Healthcare

As discussed frequently in compliance and health care conferences and forums and on this page, fair market value (FMV) of payments to referring physicians is an essential compliance requirement of the Stark law and federal anti-kickback statute. Physician compensation in excess of FMV is at the crux of much health care enforcement activity. As noted by Richard Kusserow, former Inspector General, “Arrangements with physicians are the highest compliance risk area in 2017” (“Kickback Cases Remain Top DOJ and OIG Priority in 2017,” Strategic Management Services, LLC; Jan. 2017). Mr. Kusserow further explained that whistleblowers are a significant source of enforcement activity.

Consider a small U.S. town that doesn't have local access to a cardiologist. The community can't support one on a full-time basis, so the hospital brings in a cardiologist twice a month. The physician pays to use the hospital's facilities, equipment, support staff and nurses during those two days. Patients are able to access the specialized care they need without having to travel, and the physician pays only for the space and support that he or she needs.

The most astute executives in health systems are rightfully concerned about compliance risks in physician contracting. Among these risks are that a transaction or an arrangement between a hospital and a physician are consistent with fair market value (FMV) and are commercially reasonable (CR) as those terms are defined in the healthcare regulatory context.

Currently, one of the more perplexing issues around fair market value physician compensation relates to designing comp models that effectively reward physicians for quality and cost savings in a market that is still driven by fee for service (FFS) reimbursement. Compliance-minded hospitals are understandably concerned about adopting (seemingly aggressive) models that stack quality payments on top of existing FFS models, particularly if total compensation exceeds what is commonly considered outside the upper range of FMV. Unfortunately, what those models should look like, especially what resulting (compliant) physician compensation should come from those models, represents somewhat unchartered waters.

Although physicians around the country cheered the permanent repeal of the sustainable growth rate (SGR), the resulting reimbursement and payment model changes could significantly impact the fair market value of physician practices. The passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) changed the valuation environment significantly. The HORNE Healthcare team has been researching the changes, and here is what you need to know:

Among the models found in the healthcare market, joint ventures (JVs) can benefit organizations that have an interest in pursuing a service together. Examples of services operated in JVs include the following:

C-Suite executives and physicians are inundated with accounts of qui tam litigation and settlements with the Department of Justice over hospital payments to physicians, which serve as a reminder of the risks of payments in excess of FMV. Without going into a detailed legal analysis, it’s safe to say that in most transactions and compensation arrangements between hospitals and physicians who have the ability to refer patients to the hospital, FMV is a requirement for compliance with the most often used exceptions under the Stark law and safe harbors provided by the federal anti-kickback statute.

Two days into the 2015 Annual Meeting, two important fair market value (FMV) and commercial reasonableness (CR) issues stand out as worthy of emphasis, as they resonate in almost every discussion on hospital/physician deal compliance.

There have been several times over the years when a hospital client has contacted me asking me to determine fair market value in response to an offer from a competitor attempting to hire or exclusively contract with the hospital’s physician(s) or physician group. In some cases the competitor has offered the group compensation that far exceeds existing compensation. Many times the first question the client asks is for us to prepare a FMV report that supports the competitor’s offer price, or in some cases exceed it. This is often where the problems begin. 

Given the regulatory risks associated with failure to pay fair market value (FMV) in certain physician compensation arrangements, parties contracting with physicians for services are rightly concerned about FMV and are justified in their efforts to find effective means by which FMV can be determined and documented.

One such means for the assessment of FMV is the use of widely available published survey reports on physician productivity and compensation. Several sources exist for this information, and there is a broad acceptance of published surveys in the industry as indicative of compensation for physicians in many specialties. Let’s look at what the government—specifically CMS—says about the use of surveys.

In the continuing evolution of hospital/physician relations, new and more complicated pay arrangements find their way into the market each year. However, overpayment of physicians can run afoul of regulatory requirements for fair market value and commercial reasonableness. Having more than one paid service or compensation arrangement between parties increases the risk that aggregate compensation is more than FMV. While the compensation terms outlined in each agreement may represent FMV, when taken together, total compensation in some cases can exceed FMV. The following scenarios show some of the ways that pay arrangements can be “stacked,” placing the parties at higher risk: