Physician Compensation | Physicians Lawyers

Medical Director Agreement Payments May Be Source of Stark Law Compliance Concerns

Posted on May 8, 2014 8:50 am by admin

MEDICAL DIRECTOR PAYMENTS AS STARK LAW VIOLATIONS

The relatively recent case serves as a reminder of the potential exposure to Stark Law liability arising from payments to medical directors. Let me immediately clarify that not all payments to directors who perform legitimate services that are appropriately documents raise compliance concerns. However, where medical director payments are not properly supported by documentation of effort involved, or where payments are well in excess of fair market value for legitimate services, compliance concerns exist and potential penalties can be quite substantial.

The case of United States v. Campbell, 2011 U.S. Dist. LEXIS 1207 (Jan. 2011) is is just one example of a case that found medical director payments to be abusive. The Campbell case involved an effort by a University of Medicine and Dentistry program to increase referrals of cardiothoracic patients by entering agreements with local cardiologists. The hospital entered into clinical assistant professor (“CAP”) agreements with a number of cardiologists which purported to require the physicians to perform a variety of teaching-related services. Physicians were paid between $50,000 and $180,000 per year under these contracts.

The Federal government viewed these CAP Agreements as being little more than a sham to encourage the referral of cardiology patients. Although there were services described in the agreement, there was little indication that many of these services were ever actually performed. The court hearing the case found that the Stark Law was violated because the physician was not compensated at fair market value, and the arrangement was not commercially reasonable. In order to comply with Stark Law requirements, compensation must meeting both fair market value and commercial reasonableness requirements. The Campbell Court found that the payments made to medical directors that were above fair market value amounted to impermissible payments in violation of the Stark Law.

The Campbell case is just one of a number of cases that have been brought challenging payments to medical directors. As a result, payment to medical directors has become a central compliance issue to many healthcare providers. The scrutiny of medical director arrangements require providers to set strict compliance standards for these arrangements.

Some elements of a medical director compliance standards might include:

An express requirement that these agreements be in writing and meet the elements of an applicable exception from the Stark Law and a Safe Harbor under the Anti-kickback Statute. A written agreement should always be in place and the term of the agreement should be monitored to assure that no payments are made on expired or unsigned agreements.
The agreement should include a detailed description of the services to be performed along with a system to track the performance of services in fulfillment of the Agreement. There are many details that can cause problems when creating these tracking systems. Make sure to get appropriate guidance and be detailed about the process and requirements for documenting time spent on individual contract tasks. General statements about time spent on medical director duties in general will not be sufficient to support payments under the Stark Law. This is an area where to be pays to be a stickler. Regular reports should be required to be submitted. Some providers are now requiring time reports to be submitted daily because this requires the director to contemporaneously document the time and specific tasks. Generally, more frequent time submissions will be more credible evidence of the tasks performed and will be more defensible from a regulatory standpoint.
Monitoring should take place to assure that the services are actually being performed as indicated by the medical director.
In all cases, the institution should document the commercial reasonableness and necessity of the medical director arrangement. Paying a medical director for services that are not required by the institution will likely be characterized as a regulatory violation.
There should always be backup in the file that clearly indicates that the fair market value of the services to be performed was assessed and that a reasonable judgement about the value of the service was made. It is normally recommended that there be an independent fair market value opinion that is credible and considers all factors relevant to value. Even if there is a fair market value opinion, there should be evidence that the organization’s reliance on the opinion was reasonable. Errors in fair market value determinations can be made on either side of the equation. Opinions can be too high or they can be too low. The assessment must be reasonably supported. Although we generally focus on whether payments to the medical director are excessive, the referral flow often flow both directions. Remuneration paid from the physician to the hospital could potentially be viewed as remuneration for referrals from the hospital (or its employees) to the physician. Therefore, it is important that the compensation be correct rather than conservatively low. Many providers miss this factor when determining fair market value of physician compensation arrangements. An extremely conservative approach from one perspective could possibly constitute a kickback from another perspective.

For more information on medical director agreements, Stark Law, fair market value of physician compensation arrangements, contact John Fisher at Ruder Ware through the contact information on this web site. Health Care Attorney Contact

This entry was posted in Billing and Reimbursement, Fraud and Abuse, Health Law Practice, Physician Compensation Issues, Stark Law, Uncategorized and tagged medical director agreements, medical directors, Physician Compensation. Bookmark the permalink.

Fair Market Value and Physician Compensation – Stark Law

Posted on July 19, 2013 8:44 am by admin

Fair Market Value Stark Law Regulatory Definition

A number of areas of the Stark Law, Stark Regulations and comments to proposed and final rules discuss the concept of fair market value in connection with physician compensation. I thought it might be useful to post some of the statutory and regulatory material discussing fair market value.

One primary observation can be made based on CMS regulations and comments; there is no single method for determining whether compensation is fair market value. The Stark Law is actually significant for its total lack of meaningful definition on how “fair market value” should be determined. The industry has moved toward and RVU valuation model that compared salary information from various surveys. Though universally used, that method may not always be appropriate to reflect the actual value of services in a particular situation. For example, survey information is based largely on urban and suburban providers and is over-represented by large groups and health care systems. Existing data does not reflect the specific market conditions of small providers located in rural and underserved areas. This is a problem that has never been adequately addressed by CMS or by the appraisal industry.

CMS Regulatory Definition of Fair Market Value – Stark Law

Fair market value means 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. Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement. With respect to the rentals and leases described in § 411.357(a) and (b), ‘‘fair market value’’ means the value of rental property for general commercial purposes (not taking into account its intended use). In the case of a lease of space, this value may not be adjusted to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor when the lessor is a potential source of patient referrals to the lessee. For purposes of this section, a rental payment does not take into account intended use if it takes into account costs incurred by the lessor in developing or upgrading the property or maintaining the property or its improvements.

Stark Law Comments On Fair Market Value

This is by no means all inclusive of the discussion on fair market value that has taken place in regulations and proposed regulations over the years. These are just a few representative comments on the issue of fair market value under the Stark Law.

CMS has repeatedly stated that it will accept any reasonable method for establishing fair market value. The method must be commercially reasonable and must provide CMS with evidence that the compensation is comparable to what is ordinarily paid in the location at issue. This indicates that the fair market value determination is a local issue and will be influenced by local market factors. CMS states:

To establish the fair market value (and general market value) of a transaction that involves compensation paid for assets or services, we intend to accept any method that is commercially reasonable and provides us with evidence that the compensation is comparable to what is ordinarily paid for an item or service in the location at issue, by parties in arm’s-length transactions who are not in a position to refer to one another.

Use of industry comparable might be precluded if those comparable are based on situations take into account the volume or value of services.

(As discussed in section V of this preamble, in most instances the fair market value standard is further modified by language that precludes taking into account the ‘‘volume or value’’ of referrals, and, in some cases, other business generated by the referring physician. Depending on the circumstances, the ‘‘volume or value’’ restriction will preclude reliance on comparables that involve entities and physicians in a position to refer or generate business.) The amount of documentation that will be sufficient to confirm fair market value (and general market value) will vary depending on the circumstances in any given case; that is, there is no rule of thumb that will suffice for all situations. The burden of establishing the ‘‘fairness’’ of an agreement rests with the parties involved in the agreement. Depending on the circumstances, parties may want to consider obtaining good faith, written assurances as to fair market value from the party paying or receiving the compensation, although such written assurances are not determinative. 66 Fed Reg. 944

Fair Market Value Applied to Real Estate Valuations

For example, a commercially reasonable method of establishing fair market value (and general market value) for the rental of office space can include providing us with a list of comparables. We would also find acceptable an appraisal that the parties have received from a qualified independent expert. Although some transactions are not subject to public scrutiny, we believe generally that there should be sufficient documentation of similar public transactions that the parties can use as a basis of comparison. In regions with inadequate direct comparables, such as rural areas, a reasonable alternative may involve comparing institutions or entities located in different, but similar, areas where property is zoned for similar use. For example, a hospital affiliated with a university in one part of the country could be comparable to other hospitals affiliated with universities that are located in similar types of communities. In other cases, all the comparables or market values may involve transactions between entities that are in a position to refer or generate other business. For example, in some markets, physician-owned equipment lessors have driven out competitive third-party lessors of similar equipment. In such situations, we would look to alternative valuation methodologies, including, but not limited to, cost plus reasonable rate of return on investment on leases of comparable medical equipment from disinterested lessors. 66 Fed Reg. 944

Again, this discussion reflects that local factors must be taken into account when determining fair market value.

IRS mandates regarding fair market value are not always appropriate due to the different focus of the purpose of IRS and Stark Law definitions of fair market value.

In contrast, there may be cases in which finding a commercially reasonable representation of fair market value (or general market value) could be as simple as consulting a price list. As for using the IRS guidelines for determining fair market value that applies to tax exempt organizations, we recognize that in some cases they may not be appropriate for for-profit entities. Nonetheless, it is our view that some elements of the IRS guidelines could be applied under certain circumstances, depending upon the specifics of any particular agreement. We do not wish to either mandate their use or rule them out if they can be appropriately used to demonstrate fair market value. 66 Fed Reg. 945

Are Independent Valuation Firms Required To Establish Fair Market Value?

There is not requirements that an independent valuation expert be retained to determine fair market value in a particular instance.

We agree that there is no requirement that parties use an independent valuation consultant for any given arrangement when other appropriate valuation methods are available. However, while internally generated surveys can be appropriate as a method of establishing fair market value in some circumstances, due to their susceptibility to manipulation and absent independent verification, such surveys do not have strong evidence value and, therefore, may be subject to more intensive scrutiny than an independent survey. 66 Fed Reg. 946

Even though not required, independent fair market value appraisals should be considered as they are much more objective than internal computations. However, appraisals are not flawless. Fair market value appraisal is more of an art than a science. Each appraiser has its own methodology for performing compensation analysis. Some will adamantly stick to their method whether or not it reflects the variables that are present in the specific market or situation. Others will be more flexible and adapt their approach to reflect the real value in the specific case rather than performing an analysis that tends to compare apples to oranges.

There is a limitation on the flexibility that an appraiser should apply. Deviations from norms should be well justified, reasonable and supportable under the circumstances of the specific valuation.

We also have seen cases where fair market value appraisals were received but were not determination to a future enforcement action or third party complaint. Attorneys for parties who are relying on appraisals should assess the details of the methods used by the appraiser and ask for backup for conclusions and assumptions that are made. Sometimes appraisers will overlook elements of value which can legitimately be included in theirs determination. Other times, appraisers will make fundamental mistakes that will over-reflect consistency with fair market value.

This entry was posted in Fraud and Abuse, Physician Compensation Issues, Stark Law and tagged Fair Market Value, Physician Compensation, Stark Law. Bookmark the permalink.