed the "volume or value" and the "other business generated" standards . Noteworthy 2021 stark law revisions and modifications: specifically areas impacting provider compensation and transactions valuation. As CMS stated, In our view, each compensation arrangement is different and must be evaluated based on its unique factors. Virtually every provider compensation exception under the Stark Law requires that the compensation paid reflects fair market value. You can contact me at 800-270-9629. United States. Makes clear that signatures may be electronic under the same applicable federal/ state laws while allowing parties to an agreement to obtain the writing requirement documentation within 90 days. Ultimately, valuators likely will have to be creative and look back into past years surveys to evaluate trends and validate current survey data. 411.353 Prohibition on certain referrals by physicians and limitations on billing. 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. First, financial incentives from a policy standpoint should not impact the plan of care developed for patients. They are: (a) the lease agreement must be in writing; (b) the . The commenters are incorrect that this is CMS policy. Clearly, from CMS perspective, both referenced policies are misguided. They must demonstrate that the net earnings of a tax-exempt organization are not used for private interests of employees and are used for the benefit of the community as a whole. Fixed asset valuations include fair market value, orderly and forced liquidation valuations of medical equipment, office and computer equipment, software, leasehold improvements and supplies inventory. This has required abandoning, or at least augmenting, traditional surveys with anesthesia-related job posting sites to find comparable salary offerings and ranges. For more information on Stark Law Exceptions, see our dedicated page. between x, annual gross rents (in thousands of dollars), and y, selling price (in 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. the value in an arm's-length transaction that is consistent with general market value. 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. 411.356 Exceptions to the referral prohibition related to ownership or investment interests. Second, downstream financial incentives in healthcare, as in most industries, is extremely hard to quantify. In 2004, CMS noted that valuation methods under Stark Law "must exclude valuation where the parties to the transaction are at arms-length but in a position to refer each other." 6 Because FMV under Stark Law does not "necessarily comport with the usage of the term in standard valuation techniques and methodologies," 7 a purely market . An extension has been granted until January 1, 2022 for compliance related to certain changes required in group practice compensation methodologies. Cybersecurity technology and services safe harbor for remuneration in the form of cybersecurity technology and services. The primary regulations governing physician compensation arrangements are the Stark Law and AKS. Federal physician self-referral prohibition (42 USC 1395nn. Record the following closing entries on page 19 of the general journal. 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.
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