Based on recent changes and clarifications made by the Centers for Medicare and Medicaid Services (CMS) in the Federal Physician Self-Referral Law (commonly known as the “Stark Law”), hospitals and health systems need to revisit their physician compensation plans. If the compensation falls under the in-office ancillary services exception, then many of the changes do not affect compliance with the Stark Law, but if the hospital or health system seeks to meet the Stark Law employment exception and/or indirect compensation arrangement exception, the arrangement should be carefully reviewed.
Partner Jana Kolarik and PYA Principal Angie Caldwell, who address the valuation aspects of the analysis, published two articles in Bloomberg Law that discuss the following compliance takeaways in detail:
- Some physician compensation plans have been set up to trigger review when productivity is above the 75th percentile. In December 2020, CMS made clear that there are no presumptive percentiles that are FMV. Such compensation plans should be fine-tuned to make compensation consistent with the physician’s personal productivity, instead of assuming that anything below the 75th percentile will be deemed fair market value (FMV).
- Regarding a commercial reasonableness (CR) analysis, ensure the compensation is consistent with the services performed by the individual practitioner. For example, if a physician is compensated based on his/her advanced practice providers’ (APPs’) work relative value units (wRVUs), ensure that such compensation is for services performed by the physician, i.e., supervision. (For this discussion, APPs include nurse practitioners and physician assistants.)
- Review current arrangements that could fall under the definition of “indirect compensation arrangements,” which was recently revised, because certain compensation arrangements that consider APP wRVUs as physician compensation may have issues meeting CR and FMV tests and the indirect compensation arrangements exception under 42 C.F.R. § 411.357(p).