Which of the following is a government sanction provided under the Stark regulation? Healthcare organizations should consider both qualitative and quantitative components for FMV and commercial reasonableness analyses of financial transactions. Bottom line, 2021 surveys, based on 2020 data, are likely going to be challenging. As an offshoot to periodic reviews of PSAs, Ms. Walsh says every component of the PSA must be recorded and documented to ensure both parties are . thousands of dollars) for apartment buildings. Fair Market Value (FMV) Below is a listing of some of the key changes: For those in the physician and APP compensation valuation arena, and for any hospital or health system that compensates a health care provider for administrative and/or professional services (which would be all hospitals and health systems in the country), there are other aspects of the Stark Law revisions that are of particular interest. 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 . 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.". Factors affecting the specific company risk of a practice can include the physician's age, specialty, location, market position, payer mix, payer contracts, size, and other factors. \end{matrix} B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation . 411.356 Exceptions to the referral prohibition related to ownership or investment interests. Provided additional guidance on key requirements of the exceptions to the Stark Law to make it easier for healthcare providers to take steps to ensure compliance, such as: Guidance on identifying compensation formulas that take into account the volume or value of a physicians referrals. 4) Have a payment or salary provision that is reasonable and is at fair market value. They are: (a) the lease agreement must be in writing; (b) the . Website managed by SiteCare.com. The exception cannot be utilized for the rental of office space though. This safe harbor is intended to provide greater predictability for model participants and uniformity across models. B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation. 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. For example, celebrities and professional athletes negotiate contracts without any specific compensation regulations. 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. 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. ; and (3) Does it mean the compensation is not commercially reasonable? 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. ; . A factor that is certain to affect fair market value determination during the coming year is not new or revised legislation. 411.353 Prohibition on certain referrals by physicians and limitations on billing. For example, in the past some arrangements where physician compensation exceeded professional collections have received considerable scrutiny for commercial reasonableness. Specifically, the aim of healthcare delivery is to provide high-quality care, high levels of access, and at the most cost-effective price. Non-profit hospitals face additional requirements under the Internal Revenue Code that they must satisfy to maintain their tax-exempt status. 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. 5. 411.351. 98810.3;2988 \div 10.3 ; 298810.3;2 significant digits. How can we lose so much money and still consider our arrangement commercially reasonable? This is especially true given that scrutiny has increased greatly over the past decade, with the government taking aim at fraud and questionable arrangements and more fervently enforcing the Stark Law and Anti-Kickback Statute (AKS). However, since the law was enacted in 1989, the regulations implementing it have become woefully outdated. ; (2) How can it be fixed? 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. Some of those include organizations that have been charged even with compensation levels that are not above the 90th percentile. 7. 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. 1877nn(h)(3) Value in arms-length transactions, consistent with general market value Rentals or Leases - value of rental property for general commercial purposes, not taking into account its intended use Space Lease - not taking into account the value the lessee or Guidance on reconciliation of payment variances. The Stark Law prohibits physician referrals of Medicare patients for certain "designated health services" to entities with which the physician has a financial relationship, unless an exception under the law applies. 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. 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. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. Introduction. For most Stark Law exceptions to apply, a(n) ___________________ is required. Special Rules for Profit Shares and Productivity Bonuses ( 411.352(i)) a. Contact our expert, Neal D. Barkeratnbaker@hsgadvisors.com or call (502) 814-1189. which allows healthcare organizations to analyze physician compensation arrangements for fair market value and commercial reasonableness instantly. 6 Mark O. Dietrich, CPA/ABV Stark II -Statutory Guidance Stark Statute - 42 U.S.C. Many of the new and revised regulations apply beyond financial arrangements related to care coordination initiatives, and thus are crucial for all These historic reforms became effective January 19, 2021 and are part of HHS's "Regulatory Sprint to . B. Stark Law Exception - Value-Based Arrangements . The definitions of fair market value and commercial reasonableness have been updated and established as follows: Regarding commercial reasonableness, CMS clarified that , As it relates to fair market value compensation, CMS clarifies several important items. 1320a-7b (b) and the regulations and guidance promulgated thereunder. \text{SOURCE} & \text{DF} & \text{SS}\\ The fact is hospital-owned practices typically lose moneyit is more the rule than the exception. 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. Thursday, October 20, 2022. To determine what is commercially reasonable, we first must start with a basic definition. Isolated financial transactions, such as a one-time sale of property or a practice, or a single instance of forgiveness of an amount owed in settlement of a bona fide dispute, if all of the following conditions are met: (1) The amount of remuneration under the isolated financial transaction is. 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. In addition, CMS removed the "volume or value" and the "other business generated" standards . Specialties like critical care, hospital medicine, emergency medicine, and pulmonary medicine may have experienced increases in patient volume due to the pandemic. CMS recently issued the Stark Law Final Rule ("Final Rule"), which makes numerous significant changes and provides important clarifications to the Stark Law. 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. 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. 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. 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). It is, however, often the best information that one can find. Strategy, market growth, and larger referral bases were not among the examples. So, while it may require effort, and in some cases could be difficult to achieve, finding fair market value is a must. To accommodate patient surge, a hospital rents office space or equipment from a physician practice at below fair market value or at no charge. 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. 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. Financial arrangements are commercially reasonable if they are at FMV, services provided are documented and deemed necessary, and when the services cannot be provided at a lesser value. Healthcare Regulatory and Stark Law/Fair Market Value and Commercial Reasonableness attorney. The commenters are incorrect that this is CMS policy. Clearly, from CMS perspective, both referenced policies are misguided. 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. The Stark Law defines FMV as the value in arms length transactions, consistent with general market value. Sec. 411.354). "General market value" means the price that an asset would bring as the result of bona fide . Federal physician self-referral prohibition (42 USC 1395nn. have been significantly impacted by decreased patient volume. Email (required), Healthcare eNewsletterTax & Assurance eNewsletterWebinars. First Name (required) 3 See 42 U.S.C. 411.357 Exceptions to the referral prohibition related to compensation arrangements. Use Superior Corporation's trial balance and financial statements from the previous Work Together exercise. The law makes it a criminal offense to knowingly and willfully offer, pay, solicit, or receive anything of value (not just money) in order to induce or reward referrals or the generation of business paid for by federal healthcare programs. The AKS Final Rule creates new safe harbors for entities participating in a value-based enterprise (VBE) and amends existing safe harbors. It says, . Not that CMS made it easy by providing a bright line or even a floor that would allow us to say, if we go above this level, then we must get a formal thirty-party fair market value opinion. According to CMS, We wish to be perfectly clear that nothing in our commentary was intended to imply that an independent valuation is required for allcompensation arrangements.. If the AKS is addressing criminal penalties, the consequences include fines up to $25,000 per violation and up to a five-year . Instead, it is the impact of the COVID-19 pandemic on the industrys salary and production survey data. The U.S. Department of Health and Human Services (HHS) adopted certain regulatory leasing safe harbors for both the Anti-Kickback Statute, commonly referred to as the "space rental safe harbor," and Stark Law, commonly referred to as the "office space rental exception.". The Anti-Kickback Statute. 411.362 Additional requirements concerning physician ownership and investment in hospitals. 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. ; ; 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 law provides that "fair market value" is the value in arms' length transactions concerning rentals or leases and the value of a rental property for general commercial purposes. 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 . 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. This safe harbor permits patient engagement tools and/or other support furnished directly by a VBE to a patient in a target patient population that are directly connected to the coordination and management of care. Fair market value, and specifically as it relates to compensation arrangements, is defined as The value in arms-length transaction, consistent with the general market value of the transaction. General market value means with respect to compensation for services, the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other., 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. Consult with healthcare counsel to review compensation arrangements to identify any structures that take into account the volume or value of referrals or business The Stark Law safe harbor provision has seven components. Chapter 25. 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. 4 See 42 CFR 411.354. 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. Often traditional salary survey sources do not provide datasets based on level of physician involvement or oversight for CRNAs, making it difficult to find an apples-to-apples comparison. 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. An arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.. Key PYA Takeaway: Since the Stark II, Phase II regulations, CMS has introduced the use of salary surveys to help in determining fair market value compensation, even going so far in the Stark II, Phase III regulations to comment reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value. However, salary surveys by themselves may be limited in establishing fair market value. 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. Commercial Reasonableness Analysis for an Increasingly Regulated Healthcare Environment | BDO Healthcare Industry Blog . Many of these reasons are out of the hospital or health systems control. 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? 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. The regulations will become effective January 19, 2021, with one exception. Jan 2017 - Oct 20225 years 10 months. The fair market value of equipment and office space leases is determined without taking into account intended use or, in the case of office space, proximity to the lessor if the . A significant part of compliance with Stark and Anti-Kickback is the concept of Fair Market Value. If a hospital is losing three times the national average in its employed primary care practice ask:(1) Why? Compensation arrangements that are required to be representative of . See our dedicated page. This piece concludes with thoughts regarding the COVID-19 pandemics effect on the immediate future of physician and APP compensation valuation. 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. 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. 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. healthcapital.com. 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. A comprehensive, but not all inclusive, list of the items covered in the final rule follows. What are your goals? Which of the following is TRUE about the Stark Law? B and C only - False Claims Act liability & Exclusion from the Medicare and Medicaid programs. 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 . For example, it is very common for recruitment agencies to publicize the perceived revenue generation of certain specialties. Its criminal penalties include fines up to $25,000 per violation, and up to 5 years in federal prison. Distribution of Profits Related to Participation in a Value-Based Enterprise; b. This ensures that there is maximum compliance of regulatory statutes and prevents any violation of healthcare laws. 411.354 Financial relationship, compensation, and ownership or investment interest. \text{Predictor} & \text{Coef} & \text{SE Coef} & \text{T}\\ For additional questions or comments regarding this article or other valuation issues, please contact John Meindl, Manager, VMG Health, at 972-616-7813, or john . Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. Thanks for reaching out. If a payment is made that cannot be shown to have been fair . On February 9, 2018, Congress passed and President Trump signed into law H.R. Historically, the concept of a bargained for exchange was primarily handled and managed by financial professionals within the organization. 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. 411.353 Prohibition on certain referrals by physicians and limitations on billing. The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, investment or tax advice or opinion provided by Carnahan Group to the reader. 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 . Q. 1395nn, and the regulations and guidance promulgated thereunder. 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. CMS' stated purpose is to establish bright-line, objective regulations that would be more easily applied. These Stark Law updates may not alter the approach to production of a compensation fair market value and commercial reasonableness opinion (i.e., we are still going to consult industry salary surveys), but it certainly has us doubling down on the lengths to which we go to describe and document the uniqueness of a provider, the market, or the situation. Another key Stark Law change that will certainly influence fair market value and commercial reasonableness opinion approach and deliverable is the uncoupling or disentanglement of the volume or value standard (and the other business generated standard) from the definitions of fair market value and commercial reasonableness. \text{Regression} & \text{1} & \text{41587.3}\\ Also, a quantitative analysis of revenue cycle should be conducted to determine if the anticipated transaction acquires any referrals during the process and to ensure that healthcare organization complies with the regulatory statutes. 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. With regard to fair market value (FMV), industry best practice suggests that you _____ in order to better withstand government scrutiny. The US Court of Appeals for the Third Circuit endorsed two controversial interpretations of the Stark Law's "volume or value" standard, known as the correlation theory and the practice "loss" theory in U.S. ex rel. (i) Consistent with the fair market value of . Final Rules also provide guidance related to fundamental concepts under the Stark Law, including commercial reasonableness, the volume or value standard, and fair market value. Structuring legally compliant hospital-physician leases and establishing fair market value (FMV) rental rates can be challenging. 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 Anti-Kickback Statute. In other words, the rate of compensation set forth in a salary survey may not always be identical to the worth of a particular physicians services. This is something that we have experienced from time to time for uniquely trained or experienced physicians and/or challenging markets, but more recently and frequently for Certified Registered Nurse Anesthetists (CRNAs) who practice autonomouslyusually in rural markets. 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 . In doing so, CMS offered helpful commentary for health care entities structuring real estate arrangements. Louisville, Kentucky 40241, 2023 HSG Advisors. Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. 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. 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. The waivers, which are numerous and fairly broad, offer health care entities significant flexibility to combat COVID-19 in ways . 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. 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. Further, the concept of fair market value has become much more than a financial analysis. TheregressionequationisY=20.0+7.21XPredictorCoefSECoefTConstant20.0003.22136.21X7.2101.36265.29AnalysisofVarianceSOURCEDFSSRegression141587.3ResidualError7Total851984.1\begin{matrix} 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. While the hypothetical fair market value is $450,000, the general market value may exceed that. Unlike the civil nature of Stark Law, the Anti-Kickback Statute is under both civil (administrative) and criminal laws. The same is not true for physicians and other entities when the Stark Law applies. You can contact me at 865-673-0844. 1320a-7b(b), applies to all individuals and companies. This article was originally published by the American Health Law Association in April 2021 as part of their 2021 Health Care Transactions Resource Guide. OIG also amended the definition of remuneration in the Beneficiary Inducements CMP statute to integrate a new statutory exception to the prohibition on beneficiary inducements for certain telehealth technologies.. Three new safe harbors for remuneration exchanged between or among participants in value-based arrangements: Value-based arrangements with full financial risk. For example, if a physician is paid at the 75th percentile under a specific survey then fair market value must be met. 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.