A panel of industry thought leaders met on February 2nd to discuss how best to monitor and complete internal audits of referral contracts during the Navigate Contracting Amid Health Care Fraud Regulations webcast hosted by Moss Adams. The discussion was moderated by Lawrence Vernaglia, Partner and member of the Heath Care Industry Team at Foley & Lardner LLP, and included panelists Lori Laubach (Partner at Moss Adams); Calvin Swartley (Managing Director at Moss Adams); and Jim Passey (VP, Chief Audit & Compliance Officer at HonorHealth). Below are a few major takeaways from the discussion.

The program focused on advice for health care providers around auditing arrangements with referral sources - particularly physicians.  The discussion, led by Lori Laubach, addressed both core practical recommendations for carrying out a successful audit and important updates to two major regulatory structures published on December 2, 2020: the Physician Self-Referral (Stark) exceptions and the Anti-Kickback Statute (AKS) safe harbors. While there are a number of important new changes to these regulations, which Foley covered in a recorded webinar earlier in January, the auditing discussion also highlighted two updates from the new regulations-a new Stark exception for Limited Remuneration to a Physician (42 C.F.R. §411.357(z)) and a significant change to the Anti-Kickback Personal Services and Management Contracts Safe Harbor (42 C.F.R. §1001.952(d)(1)).

  • The new Stark exception for Limited Remuneration to a Physician refers to the remuneration from an entity to a physician for the provision of items, or services, provided by a physician-personally or through an employee, a wholly owned entity, or a locum tenens physician, but not through an independent contractor-to an entity that does not exceed an aggregate of $5,000 per calendar year, as adjusted for inflation:
    • if the compensation is not determined in any manner that takes into account the volume or value of referrals or other business generated by the physician;
    • the compensation does not exceed the fair market value of the items or services; the arrangement is commercially reasonable; and
    • arrangements for the lease of or use of office space or equipment do not violate the prohibitions on per-click and percentage-based compensation formulas.
  • Personal Services and Management Contracts AKS Safe Harbor: this amendment now provides protection to certain payment structures which no longer require that the "aggregate" compensation be set in advance. The final rule also eliminates the requirement that, where the agreement is for a periodic, sporadic, or part-time basis, the agreement specifies exactly the schedule of such intervals, their precise length, and the exact charge for such intervals.

Additionally, Mr. Vernaglia touched on COVID "blanket" waivers regarding physician financial relationships and mentioned that, while CMS issued extremely helpful guidance for providers at the beginning of the pandemic, if organizations meet the Stark blanket waivers, they will also be protected from AKS risk under a policy statement from the Office of the Inspector General of the U.S, Department of Health & Human Services. "If you're auditing transactions during the public health emergency, or arising thereafter, measure twice to see if you met the waivers," Vernaglia advised.

The discussion then focused on fair market value considerations, presented by Calvin Swartley. Most notably, Swartley reviewed the revised definitions of the "big three": Fair Market Value, Volume or Value, and Commercial Reasonableness as they related to the new rules:

  • Fair Market Value: The" value in an arm's length transaction, consistent with General Market Value of the subject transaction." The fair market value of equipment and office space leases are determined without taking into account intended use or, in the case of office space, proximity to the lessor if the lessor is a potential source of referrals.
    • Additionally, there was a revised definition to General Market Value that recognizes that Fair Market Value is an individualized determination, but some key considerations should include assets, compensation, and rental of equipment or office space.
  • Commercial Reasonableness: an arrangement that furthers a legitimate business purpose and is sensible in light of the characteristics of the parties, including their size, type, scope, and specialty.
    • It should be noted that "legitimate business purpose" is not specifically defined, but conduct that violates AKS (paying for referrals) would not qualify. Additionally if you've entered into an arrangement that doesn't actually generate a profit, but it makes sense in further legitimizing the business purpose, it can still be considered Commercially Reasonable.
  • Value of Volume: Compensation considered to take into account the volume or value of referrals or other business generated only if the formula used to calculate compensation to or from a physician includes the volume or value of referrals or other business generated as a variable, either increasing or decreasing the amount of compensation in a way that directly correlates the compensation with the physician's referrals or other business generated.

Finally, the panel shifted to some insightful advice from Jim Passey of HonorHealth.  Passey stressed that with regards to the auditing scope it is important to create a list of audit attributes based on the legal requirements for physician arrangements, noting that an incorrect scope can cause organizations to have to redo work or restart the audit entirely. Some questions Passey posed for defining audit scope included how many payments is your organization choosing to audit? How should organizations choose which payments to sample? Judgmental or random samples (more representative across units) or universal (all payments in a particular category)? What is the time frame? This decision can be based on how many physician payments are made-if a limited number of payments is in the universe, going back a year isn't a bad idea, but if your organization is making hundreds of payments a month, only auditing a quarter may suffice.

To listen to some of the case studies and auditing process discussed during the session, you can register on the webinar page, and a link to the recording will be sent to you directly. You can download a copy of the presentation slides form there.


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