Payments and FMV Considerations in Reviewing Telemedicine Arrangements

telemedicine arrangementsPublished by The Health Lawyer

The growth in telemedicine adoption and demand for physician coverage services have raised a new challenge for healthcare providers and health systems alike. Navigating provider availability, access and the reimbursement environment, as well as the ever-changing state-by-state regulatory environment requires heightened diligence for health systems pursuing a telemedicine solution. Given these unique arrangements can often involve compensation between a hospital and physician or even between hospitals themselves, the need to ensure that these telemedicine arrangements are consistent with fair market value (“FMV”) and meet fraud and abuse standards is critical. A compliant and defensible telemedicine FMV analysis requires an understanding of the nuances in the telemedicine industry.

FMV Standard

Just as is the case when hospitals contractually pay physicians for traditional ED on-call coverage, or any other service for that matter, it is vital that those payment rates be set at FMV to avoid violating the Stark Law and/or the Anti-Kickback Statute (“AKS”). FMV is a key requirement in order to fall within an exception to the Stark Law’s prohibitions against certain types of referrals and is the standard which must be met in contractual arrangements within healthcare where at least one party is a physician or immediate family member with a financial interest in a party to the transaction.4 As defined by the International Glossary of Business Valuation Terms,5 FMV refers to:

The price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s-length in an open and unrestricted market, when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.

In relation to healthcare and particularly service agreements within healthcare, Stark guidance suggests:

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.6

Additionally, telemedicine arrangements can run the risk of violating the federal AKS. The AKS indicates that the existence of any payment by a hospital to a physician could create the risk that the compensation was used as an inducement for that physician to remain on the medical staff or do business at the hospital. Additionally, AKS implications could arise when hospitals sell telemedicine services out to facilities in need of coverage. 7 Once again, FMV is a key safe harbor here to avoid AKS implication.8 Ensuring that telemedicine payment rates are set at FMV is a vital step in establishing a compliant telemedicine arrangement.

Telemedicine Industry Overview

According to the American Telemedicine Association (“ATA”), telemedicine refers to the exchange of medical information from one site to another through electronic communications to improve a patient’s health.1 Telemedicine is an attractive option for hospitals, physicians and patients alike. Hospitals leverage telemedicine as a means to reduce emergency department (“ED”) hospital utilization costs and improve access to care. The ATA reports that over half of all U.S. hospitals now use or offer some form of telemedicine.2 Physicians are able to expand their patient reach without incurring traditional brick and mortar practice expenses. Physicians also enjoy being able to set their own scheduling by incorporating telemedicine work as they see fit in their day. From patients’ perspectives, traditional barriers such as mobility, distance and time constraints are less of a challenge with telemedicine. The focus is on consumer choice, whereby patients can select their own healthcare practice, provider and pharmacy.

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