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. a non-profitable arrangement) may present a problem, it is not expressing a definitive opinion on the matter as each arrangement is facts and circumstances specific, and it could see certain arrangements with facts and circumstances whereby a non-profitable arrangement is commercially reasonable. Stark defines fair market value (FMV) as ______________________________ . J. William Bookwalter, III, M.D. 1320a-7b (b) and the regulations and guidance promulgated thereunder. So, while it may require effort, and in some cases could be difficult to achieve, finding fair market value is a must. The Anti-Kickback Statute (AKS), 42 U.S.C. If a hospital is losing three times the national average in its employed primary care practice ask:(1) Why? 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"). ), 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. 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. Modified the rule related to profit sharing and productivity bonuses such that distribution of profits from designated. Ultimately, valuators likely will have to be creative and look back into past years surveys to evaluate trends and validate current survey data. The argument is that but for the celebrity being in the movie the consumer would not purchase the ticket. 2 A discussion of Stark's application to Medicaid claims is beyond the scope of this broad overview. The arrangement is in writing, signed by the parties, and covers only identifiable items or services, all of which are specified in writing. "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 . The exception permits both monetary and nonmonetary remuneration between the parties. 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. Unlike fair market value determination, commercial reasonableness is not as readily determined by standardized methodologies, practices, or sources. The arrangement does not violate the anti-kickback statute (section 1128B(b) of the Act), or any Federal or State law or regulation governing billing or claims submission. 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). Email (required), Healthcare eNewsletterTax & Assurance eNewsletterWebinars. As it relates to the updated definition of fair market value, CMS continues to emphasize that its determination should be based on any appropriate method depending on the kind of transaction, its location, and other factors. 411.357 Exceptions to the referral prohibition related to compensation arrangements. 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. b. Bob concentrates his . 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. It is, however, often the best information that one can find. 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. 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. Fair Market Value and Commercial Reasonableness Applied to Healthcare Transactions. 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. In addition, CMS removed the "volume or value" and the "other business generated" standards . The general market value definitions are: What does it mean for a compensation arrangement to be commercially reasonable? The exception cannot be utilized for the rental of office space though. Many of these reasons are out of the hospital or health systems control. 2 Healthcare transactions must be commercially reasonable and should be comparable to what is paid ordinarily for similar services in the area. 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. 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 . With regard to fair market value (FMV), industry best practice suggests that you _____ in order to . The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician. A "Stark" Difference in Fair Market Value and Commercial Reasonableness Is Coming in 2021. 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. 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. Healthcare organizations should consider both qualitative and quantitative components for FMV and commercial reasonableness analyses of financial transactions. Fair Market Value (FMV) \end{matrix} 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. 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. The proposed rule would create new, permanent exceptions to the Stark Law for value-based arrangements. Its criminal penalties include fines up to $25,000 per violation, and up to 5 years in federal prison. Health Management Associates $260 Million, Kalispell Regional Healthcare $24 Million. Do our losses mean the compensation we are paying, while fair market value, is not commercially reasonable? 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. Included in the changes are definitions and special rules related to: (1) commercial reasonableness, (2) the volume or value standard and other business generated standard, and (3) fair market value and . With the increased rate of mergers and acquisitions, healthcare organizations are vulnerable to federal scrutiny. A factor that is certain to affect fair market value determination during the coming year is not new or revised legislation. 411.362 Additional requirements concerning physician ownership and investment in hospitals. What are your goals? Providing additional flexibility related to signature and writing requirements. Stark Law provides this definition: The term "fair market value" means the value in arm's length transactions, consistent with the general market value(42 USC 1395nn) 42 CFR 411.351 -"general market value" means the price that an asset would bring or that would be included in a The following definition is from the regulations: means the value in arm's-length transactions, consistent with the general market value. 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. Key PYA Takeaway: Guidance from prior court decisions, as well as certain previous governmental representatives, have questioned commercial reasonableness if arrangements are not profitable. However, there are a few core concepts that are applicable when establishing fair market value. Which of the following is TRUE about the Stark Law? Their concern has been financial, yes, but also an increasing concern of compliance risk. All Rights Reserved. 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. Cincinnati. For example, it is very common for recruitment agencies to publicize the perceived revenue generation of certain specialties. Documentation of all aspects of relationship. 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. 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). The Stark Law defines FMV as the value in arms length transactions, consistent with general market value. 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. A qualitative analysis of the nature and scope of services performed, necessity of services, and comparability of services should be performed. Traditional survey sources have proven to be dated and inadequate for the CRNA salaries being offered. stark law fair market value industry best practice. 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." Compensation arrangements that are required to be representative of . 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. To accommodate patient surge, a hospital rents office space or equipment from a physician practice at below fair market value or at no charge. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); document.getElementById( "ak_js_2" ).setAttribute( "value", ( new Date() ).getTime() ); 9850 Von Allmen Court 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 final rule creates new exceptions to the Stark Law for value-based arrangements that satisfy specified requirements based on the characteristics of the arrangement and the level of financial risk assumed by the . The primary reasons that the Stark Law prevents organizations and individuals from including downstream revenue are numerous. For bona fide employment as long as all other requirements are met. (i) Consistent with the fair market value of . 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. Use Superior Corporation's trial balance and financial statements from the previous Work Together exercise. 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. Cimasi, R. Z T. Traversing the threshold of commercial reasonableness in the healthcare industry. 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. 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.