stark law fair market value industry best practice

Do our losses mean the compensation we are paying, while fair market value, is not commercially reasonable? Q. Thus, "compensation substantially above $450,000 per year may be fair market value," according to . Instead, it is the impact of the COVID-19 pandemic on the industrys salary and production survey data. As an industry, the Life Sciences has nearly uniformly adopted . 5, A regular assessment should be conducted to determine if the healthcare transactions are commercially reasonable. "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 . Commercial Reasonableness Analysis for an Increasingly Regulated Healthcare Environment | BDO Healthcare Industry Blog . 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. In what situation is a written agreement NOT required under Stark? If an appraiser is hired, the appraiser's qualifications and experience must be considered if that appraisal will be relied upon. CMS further clarifies that commercial reasonableness is whether an arrangement makes sense as a means to accomplishing the parties goals. 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. 1320a-7b(b), covers a broader range of activity than the Stark Law, and extends to all medical providers in a position to arrange or recommend medical services."Referrals" under the Anti-Kickback Statute include "any item or service for which payment may be made in whole or in part under a Federal health care program." The answer to that question has often been more elusive and not as immediately apparent as fair market valueand we know how nebulous and elusive fair market value can be at times. Posted on October 27, 2016August 15, 2022. 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. The Anti-Kickback Statute. Some of those include organizations that have been charged even with compensation levels that are not above the 90th percentile. 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 If ever there was a time in which that is true on so many levels, this is it. 411.357 Exceptions to the referral prohibition related to compensation arrangements. The Stark law does maintain a definition of fair market value but it does not dictate actual numbers. 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. 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. 1320a-7b (b) and the regulations and guidance promulgated thereunder. ), commonly referred to as the Stark law, is a set of regulations that pertain to physician self-referral under current United States (US) federal law. 4 See 42 CFR 411.354. Healthcare transactions must be commercially reasonable and should be comparable to what is paid ordinarily for similar services in the area. 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? Introduction. The exception permits both monetary and nonmonetary remuneration between the parties. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. Current, Three-Part Definition of Fair Market Value (42 C.F.R. Structuring legally compliant hospital-physician leases and establishing fair market value (FMV) rental rates can be challenging. CRNAs are only one examplethe same challenges could easily apply to any physician specialty or market. 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. 411.354 Financial relationship, compensation, and ownership or investment interest. Healthcare employment contracts must: 1) Have a duration of at least a year. Third, fair market value as a concept is also dictated by relevant government enforcement actions as well as lawsuits. In some cases, the alignment between compensation and production may be distorted. This ensures that there is maximum compliance of regulatory statutes and prevents any violation of healthcare laws. The commenters are incorrect that this is CMS policy. Clearly, from CMS perspective, both referenced policies are misguided. \text{Predictor} & \text{Coef} & \text{SE Coef} & \text{T}\\ For example, in the past some arrangements where physician compensation exceeded professional collections have received considerable scrutiny for commercial reasonableness. First, fair market value is based purely on the personally performed services of a physician and not based upon any downstream revenue for the entity or business generated between the parties. Their concern has been financial, yes, but also an increasing concern of compliance risk. 2) Be in writing and signed by both parties. Noteworthy 2021 stark law revisions and modifications: specifically areas impacting provider compensation and transactions valuation. 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. 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. 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 . 98810.3;2988 \div 10.3 ; 298810.3;2 significant digits. To accommodate patient surge, a hospital rents office space or equipment from a physician practice at below fair market value or at no charge. Historically, the concept of a bargained for exchange was primarily handled and managed by financial professionals within the organization. The waivers, which are numerous and fairly broad, offer health care entities significant flexibility to combat COVID-19 in ways . 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. A significant part of compliance with Stark and Anti-Kickback is the concept of Fair Market Value. This article is intended to highlight some of the most noteworthy revisions, clarifications, and modifications provided by the Centers for Medicare & Medicaid Services (CMS) through the Stark Law Final Rule and by the Office of Inspector General (OIG) through the Anti-Kickback Statute (AKS) Final Rule. Email (required), Healthcare eNewsletterTax & Assurance eNewsletterWebinars. 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.". The Stark Law (42 U.S.C. What is downstream revenue? var today = new Date() Fraud and Abuse Laws. 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. 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 . Jan 2017 - Oct 20225 years 10 months. Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. Looking for help navigating the Stark Law Final Rule? 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. Unlike fair market value determination, commercial reasonableness is not as readily determined by standardized methodologies, practices, or sources. 411.355 General exceptions to the referral prohibition related to both ownership/investment and compensation. However, there are a few core concepts that are applicable when establishing fair market value. Website managed by SiteCare.com. the value in an arm's-length transaction that is consistent with general market value. Second, downstream financial incentives in healthcare, as in most industries, is extremely hard to quantify. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); 9850 Von Allmen Court Sec. CMS removed "general market value" from the definition of "fair market value" at 42 C.F.R. If a payment is made that cannot be shown to have been fair . In June 2022, the United States Department of Health and Human Services Office of Inspector General (HHS OIG) released OIG Advisory Opinion No. First, financial incentives from a policy standpoint should not impact the plan of care developed for patients. 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. 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. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. In the interim, for more information regarding these matters, contact a PYA executive below at (800) 270-9629. 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. 1395nn, and the regulations and guidance promulgated thereunder. To determine what is commercially reasonable, we first must start with a basic definition. Chapter 25. The general market value definitions are: What does it mean for a compensation arrangement to be commercially reasonable? health services directly attributable to a physicians participation in a value-based arrangement are deemed not to take into account the volume or value of the physicians referrals. B and C only - False Claims Act liability & Exclusion from the Medicare and Medicaid programs. 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. 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. B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation . Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. 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. 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. The primary reasons that the Stark Law prevents organizations and individuals from including downstream revenue are numerous. var year = today.getFullYear() 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. This site rocks the Pearsonified Skin for Thesis. This article was originally published by the American Health Law Association in April 2021 as part of their 2021 Health Care Transactions Resource Guide. The primary regulations governing physician compensation arrangements are the Stark Law and AKS. There are numerous regulatory statutes, such as Stark Law and Anti-Kickback Statute that need to be considered while structuring financial transactions for physicians and other staff to ensure that compensation is within fair market value (FMV) and is commercially reasonable. The Stark Law prohibits physicians from referring patients for services to entities in which the physician or _____ has a financial interest. 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 . Federal physician self-referral prohibition (42 USC 1395nn. The Stark Law addressed a legitimate problem. These new rules, which significantly amend the existing laws, are a direct result of HHS Regulatory Sprint to Coordinated Care. A qualitative analysis of the nature and scope of services performed, necessity of services, and comparability of services should be performed. 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. 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 . 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. 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. They are: (a) the lease agreement must be in writing; (b) the . Within the Healthcare industry, there are rules and regulations to ensure that . 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? The CMS Self-Referral Disclosure Protocol (SRDP). Specifically, the aim of healthcare delivery is to provide high-quality care, high levels of access, and at the most cost-effective price. Grabbing a 2021 survey and finding a percentile might be enough, then again, it might not. 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"). Likewise, a belief that paying a provider above the 75th percentile is not fair market value is also misplaced. 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. 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). Rather, each case must be evaluated and considered in the context of the situation. 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. 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. CMS has stated that compensation between certain percentiles does not provide a safe harbor. have been significantly impacted by decreased patient volume. between x, annual gross rents (in thousands of dollars), and y, selling price (in 6 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.10 Financial arrangements should be based on comparable data and should be set in advance by members who have no conflict of interests. 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. Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. For example, celebrities and professional athletes negotiate contracts without any specific compensation regulations. Close the income statement accounts with debit balances. The reader should contact his or her Carnahan Group or other tax professional prior to taking any action based upon this information. Thanks for reaching out. In a simple example, we can determine that fair market value for compensation of a medical director for a cardiac catheterization laboratory is $150 per hour. 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). As you can see, the definition of fair market value does not provide details with respect to what is fair market value. That is a topic for another day. If the AKS is addressing criminal penalties, the consequences include fines up to $25,000 per violation and up to a five-year . Carnahan Group provides a unique platform. 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. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. 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. Finally, the incentives in a healthcare environment are inherently different than they are in a business venture in other industries. Attendees may ask questions in advance. 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. Further, the concept of fair market value has become much more than a financial analysis. 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. Referring to survey data regarding practice losses per physician and per provider can be enlightening. 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 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 . This ensures that there is maximum compliance of regulatory statutes and prevents any violation of healthcare laws. The three types of transactions are asset acquisition, compensation, and rental of equipment or office space. Jana will be discussing the Stark Law changes, and Angie will be providing related valuation examples during the September 13, 2022 Let's Talk Compliance webinar entitled Stark Law Changes and Impact on Physician Compensation Part 2. 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. 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. A factor that is certain to affect fair market value determination during the coming year is not new or revised legislation. Limits what qualifies as an ownership or investment interest that is subject to the physician self-referral law. Cybersecurity technology and services safe harbor for remuneration in the form of cybersecurity technology and services. 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. 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 . 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. 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. Consult with healthcare counsel to review compensation arrangements to identify any structures that take into account the volume or value of referrals or business 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. \text{The regression equation is}\\ Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. 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. Healthcare Regulatory and Stark Law/Fair Market Value and Commercial Reasonableness attorney. New Value-Based Exceptions. The exception cannot be utilized for the rental of office space though. It says, . 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 Anti-Kickback Statute is a criminal law that prohibits healthcare organizations from knowingly and willfully paying any remuneration to induce patient referrals or to generate business involving any service payable by the federal healthcare programs. In addition to fair market value, most applications of the anti-kickback statute and Stark law also require commercial reasonableness. 411.353 Prohibition on certain referrals by physicians and limitations on billing. Home Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions, An Informational Article 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. The following requirements must be [] Value-based arrangements with substantial downside financial risk (at least 5%). Too often, they have hindered, rather than . Introduction. The Stark Law defines FMV as "the value in arm's length transactions, consistent with general market value". In order to qualify for the recruitment exception, the arrangement must _________________________ . 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. 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).

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