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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Physician Speaking Programs in the Crosshairs in OIG’s Special Fraud Alert

The Department of Health and Human Services Office of Inspector General (OIG) released a Special Fraud Alert on November 16, 2020 related to the inherent fraud and abuse risk associated with physicians or other health care professionals (HCPs) being offered, solicited, and/or receiving remuneration associated with speaking arrangements on behalf of pharmaceutical and medical device companies.[1] The alert specifically addresses speaking programs where HCPs present or speak about a device, disease state, or a drug and are paid an honorarium or other remuneration by the company. In addition, it focuses on the increased scrutiny associated with these arrangements and how they could potentially violate the Anti-Kickback Statute. Of note, this type of Special Fraud Alert is rare as the last one was issued over six years ago and tackled laboratory payments to referring physicians.[2]

Background

According to the Centers for Medicare & Medicaid Services (CMS), device and drug companies reported paying almost $2 billion to various HCPs in conjunction with speaker-related services.[3] In addition, the alert acknowledges that both the OIG and the Department of Justice (DOJ) have investigated and pursued civil and criminal cases against companies and HCPS with relation to speaker programs. Specifically, the alert cites various alleged cases including:

• selected high-prescribing HCPs to be speakers and rewarded them with lucrative speaker deals (e.g., some HCPs received hundreds of thousands of dollars for speaking);
• conditioned speaker remuneration on sales targets (e.g., required speaker HCPs to write a minimum number of prescriptions in order to receive the speaker honoraria);
• held speaker programs at entertainment venues or during recreational events or otherwise in a manner not conducive to an educational presentation (e.g., wineries, sports stadiums, fishing trips, golf clubs, and adult entertainment facilities);
• held programs at high-end restaurants where expensive meals and alcohol were served (e.g., in one case, the average food and alcohol cost per attendee was over $500); and
• invited an audience of HCP attendees who had previously attended the same program or HCPs’ friends, significant others, or family members who did not have a legitimate business reason to attend the program.[4]

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Eight common mistakes when determining FMV for physician clinical services compensation

Written by Caroline Dean

Published by Becker's hospital Review As physician compensation reform and regulatory scrutiny continue to be a focus of attention, parties are putting forth a more concentrated effort to ensure physician compensation arrangements are considered fair market value (FMV). The regulatory environment surrounding physician compensation can often be difficult to navigate, while also trying to balance making competitive offers and attracting and maintaining top talent. The most significant laws guiding physician compensation arrangements are the federal Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law). To be compliant with these regulations, physician compensation must be set at FMV or risk potential for qui tam lawsuits, high dollar fines or even criminal charges. This article covers common mistakes that could potentially lead to violations of AKS or the Stark Law. Eight Common Mistakes The following list includes eight common mistakes that could lead to physician clinical services compensation that is inconsistent with FMV. While the following is not a comprehensive list, the mistakes discussed are important to avoid when establishing compensation for clinical services:

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How Hospitals and Health Systems Can Pandemic-Proof their Physician Compensation Agreements

Under All is the Land: Ground Leases and Hospital Campuses

Written by Victor McConnell, MAI, ASA, CRE and Grace McWatters

This Featured Article is contributed by the Real Estate Affinity Group of AHLA's Hospitals and Health Systems Practice Group. There is an old adage in real estate which states that “under all is the land” [i].  This statement is quite literally true when dealing with ground leases upon which buildings are constructed.  Within the healthcare real estate sector, it is common for hospitals to utilize a ground lease to facilitate the development of a new building.  Most often, these arrangements are pursued on hospital campuses, where hospitals may prefer to retain a greater degree of control over a new development than would exist if they sold the land.  The ground lessee entity may be a real estate investment trust (“REIT”), a physician group, a developer, or another third-party.  A ground lease allows a hospital to retain long-term control of the site, along with the ability to have certain controls over the development and leasing of the building.  A hospital’s motivations for pursuing a ground lease structure may also stem from a variety of other strategic or economic objectives, such as freeing up capital for other uses. [ii]  A developer may prefer to acquire the land, though a ground lease structure does provide the developer with the advantage of slightly lower total capital requirements (as they do not need to purchase the land). The focus of this article will be to: a) provide an overview of valuation considerations associated with ground leases; b) understand key attributes of on-campus ground leases; c) evaluate ground-lease related compliance risks; and d) discuss key issues such as ROFRs, options, use restrictions, and more.

What is a ground lease?

A ground lease is defined by Black’s Law Dictionary as “a lease of vacant land, or land exclusive of any buildings on it, or unimproved real property.  Usually a net lease.”[i]  The Dictionary of Real Estate Appraisal defines a ground lease as “a lease that grants the right to use and occupy land.  Improvements made by the ground lessee typically revert to the ground lessor at the end of the lease term.”[ii] When an entity owns real estate without any leases (or other ownership interests) in place, the entity generally owns the “fee simple estate” in the real estate.  Fee simple estate is defined as "absolute ownership unencumbered by any other interest or estate, subject only to the limitation imposed by the governmental powers of taxation, eminent domain, police power, and escheat.”[iii]  Ownership of the fee simple estate could encompass solely vacant land or could encompass land and improvements.  When a ground lease is executed, separation of ownership between building and improvements occurs, and both a “leased fee estate” (for the lessor) and a “leasehold estate” (for the lessee) are created.  Leased fee estate is defined as “the ownership interest held by the lessor, which includes the right to receive the contract rent specified in the lease plus the reversionary right when the lease expires.”[iv]  Leasehold estate is defined as "the right held by the lessee to use and occupy real estate for a stated term and under the conditions specified in the lease.”[v] When a developer is in the lessee position on the ground lease and the lessor position on the building lease, their position is sometimes referred to as a “sandwich interest,” or “sandwich lease.”[vi]

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Ten Questions to Ask When Structuring a Compliant Call Coverage Agreement

Written by Bartt Warner and Caroline Dean

Published by Health Care Compliance Association (HCCA) The on-call coverage environment has seen significant changes over recent years. While call coverage was once considered to be a requirement alongside clinical services, due to the growing uninsured patient population and emphasis on physician work-life balance, it has become more common for physicians to require additional compensation for providing this coverage. As a result of these changes, hospital leadership faces the difficult task of ensuring sufficient physician coverage to handle emergent case volume, in-patient consults, and continued care for admitted patients. This challenge is further exacerbated by the low quantity of physicians willing to provide the coverage, the rising compensation amounts paid to these physicians, and the need to meet the rules and regulations of the desired trauma designations. Since the passage of the Emergency Medical Treatment and Labor Act of 1986 (EMTALA),^[1] on-call compensation for physicians has become a more significant issue. EMTALA requires hospitals participating in Medicare to have adequate physician coverage to provide medical services to patients presenting to the emergency department. As a result, hospitals are confronted with determining not only the appropriate level of coverage, but also whether such coverage should be provided on a restricted (on-site) or unrestricted (off-site) basis. This discussion focuses on unrestricted (availability or beeper) coverage, during which on-call physicians must be available to report to the hospital within a set, emergent time frame.

On-call compensation regulatory environment

There are several legal regulations that must be considered when determining compensation for call coverage arrangements. Two of the most relevant laws guiding healthcare compensation arrangements are the federal Anti-Kickback Statute (AKS)^[2] and the Physician Self-Referral Law (Stark Law).^[3] AKS is a criminal statute that prohibits the exchange or solicitation of anything of value for the referral of services reimbursable by Medicare or Medicaid. The Stark Law is a set of United States federal civil laws that prohibit physicians (or their immediate family members) from making referrals for Medicare or Medicaid patients to any entities with which they have a financial relationship. To be compliant with these regulations and in order to limit the influence of remuneration on medical decision-making, the government requires physician compensation to be set at fair market value (FMV). In regard to healthcare transactions, FMV can be defined as “the value in arm’s-length transactions, consistent with the general market value. ‘General market value’ means the price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement.”^[4] Continue to the full article. 

Hazard Pay for Health Care Providers During COVID-19

Written by Ben Ulrich, Mallorie Holguin and Alex Wine Published by AHLA The escalating spread of the coronavirus (COVID-19) has gripped the world in a pandemic. As of April 13, over 1,870,000 cases and more than 116,000 deaths have been reported worldwide due to COVID-19, with over 558,000 cases and 22,000 deaths in the United States alone.[i] Cases across the nation have been increasing daily at exponential rates and health care systems are being overwhelmed with the mounting strain of curtailing the disease. As an emergency measure, the federal government has acted under section 1135 of the Social Security Act, waiving various regulatory requirements to assist with combating the outbreak. Some of these waivers include prior hospitalization requirements for coverage of a skilled nursing facility, limitations on the number of beds and length of stay at critical access hospitals, housing of acute care patients in distinct units, out-of-state provider licensing requirements, and provider enrollment requirements, among various others.[ii] As the demand for COVID-19 screening, testing, and intensive care grows, health care providers have become critically needed and, as such, face significant health risks of their own.

Securing Coverage During a Pandemic

Health care providers staffing the nation’s emergency departments, clinics, and hospitals are being exposed to potentially infected patients daily. This risk is exacerbated by a shortage of personal protective equipment (masks, gowns, etc.),[iii] which increases the likelihood that health care providers may contract the virus. Not unlike employees/contractors in other industries, being asked to take on these risks may necessitate premium compensation in certain circumstances. Whether that premium is warranted and to what degree heavily depends on the potential health and financial risks incurred by the provider and the financial sustainability of the hospital during this pandemic. Specifically, health systems and hospitals should consider the following when determining pay rates to providers being asked to care for COVID-19 patients:

• Viable Options for Staffing: Given the drastic financial and operational impact health systems are undertaking during the pandemic, all existing or potential staffing options should be evaluated prior to considering pay premiums. Redeploying providers outside of their normal role (e.g. certified registered nurse anesthetists being redeployed from elective surgeries to provide ICU back-up) or leveraging telemedicine to triage patients may be viable options, among others.
• Health Risk: The degree to which a provider is likely to contract the virus and the subsequent severity of the illness.
• Surge / Out-of-Market Staffing: Whether the event requires higher levels of staffing than normal, increasing the market demand for providers and/or requiring providers to travel from out-of-market on a temporary basis to meet patient demand.

Continue to the full article. Copyright 2020, American Health Law Association, Washington, DC. Reprint permission granted.

Physician Compensation and Compliance: More Than Just the Individual Components

Written by: Bartt B. Warner (VMG Health), Kimberly A. Mobley (SullivanCotter), Wesley R. Sylla (Hall Render Killian Heath & Lyman PC) This Briefing is brought to you by the Fair Market Value Affinity Group of AHLA’s Hospitals and Health Systems Practice Group. Compensation paid to physicians has been thrust into the spotlight as health care settlements continue to rise both in number and in settlement awards. This increased scrutiny on what physicians are paid has made all parties involved in the physician compensation contracting process wary. As a result, it is imperative to have appropriate protocols in place to ensure the necessary due diligence has been completed prior to executing any physician compensation agreements. Although the process may vary from organization to organization, there are certain elements that should not be neglected. This article is not designed to cover every element of the physician contracting process, but rather focus on key elements from both a valuator's and an attorney's perspective related to "stacked" physician compensation arrangements. Stacked arrangements are where a physician is paid for multiple types of services or receives multiple forms of compensation for the same services (e.g. a call stipend and work Relative Value Unit (wRVU) incentive credit). Current Environment The current health care environment has seen a surge in physician employment, new delivery models, payment reform, and regulatory scrutiny. Increased integration and financial relationships with physicians have created an opportunity for increased qui tam lawsuits. In addition, we have begun to see more focus on personal accountability which has been evident in recent court cases. As a result, the Justice Department has focused substantial time and resources in the health care sector. In Fiscal Year 2018, the Justice Department recovered over $2.8 billion from False Claims Act cases of which $2.5 billion were related to the health care industry.¹ In addition, according to the Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2018, "The return on investment (ROI) for the HCFAC program over the last three years (2016-2018) is $4.00 returned for every $1.00 expended."² With increased enforcement and disproportionate penalties, both facilities and physicians are at risk if caution is not taken when entering into agreements. As a result, physician compensation arrangements must be compliant with the Stark Law,³ the Anti-Kickback Statute (AKS),⁴ False Claims Act,⁵ and other regulations designed to prevent fraud and abuse. As part of meeting the Stark Law, physician compensation arrangements must be commercially reasonable⁶ and consistent with fair market value (FMV).⁷ Click here to get the full article. Copyright © 2020, American Health Lawyers Association, Washington, DC. Reprint permission granted.

New major project? Increase your bond rating by decreasing non-cash expense

Published by Becker's Hospital Review Record amounts of hospital construction projects have occurred during the past decade and will continue.  Properly accounting for the depreciable life of a not-for-profit hospital’s major assets and real estate could have a notable financial impact on the system’s bottom line. Some not-for-profit hospitals have benefitted greatly from reassessing their non-cash expense to properly reflect depreciation. As a result of this decreased depreciation expense, bond ratings may improve, resulting in a better credit rating which, in turn, can enable hospitals to borrow money at more favorable interest rates. A new hospital or major renovation project is typically depreciated by following a published IRS depreciation schedule. For nonresidential real property, this provides a typical recovery period of approximately 40 years. VMG Health has found that newer construction standards and market evidence indicate that the published IRS depreciation schedule can differ from a market-based projection of the true economic useful life of a modern hospital or outpatient facility. Within VMG’s research in the sector, we have observed buildings with economic useful lives exceeding 45 or even 50 years. In addition, following major capital projects, a facility originally put into service more than 50 years ago can often have a substantial remaining useful life. What does this mean for your health system? Continue to the full article. 

New Stark / AKS Proposed Rules & Fair Market Value: 5 Take-Aways

Published in Becker's Hospital Review New proposed rules were issued on October 9th, 2019 to provide more flexibility to healthcare providers entering into value-based payment arrangements. The Department of Health and Human Services (HHS) along with the Office of Inspector General (OIG), governing the Anti-kickback Statue and Civil Monetary Penalty, and the Centers for Medicare and Medicaid Services (CMS), governing the Stark Law, were the agencies responsible for taking major steps to transform provider alignment models. These agencies are seeking comments to facilitate the healthcare industry’s movement from fee for service to value-based care. In the combined 719 pages of discussion, Fair Market Value (FMV) is mentioned 186 times! New potential definitions and parameters around how both FMV and commercially reasonable are determined are discussed at length. Redefining the healthcare industry’s rules for how FMV is established at this point in history makes a lot of sense. The old rules prohibited, in many ways, collaboration. This limits the success for coordinated care which is paramount to lowering cost and improving quality. Since aligning physicians is critical to coordinating care, a shift in acceptable payment arrangements, and how physicians interact with other parts of a patient’s continuum of care must change. Meanwhile, payments must still be FMV to prevent fraud and abuse related to directing referrals. The previous regulatory guidelines made innovative strategies seem risky and administratively burdensome. Further, the government defined FMV and CR in ways that could be roadblocks to coordinated care. Therefore, some of their historical guidelines fundamentally make the move to value-based care challenging, which has been the catalyst for these new proposed rules. Although, anyone who has substantial experience in the healthcare industry understands proposed rules are just that – proposed. That said, many of these concepts will stick. Numerous comments specifically address Safe Harbors which are a provision that provides protection, or may reduce liability or penalty, under specific situations. The following are a few of the more likely changes related to FMV that could fundamentally change how healthcare executives pursue new alignment strategies and their FMV policies. Continue to the full article and 5 takeaways.