For example, if a physician is paid at the 75th percentile under a specific survey then fair market value must be met. Healthcare organizations should consider both qualitative and quantitative components for FMV and commercial reasonableness analyses of financial transactions. 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. Record the following closing entries on page 19 of the general journal. healthcapital.com. The general market value definitions are: What does it mean for a compensation arrangement to be commercially reasonable? 411.362 Additional requirements concerning physician ownership and investment in hospitals. As an industry, the Life Sciences has nearly uniformly adopted . 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. 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. For most Stark Law exceptions to apply, a(n) ___________________ is required. A hospital lends money to a physician practice to offset lost income resulting from the cancellation of elective surgeries to ensure capacity for COVID-19 needs. 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. Healthcare Regulatory and Stark Law/Fair Market Value and Commercial Reasonableness attorney. Limits what qualifies as an ownership or investment interest that is subject to the physician self-referral law. This exception takes effect when there is an arrangement into writing that specifies the time frame and remuneration, and meets Anti-Kickback Statutes . The 2021 Stark Law and Anti-Kickback Statute: Fair Market Value and Commercial Reasonableness (American Health Law Association Publication) Noteworthy 2021 stark law revisions and modifications: specifically areas impacting provider compensation and transactions valuation. 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. This piece concludes with thoughts regarding the COVID-19 pandemics effect on the immediate future of physician and APP compensation valuation. bdo.com. Eliminating the period of disallowance rules and correcting discrepancies during the arrangement. The arrangement is commercially reasonable (taking into account the nature and scope of the transaction) and furthers the legitimate business purposes of the parties. The Stark Law defines FMV as "the value in arm's length transactions, consistent with general market value". There are four basic methods of determining fair market value. 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.. 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. They are: (a) the lease agreement must be in writing; (b) the . The exception cannot be utilized for the rental of office space though. The same is not true for physicians and other entities when the Stark Law applies. In doing so, CMS offered helpful commentary for health care entities structuring real estate arrangements. Structuring legally compliant hospital-physician leases and establishing fair market value (FMV) rental rates can be challenging. 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. B. Stark Law Exception - Value-Based Arrangements . 3 See 42 U.S.C. Ultimately, valuators likely will have to be creative and look back into past years surveys to evaluate trends and validate current survey data. The regulations will become effective January 19, 2021, with one exception. Unlike the civil nature of Stark Law, the Anti-Kickback Statute is under both civil (administrative) and criminal laws. Reflecting on Recent Regulatory Changes to the Stark Law: A Real Estate and Equipment Valuation Perspective, Part 2. Cincinnati. 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. Consult with healthcare counsel to review compensation arrangements to identify any structures that take into account the volume or value of referrals or business Key PYA Takeaway: CMS is clarifying that the Big 3 (fair market value, commercial reasonableness, and the volume or value standard) are separate and distinct concepts. 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. 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. Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. A comprehensive, but not all inclusive, list of the items covered in the final rule follows. 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. 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. 411.351. It says, . New "Fair Market Value" and "General Market Value" Definitions. 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. 411.353 Prohibition on certain referrals by physicians and limitations on billing. 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? 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. Email (required), Healthcare eNewsletterTax & Assurance eNewsletterWebinars. Close the income statement accounts with debit balances. The following requirements must be [] 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. 1892, the Bipartisan Budget Act of 2018 (the "Budget Act"), which included changes to the federal physician self-referral law (commonly known as the "Stark law").Among these revisions are allowing indefinite holdovers in two notable exceptions to the Stark law: (1) personal services arrangements and (2 . The Final Rule of the Stark Law revises the definitions of Fair Market Value and includes a definition of General Market Value to better align with actual practices without unduly restricting innovative relationships between physicians and entities providing designated health services. Cimasi, R. Z T. Traversing the threshold of commercial reasonableness in the healthcare industry. 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. worldservicesgroup.com. 411.357 Exceptions to the referral prohibition related to compensation arrangements. In what situation is a written agreement NOT required under Stark? The Anti-Kickback Statute. Guidance on reconciliation of payment variances. Last Name (required) 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. 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. Introduction. \text{Predictor} & \text{Coef} & \text{SE Coef} & \text{T}\\ 411.357 Exceptions to the referral prohibition related to compensation arrangements. 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. Key PYA Takeaway: Guidance from prior court decisions, as well as certain previous governmental representatives, have questioned commercial reasonableness if arrangements are not profitable. A significant part of compliance with Stark and Anti-Kickback is the concept of Fair Market Value. Which of the following is a government sanction provided under the Stark regulation? 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. Additionally, until now, there has been no codified definition for commercial reasonableness, only limited CMS discussion such as that in the proposed 1998 rule. 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. In reading CMS comments in the Federal Register, there is no doubt that CMS views each case as unique and there is not a set formula or methodology for determining fair market value. 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. 411.356 Exceptions to the referral prohibition related to ownership or investment interests. 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. <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. The primary regulations governing physician compensation arrangements are the Stark Law and AKS. 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. 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. 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. 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). \text{SOURCE} & \text{DF} & \text{SS}\\ The writing specifies the compensation that will be provided under the arrangement. 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. \text{Residual} & \text{Error} & \text{7}\\ 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. 3. 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. americanbar.org. 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. Suite 201 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. Cybersecurity technology and services safe harbor for remuneration in the form of cybersecurity technology and services. 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. nbaker@hsgadvisors.com or call (502) 814-1189. 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. \text{Regression} & \text{1} & \text{41587.3}\\ The CMS Final Rule implements changes to the Stark Law and offers several clarifying provisions related to key Stark Law terms and concepts. While this exception may be utilized in some instances, it is likely organizations will utilize the employment exception or personal services exception. What are your goals? In some cases, the alignment between compensation and production may be distorted. ; (2) How can it be fixed? 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. Introduction. Download a PDF Version of the Article as Published in AHLA's 2021 . Refines when a physician practice is required to sign a recruitment agreement between a hospital and a physician as well as timing issues for arrangements between a physician and non-physician practitioner (NPP) when a hospital is involved in compensating the NPP. Get ready and roll up your sleeves for the work ahead. Finalized new, permanent exceptions for value-based arrangements that will permit physicians and other health care providers to enter into value-based arrangements without fear that their legitimate activities to better coordinate care, improve quality, and lower costs would violate the Stark Law. document.write(year) Downstream revenue may include referrals for laboratory services, referrals for imaging services, referrals for hospital services, or even referrals to other specialists. Stark requires that a lease with a referring physician be in writing, signed by both parties, for a term of at least one year, at a fair market value rental rate. and Don Barbo, Managing Director with VMG Health, on the topic of "New Stark Law and AKS Final Rules -Valuation Considerations." On January 19, 2021, a new era was ushered in as the CMS Stark Law Final Rule and the HHS-OIG Anti-Kickback Statute Final Rule became effective. CMS further clarifies that commercial reasonableness is whether an arrangement makes sense as a means to accomplishing the parties goals. \text{The regression equation is}\\ We also believe there has to be a limit to what is reasonable in terms of losses. In healthcare, the patient would have received the care regardless of the physician and the complexity of healthcare with patients moving to different sites of service and within different specialties creates impossible scenarios for tracking who is responsible for what. June 14, 2022; salem witch trials podcast lore Thanks for reaching out. Distribution of Profits Related to Participation in a Value-Based Enterprise; b. 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." 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. Chapter 25. Historically, the concept of a bargained for exchange was primarily handled and managed by financial professionals within the organization. On the other hand, an arrangement must be considered fair market value in order to be commercially reasonable. The Stark Law defines FMV as the value in arms length transactions, consistent with general market value. Strategy, market growth, and larger referral bases were not among the examples. Catherine Short converses with Rachel V. Rose, JD, MBA, principal with Rachel V. Rose - Attorney at Law, P.L.L.C. 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. 1395nn). This is the art and the work involved in determining fair market value. Assessing Fair Market Value. 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. Their concern has been financial, yes, but also an increasing concern of compliance risk. 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 case underscores that the OIG cares about technical as well as substantive compliance with the Stark law. This ensures that there is maximum compliance of regulatory statutes and prevents any violation of healthcare laws. 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. 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. What is downstream revenue? Further, the concept of fair market value has become much more than a financial analysis. 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. 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 . The fair market value exception is a compensation exception that is flexible depending on the arrangement. The Stark Law (42 U.S.C. B and C - obtain a certified valuation from an expert, third party & conduct an in-house valuation.