Career and Life Planning Guidebook for Medical Residents

the provider (or an immediate family member) has a financial relationship, unless an exception applies. Aphysician employment arrangement is one of these exceptions if all of the requirements are met. The Stark Law not only prohibits referring physicians from owning an interest in businesses to which they refer, unless an exception applies, but also requires that the compensation paid pursuant to the contractual relationships between referring physicians and entities to which they refer, not exceed FMV, and the arrangement itselfmust be commercially reasonable. The term “fair market value” is defined by the various Stark regulations (42 CFR § 411.351) as the value in arm’s-length transactions, consistent with the general market value. “General market value” means the compensation that would be included in a services agreement, as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party at the time of the services agreement. Usually, the fair market price is the compensation that has been included in bona fide services agreements (e.g., employment) with comparable terms at the time of the agreement, where the compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals. An arrangement is not considered to be at fair market value where a party pays substantially more for the services from a physician-owned entity than it would from a non-physician-owned entity for the same or similar services. The definition of “fair market value” according to the Anti-Kickback Statute is generally the same as under the Stark Law. Fair market value compensation under the Anti-Kickback Statute is to be reflective of an arm’s length transaction and not to be determined in a manner that takes into account the volume or value of any referrals of business between the parties reimbursed under Medicare or Medicaid. The Anti-Kickback Statute makes it a felony to offer, pay, accept, or solicit payment for the referral of, or the arranging for the referral of, items, services, or patients reimbursedbyany federal or statehealthcare program. The Anti-Kickback Statute has safe harbor provisions that allow for certain business practices, including physician employment arrangements, which would not be treated as violations of the Anti-Kickback Statute under very specific facts and circumstances. The IRS restrictions on private inurement and private benefit control and regulate acceptable actions of tax-exempt organizations. Internal Revenue Code Section 501(c)(3), which governs tax exempt organizations, does not prohibit transactions with persons in controlling positions as long as the transactions are consummated at arm’s-length, in good faith, and are reasonable. However, when the interests of the tax-exempt organizations are sacrificed for the benefit of private interest, tax exemption can be lost because the organization is serving private, not charitable interests. A hospital or health care organization that is exempt from federal income tax must be operated exclusively for charitable purposes. No part of an exempt organization’s net earnings may inure to the benefit of a private shareholder or individual. The primary purpose of the exempt organization must remain to serve the public interest rather than a private interest. Under IRS regulations concerning excess benefit transactions with respect to services provided, the FMV of services is the amount that would ordinarily be provided for like services by like enterprises (whether taxable or tax-exempt) under like circumstances (i.e., reasonable compensation). The IRS further defines “fair market value” in Treasury Regulation Section 20.2031-1 as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” Commercial Reasonableness (“CR”) is not as well defined in the laws and regulations, however an agreement will be considered Commercially Physician Compensation 231 WWW.PHYSICIANCAREERPLANNING.COM