In reflecting on the recent Tennessee Bar Association’s Health Law Forum, it is evident that remaining compliant in the engagement with and compensation of physicians is evolving and increasingly complex. A few of the related themes discussed at the conference include:

i. Focus on Value-Based Care

Physician compensation arrangements continue to evolve from volume-based to value-based models. The United States Department of Health and Human Services (“HHS”) issued new proposed changes to the Stark Law (“Stark”) and Federal Anti-Kickback Statute (“AKS”),  to incentivize a move toward value-based over volume-based care, ease regulatory burdens on providers, remove barriers to health care innovation, and allow for more flexibility in the endeavor for coordinated and cost-effective care. Where HHS found it feasible, the proposed changes to both Stark and AKS mirror one another. Stakeholders have been invited to comment on the proposed rules by December 31, 2019, making the proposed regulations a focus of discussion through the end of the year.

ii. Stark Law – Proposed Changes.

Under the proposed Stark changes, HHS has provided new exceptions, including the following:

  • Certain value-based payment models (further defined in Stark) for arrangements among physicians, providers and suppliers, which consider full or meaningful downside financial risk, value -based arrangements, and indirect compensation arrangements;
  • Instances in which a physician receives limited remuneration (as defined in the proposed regulations) for items or services provided; and
  • Hospital donations to referring providers for cybersecurity technology.

The proposed rules provide additional guidance regarding the definition and application of specific terms such as fair market value, commercial reasonableness, and volume or value of referrals. Additionally, the Centers for Medicare and Medicaid Services (“CMS”) has noted in its Fact Sheet that it believes the proposed rule supports the CMS “Patients Over Paperwork” initiative to improve patient engagement and provider coordination.

iii. Anti-Kickback Statute – Proposed Changes.

Under the proposed AKS changes, HHS provided for new safe harbors to protect specific value-based arrangements, including for the following:

  • The provision of certain tools and support provided to patients to improve the quality, outcome, and efficiency of care;
  • Renumeration provided in relation to a CMS-sponsored model (to reduce the need for separate fraud and abuse waivers); and
  • Certain donations of cyber security technology and services.

Additionally, the proposed AKS changes intend to modify or amend several existing safe harbors, including the current safe harbor for management contracts and personal services for the purpose of adding flexibility with respect to outcome-based payments and part-time arrangements. The Office of Inspector General (“OIG”) has noted in its Fact Sheet that the proposed rule will “promote coordinated patient care and foster improved quality, better health outcomes, and improved efficiency.”

iv. Private Equity in the Healthcare Sector.

Private equity continues to move into the provider sector (e.g., physician practice acquisitions in dermatology, ophthalmology, radiology and associated imaging centers, and gastroenterology), home health, behavioral health, and health care IT. Major regulatory concerns for private equity include: 1.) payment for going concern value and AKS, 2.) surgery centers and AKS, and 3). Ancillary services and Stark Law (especially for physicians with rollover equity). In September 2019, the Department of Justice (“DOJ”) announced a $21.35 million settlement with compounding pharmacy Patient Care America after alleging that the private equity firm took on a management role and then knew and approved of an illegal referral arrangement. This case appears to be the first the federal government has intervened under the False Claims Act against a private equity firm.

v. Cybersecurity.

With cybersecurity attacks on the rise, the proposed Stark and AKS regulations include new measures and exceptions for the donation of cybersecurity services and software to increase cybersecurity of the recipient (who may be a potential referral source). While the proposed provisions currently exclude hardware and the donations must be non monetary, recipients do not have to contribute toward the costs.

vi. Travel Act.

A federal jury affirmed the DOJ’s expansion of federal criminal prosecutions involving commercial payors via the Travel Act, using state bribery laws to indict physicians and providers for questionable referral arrangements. The Travel Act makes it illegal to travel in or use mail in interstate commerce with the intent to promote or facilitate unlawful activity, which includes bribery as defined by state law. Even if funds are not paid directly to a physician but are directly spent for marketing expenses, if paid in exchange for referrals, there is potentially cause for concern.

Underlying each of these themes – and the related government enforcement actions and settlements – are the three basic regulatory requirements that compensation be at fair market value, commercially reasonable, and determined without taking into account the volume or value of referrals that one party might generate for the other. The existence of a contemporaneous fair market value assessment is a key piece of remaining compliant with these regulations.

This article is a high-level summary of themes impacting fair market value in healthcare. At LBMC, we assist hospitals and health systems across the nation in designing, assessing and valuing compensation under a wide variety of arrangements, including employment, call coverage, medical directorships, professional services agreements, co-management arrangements, and more. We would love to work with you in your compliance process. Contact our Healthcare Compensation Valuation team led by Josh Brummett for a more in-depth discussion of these themes or other issues impacting your organization.