Those serving in the health care industry are all too familiar with the Anti-Kickback Statute and the Stark Law – physician self-referral and fraud and abuse laws that prohibit financial payments or incentives for referring patients, specifically a Medicare or Medicaid patient.
In December 2020, The Officer of Inspector General (OIG) Final Rule and the Centers for Medicare and Medicaid Services (CMS) Final Rule were published. Some of those changes were effective January 19, 2021, while others will take effect in January 1, 2022. These changes provide more certainty, clarifying and adapting rules that have already existed.
During Dickinson Wright’s 2021 Health Law Virtual Summit, our health care attorneys discussed the practical implications of these recent updates. Here’s what you need to know:
- New Commercially Reasonable Definition (42 CFR 411.351)
CMS clarified and defined what constitutes as “commercially reasonable:”
A “particular arrangement [which] furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty.”
- An arrangement is commercially reasonable if the arrangement makes sense as a means to accomplish the parties’ goals.
- Commercial reasonableness is made from the perspective of the particular parties involved in the arrangement.
- An arrangement can be commercially reasonable even if the arrangement is not profitable and even if the parties understand that it would not be profitable.
- New Tests of Volume or Value Standard and other Business Generated Standard
CMS provided guidance as to whether compensation “takes into account the volume or value” of referrals or other business generated.
- Compensation positively correlates when it increases as referrals increase or decrease when referrals decrease.
- Compensation negatively correlates when as one variable increases, another variable decreases.
- Compensation can be based on a “per unit of service” provided so long as the compensation is fair market value for items or services actually provided and does not vary during the course of the compensation arrangement in any manner that takes into account referrals of designated health services.
- Modifications to Fair Market Value and General Market Value (42 CFR 411.351)
CMS made significant changes to the definition of fair market value, expanding how it applies to equipment rental and office space rental.
- In general, the value must be consistent with the value in an arm’s length transaction, consistent with the general market value of the subject transaction.
- With respect to equipment rent, the value must be consistent with the value in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), consistent with the general market value of the subject transaction.
- With respect to the rental of office space, the value must be consistent with the value obtained in an arms-length transaction of rental property for general commercial purposes (not taking into account its intended use), without adjustment to reflect the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee, and consistent with the general market value of the subject transaction.
Additionally, the CMS defined “general market value” to determine whether compensation represents fair market for assets compensation and office or equipment rent. General market value requires the following:
- The amount received on the date of acquisition or entering into the agreement;
- The amount is the result of bona fide bargaining between well-informed parties; and
- The parties that are not otherwise in a position to generate business for each other.
- Revisions to Group Practice Distribution of Profits
Beginning on January 1, 2022, group practices must distribute profits in one of two ways: 1) All profits from DHS are distributed to the entire group; or 2) All profits from DHS are distributed to any subgroup consisting of five or more physicians.
Profits can no longer be distributed on a service-by-service basis or on a “split pool” basis (distributing one pool of DHS profits, such as labs, to one pool of physicians and distributing another pool of DHS profits, such as imaging, to a different pool). Overall profits should be divided in a reasonable and verifiable manner that is not directly related to the volume or value of the physician’s referrals of DHS.
- The group’s profits are divided per capita.
- Revenues derived from DHS are distributed based on the distribution of the group practice’s revenues attributed to services that are not DHS payable by any Federal health care program or private payer.
- Revenues derived from DHS constitute less than 5 percent of the group practice’s total revenues, and the allocated portion to each physician constitutes 5 percent or less of his or her total compensation from the group.
- New Limited Remuneration to Physicians Exception (42 CFR 411.357(z)
CMS created a new exception that applies to compensation paid to a physician for the provision of items or services that do not exceed an annual aggregate of $5,000 (adjusted annually) is protected if:
- The compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated by the physician.
- The compensation does not exceed the fair market value of the items or services.
- The arrangement would be commercially reasonable even if no referrals were made between the parties.
- Compensation for the lease of or the use of office space or equipment is not determined using a formula based on (A) a percentage of the revenue raised, earned, billed, collected, or otherwise attributable to the services performed or business generated in the office space or to the services performed on or business generated through the use of the equipment; or (B) per-unit of service rental charges, to the extent that such charges reflect services provided to patients referred by the lessor to the lessee.
- If compensation is conditioned on the physician’s referrals to a particular provider, practitioner, or supplier, the arrangement satisfies the directed referral requirements of § 411.354(d)(4).
- A physician may provide items or services through employees whom the physician has hired to perform the services; through a wholly-owned entity; or through locum tenens physicians.
- Proposed Modifications to Indirect Compensation Arrangements
Under CMS’s proposal, if the referring physician’s direct compensation varies with the volume or value of referrals or other business generated and the compensation is payment for anything other than services personally performed by the physician, or an immediate family member could qualify as an indirect compensation arrangement.
CMS also proposed clarification as to how to calculate fair market value for indirect compensation arrangements:
- Time (e.g., per month, per year, etc.), where the compensation is based solely on a period of time;
- Service (e.g., wRVU) where the compensation is based solely on the service provided;
- Time when the compensation is a hybrid model (e.g., base salary plus wRVUs per month) or otherwise not solely based on time or service.
For more information and to view the session on-demand, click here to register.
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