Compensation Arrangements With Rock Star Physicians: Key ...

Compensation Arrangements With Rock Star

Physicians: Key Legal and Fair Market Value

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THURSDAY, DECEMBER 10, 2020

Presenting a live 90-minute webinar with interactive Q&A

Andrea M. Ferrari, JD, MPH, Partner, HealthCare Appraisers, Boca Raton, FL

Wesley R. Sylla, Attorney, Hall Render Killian Heath & Lyman, Milwaukee, WI

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Compensation Arrangements with Rockstar Physicians:

• AN D R E A F E R R AR I , J D , M P H , PAR T N E R

• H E ALT H C AR E AP P R AI S E R S , I N C , A F E R R A R I @ H C F M V. C O M

• M S . F E R R A R I W O R K S W I T H C L I E N T S I N A L L 5 0 S TAT E S . H E R F O C U S A R E A S I N C L U D E :

• A S S I S T I N G C L I E N T S I N T H E T R A N S I T I O N T O VA L U E - B A S E D PAY M E N T S , I N C L U D I N G S T R U C T U R I N G , E VA L U AT I N G A N D I D E N T I F Y I N G I S S U E S I N I N C E N T I V E PAY M E N T S M A D E I N T H E C O N T E X T O F C O O R D I N AT E D C A R E A N D A L I G N M E N T S T R AT E G I E S , S U C H A S F O R M AT I O N O F C L I N I C A L LY I N T E G R AT E D N E T W O R K S , A C C O U N TA B L E C A R E O R G A N I Z AT I O N S , G A I N S H A R I N G A R R A N G E M E N T S A N D “ H O S P I TA L Q U A L I T Y A N D E F F I C I E N C Y P R O G R A M S ” ;

• FA I R M A R K E T VA L U E I N C L I N I C A L R E S E A R C H A N D C L I N I C A L T R I A L A G R E E M E N T S , I N C L U D I N G A S S I S T I N G C L I E N T S W I T H B U D G E T I N G F O R C L I N I C A L R E S E A R C H A N D P L A N N I N G P R O V I D E R C O M P E N S AT I O N I N T H E C O N T E X T O F C L I N I C A L R E S E A R C H A N D C L I N I C A L T R I A L A G R E E M E N T S ;

• VA L U AT I O N O F P R O V I D E R R E C R U I T M E N T A N D R E T E N T I O N S T R AT E G I E S , I N C L U D I N G I N C O M E G U A R A N T E E S A N D R E C R U I T M E N T B O N U S E S F O R P R O V I D E R S I N S H O R TA G E A R E A S ;

• C O M P E N S AT I O N VA L U AT I O N S F O R P U B L I C , TA X - S U P P O R T E D A N D S A F E T Y- N E T P R O V I D E R O R G A N I Z AT I O N S , I N C L U D I N G P U B L I C H O S P I TA L S A N D H E A LT H S Y S T E M S ;

• C O M P E N S AT I O N F O R A C A D E M I C A N D U N I Q U E LY E X P E R I E N C E D T H O U G H T L E A D E R A N D “ R O C K S TA R ” P H Y S I C I A N S

• FA I R M A R K E T VA L U E A N A LY S I S F O R D U E D I L I G E N C E A N D L I T I G AT I O N S U P P O R T. 5

mailto:[email protected]

Compensation Arrangements with Rockstar Physicians:

• W E S S Y L L A , E S Q . , AT T O R N E Y

• H A L L R E N D E R W S Y L L A @ H A L L R E N D E R . C O M

M R . S Y L L A P R O V I D E S A D V I C E A N D C O U N S E L T O M A N Y O F T H E N AT I O N ' S L A R G E S T H E A LT H S Y S T E M S , H O S P I TA L S A N D M E D I C A L G R O U P S O N A VA R I E T Y O F H E A LT H C A R E I S S U E S . H E R E G U L A R LY C O U N S E L S C L I E N T S O N A N AT I O N A L B A S I S R E G A R D I N G C O M P L I A N C E - F O C U S E D P H Y S I C I A N C O M P E N S AT I O N S T R AT E G I E S . M R . S Y L L A I S A F R E Q U E N T S P E A K E R O N I S S U E S R E L AT E D T O T H E P H Y S I C I A N S E L F - R E F E R R A L S TAT U T E ( S TA R K L AW ) , H O S P I TA L -P H Y S I C I A N T R A N S A C T I O N S , P H Y S I C I A N C O M P E N S AT I O N A N D H E A LT H C A R E FA I R M A R K E T VA L U E I S S U E S .

6

mailto:[email protected]

Program Agenda

What Makes a Physician a “Rockstar”?

Legal and Regulatory Pitfalls in Compensation Arrangements, Including Fair Market Value and Commercial Reasonableness (and How These Play Out with Rockstars)

Case Studies in Fair Market Value and Commercial Reasonableness

Tips for Best Practices

Audience Questions & Answers

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General Disclaimers

•This program is a general discussion of legal and business issues. It should not be relied upon as legal, valuation, business, financial, or other professional advice.

•The panelists will provide their own views and not those of their current or past employers or clients.

•This presentation may include a discussion of hypothetical scenarios. Any hypothetical scenarios do not represent actual events.

•This program may include a discussion of certain ongoing or settled qui tam or other lawsuits. The discussion is based on publicly available documents and allegations in the lawsuits. We wish to remind participants that allegations are allegations only. We also wish to remind participants that the list of cases and related issues we discuss may not be comprehensive.

•Not all slides may be covered in detail. Some have been included for reference only.

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General Disclaimers II

•“There are known knowns. There are things that we know that we know. There are known unknowns. That is to say, there are things that we know that we don’t know. But there are also unknown unknowns. There are things that we don’t know we don’t know.” – Donald Rumsfeld

• Also from Donald Rumsfeld: “You go to war with the army you have, not the army you might want or wish to have at a later time.”

•“The Current Final Rule is the Final Rule until the next Final Rule is effective.” – Andrea Ferrari

•“It’s all about the money.” – Almost everyone, everywhere, with a few exceptions

•“Don’t be blinded by the Stark Law. There is much more you need to see.” - Anonymous

9

What Makes a Physician a "Rockstar"?

There is a “how to” book…

COURTESY AMERICAN HEALTH LAWYERS ASSOCIATION (FERRARI/GALLO/VERNAGLIA, 2015)

10


Some docs apparently

advertise and “drink” in their

Rockstar status…


11


Does being the bassist for a

band like Guns N’ Roses

count?

(a la Stephen Harris, who

may be delivering babies at

a hospital near you…)


12


Oncologists by day, in a

touring band by night…


13


Three Broad Categories of Rockstar Criteria for Purposes of Evaluating Compensation:

1. Credentials

2. Unique/unusual services

3. Productivity

❖ Applicability of criteria may vary with circumstances

❖ Criteria from more than one category may define a Rockstar, depending on the circumstances

14

What Makes a Physician A “Rockstar”?

Stark Law Proposed Rule (Released October 9, 2019) - 84 FR 55799:

Independent salary surveys indicate that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital. However, the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the entire country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate. Thus, although the employee compensation of a hypothetical orthopedic surgeon may be $450,000 per year, this particular physician commands a significantly higher salary and the general market value (or market value) of the transaction may, therefore, be well above $450,000. The statute requires that the compensation is the value in an arm’s length transaction, but that value must also be consistent with the general market value (or market value) of the subject transaction. In this example, compensation substantially above $450,000 per year may be fair market value.

15

What Makes a Physician A “Rockstar”?

Stark Law Final Rule (Released November 20, 2020, Published December 2, 2020 Effective January 19, 2020) – 85 FR 77554:

As we stated in the proposed rule, extenuating circumstances may dictate that parties to an arm’s length transaction veer from values identified in salary surveys and other valuation data compilations that are not specific to the actual parties to the subject transaction (84 FR 55799). By way of example, assume a hospital is engaged in negotiations to employ an orthopedic surgeon. Independent salary surveys indicate that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital. However, the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the entire country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate. Thus, although the employee compensation of a hypothetical orthopedic surgeon may be $450,000 per year, this particular physician commands a significantly higher salary. In this example, compensation substantially above $450,000 per year may be fair market value.

16

What Makes a Physician a "Rockstar"?Are These Physicians Rockstars?

Neuro-Ortho Spine Surgeon

• Uncommon dual specialization• 144 page CV that includes 150+ published peer

reviewed articles and 50+ invited presentations

• Many past academic leadership appointments

Highly Sought Physician Quality Leader

• Name recognition among both patients and fellow physicians

• Published multiple books that are read by laypeople as well as other medical professionals

• Frequent speaker who is in demand for her name recognition

• Will be employed in part to lead design and transformation clinical care processes

Pediatric Cardiothoracic Surgeon

• Within the field, “everybody knows her name.”

• 50+ published peer reviewed articles

• In the past, a frequent speaker at conferences

• 20+ citations of his publications in work of others

• Has his own Wikipedia entry

• Holds 2 patents

• His work is the subject of a documentary-style TV show

• In demand as a speaker and consultant

Orthopedic Surgeon Who Specializes in a Rare

Procedure

• One of a very limited number of physicians who performs this procedure

• Developed the prevailing techniques for the procedure

• Attracts patients from all over the world

• No academic appointment, but is frequently an invited speaker in his focus area


17

What Makes a Physician a “Rockstar”? Are These Physicians Rockstars?

1

8

Orthopedic Surgeon

-Provides “clinical services” with compensation based on wRVUs

-wRVUs are 105-110% of the 90th percentile

-Hospital and CIN “Medical director services” with compensation based on hours worked

-Clinical co-management agreement

-Collaborator in BPCI arrangement that allows for both reconciliation payments and internal cost savings payments

-Compensated call coverage with quality bonus based on achievement of specific quality measures

-Serves as principal investigator for certain hospital quality research, as well as for device trials, and receives compensation for both

-Aggregate annual compensation is estimated at 125% to 150% of 90th percentile from annual salary surveys

Very Well Known Primary Care Physician

-Provides “clinical services” with base salary and minimum wRVU requirement

-Productivity bonus based on a fixed rate per wRVU

-Incremental quality bonus based on achievement of annually changing quality metrics

-Historical total wRVUs reflect 115% of the 90th percentile

-Compensation for supervision services related to NPP oversight

-Provides hospital and ACO “medical director services” with compensation based on hours worked; each arrangement allows for compensation of up to 15 hours per month

-Serves on two hospital leadership committees and receives compensation for doing so -100 hours total per year

-Receives ACO and CIN distributions annually, estimated at approximately $40,000 for the coming year


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What Makes a Physician a "Rockstar"? Are There Objective Criteria?

The Rockstar Criteria Spectrum

Less Objective More Objective

The Potter Stewart test: “Iknow it when I see it”

Formal checklist, scoring sheet or other instrument to measure indications of Rockstar criteria - A way to “Kick the Tires”: ___________________• Prior accomplishment influence, renown• Expertise/experience/services or service capability• Traditional or non-traditional measures of productivity


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What Makes a Physician a Credential

“Rockstar”? Are there Objective

Criteria??

Credential Rockstar - Some Potential Criteria

◦ Specialized training and/or certifications

◦ National/international renown and name recognition

◦ History of peer reviewed publications

◦ Frequent citation of physician’s publications

◦ Prior academic and leadership appointments

◦ Invited presentations

◦ Extensive research experience and funding history

◦ Media Coverage

◦ Print

◦ Relevant internet coverage - e.g. Google, Wikipedia


20

What Makes a a Physician a Credential

Rockstar? Are there Objective

Criteria?

Services Rockstar - Some Potential Criteria

◦ Unusual or unique service capability

◦ Unusual or unique proficiency –e.g. success rate, outcomes

◦ Experience or skills that are a “perfect match” for a unique leadership or other “stand out” position

Examples:

◦ The orthopedic surgeon on p. 134 of the 2019 Stark Law proposed rule (“highly sought after by professional athletes… due to his professional techniques and success rate”)

◦ “Quality leaders” or “quality champions” who are selected to lead cultural transformation within an organization due to their combination success rate and influence

◦ Increasingly common and in-demand, and may have overlap with credential Rockstars

◦

21

What Makes a Physician a Credential

Rockstar? Are there Objective

Criteria?

Productivity Rockstar - Some Potential Criteria

• wRVUs that are high relative to benchmarks

• Service hours that exceed 1.0 FTE (2,000 or 2,080 hours per year)

• Highly stacked services obligations- medical director, committee participation, leadership appointments, etc.

22

Documenting that a Physician is a Credential or

Services Rockstar – Illustrative Cases

U.S. ex rel. Villafane v. Sollinger, W.D. Ky. (dismissed, 2008)

Case focused on claims related to AMC Stark exception and AKS ◦ Both the Stark and AKS claims were dismissed by the trial court

◦ The court applied what it called a “goal and purpose orientedperspective” rather than the “hypertechnical” perspective advocated by the plaintiff relator

◦ The court was satisfied that “substantial academic and clinical services” were provided by physicians in supervising 100 residents per year, regardless of a lack of timekeeping

◦ The Chief of Staff salary, even though near or above the high of the range of compensation supported by surveys of other physicians of the specialty (neonatology) did not fail the test of fair market value because:

✓ The physician was at or near the top of his profession;

✓ The physician had substantial responsibilities within the medical school that warranted higher compensation than peers; and

✓ Comparing this top physician with physicians represented in general salary surveys is comparing “apples to oranges.”

◦

23

Documenting that a Physician is a Credential or

Services Rockstar – Illustrative Cases

U.S. and State of Florida ex rel. Schubert v. All Children’s Health System (denied motion to dismiss, $7 million settlement, 2014)

◦ Settlement resolved alleged Stark Law violations arising from allegedly above fair market value compensation to pediatric specialists

◦ Some specialists were likely accomplished physicians with unique service capabilities

◦ The compensation at issue was “above the 75th percentile” based on survey data and therefore assumed to be in excess of fair market value based on the hospital’s established internal policies regarding benchmarks

◦ Court never reviewed the question of whether compensation was consistent with fair market value, but opined that the claim that the compensation exceeded the hospital’s internal fair market value guidance was enough to survive a motion to dismiss

◦ Documentation of credentials and fair market value??

◦

24

Documenting that a Physician is a

Productivity Rockstar –

Illustrative Cases

Covenant Medical Center ($4.5 million settlement, 2009)

◦ False Claims Act case that alleged Stark Law violations◦ Physicians were “highly productive,” but…

◦ DOJ Press Release: “The United States alleged that Covenant violated the Stark Law by paying commercially unreasonable compensation, far above fair market value, to five employed physicians who referred their patients to Covenant for treatment. These physicians were among the highest paid hospital-employed physicians not just in Iowa, but in the entire United States.”

◦ Hospital Statement: “[the] physician compensation was consistent with the approved compensation plan, was based on work personally performed by the physicians, and reflected their exceptionally high level of productivity…Covenant Medical Center made a business decision to settle to avoid the uncertainty of litigation, disruption, and high expense associated with protracted litigation with the government, despite our firm belief that Covenant's compensation to its physicians was reasonable and fell within fair market value.”

25

Documenting that a Physician is a

Productivity Rockstar –

Illustrative Cases

William Beaumont Hospital ($84.5 million settlement, 2018)

◦ False Claims Act case that alleged Antikickback Statute and Stark Law violations

◦ Case involved hospital compensation to physicians that other physicians on staff referred to as the "Royal Family“ and "Goldilocks and the Three Bears“ ; the nicknames were because these physicians were believed to be given lucrative perks, including prime paid positions

◦ Initial whistleblower was the hospital’s director of research, who noticed a pattern under which the physicians were given “gratuitous directorships” and allowed research compensation that was based on false assumptions

◦ Other whistleblowers and allegations followed

◦ “Another former Beaumont physician, who asked to remain anonymous, said the "Royal Family" controlled contracts and research grants and could make life miserable on any doctor who stepped out of line. "You did not want to tick off the RF," he said.”

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Documenting FMV for an

Arrangement with a Rockstar

Physician

Of Note - Stark Law Final Rule of December 2, 2020 –

85 Fed. Reg. 77557

Consulting salary schedules or other hypothetical data is an appropriate starting point in the determination of fair market value, and in many cases, it may be all that is required. However, we agree with the commenter that asserted that a hospital may find it necessary to pay a physician above what is in the salary schedule… We also agree with the commenter that emphasized the need for an analysis of the actual terms of a transaction and the actual facts and circumstances of the parties. In our view, each compensation arrangement is different and must be evaluated based on its unique factors.

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Documenting a Physician is a Productivity RockstarPotential Pitfalls

❑wRVUs that are high relative to benchmarks❖ Pitfalls: ◦ Ensuring wRVUs reflect personal services only◦ Ensuring wRVUs reflect properly billed services◦ Ensuring wRVUs are properly calculated and reported◦ For prospective reviews:

◦ ensuring wRVUs reflect 2021 Medicare PFS and/or are appropriate in the context of the 2021 Medicare PFS changes

◦ Properly considering effects of COVID-19

❑Service hours that exceed 1.0 FTE (2,000 or 2,080 hours per year)❖ Pitfalls: ◦ Ensuring all hours are properly estimated/recorded (no double counting)◦ Ensuring service hours are for services actually needed and performed

❑Stacked services obligations- medical director, committee participation, leadership appointments, etc.❖ Pitfalls: ◦ Ensuring all services are properly estimated/recorded (no double counting or duplicative compensation)◦ Ensuring all service hours are for services actually needed and performed◦ Ensuring that total hours and services are reasonable and make sense, clinically and practically

COURTESY AMERICAN HEALTH LAWYERS ASSOCIATION (FERRARI ET. AL, 2019)

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No formal process Formal process, including appropriately detailed documentation

Use of an appropriately qualified, experienced, independent valuator

Use of accepted valuation approaches

Selection and application of market data is documented to show a reasonable, logical, defensible conclusion of value

More Risk Less Risk

Documenting ProductivityRockstar Status

for Determining Effect on Compensation

Why ↓COURTESY AMERICAN HEALTH LAWYERS ASSOCIATION

(FERRARI ET. AL, 2019)29

Legal and Regulatory Pitfalls1. Federal Antikickback Statute (AKS)

2. Federal Physician Self Referral Law (Stark Law)

3. Federal False Claims Act (FCA)

4. Tax/Tax-Exemption Requirements for Non-Profitsa) Sec. 501(C)(3) IRCb) Sec. 4960 IRCc) Bond financing requirements

5. Various types of state lawsa) State physician self referral (“mini Stark” laws)b) State AKSc) State FCAsd) State tax-exemption laws/rulese) State conflict of interest/sunshine/reporting rulesf) State laws and rules regarding billing and claims submission (aside from mini-

Stark and AKS rules)

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Legal and Regulatory Pitfalls

31

Stark Law 42 U.S.C. § 1395nn-• Strict liability civil statute• Prohibits submission of claims to Medicare (and possibly Medicaid) that result from a

referral by a physician with which the entity has a financial relationship, unless a specifically-enumerated exception applies

• Burden is on a defendant to show that requirements for an exception are met• Violations result in repayment obligations, civil monetary penalties and potential exclusion

from participation in Federal health care programs• There are certain common requirements in many compensation exceptions: (i)

compensation must be fair market value (FMV); (ii) compensation arrangement must be commercially reasonable (CR); (iii) compensation must not be determined in a manner that takes into account volume or value of referrals (V+V); (iv) arrangement must not violate Federal Antikickback Statute or state laws governing billing or claims submission

Federal Antikickback Statute (AKS)

42 USC § 1320a-7b(b) –• Prohibits knowingly and willfully offering, paying, soliciting or receiving remuneration in

exchange for referrals for items or services payable by a Federal health care program, including Medicare, Medicaid and Tricare

• Prosecutions and penalties may apply to parties on both sides of a prohibited arrangement or transaction

• Civil and criminal statute- provides for criminal and/or civil penalties as well as administrative exclusion from participation in Federal health care programs

• United States v. Greber, 760 F.2d 68 (3d Cir. 1985), cert. denied, 474 U.S. 988 (1985)- “one purpose test” - an arrangement implicates AKS if even one purpose is to induce referrals

• U.S. v. Lipkis, 770 F.2d 1447, 1449 (9th Cir, 1985) – If a payment exceeds FMV, it may be inferred that the amount in excess of FMV is a payment for referrals that may implicate AKS

• Bingham V. HCA (11th Cir, July 2019) –Comp that is FMV is not remuneration implicating AKSCOURTESY AMERICAN HEALTH

LAWYERS ASSOCIATION (FERRARI ET. AL, 2019)

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Legal and Regulatory PitfallsFederal False Claims Act (FCA)

31 USC § 3729-• Prohibits knowingly presenting or causing to be presented a false or fraudulent claim for

payment by the Federal government • Serves as a “magnifying glass” for violations of the Stark Law, AKS and certain state Medicaid

laws, in part due to its qui tam relator provisions- 70% of cases are the result of qui tam suits• Under the ACA, AKS violations are per se violations of FCA• Certain other recent changes may have made it easier to bring and pursue claims• Per claim penalties with treble damages • Universal Health Services v. United States ex rel. Escobar 579 U.S. __ (2016) – a defendant makes

an implied certification of compliance with Medicare/Medicaid requirements when submitting Medicare/Medicaid claims; a false claim for purposes of FCA is a claim of something that would be material to Government’s decision to pay

• State law claims increasingly “piggy-backed” on Stark/AKS claims in Federal FCA cases

PPACA and state “Sunshine Laws”

• The Sunshine provisions of PPACA were intended to create transparency about payments flowing from Manufacturers to physicians and teaching hospitals

• Transparency makes seemingly inappropriate payments easier for government enforcement entities to identify

• Transparency raises the possibility of more vigorous government enforcement activity (AKS, Stark, FCA, etc.) of the laws that are implicated by Manufacturer payments

• Several states have their own sunshine laws


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Legal and Regulatory PitfallsFed Internal Revenue Code (IRC) §501(c)(3)

• A tax-exempt entity’s earnings may not inure to the benefit of a private party• Penalties for violation include intermediate sanctions up to loss of tax-exempt status• To comply, compensation paid should be “reasonable” for the market, specialty and

responsibilities• IRC Sec. 162: “reasonable” compensation is the amount that would ordinarily be paid for like

services by like enterprises under like circumstances• Generally, compensation should be FMV for services provided• Rebuttable presumption

IRC § 4960. -Tax on excess tax-exempt organization executive compensation

• Result of 2017 tax reform legislation (Tax Cuts and Jobs Act)• Interpretive guidance issued December 31, 2018, Notice 2019-09• Imposes 21% excise tax on remuneration in excess of $1 million paid by an applicable tax-

exempt organization and any related organization to a covered employee• Related organizations include organizations in which the tax-exempt organization has at least

50% ownership• Covered employees are the five highest-compensated employees for the taxable year plus any

employees who were covered employees for any of the tax-exempt organization’s prior tax years beginning after December 31, 2016

• Liability for excise tax can extend to for-profit entities that are related to the tax-exempt organization- e.g. a for-profit entity that is the common-law employer of one of the tax-exempt organization’s covered employees

• Exclusion for remuneration paid for medical or veterinary services, but not for administrative or management services

• Although excluded from tax, remuneration for medical services is taken into account in determining highest paid/covered employees

• Overall, makes it important to carefully document and understand compensation and other remuneration paid to employees


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Legal and Regulatory Pitfalls

State/local tax exemption laws, including for property taxes

• May mirror Federal IRC or have other specific requirements to maintain tax-exemption• Penalties for non-compliance may include loss of tax-exempt status for purposes of income taxes

and/or property taxes, and may give rise to criminal liability in some cases (knowing violation of a state false claims act)

• Recent enforcement actions/court cases suggest that operations that subsidize for-profit enterprises, and payments that are not FMV for reasonable items or services, may cause risk

AHS Hospitals v. Town of Morristown - Ruling against hospital on property tax exemption• Ruling against hospital on continuation of its local property tax exemption, based on finding that

the hospital was profit-sharing with for-profit entities through financial support for a for-profit venture

Restrictions for Bond-Financed Facilities

• Restrictions under IRS Rev Proc 97-13 and 16-44• Safe harbors shifted August 18, 2017• Payments to a service provider must be “reasonable” compensation• Incentive compensation is not treated as “providing a share of the net profits” if it is based on

standards that measure quality, performance or productivity


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Legal and Regulatory PitfallsState Laws • State mini-Stark – may apply to broader scope of services than DHS

• State AKS and/or fee-splitting prohibitions• State billing and payment laws and rules (anti-supplementation laws, laws and/or rules

prohibiting percentage of revenue contracts, state laws and/or rules limiting scope of practice for some providers, etc.)

• State FCAs (which may apply to tax filings/non-profit filings in addition to Medicaid submissions)

• State laws prohibiting corporate practice of medicine, including, in some cases, corporate subsidization of medical practice

• New enforcement actions: state anti-bribery laws • May be enforced through Federal Travel Act

Bonus: International Transactions

• Beware of the Foreign Corrupt Practices Act (FCPA) in international deployment• FCPA - 14 U.S.C. §78dd-1, et seq.-• Passed 1977• Prohibits making payments to foreign government officials to assist in obtaining or

retaining business• Applies to publicly-traded companies and their officers, directors, stockholders and agents;

agents can include consultants, distributors, JV partner and certain other parties• Allows for substantial civil penalties and disgorgement of ill-gotten gains• May be implicated by payments to healthcare providers in countries with nationalized

healthcare, unless those payments are established as FMV payments in legitimate transactions for goods or services


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Compliance Considerations

Auditing Rockstar Physician Arrangements

❑ Request and ensure documentation for each contract, including all supporting information (i.e., contracts, amendments, invoices, related policies, documentation evidencing that the contracting process was followed, relevant email correspondence)

❑ Evaluate technical compliance with the Stark exceptions and Anti-Kickback safe harbors

❑ Evaluate documentation supporting FMV and Commercial Reasonableness

❑ Important Considerations

❑ Regulatory Requirements vs. Best Practices

❑ Importance of FMV Work Product

❑ Compliance Department and Committee Involvement


36

Compliance ConsiderationsSelf-Disclosure Process, Challenges

❑ CMS Self-Referral Disclosure Protocol

✓Actual or potential Stark violations only

❑ OIG Self-Disclosure Protocol

✓Stark only conduct is not eligible

✓Remuneration based multiplier (1.5)

✓Much faster than CMS self-disclosure protocol

❑ Must analyze for the 6-year lookback period

✓Not all appraisers have this capability

❑ Typically, must reform/repair arrangement before disclosure:

✓Reforming is often more challenging than self-disclosure

✓Any retrospective FMV analysis must be in sync with the new terms


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The “Big Three” Regulatory Standards

Three Keys to Compliance• 42 CFR § 411.351 – Stark’s regulatory definition of FMV

• Government Position - Referencing multiple, objective, independently published salary surveys is a prudent practice for evaluating FMV.

•Government Compliance Guidance - Should have “appropriate processes for making and documenting reasonable, consistent, and objective determinations of FMV.” Should follow a “reasonable methodology that is uniformly applied and properly documented.”

Fair Market Value

• Government Position- “An arrangement will be considered ‘commercially reasonable’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty, even if there were no potential DHS referrals.”

Commercially Reasonable

• In the Compensation Model - Should not calculate and pay compensation in a manner that “takes into account” DHS referrals

• In the Process and Conduct – For AKS and state laws such as the Travel Act, avoid actions that may be misconstrued as “taking into account referrals” (e.g., documentation referencing anticipated referrals, paying compensation for activities that correlate with referrals, etc.)

Not “Taking Into Account” Volume or

Value of Referrals

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Fair market value and commercial reasonableness-

What is “Fair Market Value” Under Existing Case Law?

U.S. ex rel. Kosenske v. Carlisle HMA (Stark Law)

…as a legal matter, a negotiated agreement between interested parties does not “by definition” reflect fair market value. To the contrary, the Stark Act is predicated on the recognition that, where one party is in a position to generate business for the other, negotiated agreements between such parties are often designed to disguise the payment of non-fair market value compensation.

Stark Phase I Preamble (66 Fed. Reg. 944) - Fair market value may be established by any commercially reasonable method that provides evidence that compensation is comparable to what is ordinarily paid for the 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.

• 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.

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What is “Fair Market Value” in 2020?

CMS on Methods for Determining Fair Market Value:

May use ”any commercially reasonable method” that fits with the Stark definition of fair market value, but:

• “Reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluation fair market value.”

• “…the appropriate method for determining fair market value for the purposes of [Stark] will depend on the nature of the transaction, its location, and other factors…

• although a good faith reliance on an independent valuation (such as an appraisal) may be relevant to a party’s intent, it does not establish the ultimate issue of the accuracy of the value itself (69 FR 16107)”

• (72 Fed. Reg. 51015)


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New Stark Law Final Rule: “Fair Market Value” for Physician ServicesPrior to January 19, 2021 Proposed October 2019 Final Rule Effective January 19, 2021

Fair Market Value: The value in arm's-length transactions, consistent with the general market value.

The General Market Value: 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… at the time of the service agreement. Usually… the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the v+v of anticipated or actual referrals.

Fair Market Value General - The value

in an arm’s length transaction with like

parties under like circumstances of like

assets or services, consistent with the

general market value of the subject

transaction.

General Market Value: 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.

Fair Market Value: General - The value in an arm's-length transaction, consistent with the general market value of the subject transaction.

General Market Value: 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.


What is “Fair Market Value” After 2020?

CMS on Methods for Determining Fair Market Value:

…need for an analysis of the actual terms of a transaction and the actual facts and circumstances of the parties… each compensation arrangement is different and must be evaluated based on its unique factors.

(85 Fed. Reg. 77557)

We are uncertain why the commenters believe that it is CMS policy that compensation set at or below the 75th percentile in a salary schedule is always appropriate, and that compensation set above the 75th percentile is suspect, if not presumed inappropriate. The commenters are incorrect that this is CMS policy.

(85 Fed. Reg. 77558)

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What is “Commercially Reasonable” in 2020?

No actual definition but…

1998 Stark proposed rule:

We are interpreting “commercially reasonable” to mean that an arrangement appears to be a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals. (63 Fed. Reg.1700)

An arrangement will be considered ‘‘commercially reasonable’’ in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS referrals. (69 Fed. Reg. 16093)

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New Stark Law Final Rule: “Commercially Reasonable”

Prior to January 19, 2021 Proposed October 2019 Final Rule Effective January 19, 2021

No codified definition, but commonly interpreted to have a meaning consistent with 1998 commentary stating that an arrangement is commercially reasonable if it is a sensible, prudent business agreement, from the perspective of the particular partiesinvolved, even in the absence of any potential referrals

Definition 1 - The particular arrangementfurthers a legitimate business purpose of the parties and is on similar terms and conditions as like arrangements.

ORDefinition 2 - The arrangement makes commercial sense and is entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty.

The particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including size, type, scope and specialty.

Re Profitability: Courts interpret losses as evidence that arrangements are not commercially reasonable

Re Profitability: The determination that an arrangement is commercially reasonable does not turn on whether the arrangement is profitable; compensation arrangements that do not result in profit for one or more of the parties may nonetheless be commercially reasonable…

Re Profitability: CMS finalized the language in the 2019 proposed rule, but explicitly declined to say commercial reasonableness is unrelated to profitability:[W]e are not convinced that the profitability of an arrangement is completely irrelevant or always unrelated to a determination of its commercial reasonableness, for example, in a case where the parties enter into an arrangement aware of its certain unprofitability and there exists no identifiable need or justification- other than to capture the physician’s referrals- for the arrangement.


What is “Commercially Reasonable” After 2020?

New codified regulatory definition with specific elements:

The particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including size, type, scope and specialty.

(85 Fed. Reg.77531)

[T]he determination of whether a compensation arrangement is commercially reasonable is dependent on the facts and circumstances of the parties… it is not possible to know definitively that, in every instance, a particular type of arrangement would be commercially reasonable. An arrangement that is commercially reasonable for one set of parties may not be commercially reasonable for another [and vice versa].

(85 Fed. Reg. 77532)

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Case Studies

Neuro-Ortho Spine Surgeon

• Uncommon dual specialization• 144 page CV that includes 150+ published peer

reviewed articles and 50+ invited presentations

• Many past academic leadership appointments

Highly Sought Physician Quality Leader

• Name recognition among both patients and fellow physicians

• Published multiple books that are read by laypeople as well as other medical professionals

• Frequent speaker who is in demand for her name recognition

• Will be employed in part to lead design and transformation clinical care processes

Pediatric Cardiothoracic Surgeon

• Within the field, “everybody knows her name.”

• 50+ published peer reviewed articles

• In the past, a frequent speaker at conferences

• 20+ citations of his publications in work of others

• Has his own Wikipedia entry

• Holds 2 patents

• His work is the subject of a documentary-style TV show

• In demand as a speaker and consultant

Orthopedic Surgeon Who Specializes in a Rare

Procedure

• One of a very limited number of physicians who performs this procedure

• Developed the prevailing techniques for the procedure

• Attracts patients from all over the world

• No academic appointment, but is frequently an invited speaker in his focus area

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Case Studies

4

7

Orthopedic Surgeon

-Provides “clinical services” with compensation based on wRVUs

-wRVUs are 105-110% of the 90th percentile

-Hospital and CIN “Medical director services” with compensation based on hours worked

-Clinical co-management agreement

-Collaborator in BPCI arrangement that allows for both reconciliation payments and internal cost savings payments

-Compensated call coverage with quality bonus based on achievement of specific quality measures

-Serves as principal investigator for certain hospital quality research, as well as for device trials, and receives compensation for both

-Aggregate annual compensation is estimated at 125% to 150% of 90th percentile from annual salary surveys

Very Well Known Primary Care Physician

-Provides “clinical services” with base salary and minimum wRVU requirement

-Productivity bonus based on a fixed rate per wRVU

-Incremental quality bonus based on achievement of annually changing quality metrics

-Historical total wRVUs reflect 115% of the 90th percentile

-Compensation for supervision services related to NPP oversight

-Provides hospital and ACO “medical director services” with compensation based on hours worked; each arrangement allows for compensation of up to 15 hours per month

-Serves on two hospital leadership committees and receives compensation for doing so -100 hours total per year

-Receives ACO and CIN distributions annually, estimated at approximately $40,000 for the coming year

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No formal process Formal process, including appropriately detailed documentation




More Risk Less Risk

Documenting Credential and Service Match Rockstars for Determining Effect on Compensation-

Tips and Best Practices

48

Determination and documentation best

practices: Have a process that incorporates

consideration of the key questions

Sample Process (Ferrari et. al 2015)


49

No formal process

No checks to validate assumptions or avoid pitfalls such as improperly counted wRVUs, duplicative payments or services or “gratuitous” services

Formal process, including appropriately detailed documentation

Checks and balances to validate all assumptions about productivity and reasonableness of services




More Risk Less Risk

Documenting Productivity Rockstar Status and Determining Effect on Compensation –

Tips and Best Practices

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Determination and Documentation Best Practices –Productivity Rockstars

Process Should Consider

• Is the Physician really a Rockstar? – i.e. really exceptionally productive?

1. wRVU productivity, collections, hours, shifts, etc.

2. Significant on-call or administrative responsibilities

3. Significant metric achievement

• Are the inputs that are being counted (e.g., wRVUs, hours, etc.) valid and attributed appropriately? For 2021, consider:

1. Effects of COVID-19 on productivity, if applicable

2. Application and effects of CY 2021 Medicare PFS wRVU adjustments, if applicable

• If using general guidelines, could an an individualized FMV analysis better capture the facts and circumstances that support higher compensation?

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52

Best Practices- Productivity Rockstars: FMV Documentation

Process Should Account for Potential Pitfalls (from Slide 21)

1. wRVUs that are high relative to benchmarks❖ Pitfalls: Ensuring wRVUs reflect personal services onlyEnsuring wRVUs reflect properly billed servicesEnsuring wRVUs are properly calculated and reportedFor 2021, COVID Effects2021 Medicare PFS effects

2. Service hours that exceed 1.0 FTE (2,000 or 2,080 hours per year)❖ Pitfalls: Ensuring all hours are properly estimated/recorded (no double counting)Ensuring service hours are for services actually needed and performed

3. Stacked services obligations- medical director, committee participation, leadership appointments, etc.❖ Pitfalls: Ensuring all services are properly estimated/recorded (no double counting or duplicative compensation)Ensuring all service hours are for services actually needed and performedEnsuring that total hours and services are reasonable and make sense, clinically and practically

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Best Practices – Productivity Rockstars:FMV Documentation

Expert FMV/CR Opinions – Key Questions

• Should the valuation engagement be structured under the A/C privilege?

• Is the compensation arrangement accurately described?

• Are the FMV data benchmarking and the compensation testing clear and persuasive?

• Is there a clear conclusion regarding commercial reasonableness and/or FMV and is the appropriate definition of FMV and/or commercial reasonableness (Stark or other) referenced?

• Are the limitations and assumptions in the opinion acceptable?

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Best Practices – Productivity Rockstars:FMV Documentation

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Audience Q&A

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Date post:	08-Apr-2022
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