Considerations for Determining Fair Market Value Physician Compensation Under Stark’s Final Rules

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 to value-based care.[1]

This article focuses more specifically on the changes made to the Stark Law, and how organizations should be thinking about establishing fair market value (“FMV”) for physician compensation under the new regulations. Although there are some important differences between guidance under the Stark law and AKS, it is important to note that CMS and the OIG coordinated efforts in their regulatory updates, both providing a consistent message in their support for the “Regulatory Sprint to Coordinated Care.”[2]

Together, the new regulatory guidance provides important information that should be considered when establishing physician compensation. The most pertinent topics include new definitions for FMV, clarifications related to the value or volume guidelines, insight related to survey reliance, and what to consider when paying for quality outcomes.

Fair Market Value – Definitions in the New Rule

Under the old rules, the Centers for Medicare and Medicaid Services (“CMS”) defined fair market value as “the value in arm’s-length transactions, consistent with the general market value.”

In the final rule that took effect this month, the Centers for Medicare and Medicaid Services (“CMS”) made changes that significantly expanded the definition and clarified how the definition applies to equipment rental and the rental of office space in addition to the more broad, general definition of fair market value.

Under the new rule, there are now three definitions, one for general services, one for equipment rental, and one for office space rental, allowing organizations to review the appropriate definition for the particular type of arrangement being reviewed with a physician or physician group. According to Stark’s final rule, fair market value for physician services is defined as:

General (Compensation). The value in an arm’s length transaction, consistent with the general market value of the subject transaction.

Similar changes were made to the definitions for general market value, intended to simplify the language and to differentiate between the general market value of compensation, assets, or the rental of equipment or office space. General market value of compensation in the final rule is defined as:

Compensation. 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.

The revamped definition of fair market value should help organizations better understand what fair market value means in the context of the various arrangements organizations commonly enter into with physicians.

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