Journal of
Corporate
Renewal
8
April
2015
July 8-10, 2015 | Shanghai, China | Hyatt on the Bund | tmaasiapacific.org
space leases, and other relationships
between buyers and sellers that are
integral to healthcare transactions.
Referrals that are found to violate the
Stark Law can result in sanctions,
such as an inability to bill Medicare
or Medicaid or the denial of payment
for the prohibited referral, or a
mandatory return of any prohibited
referral payments that were already
made. Penalties include civil fines
of up to $15,000 per service or, if the
arrangement’s principal purpose is to
circumvent the ban on certain referrals,
$100,000 per service or arrangement.
Prosecuting violations of the AKS
and FCA has resulted in significant
monetary recoveries by the U.S.
Department of Justice (DOJ). For
example, the DOJ reported that in
fiscal 2014 recoveries under the FCA
totaled a record $5.69 billion, $2.3
billion of which was related to federal
healthcare programs. A cursory
Internet search reveals numerous
successful prosecutions of AKS and
FCA violations against healthcare
businesses and individuals, many of
whom had no real understanding of the
healthcare regulatory environment.
In light of these laws and regulations,
it might appear to someone reviewing
the facts and circumstances of the
earlier hypothetical in hindsight that
both the potential buyers and the sellers
tried very hard to document their
knowing and willful intent to influence
patient referrals by way of a transaction
and compensation arrangements.
Determining Fair Market Value
Given the range of transaction types
and business arrangements that can
be found in the healthcare sector and
the willingness of buyers and sellers to
get deals done, unwary parties to these
transactions could very quickly find
themselves in violation of several laws.
Fortunately, exceptions, safe harbors,
and specific guidance abound. They
can be found in the Code of Federal
Regulations (e.g., 42 C.F. R. § 1001.952, 42
C.F.R. § 411.354), as well as in numerous
U.S. Department of Health & Human
Services (HHS) Inspector General
advisory opinions and elsewhere. Of
course, engaging experienced legal
counsel to navigate these complex
issues is not only wise, but also crucial.
Aside from following specific guidance
and safe harbors with respect to allowable
terms and structures and avoiding
those that are explicitly prohibited,
any consideration or compensation
included in a transaction or arrangement
should be consistent with fair market
value (FMV), and any arrangement
should be commercially reasonable.
FMV is defined in IRS Revenue Ruling
59-60 as “the price at which the
property would change hands between
a willing buyer and a willing seller
when the former is not under any
compulsion to buy and the latter is not
under any compulsion to sell, both
parties having reasonable knowledge
of relevant facts.” At first glance, and
in a somewhat circular manner, it
would seem that what a willing buyer is
willing to pay would help establish FMV.
However, this is not the whole story.
In recognition of the complex referral
relationships that exist in healthcare,
the definition of FMV for the purposes
of healthcare transactions has been
amplified upon in many texts, including
in the Stark Phase II final rule (Federal
Register, Vol., 69, No. 59, page 16128,
March 26, 2004), as follows:
