One of the most promising changes created in the new Stark regulations, published by HCFA last year, is the proposed "fair market value" exception to the Stark law's general prohibition of referrals of certain health services between physicians and other providers with whom they have financial relationships.
The proposed exception would allow financial arrangements that technically violate Stark, if the payments stay within commercially reasonable parameters. This could apply, for example, to incentive contracts between hospitals and physicians already in the community — a situation currently prohibited under Stark.
Although this regulation is not yet law and may be modified by HCFA before enactment, careful study rewards us with insight into HCFA's current and proposed approach to the Stark law. To satisfy the fair market value exception, six conditions must be satisfied, including these two:
Let us examine these two requirements in detail, for they offer much guidance for present financial relationships.
The transaction must be commercially reasonable, and must further legitimate purposes of the parties. I find no useful elaboration or clarification of this requirement in the new regulations or in HCFA's notes on them, and presume that providers would need to apply the same analysis that must be applied to any arrangements of concern under the antikickback laws. So, as examples:
This is one reason why these sorts of arrangements must be carefully crafted, with assistance from health lawyers.
Finally, the transaction must meet one of the safe harbors under the antikickback statute. The number of safe harbors under the antikickback laws is growing. They set up conditions for transactions where, if the physician practice or other health care provider complies with each condition, the government will probably allow the transaction to proceed even if it technically violates the antikickback law. Safe harbors are acceptable to HCFA because they set up circumstances where overutilization or other inappropriate behavior is extremely unlikely. Among antikickback safe harbors are special rules addressing space leases, equipment leases, use of personnel, physician recruitment incentives, managed care discounts and referrals, other discounts, joint ventures, and practice sales.
A provider who fails to conform completely to an antikickback safe harbor's definition may not necessarily be found to have violated the antikickback laws, but as a practical matter, it is prudent to try to conform to a safe harbor as much as is possible.
The antikickback laws coexist with the Stark law; neither is more important. The new fair market value exception to the Stark law thus requires that the physician's arrangement also satisfy the conditions of an antikickback safe harbor whenever possible, in order to ensure that the relationship will not encourage overutilization or other inappropriate behavior.
However, this is not an ironclad rule. Physicians can comply with the antikickback statute even when their arrangements do not satisfy one of the safe harbors. After all, the antikickback law has to do with the parties' motivations for paying something of value. Therefore, if the transaction does not satisfy a safe harbor under the antikickback law, HCFA will still allow it to satisfy the fair market value exception if it complies with the general requirements of the antikickback law. Basically, this means that nothing about the transaction should suggest that one of its motives is to induce referrals or other business between the parties.
HCFA hopes the new fair market value exception will allow providers to move forward with appropriate transactions that fail to meet other exceptions because of some technicality.
On the other hand, the new exception does not mean that any otherwise noncompliant arrangement is acceptable as long as it tracks fair market value for the activities between the parties. For example, suppose an equipment lease arrangement failed to satisfy the Stark law's lease exception because the payment was per use, and the lessor was in a position to refer business that would utilize the leased equipment. In this case, the lease could not qualify for the new fair market value exception because it would still compensate the lessor in relation to the volume of the lessor's referrals.
Nonetheless, I believe HCFA will maintain enthusiasm for the new fair market value exception, as the proposed regulations wind their way to finality. It is a useful and welcome addition to the Stark law arsenal. Further, it suggests that HCFA may be less likely to pursue violations when they relate solely to technical failures under the existing exceptions, and do not suggest payment for referrals.
But be careful before you apply my comments aggressively. I believe that HCFA's creation and explanation of the fair market value exception demonstrates the agency's reluctance to pursue violations that relate solely to technical failures under the existing law but that do not suggest payments for referrals.
But HCFA has not actually stated any such reluctance, and even if we correctly infer it, Stark law violations may also be pursued by the Health and Human Services Department's Office of Inspector General and by the Justice Department, which are not bound by anything we read into HCFA's discussion of the new regulations.
Finally, even if you agree with my belief as to the present meaning of the fair market value exception, it will only give you comfort against arrangements that violate Stark solely on technical grounds. If the government investigates you for other violations, it will certainly throw technical Stark violations into the mix.