Nursing HOME administrators should seek legal and valuation assistance to assure compliance
Skilled nursing facilities that pay physicians for medical director services may be at risk for violating Section 1877 of the Social Security Act; generally referred to as the “Stark Law.” Hospitals and other healthcare entities, as well as physicians and other providers, have been concerned about all aspects of this law since it was first enacted, with limited scope, in 1989 and subsequently revised and expanded in Stark II and Stark III. The scope of the Stark Law is broad enough to govern many financial relationships between healthcare entities and
Simply put, the Stark Law prohibits Medicare patient referrals from physicians who have a financial relationship with a nursing home for “designated health services,” as defined in the law. In the same way that most federal regulations affecting skilled nursing facilities rely on detailed definitions, so does the interpretation of the Stark Law. The term “referrals” includes common skilled nursing home physician activities such as establishing or approving plans of care, certifying and recertifying care needs, and is further interpreted to mean any physician orders for services paid by Medicare Part B and medications under Medicare Part D. Designated health services found in skilled nursing facilities encompass: clinical laboratory, occupational therapy, physical therapy, speech therapy, radiology, medications, and parenteral/enteral nutrients, equipment, and supplies. “Financial relationships,” as defined in the law, are interpreted as either (1) ownership by physician and/or physician's family of the healthcare entity and/or the designated health service, or (2) an arrangement whereby the skilled nursing facility compensates a physician for services, unless that compensation meets specific criteria.
Most skilled nursing facilities contract with and pay one or more physicians for
The Stark Law allows skilled nursing facilities to structure nonclinical arrangements with physicians in a way that provides exceptions, or “safe harbors,” which may provide protection to the nursing home and the physician for the financial relationship. While there are many exceptions available as described in the Stark Law, the exception that applies most commonly to skilled nursing facilities is the “personal services exemption.” To meet the requirements of the personal services exemption, and to qualify for protection under a safe harbor, the nursing
These include, at a minimum:
- The relationship between the skilled nursing facility and the physician must be covered by a written, signed agreement covering at least one year of service.
- The services provided by the physician must be specifically identified.
- The services must be reasonable and necessary for legitimate business purposes.
- The amount paid must be set in advance and have no direct or indirect relationship to volume or referrals by the physician.
- The agreement must be commercially reasonable.
- The agreement must not involve counseling or promotion of any business arrangement or other activity that violates any state or federal law; and
- The amount paid must be consistent with fair market value (FMV).
From 2004 until December 7, 2007, two methods for determining FMV, commonly called the “safe harbor rates,” were noted. Those safe harbor methods relied on either using averaged results from approved surveys or by averaging local emergency room physician hourly pay rates. Last year, the definition of fair market value was changed. Effective December 7, 2007, the definition no longer describes or refers to those safe harbor methods for determining fair market value. Without specific guidance from the Stark Law, the skilled nursing facility operator must now consider how best to determine FMV. Many skilled nursing facility operators, interested in fitting into a safe harbor, will conclude that determining the FMV of physician administrative services is best performed by an experienced, confidential, impartial party outside their organization.
An FMV assessment, to be compliant with Stark, must consider all of the factors required
Key questions to ask include:
- Is there a written agreement?
- Does the agreement specify the physician's duties in detail?
- How do the duties performed by one medical director or administrative provider enhance, overlap, or conflict with duties by another, at the same facility and are the duties necessary?
- Do the hours of service permitted under the agreement seem reasonable for the facility and its resident/patient load?
- How was the payment rate selected?
- How does the facility document the activities of the physician to determine payment under the agreement?
- What resources were used when determining the market rate?
- Does the documentation support how the fair market value was made?
Just as there are potential penalties
Barbara Landy, NHA, MBA, MHS, FACHE, has more than 25 years of healthcare experience, with more than 20 years at the management level in both hospitals and nursing homes. She is licensed in Florida as a Nursing Home Administrator, Occupational Therapy and Health Care Risk Manager. She is also a fellow