Even though she isn’t as popular, FMV’s little sister commercial reasonableness is a crucial consideration when determining payment for a physician service. Many recent settlements for Stark and Anti-Kickback violations stem from failure to meet commercial reasonableness standards or from lack of documentation of an agreement’s commercial reasonableness.
What does "commercially reasonable" mean?
The Department of Health and Human services has defined the term as "a sensible, prudent business agreement, from the perspective of the particular parties involved, even in the absence of any potential referrals"1. In the preamble to the Stark interim final rule, Phase II, CMS noted that an arrangement:
will be considered 'commercially reasonable' in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential DHS [Designated Health Services] referrals.2
This second definition, which is most frequently cited, implies a need to look to the market to identify other entities with similar arrangements, not just the internal needs of the negotiating parties.
Testing for Commercial Reasonableness
Determining commercial reasonableness for a physician service involves asking a series of questions about a payment for the service under consideration.
Business considerations
Determine whether the position makes sense from a business perspective, without consideration of the referrals the particular physician might have to your organization. If the position doesn’t make good business sense for the organization, it probably isn’t commercially reasonable. If instead the position relates to the number or type of referrals this physician or her affiliates make to your organization or its affiliates, it is time to rethink the arrangement.
Ask yourself:
- Is the service to be provided essential to the operation of your healthcare organization?
- Is the arrangement reasonably necessary for the healthcare organization from a business or quality perspective?
- What are the specific benefits to be derived from the position?
Facility considerations
Not all services are needed at every healthcare facility. A critical access hospital probably doesn’t need a director of bariatric surgery. Step back and think about whether the proposed position is justifiable, necessary, and appropriate for your specific facility.
Ask yourself:
- Does the volume of patients justify the service?
- Does the proposed position duplicate other services covered by other physicians or administrative staff under contract?
Provider considerations
Consider the candidate and be sure the particular physician meets the requirements and is the best fit for the proposed position.
Ask yourself:
- Do the services covered by the arrangement require a physician or could a midlevel provider or administrator perform the services?
- Does the specialty of the physician matter for performing the services?
- Is the amount of time outlined for the services both reasonable for providing the services and reasonable to demand of the physician within the context of her clinical practice?
Payment considerations
Determining whether or not a service warrants payment is the most important aspect of determining commercial reasonableness. Ensuring that the payment rate is appropriate is also key.
Ask yourself:
- Does your organization’s market necessitate paying a physician for the position?
- Are there less costly or more creative payment solutions that may serve be more appropriate for your organization?
MD Ranger’s percent paying statistic helps organizations determine how often other facilities pay for specific positions.
Percent of MD Ranger Subscribers Who Report Paying for ServiceGeneral Surgery Call Coverage61%Pathology/Clinical Lab Medical Direction49%General Cardiology Call Coverage35%Family Practice Medical Direction12%Plastic Surgery Medical Direction7%Podiatry Call Coverage4%
Documenting Commercial Reasonableness
Documentation of the steps you take to determine commercial reasonableness is important. Carefully document conversations and research/data surrounding the decision. Keep supporting documentation with the contract. In the event that you are audited, you will need to demonstrate that commercial reasonableness was carefully considered along with FMV. Types of documentation that have helped in commercial reasonableness audits include:
- Information and statistics about the hospital and the surrounding community that indicate the appropriateness of the position under consideration
- Benchmarks from published market data or other surveys
- Analytical reports that document difficulties in meeting hospital obligations or quality initiatives that cannot be met without the proposed resources
- Meeting minutes
- Email threads
- Memos between negotiating parties
Commercial reasonableness is just as important as fair market value when documenting contracts for compliance. Although a ‘gut check’ is a good place to start, documentation of market rates and organization needs is key to a strong compliance program. Commercial reasonableness doesn't have to be a mystery; using tools like MD Ranger's percent paying tables and carefully analyzing physician payments will help solve even the most difficult situations.
1Medicare and Medicaid Programs; Physicians' Referrals to Health Care Entities with Which They Have Financial Relationships 63 FR 1700 (January 9, 1998)
269 FR 16093 (Mar. 26, 2004)
.svg)
.svg)
.svg)
.svg)