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Determining fair market value of consulting services
By Elizabeth E. Hogue, Esq., Burtonsville, MD
As many providers already know, the so-called "Stark law" prohibits physicians from making referrals to providers who render "designated health services" (DHS), if referring physicians have an ownership or investment interest in, or compensation arrangement with, the provider. Designated health services generally include home health, home medical equipment, infusion services, and outpatient hospital services, among others. Likewise, providers of DHS generally cannot bill for services provided to patients referred by physicians who have ownership or investment interests in or compensation arrangements with them that violate the Stark law.
Exceptions to these general rules were published in the form of final regulations on Jan. 4, 2001, the so-called "Phase I" Stark rules. On March 26, 2004, "Phase II" Stark regulations were published as interim final rules in the Federal Register. These Phase II regulations further clarified exceptions to the statute described above.
The Phase II regulations provided specific guidance regarding the use of physicians to provide consulting services to physicians who also make referrals as follows:
(1) Many providers utilize the services of referring physicians as consulting physicians to their organizations. These consulting physicians perform a wide variety of appropriate services to providers. There is an exception for personal service arrangements that may include payments to referring physicians for consulting services.
In order to meet the requirements of this exception, providers must:
(2) Also, as described above, providers must pay for services from consulting physicians at fair market value. Many providers have asked how they should determine fair market value.
Currently, the Stark II rules make it clear that fees paid to referring physicians for their services will be considered to be at fair market value only if hourly payments are calculated using either of the following two methodologies:
As of Dec. 4, 2007, the above formulas will no longer apply. Nonetheless, providers must be able to demonstrate using some reasonable basis that compensation paid to consulting physicians who also make referrals is at fair market value.
Providers could, for example, conduct what amounts to a "salary survey" of providers that operate in the same geographic area regarding the amount per hour that other providers pay consulting physicians. Such a survey is likely to produce a range of hourly rates. Providers should document the results of these surveys and pay physicians at rates that do not exceed the highest end of the range.
The above described change with regard to the use of formulas to calculate compensation at fair market value is an appropriate and very welcome change. The formulas proved difficult, if not impossible, for home care providers to use. Providers can now avoid the frustration of trying to comply and breathe a sigh of relief.
This article originally appeared in the October 2007 issue of Hospital Home Health.