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. The exception permits both monetary and nonmonetary remuneration between the parties. 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. 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. 1395nn). 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 . An extension has been granted until January 1, 2022 for compliance related to certain changes required in group practice compensation methodologies. To determine what is commercially reasonable, we first must start with a basic definition. This is not to say that organizations and individuals cant achieve high levels of income but it is to say that the aims in healthcare are much different than you might see in investment banking, entertainment industries, or in sporting industries. Data were collected on several properties var year = today.getFullYear() At WilliamsMarston, our team of valuation experts are readily available to assist you with your most important financial transactions, including navigating Stark Law and fair market value (FMV) matters. Many of the new and revised regulations apply beyond financial arrangements related to care coordination initiatives, and thus are crucial for all Many of these reasons are out of the hospital or health systems control. 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. First, it delineated that salary surveys or salary survey percentiles may not be appropriate to use in all circumstances. As to its civil penalties, the Anti-Kickback Statute includes monetary penalties up to $50,000 per violation, civil . You can contact me at 800-270-9629. 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. As stated above in our discussion of fair market value, CMS continues to make it clear that the commercial reasonableness determination is also accomplished through consideration of an arrangements context and from the perspective of those involved. The primary regulations governing physician compensation arrangements are the Stark Law and AKS. (i) Consistent with the fair market value of . In the interim, for more information regarding these matters, contact a PYA executive below at (800) 270-9629. A qualitative analysis of the nature and scope of services performed, necessity of services, and comparability of services should be performed. What is downstream revenue? 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 . TheregressionequationisY=20.0+7.21XPredictorConstantXAnalysisSOURCERegressionResidualTotalCoef20.0007.210ofDF1Error8SECoef3.22131.3626VarianceSS41587.3751984.1T6.215.29. A comprehensive, but not all inclusive, list of the items covered in the final rule follows. Allows agreement participants to reconcile payment variances in compensation arrangements without violation of physician self-referral law. 98810.3;2988 \div 10.3 ; 298810.3;2 significant digits. Ultimately, valuators likely will have to be creative and look back into past years surveys to evaluate trends and validate current survey data. 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. 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). 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. Unlike the civil nature of Stark Law, the Anti-Kickback Statute is under both civil (administrative) and criminal laws. Using the example of celebrities above, many contracts with celebrities include a portion of ticket sales to that movie. \text{Regression} & \text{1} & \text{41587.3}\\ 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. Typical compensation per Work Relative Value Unit rates could be significantly off from traditional levels for given specialties. Our hypothesis is that COVID-19 will appreciably affect the salary, production, and other data reported by physicians and their practicesin some instances, to a significant degree. 1 For purposes of this article, "Stark" refers to 42 U.S.C. 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. 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. 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. Whether it's an outright acquisition or a lease or service agreement, and whether it is the business or the underlying tangible assets (real estate and equipment), the transaction must be consistent with Fair Market Value. 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). <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. \end{matrix} The best practice that a health system can adopt for establishing financial arrangements without getting penalized is consulting with a third-party valuation expert to not only rationalize the compensation rate, but to justify the community need. For example, if a physician is paid at the 75th percentile under a specific survey then fair market value must be met. 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. This has also been true in markets in which the demand and competition for CRNAs has exploded. 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. These new rules, which significantly amend the existing laws, are a direct result of HHS Regulatory Sprint to Coordinated Care. Non-profit hospitals face additional requirements under the Internal Revenue Code that they must satisfy to maintain their tax-exempt status. The regulations are part of the HHS Regulatory Sprint to Coordinated Care and . Via the Final Rule, CMS has also indicated that salary surveys, regardless of percentile, are not automatic determinates of fair market value, stating, Consulting salary schedules or other hypothetical data is an appropriate starting point in the determination of fair market value, and in many cases, it may be all that is required. Guidance on reconciliation of payment variances. Among the many changes in the Stark Law final rule, the following are some of the most significant: 1. 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. 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. On March 30, 2020, the Centers for Medicare & Medicaid Services (CMS) issued blanket waivers to the Stark Law that permit certain arrangements between physicians and health care providers implemented in response to COVID-19 that would otherwise violate the Stark Law. That determination may be fairly conservative and well within a reasonable range, but if said physician is the second of two medical directors for this service and the duties are already handled by the first medical director so the second is not needed, then the $150 per hour medical directorship, while fair market value is not commercially reasonable. While this exception may be utilized in some instances, it is likely organizations will utilize the employment exception or personal services exception. So, while it may require effort, and in some cases could be difficult to achieve, finding fair market value is a must. Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. Under the statute; 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. 411.362 Additional requirements concerning physician ownership and investment in hospitals. Cybersecurity technology and services safe harbor for remuneration in the form of cybersecurity technology and services. 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. While the hypothetical fair market value is $450,000, the general market value may exceed that. There are four basic methods of determining fair market value. The following definition is from the regulations: means the value in arm's-length transactions, consistent with the general market value. Three new safe harbors for remuneration exchanged between or among participants in value-based arrangements: Value-based arrangements with full financial risk. 3 See 42 U.S.C. What are your goals? The Stark Law safe harbor provision has seven components. 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. This field is for validation purposes and should be left unchanged. 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. Arrangements for patient engagement and support to improve quality, health outcomes, and efficiency. 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. Again, job posting sites have been invaluable to determining fair market value for high-demand services. 4) Have a payment or salary provision that is reasonable and is at fair market value. On December 2, 2020, the Department of Health and Human Services ("HHS") Office of Inspector General ("OIG") issued final rules including a host of reforms to the AKS, including three changes to the personal services and management contracts safe harbor ("Safe Harbor"). Always engage a competent appraiser who understands the Stark definition of fair market value and be sure the appraisal report addresses that. See our dedicated page. Chapter 25. Providing additional flexibility related to signature and writing requirements. Not only was the definition of general market value amended, but it was also given three unique definitions related to the context of a specific type of transaction. 3. 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. This would be incorrect. Strategy, market growth, and larger referral bases were not among the examples. If a payment is made that cannot be shown to have been fair . 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 . Cincinnati. Fair market value is a pinnacle issue for compliance under the Stark Law and Anti-Kickback Statute. 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 Anti-Kickback Statute (AKS), 42 U.S.C. Eliminating the period of disallowance rules and correcting discrepancies during the arrangement. ; (2) How can it be fixed? A "Stark" Difference in Fair Market Value and Commercial Reasonableness Is Coming in 2021. A significant part of compliance with Stark and Anti-Kickback is the concept of Fair Market Value. CMS' stated purpose is to establish bright-line, objective regulations that would be more easily applied. For example, celebrities and professional athletes negotiate contracts without any specific compensation regulations. If ever there was a time in which that is true on so many levels, this is it. 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.

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