AHLA's Speaking of Health Law
The American Health Law Association (AHLA) is the largest nonprofit, nonpartisan educational organization devoted to legal issues in the health care field. AHLA's Speaking of Health Law podcasts offer thoughtful analysis and insightful commentary on the legal and policy issues affecting the American health care system.
AHLA's Speaking of Health Law
Identifying Key Changes in the Stark and AKS Final Rules
Herd A. Midkiff, JTaylor, speaks with the authors of AHLA’s “The Stark Law: Comprehensive Analysis and Practical Guide”—Charles Oppenheim, Amy Joseph, and Ben Durie, Hooper Lundy & Bookman PC. The podcast discusses the recently-issued Stark Law and Anti-Kickback Statute final rules, including changes to commercial reasonableness, how changes made to the rules will impact compliance considerations, and other important provisions. Sponsored by JTaylor.
Essential Legal Updates, Now in Audio
AHLA's popular Health Law Daily email newsletter is now a daily podcast, exclusively for AHLA Premium members. Get all your health law news from the major media outlets on this podcast! To subscribe and add this private podcast feed to your podcast app, go to americanhealthlaw.org/dailypodcast.
Stay At the Forefront of Health Legal Education
Learn more about AHLA and the educational resources available to the health law community at https://www.americanhealthlaw.org/.
Support for A H L A comes from j Taylor, a leading healthcare consulting firm serving many of the nation's largest health systems, physician groups, ancillary providers, and private equity healthcare investors. They provide highly specialized transactional support through valuation, due diligence, quality of earnings, merger integration, managed care analytics, negotiation, and implementation. J Taylor's consultants have extensive knowledge and experience with valuation and fair market value analysis, and they understand that since every situation is unique, a one size fits all approach doesn't work. For more information, visit www.jtaylor.com.
Speaker 2:Okay. I'm here today with Charles Oppenheim, uh, Ben Jury and Amy Joseph, and they are the authors of the Stark Law Comprehensive Analysis and Practical Guide. Um, and we are here today to talk about the new updates to the Stark Law, um, that have been long anticipated, um, and, and kind of surprised us here at the end of the year. Uh, thought they were gonna be delayed till next year, but, but they came out. Um, and, and so we're gonna have a nice conversation with the group, um, about the, the updates. Um, the group also wanted me to make sure that for everyone to know, there's a supplement to their book that is out, uh, that covers some covid related items, and also covers some of the anticipated changes to Stark Law. And, uh, I think they will be furiously working on a, a seventh edition covering these new updates. Um, that will be out a as soon as they can digest and process everything. Um, so, Charles, Ben, Amy, uh, thanks so much for making time today, and thanks for being here. Um, and, and let's just kick off the, the conversation and, uh, um, go from there. So maybe I'll just kind of start off with a, a broad conversation, um, or broad question and, and, and maybe, you know, can y'all tell us about the, uh, significant updates with this new release and, and these changes, uh, in, in the Stark Law and just what are they fall and then maybe what, what changes are they trying or what are they trying to address with these, uh, with these updates? And then we can go from there.
Speaker 3:Yeah, I mean, I think you're doing a few different things with these updates. One is they're trying to, um, prevent them from being obstacles to people who are trying to do value-based deals and deal with the changes in the whole payment system. And the other thing they're doing is just trying to, um, limit the extent that people have stark violations based on little ticky tacky problems, what we sometimes call footfalls, where, you know, they didn't quite document it properly or they, uh, didn't quite perform it the way they were supposed to. Uh, so that's another way in which they're trying to, um, deal with Stark. And the other thing they're hoping to do, I think, is to try to clarify some areas that have long been found a little confusing. Uh, so that's kind of the third flavor, I guess the, the, what we call the fundamental requirements of the compensation arrangements, fair market value, commercial reasonableness, and whether compensation takes in oca the volume or value referrals. So those are kind of the three areas, I guess, that we see as being, you know, if you're gonna divide it into categories most effective by the new rules.
Speaker 2:So maybe in those areas, um, and, and maybe kind of take'em one at a time. Uh, what are, you know, with, with each bucket, uh, we have value-based, uh, we have the imperfect performance items, and then we have the, the compensation arrangement and, and kind of all the, the fair market value commercial reasonability things, um, within each one of those buckets, maybe go over what, what are the, the new changes? What, what will impact the way, um, physicians and hospitals interact? Um, and, and how maybe will those impact just different types of arrangements and transactions that are out there?
Speaker 3:Sure. Well, I, I mean, I'll, I guess I'll talk about value-based, um, in very broad terms. First, I mean, there there's three new value-based arrangement exceptions. And, you know, it's really very, very broad. What you can potentially do in this, uh, in this area, Val, there's a bunch of definitions about what value-based arrangements are, who value-based participants are. But essentially it boils down to healthcare providers who get together in an organized fashion and are trying to either improve quality or control unnecessary costs or, you know, design systems to help migrate to more care coordinated style. Um, those are basically, could, could, could be viewed as value-based arrangements. And there are three types of exceptions, depending on how much risk you're taking for the cost of healthcare services. So a value-based arran, a value-based enterprise that is at full risk, um, has broad discretion to engage in value-based activities. Uh, they don't necessarily even have to be in writing or fair market value, as long as they're designed to control cost or improve quality or coordinate care, they're okay. And then there's a couple of other exceptions. One is for physicians who are at risk for up to 10% of the cost of healthcare services, um, that has a few more requirements, and then there's a, an exception that allows people to put value-based arrangements together even when they're not at risk for the cost of healthcare services at all. So that's, that's pretty eye-opening. And the one thing there is they have to very closely monitor the value-based arrangements that they have in place to make sure that the goals are really being met. And if they're not, they have to discontinue the payment arrangement. So that's, that's value-based kind of at the 30,000 foot level and will be interesting to see what people are doing, uh, with these rules to, to put creative arrangements
Speaker 2:Together. Yeah. So maybe we kind of dig into that just a little bit. Um, with those three exceptions, do you foresee any, any problems trying, trying to qualify for those? Or are, are there pretty bright lines on if you fit into the exception or don't fit into the exception? Or do you see some gray area there and then just kind of how do you see those playing out just based on, on your initial readings?
Speaker 3:Well, I think, I think the exceptions are really broad, but I mean, th they're not sort of unlimited. You can't just take any arrangement that you have with physicians where they're providing services to patients and just say, well, now this is a value-based arrangement, therefore, you know, we<laugh> we can kind of, right. Want, doesn't have to be fair market value anymore. I mean, it has to be, the activities really have to be reasonably designed to help coordinate care to help control costs. And so you have to have some objective criteria that you're using to measure their performance against. So there are, there are some requirements, but again, there's a lot of room out there for people to be creative with this stuff, um, and take a look at the rules and kind of see, you know, what they want to put together, uh, to achieve those objectives.
Speaker 4:Yeah, I, I could note Charles. Um, so I, I'm pretty excited about these value-based exceptions. Uh, I think we're getting more interest just initially with some of the other changes that we're seeing because of the time sensitivity and making sure everyone is in compliance with the new rules as they kick in. But I think that long term, um, we're gonna be seeing a lot of innovation around these exceptions and, and helping think through what new structures could be. And just for a plug for another a H l A podcast, the, the prior one with the, with the deputy h h s secretary referred to them as an empowering platform that it allows providers to really, you know, brainstorm it and think about new arrangements to innovate. So, um, short term, there might be some other things which people need to think about to make sure they're dotting their I and crossing their T's. But long term I see a lot of opportunity and we're excited about it.
Speaker 2:I know, um, you know, one of the, one of the goals and, and I think one of the tensions that's been present with the Stark Law since, you know, for the last 10 years or so has been, you have value-based, um, encouragement from CMS on the one hand, and then you have very, you know, strict liability stark issues on the other hand. And, and as a, um, as someone who works in on physician hospital transactions, I've, I've kind of been in the middle of that tension a lot. Um, and so I'm hopeful this, as you said, kind of be an empowering platform. Hopefully they're setting the incentives. Right. And the reason my question about, you know, how, how difficult it is to fit in one of these exceptions is there, is, I'm, I'm hopeful that there, there is a clear you're in or you're not, and, and it will really spur some innovation, spur some things, and also just kind of bring into alignment, um, and a congruence kind of both sides of what, what, um, you know, officials and, and the government is trying to encourage. So I'm, I'm, I'm encouraged by them. Uh, Ben, I didn't know if you had any, any thoughts on, on the value based piece. And
Speaker 5:I think that that's the intention, right? I mean, one of the big tips, taking even a step backwards, I mean, one of the big picture purposes of these changes is, is to encourage innovation, but also to recognize that, you know, there has been some, there have been challenges, right? For the last 10 years in, you know, in these large big picture goals that the government is trying to achieve. So, you know, we're, we're all optimistic that this will both provide some clarity, um, and some room to, to, to take, you know, to be creative and to actually kind of move the ball forward on some of these issues. But at the same time, um, you know, try to have some flexibility to do that. I mean, that's one of the other, you know, major themes of the rules is, is actually streamlining what, what's been there already, right? Some of the existing exceptions. Um, uh, and, and, um, you know, things that have been confusing in the past and sort of there's this recognition overall that the Star Claw, you know, has been, has been challenging, um, at times. So the, you know, the, the, the, the rules overall are trying to, trying to streamline it, provide flexibility, and also provide clarity. So I think it's an exciting, it's exciting time for the Star Club.<laugh>.
Speaker 3:Yeah, there are some specific things also. Um, you, you mentioned strict liability herd, and that's always been one of the issues with Stark because it's strict liability if you, um, are just a little bit out of compliance, it's the same as being way out of compliance mm-hmm.<affirmative>. But now, uh, I think CMS more and more recognizes the issue there and they, they're doing things like, for example, um, allowing people, uh, to, to sign up their written documents as much as 90 days after an arrangement starts, as long as all of the other requirements of a compensation exception are satisfied, uh, most particularly, for example, that compensation is set in advance. I don't know, Ben, if you want to talk about that a little bit, we sometimes get questions from people. Well, if the, if there's no written agreement, um, for 90 days, how do we demonstrate that our compensation was set in advance?
Speaker 2:Yeah. Is this some, is this more the, uh, the imperfect performance items that you were talking about? So yeah, maybe we, we kind of turn our attention to those for a minute and, and, um, love to hear that. Cause we, we certainly see and have clients, um, that, that get nervous when, when they find they've inadvertently done something minor. So love to hear more about that.
Speaker 5:Yeah, I mean, one of the, one of the things both from a sort of a client perspective and just, you know, what we're, what we're spending a lot of our attention doing is dealing with the technical aspects of the Stark Law, given that it is, you know, strict liability. And, you know, there are, there's these exceptions are, are complicated and, and sometimes gonna be hard to, to understand. Um, there is a recognition in, in both the proposed rule and then, and now in the final rule where CMS is trying to, um, emphasize this idea of imperfect performance, right? There's this, there's this idea that, um, you don't have to get it perfect, right? And you're trying to get so long as in the end you get there. So there's, as Charles mentioned, there's this new concept where, um, so long as you, um, sort of fix the performance, um, during the term of the arrangement or, um, 90 days after the arrangement ends. So there's kind of this end point now, um, um, you know, that you can bring an arrangement back, back into the, into compliance. So there's this sort of, this, this increased flexibility in recognition that, you know,<laugh> things happen. We're, we're dealing with, um, a lot of moving pieces here. You know, hospitals are complex operations, large physician groups. Um, there's a, there's a lot going on and sometimes it's hard to, you know, get the, the arrangement, um, perfectly documented before the services start, right? Sometimes it's hard to get, um, the doctor and the physician to, and the hospital to sign on the, on the dotted line on this perfect arrangement right before things start. Um, so there's a couple of specific things, and I'm happy to go over them. Um, that, that c m s has, um, has outlined now in this final rule to sort of address that problem and to build in some additional flexibility. One being there is now an expansion of the temporary non-compliance concept. So at the front end of an arrangement, um, folks have 90 days now to get the arrangement both in writing and signed. Um, so you can operate essentially for 90 days, um, and, uh, under an arrangement, um, and, and have that time to actually perfectly document it and get it signed up, um, so long as the compensation, um, is set in advance. So you still have to have an agreement, um, as to what the compensation is gonna be and what those services are. But you have 90 days now to sort of document everything, get it in writing, and get it signed, which is, which is a nice piece of flexibility historically. Um, there's just been a, a sort of a narrow, uh, grace period or a narrow scope of the grace period. So that's really nice. Um, another thing, um, there's a brand new exception for limited remuneration to a physician. So, um, c m s has now said that, um, you can pay a physician up to$5,000 annually, um, under essentially an unwritten arrangement. Um, the idea here would be that, you know, it's a small amount of money, right? So the, the risk of fraud and abuse is pretty low. Um, you can, it's, it's$5,000 a year. Um, it doesn't have to be in writing. And the, the hope there is that that exception could be used to cover some of these situations, right? Where, you know,<laugh>, you just can't get everything together in time. You know, the example that they use in the, in the commentary is like a call coverage arrangement, especially, you know, during the pandemic. I mean, we've had all kinds of mm-hmm.<affirmative> hot, you know, clients come to us with these arrangements that are really emergent, right? Trying to deal with staffing issues, trying to deal with, um, changes in the services being offered. Um, so it, it would've been nice to have this exception, um, to cover some of those gap periods, um, where, where you just kind of can't get, get everything, um, together. So, um, those are the, those are the big changes. I don't know Charles or Amy, if there's anything you wanted to add on that, but, um, I think that's a, that's kind of a high level overview.
Speaker 3:Yeah. Just to give like an example of like imperfect performance, and I see this one all the time. Like, you might have a lease that has a cost of living increased provision, you know, at the one year anniversary you're supposed to increase the rent by the CPI and they forget to do it, and they call you up and it's like, it's been a year later and they never, you know, they never implemented that, right? And back in the old days, that would've been a storm violation. You'd have to self-report. Now what they're saying is, as long as you catch up during the term of that lease, you figure out what they owe you, and they, they pay the, the increased amount and you end up getting the full amount of rent, um, before the lease expires, or up to 90 days after it expires. As Ben mentioned, then it's not a star violation. So that's very nice. That allows for that kind of imperfection. Now, you, you can't do that on purpose and just tell the doctor, oh, you don't have to pay us. That will work. But if you do it by mistake, you can fix it during the, the, the course of the arrangement.
Speaker 2:Yeah. It sounds like the, these are sort of some common sense updates, um, that will allow compliance officers and, and health co counsel to, uh, to get a little better rest at night and, and not, not lay awake wondering what what trap is out there waiting for him. So it, it seems, um, you know, seems long overdue and, and seems, um, just, just kind of common sense and, and making sure that, uh, the, the intent of Stark law is there. But let's not hinder just, you know, common, you know, potential common mistakes. And if you're in good faith trying to, to, uh, comply with it from a layman's standpoint, it, it certainly seems like this will be helpful. Um, just, just to moving things along. So I'm, I'm, I think those will be very good.
Speaker 5:There Is one heard just one other thing before we move on to the next topic. Yeah. There is one, one change that's, um, in this same category, um, that I think is worth highlighting. They, they did also modify, um, the isolated transactions exception. Okay. Um, which is an exception that folks have often used in this space to try to deal with some of these gap periods, either sort of at the beginning or end of arrangements. Um, and CMS has clarified that that exception, um, is, has, has been used more often than they would like, and they, they, they've narrowed it, um, in this rule to, to make sure that, um, parties are really not supposed to use that for situations where there's an ongoing relationship, kind of like a ongoing service arrangement or call coverage arrangement. So I know there's a lot of people that, that have used it that way. Um, and so we just wanna highlight that that's sort of been narrowed and is, is not really available in the same way, but CMS in taking that away, did highlight that there are these other tools available that they think are more transparent. And, and so I think we get to the same place
Speaker 2:Question. Sure. Just trying to have a, a more honest accounting of, of what exception you fall under and, and maybe make sure the intent of a, a onetime thing is really a onetime thing, is what sounds like. Yeah, definitely. Um, I'm just curious, you know, if you've compared, um, the the proposed regs to, you know, the new regs and, and kind of in this bucket of, of, you know, imperfect performance, is there anything that was hoped for or that was proposed that didn't make it all the way? Or, or is there, there's something that people were, were hoping to see that they don't see? Just curious.
Speaker 4:I mean, I, I could speak quickly, I guess I was hoping for a hire than$5,000 for a limited information. I think, um, that might work for a call coverage agreement over a weekend or a week. But, uh, I think that could go pretty quickly for very innocent arrangements, um, where that might not be sufficient. That's just my personal opinion. Sure. Amount.
Speaker 5:Well, no, and there's a lot, I mean, I agree with that. In the, in the proposed rule, it was 3,500<laugh>, so the concession was up to 5,000. So it's not that much of a concession.
Speaker 3:I I think another area where the final rules, uh, may have surprised a little bit are in some of the fundamental requirements for compensation arrangements. Um, the, you know, we mentioned them before, the fair market value of commercial reasonableness, and then whether compensation takes into account the volume or value of referrals. And it's, um, and I don't, maybe Amy wants to talk about that a little bit, but
Speaker 2:Let, let's move into that kind of, that third bucket and, uh, you know, maybe Amy go over what, what some of the big changes are, and then, you know, as a, as a evaluator, you know, this is an area that we certainly are interested in understanding and, and affects our work. So I'd love to dive a little deeper into some of those different provisions and, and what changes there are and what, what did or didn't happen.
Speaker 4:Yeah, sure. So, um, we do see changes to fair market value. There's a new definition for commercial reasonableness. There has not been a definition previously to that. And there's also a new definition, essentially for what it means to have compensation determined in a manner that takes into account farmer buy referrals. And CMS refers to these in a kind of love this as, as the big three. And that's because you see one or more of these, in many exceptions, they're so fundamental to compliance. Um, and so you, you know, for fair market value, at least from my view, there, there are some changes, but it seems to be more of a reorganization for clarity. There's a removal of the reference of volume or value from the definition to make clear that these are independent requirements. Um, you know, as evaluator heard, you may see nuances there that, that I haven't, but I think it's, it's not the most earthshattering of changes if I were to rank the changes in the regs commercially reasonable. We do have a, do a new definition, which I think is very interesting and helpful because it adds a sentence, um, that is expressed that an arrangement does not need to be profitable mm-hmm.<affirmative> to be commercially reasonable, which is significant. And I imagine a lot of listeners, we all know that, you know already that there are many reasons that an arrangement is commercially reasonable, even if at a loss, you know, to secure timely access to care or, you know, to improve certain health outcomes or to meet regulatory requirements. That is just sometimes the way that these things need to work. I mean, often. Um, so it is helpful to have that express acknowledgement. Uh, I think it, that's really more addressing, we've seen some perhaps aggressive or overly expansive readings of the Stark Law in False Claims Act cases and by whistleblowers. So I think it's, CMS is trying to address and acknowledge that that may be just fine in many cases to have a arrangement that is not profitable still be commercially reasonable. So that's helpful. Um, but I wouldn't view it as a significant change necessarily from how we've always viewed it in the past. It's more of a, an express acknowledgement. Sure. Um, where, where I think we're really focused on is this new test for what it means for compensation to take into account the volume or value. Um, and so we do have what is intended to be a bright line test now, which is really focused on how is the compensation calculated, and the way that c m s works through it is, is turning into a mathematical formula. So if the formula has referrals or other business generated as a variable, which then results in a positive or negative correlation to the compensation that will be taken into account the referrals. Um, and, and I guess at first blush, I'd say I thought, well, this is great. We've got a bright line test. It's clear that there's no subjective intent as, as part of this. It's really just how do you calculate the compensation. But, and, and I'm curious, you know, to hear from Charles and Ben on this, but I think, um, it'll be interesting to see how it plays out when we apply it to specific arrangements. So there's one example, um, in the commentary, which I thought was quite clear, where you have a physician paying a fixed amount to lease medical office space from a hospital-owned building, but there's$5 reduction in rent for every test ordered, uh, and referred to the hospital, which seems like a pretty clear example where you could write out the mathematical formula and factor in referrals as a variable. But there are some others which are maybe less intuitive, um, as far as expressing it in a formula, including a percentage based arrangement for a percentage of collections and some others where, um, you know, again, I, I'm not an advanced math person. I, I, I sometimes have trouble assisting my elementary school kids with, with the math homework, but, but it's not necessarily an intuitive formula that you would see referrals as a variable. So we're still processing that and thinking through what that means. Uh, and, and I know Charles and Bennett more to say, but I'll just say, at least for me, um, as an attorney that deals with this law regularly, at least for a while, I'm going to be looking at each arrangement and thinking about it against this new test and not taking anything for granted as we, you know, adjust. Because it is, it is a new, um, it, it's a very new test for us.
Speaker 2:Charles, Ben, any comments on on any of those three?
Speaker 3:Well, yeah, I mean, I'll, I'll give you, I'll kind of run through an example of an arrangement which we always had thought worked, which I'm no longer Sure does. An example would be, for example, a management company that's managing a hospital service line, and there are referring physicians who are owners of the management company. And it used to be that if the management fee was a percentage of revenue from that service line, let's say 10% of the revenue in that service line, it used to be that that would work under Stark. We thought if the 10% was fair market value for the management services, and you didn't adjust the 10% based on referrals, so you didn't like move it up to 11 or down to nine, it was, so we thought that was fine. And even though the total dollars that might be paid to the manager could increase if the physicians who owned the management company made more referrals, we understood the stark rules to allow a fixed compensation at fair market value. Now, the way they're expressing this test of volume or value and saying that if, if you are calculating the compensation using a mathematical formula that includes the physician's referrals or the value of their referrals as a variable in that formula, we believe that would take into account the referrals. And they use an example that would seem to suggest that that kind of a management arrangement would not work. And they now view that that 10% as essentially taking into account the physician's referrals because the total dollars increase. And so, you know, we're still sort of wrapping our head around this because, um, you know,<laugh>, it's hundreds and hundreds of pages of commentary and, and kind of describing and explaining different things, and there's a new indirect compensation arrangement exception that we're trying to understand how that applies to. Um, but my, my takeaway, and I, I've talked to, you know, a bunch of other people about this is that it may be that that kind of a management fee arrangement would no longer work under the new rules. So that was a bit of a surprise and potentially a huge surprise if it turns out I'm right and those don't work anymore.
Speaker 2:Yeah. That, that can certainly be significant just thinking of all the co-management arrangements and, and other types of arrangements out that are out there. So, um, it'll be interesting to see how the, the thinking evolves and as we all kind of dig into it and, and tackle this, uh, that's certainly a significant, uh, impact.
Speaker 5:And there's not, I mean, the other thing just, just from a timing perspective, I mean, these rules go into effect next month, right? Right. So there's no lot of time to get to the bottom of this. So
Speaker 2:Any other surprises? Um, and, and I don't know if you compared, you know, proposed versus final, but, but you know, that certainly seems like a potential, you know, big change that, that everyone in the industry and, and legal counsel needs to understand quickly, as you know, Ben. Um, any other, um, either surprises or, um, you know, pleasant or unpleasant? Uh, just, just curious what you, you saw there?
Speaker 4:Uh, sorry, I can go first. There are so many, honestly,
Speaker 2:<laugh>, now we're getting to the good stuff. So<laugh>,
Speaker 4:How much time do we have? Right. Uh, I do think, um, a little more discussion on indirect competition arrangements, uh, might be helpful because I do see that as, as a pleasant and great surprise. So the proposed rule, um, did take out, uh, the reference to varies, uh, as, as part of the test for what makes an indirect compensation arrangement, um, without a lot of discussion in the commentary. Uh, but the final rule made a more significant change to what it means to be an indirect compensation arrangement in the first place. I mean, among other requirements now, um, you have to look at the, at the compensation, it's not just whether it varies, which used to be the test which would sweep in a, a large number of arrangements, but now you also have to look at the individual unit of compensation and is it above fair market value or is it taking into account referrals? It, it's a much, um, tougher test, I would say. So we, we think that many arrangements, which used to be an indirect compensation arrangement and thus have to meet an exception under Stark, may now not fall under Stark. So that's, um, again, one that we'll be thinking through and processing, but potentially very helpful.
Speaker 5:Just these are smaller things. But, um, one of the things just, uh, going back to this kind of, uh, in perc performance or trying to fix things, um, d during their term, there, there, one of the ongoing, uh, sort of questions that we've had, um, is, is whether you can amend arrangements during the first year. Um, and there has been some, I don't know, sort of back and forth over the last several years about this. There was some, um, uh, commentary actually in some of the covid waivers that just came out, um, this summer. And there were some additional commentary, um, in, in the final rule now, um, clarifying that, um, it is cm s's long-standing position,<laugh> is the way they kind of, they couch these, these things. So it was never confusion, but they're just clarifying this was their long standing position that you could arrange, um, um, amend, uh, arrangements during the first year so long is at the time when you arranged, you amend them, you meet all of the, um, elements of an applicable exception, which is good news, I think, yes, that there's some additional clarification around that. They also, there's some interesting language where, um, they went a step further and, and there's a sort of a hanging sentence that says, uh, if you're changing the compensation, if that's all you're doing, that might not even need to be signed. You could just sort of change the compensation, document it in some, some way, and that wouldn't require like a full blown amendment that's signed by both parties. So, um, all within this theme of, of, you know, trying to be as flexible as possible. Um, so I view that as a positive thing as well.
Speaker 3:I I, I would, yeah. And I would, I agree with what, um, Ben just said. I, and I actually think, I mean, in some ways it's kind of revolutionary because, you know, the personal services arrangement exception and lease exception, they had always required an arrangement, you know, to be for a term of at least one year. And that was, uh, kind of a real straight jacket, you know, in the early days of the Stark Rule. And it's almost mind blowing to me that TMS is now saying you can change the arrangement as frequently as you want even during the first year, even if you're changing the compensation to pay them more for the same services, as long as it's fair market value. Um, I mean, there's just so much leeway there. And they say that, you know, the arrangement as modified has to have a term of at least one year, but essentially, you know, you could, you could enter into arrangement on January 1st and on February 1st amend it for, you know, with the stated term of the year and then change it again on March 1st and April 1st. I mean, they caution that if you do it too often, you know, you might raise some eyebrows obviously, but it's, it's really a remarkable, I think, you know, loosening
Speaker 2:Yeah, that's a big change just in, in the, the arrangements that we work on the, the year and, and not being able to move. It has always been a, a big topic of conversation. Um, it almost puts more onus on, you know, showing why I, if you do make a change, making sure that you document why and making sure that, you know, the, if, if compensation is moving, I think it's gonna put just a little more onus on, on the, you know, the, the parties to make sure that's documented as to why. And, and again, making sure that it falls within an exception. So, um, but probably gives a little more leeway to things happen and, and things need to change at times. And, and so that's, that's where we've run into it and, and seeing it, it's been a hindrance to, to probably necessary things.
Speaker 3:It, you know, the one, the one thing that concerns me, and I'm almost cautious to say this out loud, but, um, traditionally fair market value has been measured at the starting point of the agreement mm-hmm.<affirmative>, and, you know, see, and so you, you know, if you, if you draw up a one year contract or one year lease and the marketplace changes around you so that, you know, rents go up or down or you know, comp changes, you are still fine because it was fair market value when you signed the agreement. But now that you could change your agreement, you know, every day, I guess I wonder now if that might be a trap for somebody who signs like a, a rental agreement, like a three year lease and then the marketplace changes around them. Is somebody gonna say, well, you know, you could have amended your lease to raise the rent and stayed within Stark, therefore your failure to do that, you know, was a gift to the doctor because Yeah, you left the rent. Now I, I don't want to encourage the whistleblowers, but you know, I mean that that's, you know, sort of the, the, the rule of unintended consequences. Like I don't, I think you're still fine because you have assigned lease and most landlords don't sort of jack around their tenants every month just cuz they think they can, but it, it does, it does kind of raise that question.
Speaker 2:Yeah, for sure. That, that'll be interesting to see. Uh, another one, it, we'll see you once it hits the real world and, and we'll see how these play out and, and, uh, I'm sure they'll, they'll be, you know, lots of good unattended consequences. Um, you know, we talked about the value-based piece, which I think people are most excited about, but then we'll, we'll see what the, what, what the new, new issues and new unintended consequences are. Um, Amy, you mentioned earlier about, you know, fair market value commercial reasonability, and, and before we started the recording, you know, kind of talked about what, what we think about from a, a evaluator point of view. Um, you know, I can tell you that I've been very interested in the, the cr um, definition changes. Profitability is a, a big one. Um, I know in 2015 there were a number of cases kind of towards the end of the year that came out that that really for the first time brought in commercial reasonability as being sort of the, the tool to, to say this is not good. And profitability was a focus of those. And, and that, um, you know, similar to what you said, there are lots of reasons why an arrangement may be unprofitable, but it's still is commercially reasonable. Um, I can think particularly for, you know, community need if it's a a not-for-profit institution and, and other other reasons. And so it, it'll be nice to have a little more, um, direct, you know, directness to that because I think there, there's, there's lots of reasons why an unprofitable arrangement could still be commercially reasonable depending on facts and circumstances. So I, I I think that'll be a good one. Um, but still, um, haven't dug into that definition a lot, um, but it's still probably a little more gray in that area. And so it'll, it'll be interesting to see how that one plays out. Um, and then also with fair market value re removing that term value, you know, volume or value, it sounds like they removed that, but then they added in this new mathematical piece to kind of be a part of it. So haven't dug into to that as much, but, um, we'll, we'll spend some time really, you know, understanding how that may impact, um, the way we, we view fair market value and the way we craft our opinions. Um, but, but certainly the CR one is, is an interesting one.
Speaker 4:Yeah. And ultimately I think, I think it's helpful the, to remove that language because part of the purpose, and it's in the commentary, is to explain that these are independent requirements. Mm-hmm.<affirmative>, it takes away the argument, well, it's not fair market value, so it must not be commercially reasonable. You, you can't really, you know, mix and map. They're, they're each independent and so, right. I think that might be, um, helpful.
Speaker 2:So we sort of have three, they're sort of the three pieces now, and they're all kind of three independent from one another. If I'm, if I'm hearing you right,
Speaker 3:I mean, one of the things that's interesting about commercial reasonableness, which, you know, that test under the compensation exceptions has risen in importance over the years. And as you point out heard, there have been some cases that really made hay with that test and said that arrangements, challenged arrangements is not being commercially reasonable. Mm-hmm.<affirmative>. Um, so one of the things that we're seeing more and more is people documenting it upfront, why they think, not just why they think it's fair market value using, you know, benchmarks or evaluation expert, but why they think it's commercially reasonable and explaining, you know, what the need is for this particular service. It may, it may lose money, but there's a requirement, you know, maybe a regulatory requirement to have that service, or they have, there's a community need for that service. Um, and so, you know, we're seeing folks document that and, and, and sometimes valuation folks such as yourself who will give an opinion on a commercial reasonableness, you know, they'll have, uh, questionnaires or, you know, or a set of, uh, information that they draw from a client in order to verify that the arrangement is commercially reasonable. Um, and it makes sense, you know, from a business standpoint without regard to referrals.
Speaker 2:Yep, absolutely. And, and that's when you start looking at payer mix and, and you looking at kind of what the, what the need is. And, and there's lots of different tests that you look at. So, um, I, I think, um, yeah, any, any guidance we get on that, uh, and any more, uh, you know, kind of a clearer line on that one I think is gonna be very welcome to, to lots of people. So, you know, as we kind of made it through, um, our, our different areas, the value-based piece, the compensation arrangement, um, piece, and then sort of the imperfect performance. Um, do y'all have any, any other, um, nuggets or any other pieces that are, that are in this release that, that you think people want to know about or are concerned about? And, and just kind of, is there anything else that we, we, we've missed here?
Speaker 3:I mean, I, I'll throw out one quick nugget, which is a clarification of what counts as a designated health service, um, particularly on the inpatient outpatient hospital side. It used to be because all inpatient outpatient hospital services are designated health services, they've now clarified that if there's something that's ordered for an inpatient, for example, that doesn't affect the D R G, then that's not considered to be, um, a designated health service. So that's very helpful because it needs to be, you could have like a bad, um, financial arrangement with an anesthesiology group, and you'd be afraid that it had somehow tainted, you know, all your surgeries, um, because you know, the anesthesiologists are, are giving, you know, but now I think you would take a different approach on that and say, well, you know, the anesthesia that was provided didn't change the D R G. And so, um, you know, we, we fact that we, that we don't have to consider them there to have been referrals to the hospital from the anesthesiologists in those situations. So that's just kind of a little bit of a nugget, but it, it's actually can be, can be pretty helpful when analyzing certain arrangements with, with hospital-based physicians.
Speaker 2:So could that have the, the effect of just reducing potential exposure for if there's a violation?
Speaker 3:Exactly. Okay. It could, it could mu very much kind of limit the Medicare collections that are tainted by a bad financial relationship or maybe mean, or might even mean that there aren't any tainted depending on, you know, who the physician is and, and kind of what they order in house at the hospital. But that's, that's the kind of thing, like there's so much in this rule, right, to talk about that there's like these little nuggets that are lying around and you're like, oh, look at this
Speaker 6:<laugh>.
Speaker 3:You know, but, and people aren't even talking about it, but it could make a big difference in particular situations.
Speaker 2:Well, I always, you know, joke, um, probably shouldn't joke, but, um, back to cr um, it, it's like that, that was in the Stark Law for such a long time. Um, but everything, you know, all the commentary, all the work, everything was about fair market value. Um, and it's like one day the, you know, CMS or they discovered this new shiny, new shiny tool that's been sitting there and they can, they can pick it up and, and use it. Um, so I'm sure this is, uh, you know, similar things as well that what, what's lying in there that, that we don't, don't, don't even know is important right now. That will become important at some point.
Speaker 3:I think that's right. Yeah. I mean commercial and you're right about commercially reasonable. Yeah. When, when the early days of Stark, everybody was always obsessing about fair market value, but mm-hmm.<affirmative> people didn't talk much about commercially reasonable and then it kind of got discovered, you know, fair market value's, evil, twin,
Speaker 6:<laugh>,
Speaker 2:Ben, Amy, anything else to add?
Speaker 5:No, I don't, I was gonna say, I don't know that I have any other big nuggets to add. As Charles said, there's a lot in there<laugh>, so there, there's more that we'll uncover too. But, um, I think we've hit, we've hit most of the, most of the big ones.
Speaker 2:Well, this has certainly been a good conversation, um, lots to unpack, lots that people will be talking about. Um, hopefully, you know, over the holidays, um, if people can't sleep, they can, uh, dig into the, the Stark Law. Uh, um, but you know, we have lots of good stuff to, to read here. Um, certainly appreciate y'all, um, in the commentary that you're able to add to the community and, and add, add. Um, I was, I showed earlier that I have a copy of the book and, uh, I've referred to it many times over, um, the years and, and, uh, you know, glad to have this conversation and certainly glad for all your work that you do in this area and, and really appreciate the conversation today.
Speaker 3:Thanks very much. Yeah, we're definitely looking forward to, uh, writing the seventh edition. Gonna get started right away,
Speaker 6:<laugh>,
Speaker 3:Get that out as soon as we can.
Speaker 2:Well, perfect. Well, I hope y'all have a happy holiday and, um, we look forward to, to seeing that soon.