Issue link: https://beckershealthcare.uberflip.com/i/576097
76 Executive Briefing: 2. Identifying Applicable Law: There are various laws and regulations that may affect the goods and services for which parties may permissibly provide or accept remuneration, as well as what form the remuneration may take, and how or if a specific definition of fair market value applies. If an assessment of fair market value and commercial reasonableness is to assist with regulatory compliance, it rea- sonably shouldn't include the assignment of value for activities or items that are prohibited or otherwise proscribed by appli- cable laws and regulations. Caution is warranted in selecting comparables when different laws and regulations may apply based on different circumstances and jurisdiction. Knowledge- able counsel can assist in identifying and interpreting applica- ble laws and regulations, and can be helpful in appropriately defining the arrangement as well as communicating the appli- cable laws and potential valuation pitfalls to a valuation analyst. 3. Other Arrangements or Payments Hospitals might pursue their quality and value goals from multiple angles simultaneously. They may implement employ- ee bonus programs that provide for incentive compensation to employed practitioners for achievement of specific quality and efficiency goals. They may have service-line co-management agreements, gainsharing agreements and/or a "hospital quality and efficiency program" providing compensation for develop- ment and achievement of departmental or hospitalwide quality and efficiency targets. They may sponsor and/or participate in an ACO or clinically integrated network that distributes money to participating physicians and other providers as compensa- tion or incentive for achievement of quality and cost-reduction targets. Given the importance and complexity of creating and reinforcing changes in provider behavior, the co-existence of multiple quality and value-focused arrangements is common and generally reasonable. Separate remuneration for related but distinct items or services is also generally reasonable. How- ever, duplicative payments — meaning multiple payments for the same thing from the same or different sources — are gener- ally fair market value and commercial reasonableness pitfalls. In a Federal False Claims Act case that settled for $21.75 million in early 20157, the qui tam relator alleged violation of the Stark Law and Anti-Kickback Statute through a hospital's payment of $1,000 per day for "medical directorship" (quality supervision) duties that allegedly did not involve any legiti- mate additional work or responsibilities in excess of those that physicians performed (and for which they received professional fees) when performing screening colonoscopies. The essence of the allegation was that the medical director compensation was not fair market value and not reasonable because it was duplicative of other payments. If the hospital or physicians obtained valuation analysis for the questioned services (and it is not clear whether they did or not), the outcome of that valua- tion analysis would be most reliable if it examined and account- ed for the need, reasonableness and incremental value of the medical director services in the context of the other services being provided. Arrangements to promote quality and value in healthcare services are varied and complex and may be overlapping, making the process of determining the fair market value and commercial reasonableness of such arrangements daunting and perplexing. Regardless, fair market value and commercial reasonableness may be requirements for regulatory com- pliance, making their accurate determination an imperative. The considerations identified here should be of assistance for demystifying how and why certain details of arrangements can influence the process and outcome of a valuation analysis. n Sponsored by: HealthCare Appraisers, a nationally recognized valuation and consulting firm, provides services exclusively to the healthcare industry, including: business valuation (e.g., ASCs, hospitals, physician practices, dialysis centers, home health, diagnostic/treatment facilities, and intangible assets); fixed asset appraisals for furnishings, machinery and equipment; fair market value opinions for compensation and service agreements (e.g., employment, ED call coverage, medical directorships, collection guarantees, equipment lease/use arrangements, and service/co-management arrangements); consulting and advisory services (including valuation for financial reporting); and litigation support. Everything Old is New Again and Vice Versa