Compliance

Congress Considers Changes to Stark and AKS

The Department of Health and Human Services announced a “regulatory sprint to coordinated care” in June 2018, a new initiative to remove regulatory barriers that impede the transition to a coordinated, value-based health delivery system. The debate includes a discussion on the impact of Stark and AKS regulations. This summer, government agencies have been attacking these questions head on. Two Requests for Information have been published and CMS held their comment period on Stark, or the Physician Self-Referral Law. The OIG has focused primarily on AKS and how to add or alter AKS safe harbors. The comment period will end at 5pm on October 26.

It is unclear how AKS and Stark rules impede value-based care. Many argue that laws like AKS were written with a pay-for-service model in mind, and not the pay-for-performance model that today’s health leaders are working to build. Gainsharing and co-management agreements are two of the types of physician agreements that must be structured carefully to address potential regulatory concerns. The OIG aims to gather feedback on the details and exceptions to AKS that are particularly difficult for health care organizations to navigate as well as identify new safe harbors or changes that would actively promote value-based care.

Various organizations have submitted responses to both RFI’s. In response to CMS’s RFI, The American Hospital Association wrote:

 

To reach the full potential of a value-based system, the Stark compensation regulations must be reframed to meet the objectives of the new system, through the creation of a new exception designed specifically for value-based payment methodologies, and reforms to the personal services, employment, and risk sharing exceptions.

 

What should we expect moving forward? For now, officials only seem to be considering small adjustments to the laws and regulations, in response to the large number of comments from industry leaders. How far they’ll go after that, we’ll have to wait and see.

Do you have further questions about how to structure physician contracts and document compliance? Does your organization need support to build a strong compliance program? We would love to talk to you. Email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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CIAs: What You Need to Know

When a hospital or other healthcare entity violates the False Claims Act, there are consequences. Often these include entering into a Corporate Integrity Agreement (CIA) with the U.S. Office of the Inspector General (OIG). The purpose of a CIA is to strengthen an organization’s compliance program with policies and procedures approved by the government. The OIG must have confidence that the organization is taking steps to prevent new violations.

What is a Corporate Integrity Agreement?

A CIA is a tool used by the OIG to address violations at healthcare organizations through policies and procedures designed to enforce compliance with regulations. A CIA is usually coupled with a civil settlement between the provider and the government to avoid exclusion from federal health programs.

Who is subject to a CIA?

CIAs have been issued for all types of healthcare entities ranging from hospitals and health systems to physician practice groups, individual physicians, post-acute facilities, dialysis companies, pharmaceutical manufacturers, durable medical equipment suppliers, and many more.

Historically, the OIG always issued a CIA when violations occurred. However, in recent cases where the OIG is confident that the violation(s) will not reoccur, a CIA has not been put into place. Because the OIG can assess a violators’ capacity to change noncompliant behaviors, they can identify organizations who are low risk for repeat violations. To determine whether or not an organization should enter into a CIA, the OIG looks at many factors, including how long ago the violations occurred, whether there was a pattern of misconduct, the compliance procedures in place, and other elements. If an organization self discloses their violations, the OIG may not require a CIA because self disclosure is evidence of an effective compliance program.

What’s in a CIA?

CIAs generally focus on one or more categories of violations: claims review, focus arrangements, quality of care, and covered functions review. CIAs are fairly uniform; however, most include specific requirements tailored to the violation(s) that led to the settlement. CIAs typically run 3-5 years.

All CIAs require:

  • Establishment of a compliance officer and compliance committee
  • Imposition of compliance duties for the Board of Directors
  • Adoption of a code of conduct and applicable policies and procedures
  • Training and education on the code of conduct, policies, and procedures within the first 90 to 120 days as well as annually thereafter
  • Internal reviews in addition to reviews by an Independent Review Organization (IRO) that organizations hire as a third party opinion
  • Screening for ineligible persons, i.e. those excluded from federal health programs and those who have convictions that entail mandatory exclusion
  • Reporting to the OIG of ongoing investigations or legal proceedings, any alleged fraudulent behavior, repayment of overpayments in accordance with the ACA, as well as any other compliance breach or any change in the location or structure of the organization

The OIG publishes all of the CIAs it issues onits website.

Why would an organization accept a CIA?

Typically, an organization enters into a CIA in order to continue participation in Medicare and Medicaid. The OIG will only offer a CIA as an alternative to exclusion if the situation merits it.

In “An Open Letter to Health Care Providers” written in November 2001, the OIG sought to clarify how they determine if a CIA is a good alternative to exclusion. They outlined eight factors:

  1. Whether the provider self-discloses the alleged misconduct
  2. The amount of monetary damage to Federal programs
  3. Whether the case involves a merger or acquisition where the buying entity is liable for the selling entity’s past and future liabilities
  4. Whether the provider is still participating in Federal health care programs or whether they are still in the line of business that gave rise to the fraudulent conduct
  5. Whether the alleged conduct is capable of repetition
  6. The age of the conduct
  7. Whether the provider has an effective compliance program and would agree to limited compliance or integrity measures, and if they would agree to annually certify such compliance to the OIG
  8. Other circumstances, as appropriate. 1

Who enforces CIAs?

Once an organization is under a CIA, the OIG assigns a Monitor. The Monitor has a collaborative role, and works primarily with the organization’s Compliance Officer. The team ensures the compliance program is preventing violations by identifying problems and correcting them. Even organizations under CIAs have compliance challenges; in fact, the OIG has been suspicious if they don’t hear of problems in organizations under a CIA.

What happens if an organization fails to comply with a CIA?

Failure to meet CIA obligations can result in a fine, often of $2,500 per day after the missed deadline outlined in the CIA. While it is rare, a “material breach” of the CIA can lead to a five-year exclusion from federal programs. CIAs define a “material breach” as:

  • Repeated or flagrant violations of the CIA’s requirements
  • Failing to report a reportable event, take corrective action, and make the appropriate refunds
  • Failing to engage and use the required Independent Review Organization or Monitor
  • Failing to meet a deadline or request for information from the OIG 

1An Open Letter to Health Care Providers written in November 2001: https://oig.hhs.gov/fraud/docs/openletters/openletter111901.htm

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Best Practices for Physician Contract Audits

An internal audit can provide valuable information on contracting practices and identify opportunities to implement change. Internal audits are periodic, methodical examinations of all contracts and the approval process. They provide an excellent way to document your organization's commitment to compliance. Even if a contract was approved when it went into effect, vague language, complex formulae, lax recordkeeping, and physician relationships can make adherence to your compliance protocols and standards challenging. A periodic, objective and disciplined review of contracts is always a good idea. MD Ranger provides subscribers with web-based tools and reports to make internal audits more efficient and effective.

Goals of an Internal Audit

An internal audit of physician contract payment rates will:

  • Provide oversight of organization-wide contracting practices. Conducting an internal audit can identify differences in contracting practices and rates across specialties or facilities. It is sometimes difficult to monitor the significance of differences with a large number of contracts that are negotiated by multiple parties; auditing may identify some non-compliant practices within an organization.
  • Uncover potentially non-compliant agreements. An internal audit can help identify contracts which have payment rates above typical market benchmarks or reveal contracts that need better supporting documentation. An audit can bring these contracts or practices to the attention of your legal or compliance team for further review or documentation at renewal. MD Ranger's tools allow sorting of contracts by where they fall on the market benchmarks, making identification of problematic contracts simple and fast.
  • Ensure all agreements have appropriate documentation. Most organizations have at least a few unusual contracts that need additional documentation of FMV or a few that didn't go through the proscribed approval or documentation process. The audit will identify the need to improve documentation to show the source of FMV determination when the contract was negotiated and the timing of extensions and amendments. An audit should include a review of time records from physicians that document actual time spent.
  • Prevent duplicative services. An audit may reveal medical directorship positions than can be justified, either because multiple people provide substantially similar services or a contract calls for more hours than meets the FMV. Investigate how many directors are commercially reasonable for a service, or if some directors may have a more specific title that is not being adequately described. Unsure how many medical directors make sense per specialty? Use MD Ranger's Number of Administrative Positions per Service table for a gut check.
  • Check that approval process is working. Review the records for contract approvals to ensure that all contracts are processed appropriately.
  • Verify all contracts are current. Stark requires payment rates to be set in advance; hence it is important that contract renewals are processed prior to expiration. Be sure extensions are in place if contract negotiations are going to extend beyond the expiration date.

Approaches to Auditing

The Bottom-up Audit

The bottom-up approach is the most traditional an audit method, entailing a review of each contract for adequacy of FMV documentation, time records, and renewal/approval process.

The Top-down Audit

The top-down auditing approach looks at an organization's contracts and physician contracting compliance process as a whole to assess whether there may be underlying issues with the process, such as duplicate or excessive payments to individual physicians or groups. The process can be an effective tool for financial management and budgeting, as well as providing support for negotiations through comparisons in rates across specialties, consistencies, etc.

A few suggestions if you audit in aggregate:

  • Review how much is being spent per service (Neurology, Cardiology, etc.) across all types of agreements (administrative, call coverage, leadership, etc.).
  • Determine if the number of medical directors for each specialty/service is appropriate and within market ranges.
  • Examine the combined revenues from net professional collections plus stipends for hospital-based services.
  • Review specialties where all administrative or coverage contracts are staffed by a single physician or one practice to be sure payments do not exceed market rates for actual time committed, or if the physician cannot be reasonably expected to dedicate the minimum number of hours while maintaining their clinical practice load.
  • Multi-campus deals need particular documentation for time required.
  • Documentation of competitive bidding and a Request For Proposal process in contentious/excessive situations.

How Often Should Audits Occur?

Your organization may already have a policy for conducting periodic internal audits, thus the initial step is to document that the process is being followed. If there is no policy, investigate how other departments and business functions are audited at your organization. Depending on your facility and how your physician agreement terms are organized, audits can be annual or biennial. Whether routine or ad hoc, an internal audit is a valuable process for documenting a strong compliance process and identifying potential risks to your organization.

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What You Need to Know about the Anti-Kickback Statute

Health care regulations governing hospital-physician contracts are highly technical, which makes deciphering them difficult. However, knowing the details is essential to preventing your organization from getting dinged with large fines. The two most important regulations to understand are the Stark Law and the Anti-Kickback Statute.

The Anti-Kickback Statute (AKS) was enacted in 1972 to help protect the government from healthcare fraud and abuse. It states:

Receipts and sub-receipts of Federal funds are subject to the strictures of the Medicare and Medicaid anti-kickback statute (42 U.S.C. 1320a - 7b(b) and should be cognizant of the risk of criminal and administrative liability under this statute, specifically under 42 U.S.C. 1320 7b(b) ‘Illegal remunerations’ which states, in part, that whoever knowingly and willfully: (1) solicits or receives (or offers or pays) any remuneration (including kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring (or to induce such person to refer) an individual to a person for the furnishing or arranging for the furnishing of any item or service, OR (2) in return for purchasing, leasing, ordering, or recommending purchasing, leasing, or to purchase, lease, or order, any good, facility, services or item...for which payment may be made in whole or in part under subchapter XIII of this chapter or a State health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.

To summarize, the Anti-Kickback Statute is a criminal statute that forbids the exchange or offer to exchange anything of value in an effort to entice or reward the referral of federal health care services or business.

Examples of hospital or physician behavior that has resulted in convictions:

  • “If you send us patients from your cardiology private practice, we’ll pay you $5,000 per patient or share 20% of the excess revenue.”
  • “If you just add another zero to that medical directorship annual stipend, you can expect to see 25% more patients from my practice sent your way.”
  • “Thanks for signing on the dotted line. It would be wonderful if we continued to see an increase in your referrals to our hospital.”

There are safe harbors to protect hospitals, health systems, and medical practitioners for certain types of transactions, such as physician ownership of an ASC in which they operate (but shareholder distribution of profits must align with ownership), payments to bona fide employees, practitioner recruitments when community need is documented, certain discounts, etc. You can read more about the safe harbors here.

Comparing AKS and Stark

AKS and the Stark Law are often discussed in tandem. While the two have some similarities, there are also some key differences. 

Anti-Kickback StatuteStark Law
Prohibits soliciting or offering anything of value for referrals to any Federal program Prohibits a physician from referring Medicare/Medicaid patients to an entity that has a financial relationship with that physician
Referrals from anyone (e.g. practitioner, supplier, facility) Referrals from a physician
Applies to a referral for any service or item Only applies to referrals for Designated Health Services1
Criminal law Civil law

The Penalties of AKS

AKS criminal penalties can be up to $25,000 and 5 years in prison per kickback violation. Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of the damages sustained by the government. Furthermore, providers can be excluded from federal healthcare programs as a result of AKS violations.

How can you protect your organization from AKS violations?

Have a contract for every physician you engage, with or without a regular payment

Having a written and signed contract with terms and payment rates outlined prior to a physician initiating services ensures that the terms are understood before entering into the relationship. It is a good idea to have contracts for unpaid positions as well, just to make sure you are covered.

Be specific about the duties covered and expected for the position

Describe the services to be provided in detail in the contract. Keep in mind that if a duty is not specifically listed in the contract, it is not technically covered by that contract, and the hospital should not be paying for it as if it were. For administrative position contracts, specify the expected and maximum number of hours that will be reimbursed. Monitor the physician time records to check that the responsibilities and time spent are consistent with the contract.

Document non-monetary compensation

If you provide any non-monetary perks, make sure they are appropriately documented and objectively provided based on non-volume or revenue criteria. These might include: parking spaces, meals, EHRs, technology, infrastructure, etc.

Set rates at FMV

Ensure your negotiated contracts include FMV and commercial reasonableness documentation. If there isn’t documentation, flag the contract for immediate review. If the documentation doesn’t provide clear justification for paying the rate outlined in the contract, flag it as needing additional documentation. Have a consistent method for documenting FMV such as a set of reference benchmarks or outside opinions.

Don’t do anything that could be construed as payment or reward for referrals!

Paying for referrals or bribing physicians in any way is illegal. Make sure when you review physician contracts that no payments take into account number of patients, revenue, or anything that could be construed as a referral.

The regulations that guide physician contracting can be confusing and overwhelming, but it is imperative that you understand the rules and the consequences for violating them.


1https://www.cms.gov/Medicare/Fraud-and-Abuse/PhysicianSelfReferral/index.html?redirect=/physicianselfreferral/

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Easy Ways to Improve Physician Contract Compliance

The OIG remains active in its pursuit of Stark compliance. Recent settlements and advisories offer a number of lessons to help shape effective contract compliance programs. Use these nine tips to thoroughly review your physician contract compliance process and policies:

1. Ensure each physician position or service has a contract.

Organizations must document all contractual arrangements with physicians, with payment terms set in advance that are unrelated to volume of services. This includes both compensated and uncompensated services. Work with administrators and chiefs of staff to ensure all contracted positions have signed agreements that include payment rates, defined services and time requirements, the expiration date, and a method for regular monitoring. Remember: even though the Stark Final Rule doesn’t mandate having a contract, you must have a signed arrangement in place, and it is still a best practice to have a formal contract.

Although call coverage agreements are expensive and often command the most attention, previous OIG settlements and Fraud Alerts demonstrate that special attention should be given to medical director, leadership, and other administrative services arrangements. If your organization is not documenting both commercial reasonableness and fair market value for administrative positions, you may be putting the organization at risk. Ensure that you have policies in place for determining FMV for all arrangements and for archiving the necessary documentation.

2. Store all contracts in a centralized location.

When you deal with hundreds, or even thousands, of contracts that renew throughout the year, organization is critical for successful and timely renegotiations and audits. If your organization doesn’t have a contract management system, obtain or make one. Create an automated process for renegotiation beginning three to six months before the expiration date. Decide on a consistent process for addressing and executing renewals across all contracts, including updated FMV analysis. Benchmark values change, and not always to the upside.

3. Develop a rigorous, consistent process for determining FMV.

How does your organization determine fair market value? Do you employ external consultants? Does your team produce internal FMV opinions and document methodology? Whatever method, document the rationale and approval process and stick to a consistent method. Some organizations use high-quality market data to determine FMV for most (80% or more) physician contracts, and tap into consultants to provide guidance for complex and/or high cost contracts that exceed a specified benchmark level. This method reduces FMV costs by reducing the number of individual FMV opinions. Do your research and feel confident that your method supports compliance best practices.

4. Create or update guidelines for handling exceptional agreements.

When your organization determines it must compensate a physician above your standard for fair market value, create a standardized process for reviewing such exceptional contracts. Stark doesn’t prohibit paying physicians above a certain threshold, but organizations must have justification for the rates. When developing a step-by-step process to address exceptions, have specific goals in mind.  What criteria define a true exception? How do you enforce that definition? Who needs to sign off on exceptions? What happens to renewals? Most strong compliance programs require senior executives to sign off on exceptional agreements and many require board approval or at least review by an executive or finance committee of the board.

5. Designate staff responsible for daily management of physician contracting.

Given the complexities of managing physician relationships and contracting, designating a point person on your team to handle contract management, documentation and the approval process is a solid investment. While this person may not handle physician contracts full time, she should have access to internal contract data, benchmarks or market data to support decision-making, a tool to help them view and organize contracts, and a formal process to document FMV. They should also have a reporting relationship to a senior executive.

6. Keep abreast of Stark and Anti-Kickback enforcement actions and regulations.

Stark is a strict liability statute, meaning you don’t have to intend to violate the law to be held liable. Many organizations unfortunately aren’t aware of the regulations' intricacies or severe penalties. Not only are monetary penalties high, but failure to comply can mean loss of Medicare reimbursements. CMS audits are extremely costly and can run into the millions of dollars for penalties and fees.

7. Educate physicians, as they too are at risk of potential violations.

Starting in 2015 with the Yates Memorandum, the OIG made it clear that physicians are also at risk for noncompliant arrangements. The OIG published a Fraud Alert which warns physicians that they could take on personal risk under the Anti-Kickback Statute for noncompliant compensation arrangements.

8. Audit all contracts and the internal review process annually.

An annual audit of contract compliance will identify potential patterns of noncompliance or outliers that have not been properly documented for fair market value or commercial reasonableness. The audit process should include a review of key contract terms and timesheets as well as the approval and compliance documentation process. A good contract management system or comprehensive benchmarking tool can simplify the audit process, particularly if it compares the terms of your contracts with external benchmarks.

9. Get into the OIG’s mind: review recent CIAs.

If you are overwhelmed by physician contracting compliance, or are unsure what elements are essential in a good compliance process, a great way to create structure is to review requirements outlined in recent corporate integrity agreements (CIAs). CIAs are the settlement agreements reached between the OIG and a noncompliant provider that outline the steps required to remedy violations. CIAs are often the best and clearest means of interpreting Stark regulations and they can be used to help structure a well-functioning contract compliance program and contract terms that may prevent future issues with improper payments.

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Market Conditions Contributing to Commercial Reasonableness

When it comes to market conditions contributing to commercial reasonableness, some contributing factors are organization-specific, but others are influenced externally.

Six typical factors that play a role in determining commercial reasonableness are to:

  1. Determine the duties and responsibilities of the physician.
  2. Consider the physician's background and experience, as well as her knowledge of the business.
  3. Does a physician have to perform the service, or can it be done by another clinician or professional?
  4. Is it necessary to have a physician of a certain specialty in the position?
  5. Consider the economic conditions of the marketplace.
  6. Is this a service that hospitals typically pay physicians to provide?

The first four factors can be handled internally. People within your organization are best equipped to address the scope of the position and whether a given physician is qualified. You may find that for whatever reason, it is necessary to pay for a position. However, the last two points above are external factors outside the organization's control, and may strongly influence the need to pay for a position in question. Benchmarking can be a powerful tool to understand the market and determine answers to these questions.

Economic Conditions
Physician demand should be a factor in determining commercial reasonableness for particular positions. Overall economic conditions are not something you can control, yet it is important to be in tune in order to know when you may need to pay more to align with high-quality physicians. Consider what type of hospital you are, and how that affects physician payments. For example, if you are a trauma center and have more strict requirements for emergency coverage, paying physicians to help you meet these requirements simply must be done. MD Ranger suggests comparing your facility to similar organizations to determine both whether or not compensating a position is commercially reasonable, and to set the most appropriate payment rate if the position should be paid. Look for market data that allows you to perform more sophisticated drill-downs into types of facilities to get the best comparisons for your organization.

Do hospitals generally pay for this service?
There are numerous factors contributing to whether hospitals typically pay for a position or not. Consider the size of the panel, and how likely the physician is to get called to the hospital during a shift. A particularly burdensome call schedule or a small panel could be a good reason to pay. A poor payer mix, or a high likelihood of indigent care could also be a reason to compensate physicians. Lastly, consider if the physician is restricted from revenue generating activities while on call, or if the physician is required to be on-site during the shift. These two factors most definitely contribute to higher per diems.

In order to help hospitals determine commercial reasonableness, MD Ranger collects data on the frequency that a particular service is paid. Because MD Ranger collects hospital contract data holistically, it can determine the percent of hospitals who report paying for a service. This market data allow hospital leaders to make informed decisions when they are determining commercial reasonableness.

A critical consideration for physician administrative and directorship positions is how many paid positions for the specialty exist at your facility and across the organization. When your facility is considering paying for a role in a specialty that already has paid administrative roles, what is being proposed might be commercially unreasonable. For example, in pathology, 45% of MD Ranger subscribers report having one paid administrative position and 32% report having two. Three or more directors is quite rare. If your facility has four or five paid administrative positions in pathology it could be justified; however, you will need documentation for why the additional positions are necessary. It isn't the same across all specialties or positions. For example, paying four or five administrative positions in cardiology is about as common as paying one position.

Because there is variation across specialties, it is important to benchmark your directorship and administrative positions. MD Ranger has found that some hospitals simply have too many medical directors. Not only does this problem affect your financial position, it also increases your compliance risks significantly.

Above all, while determining whether it is reasonable to compensate a doctor at your organization, it is important to look at all the factors that play into commercial reasonableness. In order to make smart decisions, facilities need access to data-driven information about the market as well as when other facilities generally pay for a position or not.

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Finding the Best Market Range for FMV

Using market data to document fair market value for physician contracts can be a cost effective way to standardize compliance efforts. However, it still can be tricky to determine the most appropriate market range to use for an overall standard or when a variation is justified. Choice of benchmark may even be difficult for some contracts. Many providers adopt a single benchmark quantile as the standard. Nonetheless, there are times when a higher rate is justified or a job description doesn’t quite fit the available benchmarks.

Commercial Reasonableness

The first question to ask when paying for physician services is whether it is reasonable to make the payment. Are other providers paying for the service? Is the service needed and payment necessary? Not all services warrant payment. Compliance requires a determination of both commercial reasonableness and fair market value. To be compliant, it is first necessary to determine the need to pay, then to determine how much.

The IRS provides guidance on how to evaluate commercial reasonableness. According to the Internal Revenue Manual, §4233.27, specific factors to consider include:

  • Duties and responsibilities of the physician
  • Physician's background, experience, and knowledge of the particular engagement
  • Economic conditions of the marketplace

Other factors may include:

  • Does a physician have to perform the service or can a less costly person do it?
  • Is a specific specialty required for the position? Clearly the director of a dialysis center should be a nephrologist. But, does specialty matter for the Chief of Staff or chair of utilization management?
  • Do other facilities pay for the service or pay for multiple positions within a particular specialty?

Which service?

Finding an appropriate benchmark for some positions can be a challenge. MD Ranger has more than 300 physician contract benchmarks, yet we still regularly work with subscribers to find the most appropriate benchmarks for less common situations. Is a neurology directorship the same for accredited and non-accredited stroke programs? Can an adult subspecialty benchmark be used for pediatric subspecialties if no pediatric benchmarks are available?

Sometimes it helps to triangulate across multiple benchmarks. For example, for an adult congenital heart center medical director it could make sense to use the heart center, the cardiology, and the cardiovascular/cardiothoracic surgery benchmarks or number of hours, depending on the size and regional draw of the center. If the proposed contract rates fall below all of the selected benchmarks, documentation may be sufficient for compliance purposes.

How Close to the Percentile Should Rates Be?

Benchmarks can shift from year-to-year hence setting rates right at a maximum percentile can be risky. Shifts are generally small, especially with a large survey database, however you can take steps to mitigate the risk of having to reduce a contract at renewal because a benchmark declined.

Be strategic while setting payment rates.

Perhaps your organization has set its FMV standard at or below the 75th percentile. That doesn't mean every contract should be exactly at the 75th percentile. Different rates may be more appropriate for some positions or physicians. Allowing some wiggle room by negotiating rates between the 50th and 75th percentile anticipates rate fluctuations over time. This is especially recommended when the benchmark in question comes from a smaller data set since such rates are more likely to fluctuate.

If the contract was within fair market value when signed, and documentation exists, payment rates can remain as is until the contract expires.

This is why documentation is crucial. If you document that the contract rates were below a benchmark value when the contract was signed, it is compliant until the contract expires. Upon expiration, if the benchmarks are no longer valid, extra documentation will be needed. This may include written analysis of the value of the program, the particular credentials of the physician, the time spent fulfilling contract duties, inflation rates and comparisons to old and new benchmarks. This is one reason the government advises against ‘evergreen’ contracts and suggests contract terms of no more than two or three years.

All contracts should not be above average.

A higher rate may be justified for unique situations, but factors should be well documented. Relevant factors may include a limited number of physicians in a particular specialty, high call burden, unfavorable payer mix or, a program director who is one of the top specialists in the U.S. with documented credentials. These all can all be legitimate reasons for high rates; after all, someone has to be above the 90th percentile in all benchmarks. However, all payment rates above the 90th percentile need thorough documentation and they should be reserved for unusual situations, not the standard for all physician contracts at an organization.

Demonstrate efforts to negotiate the lowest possible rate.

Documenting the negotiation process and basis for rates is a compliance necessity. If you are unsuccessful in reaching agreement on a rate within your benchmark standard, take special care to document negotiations. Note who met with whom and explain the attempts to negotiate lower rates. In some situations, it may also be necessary to issue an RFP for the service to document that you were unable to procure the needed services for a lower rate.

Documentation is everything and some situations will require a formal valuation to validate the need for higher than “market” rates. A strong compliance program will build a process that depends on smart use of market data, intelligent and consistent analysis and documentation of exceptional situations.

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Commercial Reasonableness: Critical Considerations for Physician Contracts

Before paying a physician for services, hospitals should ask whether it is reasonable to pay for such services. Not all coverage or administrative services warrant payment. To be compliant, it is first necessary to determine the need to pay, then to determine how much.

Determining if paying a physician is commercially reasonable can be challenging. This brief interview explores the definition of commercial reasonableness, approaches to making and documenting a determination, and how this differs from "fair market value".

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" (Medicare and Medicaid Programs; Physicians' Referrals to Health Care Entities with Which They Have Financial Relationships 63 FR 1700 (January 9, 1998)). 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 referrals." 69 FR 16093 (Mar. 26, 2004)

Both Stark and the Anti-Kickback Statutes prohibit compensating a physician with money or non-monetary gifts for referring patients to an organization with which the physician has a financial interest. Payments to physicians must remain completely unassociated with the business they bring to your organization. Thus, it is important that every payment you make is justified.

Simply put, commercially reasonable means that it is common business practice for an organization to pay for that particular physician service. A real-life example could be the question of general surgery call coverage. Is it commercially reasonable for your organization to pay for the service? 75% of MD Ranger subscriber hospitals report paying for general surgery coverage, so there is statistical evidence that many organizations compensate for the service. However, dermatology call coverage is another story. Only 1% of MD Ranger subscribers report payment for dermatology coverage. A less clear example is coverage for infectious disease, with only 11% reporting payment. To prove commercial reasonableness of payment for such a service may require extra documentation and research.

Why is being commercially reasonable important?
Despite the lack of a bright line, determining commercial reasonableness is important and should be a part of compliance documentation before a payment rate is considered. Assessing commercial reasonableness is the essential first step when considering a financial relationship with a physician. If it's not reasonable to pay for a particular service, it could be interpreted that your organization is paying the physician for referrals. The repercussions for having either a Stark or AKS violation are harsh. Stark law violations incur a civil penalty and fine, plus owing CMS what you collected under the arrangement with the physician. AKS violations are criminal offenses, and carry fines plus repayment of collections from involved physicians or groups.

How can you determine commercial reasonableness?
The IRS provides guidance on how to evaluate whether an agreement with a physician is commercially reasonable. According to the Internal Revenue Manual, § 4233.27, specific factors should be considered while determining commercial reasonableness:

  • duties and responsibilities of the physician
  • physician's background and experience, as well as knowledge of the business
  • economic conditions of the marketplace

You should also consider:

  • Does a physician have to perform the service, or can it be done by another clinician or professional?
  • Is it necessary to have a physician of a certain specialty in the position?
  • Is this a service that hospitals typically pay physicians to provide?

In addition to reviewing these questions, MD Ranger subscribers turn to our "Percent Paying Tables", which report the frequency of physician payments for over 150 physician services across MD Ranger hospital subscribers. When discussing whether or not to pay for a service, subscribers can access this data immediately and get a first impression of how common paying for the service is. We recommend using this number as a starting point in your physician negotiation process.

How is commercial reasonableness different from "fair market value"?
While fair market value is an "arm's length" negotiated fee for a physician service in the absence of referrals, commercial reasonableness addresses whether or not it is actually reasonable to pay for the service in the first place. A commercially reasonable service could have payment terms that exceed fair market value, and a fee that falls well within fair market value might not be commercially reasonable given certain market conditions. Here are some examples:

Hospital A wants to pay for a second medical director of its Cancer Center. The MD Ranger reports show that 22% of subscribers report paying for a medical director; however 100% of them only report paying for one position. If the second director is a co-director, and the sum of the hours and payments for both positions is with the range for a single director, payment would be reasonable. However, if both directors were paid at the same rate as a single position, and there were not unique, documented program and position requirements to justify a second position, the position and amounts paid may not be commercially reasonable.

Hospital B is asked to pay call coverage per diem rates for bariatric surgery. There are no reported contracts for such a service in MD Ranger; furthermore, as a non-elective service, the physician would be expected to cover his own patients. This would likely not meet a test for commercial reasonableness.

If something is negotiated at fair market value, is it commercially reasonable?
Not always. Just because a service has a fairly negotiated rate in the market, it doesn't necessarily follow that the service should be paid at your facility. One example is ophthalmology call coverage. Emergency needs are small and there are plenty of ophthalmologists in most communities, so payment for coverage is unusual. However, in some circumstances, such as an adverse payer mix or an especially complex trauma facility with large volumes or a lack of providers on the medical staff, it is necessary for a hospital to pay for coverage; hence, there is a market rate for the service. This is why MD Ranger encourages subscribers to always document commercial reasonableness along with the rate negotiated—even if your documentation is a brief summary paragraph identifying reasons that the service must be compensated, along with MD Ranger benchmark data. Another good example is hand surgery. A per diem for hand surgery that is within fair market value is at or under $800 (at the upper end of the spectrum). However, since only 14% pay for hand surgery coverage it's unlikely that you will need to pay for coverage for this service.

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Five Can't Miss Physician Contracting Compliance Tips

These quick compliance tips are a great starting point for hospital and health system executives dealing with physician contracts for administrative, leadership, call coverage, and hospital-based services. These tips can help shape a new physician contracting compliance program or refine an existing program. Apply them to create a successful compliance program to help prevent Stark and AKS violations.

1) Establish a rigorous contract management process and assign staff to oversee day to day management of your physician contracts.

Contract management may be straightforward in terms of processes and best practices, but the trick is ensuring proper execution and consistent application of procedures. Every compliance program should be incorporating the following contract management elements:

  • Have a contract for all physician arrangements (even non-monetary arrangements)
  • Organize your contracts by date, party, and expense
  • Alert your team to expiring contracts well in advance of expiration
  • Establish a renewal process that includes:
    • Reviewing or updating a contract
    • Checking the rate against relevant benchmarks
    • Negotiation strategy
    • Necessary approvals
    • Strategic contract management

It is also important to identify and prevent the development of silos that mask overall payments to individual physicians or groups for similar services. Contract management teams should work across the organization as a true cross-functional team so that there is a comprehensive appreciation of contracting costs.

2) Create a document that defines your physician contract compliance program and your process for establishing FMV.

In this document, describe the procedures for screening physician contracts and, most importantly, the steps you will take to ensure and document compliance for all physician financial arrangements. Within the document, outline:

  • Accountable executive(s)
  • Day-to-day staff and their responsibilities
  • Strategic goals
  • FMV documentation process
  • When to seek outside review

3) Communicate your compliance process with stakeholders and employees who are involved.

Ensure that there is an accountable executive for the program, and that they have communicated the compliance process to anyone involved in physician contracts. Encourage transparency, and follow up on any concerns expressed by staff.

4) Determine how you'll establish and document FMV and commercial reasonableness for physician payment rates.

We recommend having a discussion to define what's best for your organization while considering cost, consistency, and efficiency. Research your options for published benchmarks, tools, and consultants, within the context of your organization's goals and budget objectives. After you've made a decision, document your approach and record the step-by-step process.

Consider:

  • Cost, efficiency, and scope of data (services, hours, percent paying, tools)
  • What percent of hospitals are paying for comparable services?
  • How many and how complex are your contracts?
  • What are your corporate, compliance, and cost reduction objectives?

The three options for establishing FMV are:

  • Market Data
  • Internal or external proprietary formulas
  • Internal or external ad hoc FMV opinions (valuations)

Options to document compliance:

  • Written FMV opinions
  • Contract-specific benchmark comparisons (e.g. MD Ranger individual contract reports shown with market range and specific contract's rate)
  • Internal certification document with market data
  • Combination of the above

5) Analyze your contracts in aggregate to understand if you're overspending or consistently setting rates that are too high.

Use benchmarks to compare your organization's total expenditures to overall spending by peers. MD Ranger publishes data on total hospital spending annually by service for physician contracts and provides each of our subscribers with a report of their facilities' contracts and how they compare to our benchmarks.

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Physician Compliance Tips You Can't Miss

MD Ranger has prepared a quick list of compliance tips for hospital and health system executives dealing with physician contracts for administrative, leadership, on-call, and hospital-based services. These tips will help shape a new physician contracting compliance program or refine an existing program. Apply them to create a successful compliance program to help prevent Stark and Anti-Kickback Statue violations.

1) Establish a rigorous contract management process and assign staff to oversee day to day management of your physician contracts.

Contract management may be straightforward in terms of processes and best practices, but the trick is ensuring proper execution and consistent application of procedures. Every compliance program should be incorporating the following contract management elements:

  • Have a contract for all physician arrangements (even non-monetary arrangements)
  • Organize your contracts by date, party, and expense
  • Alert your team to expiring contracts well in advance of expiration
  • Establish a renewal process that includes:
    • Reviewing or updating a contract
    • Checking the rate against relevant benchmarks
    • Negotiation strategy
    • Necessary approvals
    • Strategic contract management

It is also important to identify and prevent the development of silos that mask overall payments to individual physicians or groups for similar services. Contract management teams should work across the organization as a true cross-functional team so that there is a comprehensive appreciation of contracting costs.

2) Create a document that defines your physician contract compliance program and your process for establishing FMV.

In this document, describe the procedures for screening physician contracts and, most importantly, the steps you will take to ensure and document compliance for all physician financial arrangements. Within the document, outline:

  • Accountable executive(s)
  • Day-to-day staff and their responsibilities
  • Strategic goals
  • FMV documentation process
  • When to seek outside review

3) Communicate your compliance process with stakeholders and employees who are involved.

Ensure that there is an accountable executive for the program, and that they have communicated the compliance process to anyone involved in physician contracts. Encourage transparency, and follow up on any concerns expressed by staff.

4) Determine how you'll establish and document FMV and commercial reasonableness for physician payment rates.

We recommend having a discussion to define what's best for your organization while considering cost, consistency, and efficiency. Research your options for published benchmarks, tools, and consultants, within the context of your organization's goals and budget objectives. After you've made a decision, document your approach and record the step-by-step process.

Consider:

  • Cost, efficiency, and scope of data (services, hours, percent paying, tools)
  • What percent of hospitals are paying for comparable services?
  • How many and how complex are your contracts?
  • What are your corporate, compliance, and cost reduction objectives?

The three options for establishing FMV are:

  • Market Data
  • Internal or external proprietary formulas
  • Internal or external ad hoc FMV opinions (valuations)

Options to document compliance:

  • Written FMV opinions
  • Contract-specific benchmark comparisons (for example, MD Ranger individual contract reports shown with market range and specific contract's rate)
  • Internal certification document with market data
  • Combination of the above

5) Analyze your contracts in aggregate to understand if you're overspending or consistently setting rates that are too high.

Use benchmarks to compare your organization's total expenditures to overall spending by peers. MD Ranger publishes data on total hospital spending annually by service for physician contracts and provides each of our subscribers with a report of their facilities' contracts and how they compare to our benchmarks.

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Compliance Tips You Can Use Today For Big Impact

No compliance professional wants to be blindsided by Stark, Anti-Kickback (AKS), or False Claims Act violations. However, getting a handle on your physician contracting compliance program is a daunting task. While making significant changes or implementing new policies requires time and slow approval processes, there are some tactical improvements you can make today.

Do the right people in your organization know the details and penalties of Stark Law and Anti-Kickback Statutes, as well as the fines and penalties for non-compliance?

If the administrators who are negotiating physician contracts or any member of your compliance team is not fully aware of the penalties for violating Stark and AKS, familiarize yourself now.

The Physician Self Referral Law, commonly referred to as "Stark Law" is Section 1877 of the Social Security Act, 42 U.S.C. 1395.nn and was first enacted in 1989. The law restricts physician self-referrals. A physician (or a physician's immediate family member) who has a direct or indirect financial relationship with an entity that provides "Designated Health Services" (DHS, i.e. a hospital, surgery center, imaging center, etc., cannot refer patients (Medicare/Medicaid) to that entity for DHS, and the entity cannot submit a claim for services unless the financial relationship is within a Stark exception.

Violating Stark Law comes with serious penalties:

  • Stark is a strict liability statute, so intent to violate the law doesn't have to be proven.
  • Technical violations of the law are still violations.
  • No payment will be made for claims involving a violation.
  • Civil monetary penalties for each service ($15,000) plus an assessment of up to three times the claim.
  • Penalties up to $100,000 for "circumvention schemes".
  • Organizations and physicians could be excluded from participating in CMS programs.

Violating AKS is a serious crime:

  • Criminal penalties are up to $25,000 plus up to a five-year prison term per kickback violation. Hospital administrators have gone to jail for these violations.
  • Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of damages sustained by the government.
  • Providers can be excluded from all federal healthcare programs.

There are numerous examples of violations, in 2014, Halifax Health settled for $85 million regarding allegations they had violated Stark Law and the False Claims Act. King's Daughter's Medical Center paid $40.9 million, with allegations including Stark Law violations. Saint Joseph Health System agreed to pay $16.5 million regarding allegations of Stark Law, Anti-Kickback Statute, and False Claims Act violations.

Does your organization have contracts for all paid services/positions?

It's essential to document all financial arrangements with physicians, with payment terms set in advance and unrelated to volume of services. Work with administrators and chiefs of staff to ensure that all contracted positions have signed agreements that include payment rates, defined services and time requirements and expiration date. Remember: it's a violation of the law to pay a physician for services without a contract in place.

Do you track or automate contract expiration dates?

Because the law requires physician contract rates to be set in advance, identify all expired contracts within your organization and prioritize them for renewal. If your organization doesn't have a contract management system, consider building or purchasing such a system. The contracting department should be automatically notified of upcoming contract expirations with ample time to review and negotiate the contract or sign an extension. Allow at least 3-6 months for the renewal process (sometimes longer for complex arrangements like hospital-based service agreements).

Identify and segment your high-risk contracts.

Simply reviewing your contracts doesn't take highly sophisticated policies, nor does it take a lot of resources. Annually reviewing contract terms against published benchmarks can be a simple way to identify potential areas of concern.

The typical call coverage or medical direction agreement will attract little attention unless it is significantly outside the bounds of fair market value. However, if your organization has negotiated contracts that are risky or high profile in your community, these deals may require more stringent documentation, especially if services are paid above the 75th percentile of market ranges or hours are excessive. Other risk indices include multiple contracts with the same physician or for similar services. If your organization flags such contracts and creates strict guidelines around negotiation and renewal, you can protect your organization from potential pitfalls.

If you have access to payment rate benchmarks, familiarize yourself with them. Learn about how the data are collected, how the benchmarks are broken down, and what categories apply to your facility or facilities. Examine where each contract falls on the range and flag those that are above the 75th or the 90th percentile.

Does your organization have a system for handling exceptions that fall at the high end of the market data?

When your organization decides to compensate a physician above or below fair market value for whatever reason, do you have a process for granting and documenting the reasons for such exceptions? Stark doesn't prohibit paying physicians above a certain threshold, but organizations must have justifications for additional compensation. Research whether your organization has developed a process to review and address exceptions. If you find no guidelines for exceptions, make a note that the upcoming revision or creation of a compliance program should include a process for handling these situations.

Do you know how many physician contracts your organization currently has?

On average, MD Ranger has found that community hospitals have between 50-60 physician contracts. For larger organizations or health systems, physician arrangements can spiral to hundreds or even thousands. Understanding the scope and market position of your physician contracts and payment rates will help you identify potentially risky contracts before they become a problem. Knowledge of total physician contract expenditures and how that compares to like organizations can help with budgeting, planning, and other financial activities down the road.

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Being aware of the federal regulations that affect physician contracting is vital to compliance and strong management. While creating and implementing a physician contracting approval and compliance process may seem daunting, it is crucial to avoid possible multi-million dollar fines down the road with the OIG. There are many steps that can be taken today to begin to get your physician contracts in tip-top shape.

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How to Talk to Physicians about Compensation as it Relates to Compliance

This is admittedly a tricky topic. Physicians can become suspicious when hospitals talk about FMV and think it’s an excuse for hospitals to pay them less. This often is because of lack of education. If this is the case at your organization, you must work hard to mythbust.

We recommend being straightforward about the definition of FMV and give real-world examples of what that means. Talk about ways to determine FMV: market data, valuation methods, and your organization’s preferred method. Give case examples. Try writing up some FAQ’s relating to FMV, Stark Law, and the Anti-Kickback Statute for doctors.

When it comes to discussing methods to determine specific doctor’s compensation, organizations take one of two positions. Some choose to share their methodology, data, and research with physicians on how they are determining their compensation. Others choose not to reveal sources. There are legitimate reasons for each position. We recommend that whatever approach your organization chooses, be consistent. Always explain your reason(s) why.

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Communicating a Culture of Compliance with Your Medical Staff

Communication, even in the most positive relationships, can be challenging at times. What are the best practices for communicating with physicians?

As a compliance department, you likely have experience with using all different forms of communication for your message to effectively reach different types of people. Not only must you experiment with what works best with physicians at your organization, you will likely need to communicate in different terms and through multiple channels. Even within the medical staff, there will be all different types of learners and communicators.

Another best practice is what we call the “train the trainer” model. For physicians especially, this can be an extremely effective way to disseminate messages throughout the medical staff. First, identify physicians that would make good leaders. Educate them, engage them, and ensure they will carry the most important compliance messages to other physicians. Trust them to talk to their peers and address issues of compliance, while of course giving them the proper tools to do so.

We cannot emphasize enough how important setting the tone from the top of the organization is. If your C-suite doesn’t care about compliance, your physicians will not care about compliance. Culture can make or break an organization when it comes to compliance and legal issues. Work with your executive team to ensure that compliance, safety, and quality are among the most important goals of the organization.

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What’s the Best Way to Educate Doctors about Compliance?

Unfortunately, many healthcare organizations are full of physicians who have no idea what the compliance team does. If it’s the case at your organization, you must first educate your medical staff.

Minimally, physicians must be told about regulations, enforcement news, advisory opinions, the OIG work plan, trends in your state, and information relevant to their specialty. But there are many other ways to educate physicians about the compliance process.

Best practices include offering different types of training (online, in person, etc.), incorporating tactics for all different types of learning styles, and asking physicians themselves how they prefer to receive training. One thing you should avoid is scheduling an educational session for members of the medical staff during their negotiation with your facility. If you try to talk to a doctor about regulations during a negotiation, it can be difficult and can lead to mistrust. If you can’t avoid training during ongoing negotiations, consider having training leader hired from outside the organization.

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Physician Compliance Engagement 101: Getting Docs Involved

The best way to start engaging physicians in your compliance and legal programs is to get to know them. It sounds so simple, yet it truly is the key to successful engagement. If you don’t know any physicians on the medical staff, start by meeting some. Get comfortable walking the halls. Introduce yourself freely and often. Ask another executive with good relationships if she can introduce you to key physicians you should know. Learn about physicians’ individual interests, their specialities, and their families. Make yourself visible and make it clear that you like hanging around doctors. Be knowledgeable about their profession, it makes a big impact with doctors. Building relationships with physicians at your organization is never a waste of time and is always the first step in engagement.

Establishing trust is key. If your medical staff does not trust the compliance team, in particular it’s leaders, you will never get them on board with your message.

Always frame compliance in terms of what doctors care about. Though this could differ from organization to organization, even physician to physician, a great place to start is with patients. Demonstrate how important compliance is to generating good outcomes in patient care. These issues are at the core of every physician’s priorities; what physician wouldn’t get on board with improving quality at their organization?

When it is time to revise policies and procedures, particularly when it affects physicians’ work, ask for their input. Place them on committees that steer compliance at your organization and truly listen when they give feedback.

Look to other departments within your organization that have successfully engaged the medical staff. How did they do it? What could you borrow from them? Identify leaders within the medical staff that understand the importance of compliance and ensure they promote key messages to their peers and across the organization. Making sure that at least a physician or two sits on important committees within compliance and legal is also best practice.

Lastly, we have found that physicians respond quickly when they hear about real-life examples of physicians getting into legal hot water. It is a good motivator for many!

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Compliance and Legal Make a Great Team

Compliance and legal should work as a team and jointly make decisions on risk management. Both parties have complimentary skill sets that are best used working together.

Compliance and legal often work hand in hand, but especially when there are potential issues, it is crucial that they present a unified force. Though compliance often discovers potential issues, they should be sure to keep legal updated so as to enact privilege at the right time.

Attorneys can help determine how much to waive privilege on and what should be covered. It is always easier to release privilege, but very hard to go back and put information under privilege.

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Ignoring Physicians in Your Compliance Program is a Bad Idea

If you’re a compliance officer or work in compliance or legal at your organization, ask yourself if you know any physicians who work at your hospital. If the answer is no, or only a few, you have some work to do.

At its core, physician engagement is about building relationships. You are extremely busy, as are physicians, so how do you find time to invest in building these important relationships? Try asking for physician input when revising compliance procedures, training, or policies. Build a physician steering committee for compliance-related issues. Ensure that at least a physician or two is on your organization’s compliance committee. Lastly, try walking the halls of your organization and introducing yourself to your physician colleagues.

Put a friendly face on compliance for your physicians, and you are one step closer to ensuring compliant and high-quality care at your organization.

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Perform Annual Contract Audits to Remain in Compliance

Though physician contract audits can be labor-intensive, they are extremely important to staying in compliance.

In progressive organizations, physician contract audits are built into compliance programs and a part of everyday processes. However, they are extremely labor intensive and much of the work cannot be automated. Furthermore, these types of audits typically involve several parts of the organization and collaboration between the two.

In order to ensure that payments to physicians were in accordance with their agreement, auditors must work with finance, legal, and compliance. Despite all the time committed to these audits, they are worth it. Discovering that physicians are being paid more than their contract stipulates, or that FMV documentation for a contract doesn’t exist means that you can correct the error quickly instead of years down the road.

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Best Practices to Avoid Stacking

Stacking can be a huge compliance risk for healthcare organizations and physicians. Here are some quick tips to avoid stacking in the first place.

  1. Develop a policy and review process regarding physicians who hold more than one position or perform more than one service with the hospital or affiliated organizations.
  2. If physicians are holding two call positions at the same time, set guidelines around how much they can be paid. If they are effectively an employed physician, set an aggregate payment cap from all sources.
  3. Ask physicians for time documentation that delineates activities for each role. Time tracking should be standard for all physician administrative positions.
  4. As much you can, automate time tracking and coordinate effectively between all parties: physicians, finance, and administration.
  5. Don’t pay a physician to take call for two services at the same time. Common service combinations where stacking most frequently occurs:
    • Orthopedic surgery and hand surgery
    • Plastic surgery and hand surgery
    • Non-invasive and invasive cardiology
    • Stroke and non-stroke neurology
    • Trauma and general surgery
  6. Ask the physician to sign a statement to certify that his or her private practice cannot be rearranged to avoid lost income. Another way is to monitor physicians’ OR utilization to compare elective volume with and without on-call coverage.

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Reasons Your Physician Contracts Need Long-Term Attention

By Pascale Dargis, guest blogger from Ludi

Physician contracts have a variety of nuances that make it difficult to manage them over time. From a compliance standpoint, this means that even if the agreement has been properly written and signed by all necessary parties, there is still a lot of maintenance work to be done until the agreement expires. Here are the ways in which these living documents should be better managed once they’ve been co-executed.

Request and review time log submissions. The agreements should clearly outline a process for physicians to submit their time. It can be done on a templated piece of paper or excel file, but ideally it will be done through an application that can be used in real-time. The contract should say how often the submissions of time should be made. This makes it easier for all levels of approval to review the details of the submission with the details in the original document. Without these submissions, it’s impossible to know if a physician is being paid correctly and on time. This process should occur on a realistic schedule, but should take place until the contract ends.

Understand and approve duties. Any lawyer will tell you why it’s critical to clearly define duties within an agreement. This is great practice and helps all parties understand the functional role a physician will be working on. Duties can, however, be a double-edged sword since they are 100% necessary, but can be so complex, it’s nearly impossible to verify and pay out correctly. For example, let’s take an on-call agreement.

If a physician receives one payment amount to be on-call during weekdays and is paid a higher amount during weekend shifts, how is this being reconciled using the time log submissions? If the approval process is to review the original agreement next to the time log and also look at the on-call calendar to verify the physician actually worked that day, there is a lot of room for error but also for improvement. Simplifying duties to better manage them over time will help immensely, though they still need to be submitted on a time log and adjudicated for payment.

Make more accurate payments. Treating physician administrative agreements like living documents will without a doubt make your payments to physicians more accurate. If you’re going through the appropriate approval process using the original contract alongside time logs and accurate duties, the math becomes simpler.

Have a defined ‘audit trail’. By simply including the request for a time log submission, your organization is building up a ‘paper trail’ that can be tied back to the original contracts and can be used to in case of an audit, but also to think through the kinds of changes you can make to agreements. An example here might be that a physician receives a monthly stipend payment for 10-hours of work, however he continuously submits 8-hours on average. Perhaps a determination would be to amend the original agreement so that only 8-hours are being paid to the physician for his time.

Revisit the Fair Market Value. When you negotiated the contract, hopefully, you documented that the payment was FMV for the services being provided and considering your organization’s characteristics. As part of treating the arrangement as a living document, as the needs for physicians change, be sure that the contract still fits within the FMV definition that was approved when the contract was put into place.

Physician Contracting, the OIG, and the DOJ: 2017 Review

The 2017 political landscape changes were epic. As the year draws to a close, we’re looking back to see if change was reflected in OIG and DOJ actions over the year.

The Yates Memo

In September 2015, Sally Yates wrote a memo stating that the DOJ was going to hold individuals accountable in corporate wrongdoing cases. Yates became famous as one of the first people fired by the new administration. Did her departure change anything for health care?

Since its release, the Yates memo has been one of the hottest topics in health care compliance. In 2016, we witnessed the first notable case where the former CEO of Tuomey Healthcare was fined $1 million for his role in the system’s Stark violations. He was also excluded from any organization participating in federal programs for the next four years.

Since then, doctors and executives have continued to face steep fines, program exclusions and even jail time for violations of Stark, AKS, and the False Claims Act. It is a safe bet that these personal liability fines aren’t going away in 2018. Yet, it seems that some individuals including physicians, hospital executives, and those involved with physician contracting may not be paying attention to how their actions could be perceived in any government investigation. Individuals can no longer assume the organization alone will take the blame.

Major Settlements and Legal Action

2017 saw several major settlements regarding improper payments to physicians, including:

Pacific Alliance Medical Center: $42 million

The DOJ charged Pacific Alliance Medical Center (PAMC) with paying kickbacks in exchange for physician referrals. The settlement resolves whistleblower allegations that PAMC made above market arrangements with physicians and provided services that brought undue value to the physician practices. “This settlement is a warning to health care companies that think they can boost profits by entering into improper financial arrangements with referring physicians,” said Special Agent in Charge Christian J. Schrank of the Department of Health and Human Services, Office of Inspector General (HHS-OIG).

Read more about this case here.

Mercy Hospital Springfield: $34 million

This case centers around physicians whose compensation formula included terms that took into account the volume of referrals made to a hospital-owned infusion center. The DOJ stated that these kinds of arrangements are illegal because they encourage overuse of medical resources and may cloud a physician’s medical judgement.

Read more about this case here.

Dr. Miguel Burgos and Yosbel Marimon: $9.8 million

Both a physician and the owner of an infusion clinic were sentenced to 64 and 90 months in prison, respectively. Plus, they were ordered to pay $9.8 million in restitution to Medicare and insurance companies improperly billing for costly infusion therapies that were never purchased, provided, or medically necessary. This is a reminder that both physicians and facility owners are at risk for improper billing and medical orders.

Read more about this case here.

The Stakes are Higher: Penalties Increase

The Bipartisan Budget Act of 2015 mandated that federal agencies make inflation adjustments to the amounts of civil monetary penalties. The Budget Act allowed agencies to make “catch-up” adjustments. The fines for False Claims Act violations in 2017 are $10,781 at the minimum and $21,563 at the maximum. Stark Law fines increased from $15,000 in 2016 to $23,863 in 2017 per violation and Anti-Kickback Statute fines increased from $50,000 in 2016 to $73,588 in 2017. At the time of publication, 2018 fines had not been announced, but we expect to see only a minor uptick in fines to account for inflation.

Healthcare organizations with violations face much bigger fines than in years past with these increases. Settlement fees, and the negative publicity, can be crippling. Despite a less regulation-focused administration, we expect a continuing focus on investigations resulting from whistleblowers and government investigations in 2018. In October 2017, Deputy U.S. Attorney General Rod J. Rosenstein made a speech which hinted at a “soft repeal” of the Yates Memo. All indications show that any changes will not adjust the focus on holding individuals responsible in corporate wrongdoing.

New Resource Guide from the OIG

Measuring Compliance Program Effectiveness: A Resource Guide was developed at the HCCA‐OIG Compliance Effectiveness Roundtable. The Guide provides a long list of compliance program metrics within each of the seven Compliance Program Elements defined by the Certified in Healthcare Compliance Candidate Handbook. The list is meant to provide many ideas for areas health organizations can measure, though it explicitly is not intended as a set of measures that are needed for every organization.

Check out the guide here.

Happy New Year!

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Do You Have Too Many Medical Directors?

Physician contracting is a complex process and it is challenging to engage physicians to assist in administrative and quality initiatives that benefit health care facilities. From properly leveraging market data to composing legal agreements, it is resource-intensive. A dimension that often gets overlooked is evaluating whether your organization has too many physician contracts. An annual or periodic review of all contracts against industry benchmarks can help identify risky situations or opportunities to save costs. It also helps to document commercial reasonableness of the positions you have in place.

How do hospitals end up with too many medical directors?

Hospitals don’t intend to have too many medical directors, but a lack of checks and balances can result in such a situation. Some examples of situations that could lead to too many medical directors:

  • Negotiating individual contracts without considering the organization’s broader goals.
  • Challenging physician relationships that lead to expectations for pay.
  • Not having a centralized physician contracting process.
  • Not requiring timesheets or having poor coordination with accounts payable.

How many is enough?

MD Ranger collects data on all of a subscriber’s physician contracts which allows us to produce a distribution of the number of paid administrative positions per hospital by service. Some services have a higher frequency of multiple positions than others, as illustrated by this sample from 81 administrative benchmarks reported by MD Ranger:

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A good compliance practice is also to review the total number of paid medical directorships and administrative positions at your organization. Larger and more complex organizations generally have more positions, and there may be times when more is justified, such as during an EHR implementation. However, if you are on the high end of the scale, you may want to review your list of positions more carefully.

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How much is too much?

Too many medical directors could put your organization at a compliance risk based on either paying too much or not meeting a commercial reasonableness test. Many organizations have a handful of contracts that are paid at or above the 90th percentile, due to the hours required or the credentials of the individual physician. However, if individual or aggregate payments are routinely high and/or there are a larger than average number of positions that is a compliance red flag. MD Ranger publishes total spending by contract type to provide organizations with some guidelines of reasonable payments. Based on MD Ranger’s 2017 Facility Totals Benchmarks, the total expenditure on medical direction and administration is:

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Ways to Avoid Having Too Physician Administrative Contracts

A few best practices to minimize the risk of paying too much for administrative positions:

Require and check timesheets

Be meticulous about collecting and reviewing physician timesheets. Take the time to cross-reference the duties outlined in the contract with the duties listed on the timesheet.

Centralize the physician contracting process

By keeping track of your physician contracts in a single location and having a team responsible for drafting, negotiating, documenting, and renewing these contracts, you lower the risk simply by knowing what’s going on. Think critically to ensure that duties are not being duplicated amongst physicians.

Conduct Periodic Audits

Annually or more frequently review all physician contracts for compliance with market rates and hours. MD Ranger provides reports and tools that allow subscribers to easily identify more risky contracts compared to benchmarks, review number of positions by service and compare total expenditures for a hospital or a system to other subscribers.

A Case Study

MD Ranger can be extremely helpful to organizations who might suspect they have a systemic compliance issue. One subscriber suspected it had too many medical directors. We showed them how to use our tools and benchmarks to compare their administrative positions with comparable organizations.

The organization found that they had 120 medical directors across the organization compared to comparable organizations which were closer to 70. That’s a lot of medical directors! The number alone does not make them non-compliant, but we advised them to further investigate and document the need for so many positions.

We strongly recommend that organizations perform this kind of analysis. Our whole hospital, service line specific and specialty specific benchmarks that can help with this. There are some services that by nature will have more than 2 or 3 medical directors – for example, cardiology of has directors for different program components. However, there are many other services where multiple positions are not typical, hence documentation of hours and rationale is important to comply with commercial reasonableness standards. We help our subscribers investigate situations like these so they can better mitigate compliance risks.

Let us know if you want to discuss the number of medical directors at your facility with an expert? Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call the office at (650) 692-8873.

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Comparing Stark and the Anti-Kickback Statute

We often have users who get confused between Stark and AKS. Even those who are very familiar with the regulations sometimes forget which regulation is criminal and which is civil. Stark Law and AKS are often discussed in tandem. While the two have some similarities, there are also some key differences.

Comparing AKS and Stark

 

Anti-Kickback StatuteStark Law
Prohibits soliciting or offering anything of value for referrals to any Federal program Prohibits a physician from referring Medicare/Medicaid patients to an entity that has a financial relationship with that physician
Referrals from anyone (e.g. practitioner, supplier, facility) Referrals from a physician
Applies to a referral for any service or item Only applies to referrals for Designated Health Services1
Criminal law Civil law

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Use Other Organizations' CIAs to Create Your Processes

By using guidelines in CIAs for other healthcare entities similar to yours, you can mimic compliant program requirements.

Create a compliance committee.

A compliance committee should be an integral part of any health care organization, providing a front line of defense to ensure an adequate compliance program that is properly administered and monitored. The committee should advise the compliance officer as well as assist in compliance program implementation. Members of the compliance committee should be well informed about the regulations, legal requirements, and potential risks that may impact the organization. The compliance committee should assess current policies and procedures, develop appropriate new policies and procedures, and monitor performance.

Use the guidelines outlined in CIAs for other healthcare entities similar to yours to structure your physician contracting program.

By using the OIG’s requirements, your organization should be well positioned if it’s ever under federal scrutiny.

Physician contracting is an area where healthcare organizations are especially vulnerable to government intervention given Stark and Anti-Kickback statutes. While CIAs vary slightly from case to case, generally they require:

  • A contract management system
  • Tracking of payments and up-to-date time logs for physician services
  • A written review process for all arrangements to ensure they are not violating Stark or AKS. The process should require that each arrangement has documented the following:
    • A review by an attorney with Stark and AKS knowledge
    • Demonstration of a business need for the arrangement
    • Documentation that agreements meet FMV for all payments
  • Annual reviews of all arrangements to be completed by the Compliance Officer and submitted for review by the compliance committee
  • Training for everyone who is involved with arrangements surrounding the contract management system, internal review and approval process, and the tracking of payments corresponding to the arrangements

Evaluate stipulations of CIAs that might pose a problem for your organization.

While you are reviewing other CIAs, think about requirements that could pose an issue if they were placed upon your organization. Some aspects of a CIA are non-negotiable, but you may be able to create alternate policies that are acceptable to both your organization and the Feds. Your in-house and external counsel are key people in negotiating the terms of a CIA, but it is important for everyone to think about the reasonableness and timing of the requirements. For example, if you have an existing personnel training program that covers the requirements outlined in the CIA but requires fewer hours, your lawyers may be able to negotiate an acceptable compromise. For more on CIA negotiations, this article is a great resource.

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Avoiding a CIA: Take Steps to Prevent Violations

If you are not currently involved in an investigation or settlement for Stark or Anti-Kickback violations, don’t rest on your laurels. The OIG is actively investigating potential regulatory violations at healthcare entities. These violations may come to light through routine and programmatic auditing by the OIG or through a whistleblower allegation. By familiarizing yourself with CIAs issued for organizations similar to yours, you can take steps to reduce your organization’s potential violations. Model your compliance program after the requirements outlined in the CIAs so that you can prevent violations.

You can use existing CIAs as a template for a compliance program, as well as a roadmap of what to anticipate if your organization is found to be in violation. CIAs dealing with compliance issues with physician agreements provide insight into what you might be required to do under a CIA. We suggest reviewing several recent CIAs for entities structured similarly to yours. There are a significant number of CIAs available for review, and organizations that have built their compliance programs under a CIA have some of the most robust compliance programs in the industry. Borrow best practices from them!

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The Stakes are Higher: Penalties for Violations Increase

As 2016 comes to a close, we want to take a step back and look at the actions the OIG and DOJ have taken over the year and how it may impact your physician contracts and strategy in 2017.

The Bipartisan Budget Act of 2015 mandated that federal agencies adjust civil monetary penalty amounts for inflation. Furthermore, the Budget Act allowed agencies to make “catch-up” adjustments. This has resulted in substantial increases in fines since False Claims Act penalties have not been adjusted in 20 years. The fines for False Claims Act violations are now $10,781 at the minimum and $21,563 at the maximum. Stark Law fines increased from $15,000 to $23,863 per violation and Anti-Kickback Statute fines increased from $50,000 to $73,588. The penalties are expected to increase further based on inflation each year.

Healthcare organizations with violations will face much larger fines. The potential impact could be crippling for some organizations. Preventing violations is even more important now since we expect to see record-setting fines and settlements with healthcare entities in 2017.

False Claims at the Center of Focus

Stark and the Anti-Kickback Statute have always been driving factors in physician contract regulation, however, over the past few years, we have seen False Claims become more and more prominent in improper physician payments cases. The False Claims Act applies to any fraudulent payment collected from the government (including some Stark and Anti-Kickback violations). Experts predict that the False Claims Act will continue to be a significant risk for health care organizations since False Claims Act penalties substantially increase the potential repayment amount of many violations.

Advice for the New Year

There are many uncertainties about the future of healthcare, including reforms to Stark law. However, the risks of improper payment to physicians are likely to continue.

The beginning of a new year is a good time to assess your compliance and documentation process and revamp physician contracting processes to mitigate risks. If you need ideas on physician contracting best practices, check out our guide.

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Yates Memo, Yates Memo, Yates Memo

As 2016 comes to a close, we want to take a step back and look at the actions the OIG and DOJ have taken over the year and how it may impact your physician contracts and strategy in 2017.

Here’s our take on the most important emerging trends for 2017.

In September 2015, Sally Yates, an attorney for the DOJ wrote a memo stating that individuals were to be held accountable in corporate wrongdoing cases. Since its release, the Yates memo has been one of the hottest topics in healthcare compliance. We have seen doctors as well as hospital executives fined for improper physician payments. This September, the former CEO of Tuomey Healthcare was fined $1 million for his role in the hospital’s Stark violations. He is also excluded from working for any organization participating in federal programs for the next four years.

The number of personal liability fines likely will increase in 2017. Thus, it is imperative that individuals including physicians, hospital executives, and those involved with physician contracting pay attention to how their actions could be perceived in any government investigation. Individuals can no longer assume the organization will be blamed for regulatory violations. Read more on our blog.

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So, You're Being Faced with a CIA...

It happens, organizations do things wrong and the government issues at CIA. Remember, CIAs are designed to improve processes so that violations don’t occur again.

Why would an organization accept a CIA?

Typically, an organization enters into a CIA in order to continue participation in Medicare and Medicaid. The OIG will only offer a CIA as an alternative to exclusion if the situation merits it.

In “An Open Letter to Health Care Providers” written in November 2001, the OIG sought to clarify how they determine if a CIA is a good alternative to exclusion. They outlined eight factors:

  1. Whether the provider self-discloses the alleged misconduct
  2. The amount of monetary damage to Federal programs
  3. Whether the case involves a merger or acquisition where the buying entity is liable for the selling entity’s past and future liabilities
  4. Whether the provider is still participating in Federal health care programs or whether they are still in the line of business that gave rise to the fraudulent conduct
  5. Whether the alleged conduct is capable of repetition
  6. The age of the conduct
  7. Whether the provider has an effective compliance program and would agree to limited compliance or integrity measures, and if they would agree to annually certify such compliance to the OIG
  8. Other circumstances, as appropriate. 1

 

Who enforces CIAs?

Once an organization is under a CIA, the OIG assigns a Monitor. The Monitor has a collaborative role, and works primarily with the organization’s Compliance Officer. The team ensures the compliance program is preventing violations by identifying problems and correcting them. Even organizations under CIAs have compliance challenges; in fact, the OIG has been suspicious if they don’t hear of problems in organizations under a CIA.

What happens if an organization fails to comply with a CIA?

Failure to meet CIA obligations can result in a fine, often of $2,500 per day after the missed deadline outlined in the CIA. While it is rare, a “material breach” of the CIA can lead to a five-year exclusion from federal programs. CIAs define a “material breach” as:

  • Repeated or flagrant violations of the CIA’s requirements
  • Failing to report a reportable event, take corrective action, and make the appropriate refunds
  • Failing to engage and use the required Independent Review Organization or Monitor
  • Failing to meet a deadline or request for information from the OIG

 

What can a healthcare entity do to prevent violations? Stay tuned for Part Two in this series, available in November.

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1An Open Letter to Health Care Providers written in November 2001: https://oig.hhs.gov/fraud/docs/openletters/openletter111901.htm

 

No Joke: Personal Liability in a Post-Yates Memo Era

Tuomey Healthcare's CEO is personally paying $1 million for the hospital's improper payments. Not only that, but he cannot work for any healthcare entity that receives federal reimbursements for the next four years.

In September 2015, we first heard of the Yates memo and were warned that the DOJ was going to take individual accountability in corporate wrongdoing seriously. We have seen fines against individual physicians, but now we know hospital executives can no longer ignore the risks.

Executives must take critical steps to protect their organization, and themselves, from violations and fines:

  • Take a hands-on approach to working with your team to ensure compliance processes and procedures are robust.
  • Be sure that everyone within the organization understands the importance of documentation. Cut no corners in the documentation process.
  • Understand the steps that are being taken to ensure the organization is compliant.

We expect that this is only the beginning of personal fines for corporate wrongdoing and that we will see larger and more frequent fines in 2017 and beyond.

 

While many organizations feel pressure to get contracts with physicians in place, you absolutely must have compliant arrangements; not only for the hospital's sake, but your own.

MD Ranger publishes benchmarks for more than 250 services. Have you seen our latest list of what's available? Check it out here.

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What Do Corporate Integrity Agreements Require?

Corporate Integrity Agreements (CIAs) generally focus on one or more categories of violations: claims review, focus arrangements, quality of care, and covered functions review. CIAs are fairly uniform; however, most include specific requirements tailored to the violation(s) that led to the settlement. CIAs typically run 3-5 years.

All CIAs require:

  • Establishment of a compliance officer and compliance committee
  • Imposition of compliance duties for the Board of Directors
  • Adoption of a code of conduct and applicable policies and procedures
  • Training and education on the code of conduct, policies, and procedures within the first 90 to 120 days as well as annually thereafter
  • Internal reviews in addition to reviews by an Independent Review Organization (IRO) that organizations hire as a third party opinion
  • Screening for ineligible persons, i.e. those excluded from federal health programs and those who have convictions that entail mandatory exclusion
  • Reporting to the OIG of ongoing investigations or legal proceedings, any alleged fraudulent behavior, repayment of overpayments in accordance with the ACA, as well as any other compliance breach or any change in the location or structure of the organization

 

The OIG publishes all of the CIAs it issues on its website.

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What You Need to Know About Corporate Integrity Agreements (CIAs)

When a hospital or other healthcare entity violates the False Claims Act, there are consequences. Often these include entering into a Corporate Integrity Agreement (CIA) with the U.S. Office of the Inspector General (OIG). The purpose of a CIA is to strengthen an organization’s compliance program with policies and procedures approved by the government. The OIG must have confidence that the organization is taking steps to prevent new violations.

What is a Corporate Integrity Agreement?

A CIA is a tool used by the OIG to address violations at healthcare organizations through policies and procedures designed to enforce compliance with regulations. A CIA is usually coupled with a civil settlement between the provider and the government to avoid exclusion from federal health programs.

Who is subject to a CIA?

CIAs have been issued for all types of healthcare entities ranging from hospitals and health systems to physician practice groups, individual physicians, post-acute facilities, dialysis companies, pharmaceutical manufacturers, durable medical equipment suppliers, and many more.

Historically, the OIG always issued a CIA when violations occurred. However, in recent cases where the OIG is confident that the violation(s) will not reoccur, a CIA has not been put into place. Because the OIG can assess a violators’ capacity to change noncompliant behaviors, they can identify organizations who are low risk for repeat violations. To determine whether or not an organization should enter into a CIA, the OIG looks at many factors, including how long ago the violations occurred, whether there was a pattern of misconduct, the compliance procedures in place, and other elements. If an organization self discloses their violations, the OIG may not require a CIA because self disclosure is evidence of an effective compliance program.

Learn more about CIAs here.

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Prepare for and Document the Negotiation Conversations

After building a case for why the organization needs the physician and role in question, prepare for the negotiation conversation. Anticipate where there will be pushback and where compromises can occur. Then, be sure to organize and document everything, this will save you a headache at a later date.

Have a draft job description and contract prepared

Creating or reviewing the job expectations internally with staff who will be involved in the program helps to define expectations and parameters for effective leadership. It helps the physician to understand what the position entails and can preclude conflicts during negotiations or later when time records are reviewed.

Document compliance

Documenting compliance is essential for your compliance program; however, fair market value rate documentation can also facilitate negotiations. Demonstrating that you take compliance seriously and reminding physicians that they too can be investigated and fined for Stark and Anti-Kickback violations, can earn the respect of your physicians, administration, and board.

Gather all documents you may need in one place

Depending on the size of your organization or the time of year, you may be preparing for many contract negotiations. By keeping all the documentation and notes for each contract together, you can stay organized and reduce confusion and unnecessary missteps. Since many of these documents also support compliance, keeping them centralized can streamline the compliance process after the contract is signed.

If you would like to learn more about physician contracting best practices, we have many more resources here.

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When Negotiating with a Physician, Consider the Organizational Impact

After familiarizing yourself with the background of the contract, physician, and position you are looking to contract, take a step back and determine the impact this position will have on the organization. Why does the organization need to pay someone for this position?

Establish goals and objectives

Before beginning a contract negotiation, determine the ideal outcome of the contract in terms of payment and work expectations. Know when you can compromise and when you can’t before any talks with the other party begin. Strategize with others to determine what the physician or group’s goals are; set realistic expectations for the arrangement. Are the expected number of hours realistic? Does the physician have the leadership skills needed to be effective?

Review your organization’s contracting and compliance guidelines

If your organization has written compliance guidelines for payment rates, review them so that both you and the physicians with whom you negotiate know the ground rules. If your organization doesn’t have written guidelines, consider creating them. Many organizations don’t pay above the 50th or 75th percentile without a rigorous approval process. Having guidelines creates an objective standard of payment and limits feelings of favoritism among physicians.

 

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Do Your Research: The First Step in Contract Negotiations

Physician contract negotiations can be tricky, no matter how positive the relationship between the hospital and physician is. Start the process by doing your research.

Review all prior and existing agreements

Start by reviewing the contract that is up for negotiation as well as prior contracts with the group or individual. If it is a current agreement that is expiring, review the key terms and scope of services. If it is a new arrangement, familiarize yourself with what has already been offered to the provider and the proposed scope of services. Check and see if additional contracts exist for the physician or group in question. Multiple contracts with the same physician or group could result in overpayment that is sometimes referred to as “stacking”. It may be reasonable to have multiple agreements with the same physician for different services, but you should keep careful documentation of total payments to ensure that the aggregate amount does not exceed market rate compensation for an individual. For example, if an oncologist with a clinical practice is paid to be the medical director of an infusion service as well as the chief of staff and the director of the cancer center and the aggregate hospital payments exceeds the compensation for a full time oncologist, there could be an issue if her clinical revenues reflect a full time practice as well.

Research the Market

Always perform due diligence before starting negotiations. Commercial reasonableness is an important aspect of physician contracting, especially for a new position. Consider if the position is truly necessary for your organization or results in measurable quality improvement, and that it makes good business sense independent of any referrals by the physician or group.

Know reasonable payment rates for the specialty and the service in question. High quality market data is a great resource. While you should be familiar with the entire range, we recommend targeting rates between the 25th and 75th percentiles of market data. It is important to remember that statistically someone must be paid above the 90th percentile and someone must be below the 25th – and there should be reasons and documentation for those payment levels. You should enter the negotiation with quantitative evidence of the range you can support, as well as how your institution and the particular physician(s) compare to the ‘typical’ provider. Factors such as hospital size and trauma status can make a difference in the appropriate payment rate, as can national reputation and the credentials of a particular physician.

After you are familiar with the situation, take a step back and look at the organizational impact. We will cover that process next week.

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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.

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Determining Commercial Reasonableness

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 Service
General Surgery Call Coverage
61%
Pathology/Clinical Lab Medical Direction
49%
General Cardiology Call Coverage
35%
Family Practice Medical Direction
12%
Plastic Surgery Medical Direction
7%
Podiatry Call Coverage
4%

Next week, we will look at how to document commercial reasonableness.

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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)

How Can You Protect Your Organization from AKS Violations?

Health care regulations governing hospital-physician contracts are highly technical, which makes deciphering them difficult. However, knowing the details is essential to preventing your organization from getting dinged with large fines. The two most important regulations to understand are the Stark Law and the Anti-Kickback Statute. While this post focuses on the Anti-Kickback Statute, if you would like more information on Stark law,watch our 11-minute video.

Have a contract for every physician you engage, with or without a regular payment

Having a written and signed contract with terms and payment rates outlined prior to a physician initiating services ensures that the terms are understood before entering into the relationship. It is a good idea to have contracts for unpaid positions as well, just to make sure you are covered.

Be specific about the duties covered and expected for the position

Describe the services to be provided in detail in the contract. Keep in mind that if a duty is not specifically listed in the contract, it is not technically covered by that contract, and the hospital should not be paying for it as if it were. For administrative position contracts, specify the expected and maximum number of hours that will be reimbursed. Monitor the physician time records to check that the responsibilities and time spent are consistent with the contract.

Document non-monetary compensation

If you provide any non-monetary perks, make sure they are appropriately documented and objectively provided based on non-volume or revenue criteria. These might include: parking spaces, meals, EHRs, technology, infrastructure, etc.

Set rates at FMV

Ensure your negotiated contracts include FMV and commercial reasonableness documentation. If there isn’t documentation, flag the contract for immediate review. If the documentation doesn’t provide clear justification for paying the rate outlined in the contract, flag it as needing additional documentation. Have a consistent method for documenting FMV such as a set of reference benchmarks or outside opinions.

Don’t do anything that could be construed as payment or reward for referrals!

Paying for referrals or bribing physicians in any way is illegal. Make sure when you review physician contracts that no payments take into account number of patients, revenue, or anything that could be construed as a referral.

The regulations that guide physician contracting can be confusing and overwhelming, but it is imperative that you understand the rules and the consequences for violating them.

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Get Into the OIG’s Mind: Review Recent CIAs.

If you are overwhelmed by physician contracting compliance, or are unsure what elements are essential in a good compliance process, a great way to create structure is to review requirements outlined in recent corporate integrity agreements (CIAs). CIAs are the settlement agreements reached between the OIG and a noncompliant provider that outline the steps required to remedy violations. CIAs are often the best and clearest means of interpreting Stark regulations and they can be used to help structure a well-functioning contract compliance program and contract terms that may prevent future issues with improper payments.

If you want to read more key physician contracting compliance tips, check out this article.

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Do You Have Guidelines for Handling Exceptional Physician Agreements?

When your organization determines it must compensate a physician above your standard for fair market value, create a standardized process for reviewing such exceptional contracts. Stark doesn’t prohibit paying physicians above a certain threshold, but organizations must have justification for the rates. When developing a step-by-step process to address exceptions, have specific goals in mind. What criteria define a true exception? How do you enforce that definition? Who needs to sign off on exceptions? What happens to renewals? Most strong compliance programs require senior executives to sign off on exceptional agreements and many require board approval or at least review by an executive or finance committee of the board.

If you want to read more key physician contracting compliance tips, check out this article.

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Create a Rigorous, Consistent Process for Determining FMV

How does your organization determine fair market value? Do you employ external consultants? Does your team produce internal FMV opinions and document methodology? Whatever method, document the rationale and approval process and stick to a consistent method. Some organizations use high-quality market data to determine FMV for most (80% or more) physician contracts, and tap into consultants to provide guidance for complex and/or high cost contracts that exceed a specified benchmark level. This method reduces FMV costs by reducing the number of individual FMV opinions. Do your research and feel confident that your method supports compliance best practices.

If you want to read more key physician contracting compliance tips, check out this article.

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Does Every Physician Position at Your Organization Have a Contract?

Organizations must document all contractual arrangements with physicians, with payment terms set in advance that are unrelated to volume of services. This includes both compensated and uncompensated services. Work with administrators and chiefs of staff to ensure all contracted positions have signed agreements that include payment rates, defined services and time requirements, the expiration date, and a method for regular monitoring. Remember: even though the Stark Final Rule doesn’t mandate having a contract, you must have a signed arrangement in place, and it is still a best practice to have a formal contract.

Although call coverage agreements are expensive and often command the most attention, the OIG’s 2015 settlements and Fraud Alert demonstrate that special attention should be given to medical director, leadership and other administrative services arrangements. If your organization is not documenting both commercial reasonableness and fair market value for administrative positions, you may be putting the organization at risk. Ensure that you have policies in place for determining FMV for all arrangements and for archiving the necessary documentation.

If you want to read more key physician contracting compliance tips, check out this article.

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The Hospital Board's Role in Compliance

Board oversight of physician contracts is an important component of a strong compliance program. The OIG released guidance for the Board’s role in compliance. Read the guidance here.

MD Ranger's report and analytic tools provide executives with comparison information to document how your physician contracts compare to benchmarks. Reports that compare individual contract terms to benchmarks as well as summary reports that compare all of a facility's physician contracts to relevant benchmarks provide executives an efficient process for sharing information with executives and boards.

Read moreabout the areas boards should be especially vigilant.

--Penny

Recent OIG Action Summary

The OIG actions of the past two years illustrate the risks of noncompliant contracts to healthcare organizations and individuals who do not have a comprehensive compliance program for review and documentation of physician contracts. Health systems under investigation or under consent decrees report that an OIG investigation looks for consistent review processes, regular monitoring, internal audits and defined compliance guidelines. How confident are you that your physician contracts are 100% compliant with documentation of FMV on file?

We urge our subscribers to perform annual physician contract audits in addition to using consistent guidelines and documentation procedures throughout the year. Take advantage of a new month and plan a physician contract audit.

Links to Excellent 2015 Articles on These Topics:

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FMV is not the end of the road, you still have to enforce the contracts

When our subscribers ask about physician contract compliance best practices, we caution them to be sure that the annual payment, the hourly rate, and the hours of service are compliant, and that contract performance and payments are tracked. Negotiating compliant terms and filing documentation isn’t enough. An effective compliance program also requires ongoing documentation that the work being performed is appropriate for the payments being made. Physician contract compliance is not complete after fair market value is documented.

New settlements for Stark, Anti-Kickback, or False Claims violations are being reported with growing frequency. Many of the parties had compliance policies in place that were not being followed. Violations that led to settlements, include:

  • Automatically paying a physician the same amount each month without verification of work completed
  • Continuing to pay a physician after the contract end date
  • Not verifying physician time logs for accuracy
  • Not confirming that reported activities are compensable
  • Incomplete or missing time logs

 

These violations often result from the lack of automation or insufficient internal processes. Keeping time records is an essential, but often irritating task for physicians and administrators that has long been begging for a solution.

One solution to the challenge is a mobile app to replace paper time logs. One example of such an app is DocTime Log®, which allows physicians to report administrative duties via their cell phone or tablet while software automates and streamlines the reporting and payment process for approvers of the time logs. While MD Ranger’s Physician Contract Benchmark Reports help hospitals determine and document FMV, DocTime Log® matches reported time and activities to the contract terms, thereby simplifying the documentation and payment process.

Another tool that facilitates compliance is an easy-to-use contract management system that provides notification of end dates. MD Ranger provides a tool that includes effective dates and benchmarks each contract against current MD Ranger rates. Used in conjunction, these types of tools should increase your organization’s compliance and improve the workflow of your compliance team.

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What is the Best Payment Method for Non-Clinical Administrative Contracts?

Payment and hours of service benchmarks for medical directorships are available from several sources. However, in today’s health care environment, facilities need physicians for a number of reasons, and it can be difficult to convince a physician to give up time to sit on a committee, serve as a medical staff officer, train for CPO or EHR, help with peer review or participate in quality initiatives. Establishing a fair and compliant payment rate for a position that does not need a particular type of specialist can be a challenge!

What is the Best Payment Method for Non-Clinical Administrative Contracts?

Hourly payment rates may not be the best method to pay for one-time events or short-term assignments like training, meeting attendance, or task forces. Per meeting payments or monthly stipends may be easier to administer than keeping and submitting time records for some initiatives or training sessions. If the per meeting payment is reasonable, the need for a one-off time card may not be as crucial if minutes or other records of participation are kept.

Distribution of Payment Methods for Non-Directorship Positions

To learn more about methods for paying non-director administrative services, email our team at This email address is being protected from spambots. You need JavaScript enabled to view it..

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How Do Hours Differ for Leader and Non-Leader Roles?

Payment and hours of service benchmarks for medical directorships are available from several sources. However, in today’s health care environment, facilities need physicians for a number of reasons, and it can be difficult to convince a physician to give up time to sit on a committee, serve as a medical staff officer, train for CPO or EHR, help with peer review or participate in quality initiatives. Establishing a fair and compliant payment rate for a position that does not need a particular type of specialist can be a challenge!

How Do Hours Differ Between Leaders and Non-Leaders?

Median annual payments are higher for leaders (committee/initiative chairs and directors) than for non-leaders. For Case/Care/Utilization Management, the annual payments for chairs and directors are more than double the annual payment for non-chairs in Case/Care/Utilization Management. These differences reflect the time and effort required for managing or leading a process compared to members of a committee or task force, or one-time training compensation.

Annual Payment Ranges for Leaders and Non-Leaders

Are Payments Increasing Over Time?

Payments in 2015 are higher than either 2013 or 2014 across all quantiles.

Non-Clinical Administrative Annual Payment Rates

To learn more about paying leaders and non-leaders, email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Non-Directorship Administrative Roles Have Unique Payment Challenges

Payment and hours of service benchmarks for medical directorships are available from several sources. However, in today’s health care environment, facilities need physicians for a number of reasons, and it can be difficult to convince a physician to give up time to sit on a committee, serve as a medical staff officer, train for CPO or EHR, help with peer review or participate in quality initiatives. Establishing a fair and compliant payment rate for a position that does not need a particular type of specialist can be a challenge!

Be Wary of Opportunity Cost

In positions where specialty is not a requirement for the role, such as EHR implementation, quality initiatives, utilization review, or chief of staff, many valuation experts advise that opportunity cost should not be considered a factor in physician payment rates, and FMV for clinical services may differ from administrative services.

Federal Register comments on Stark III regulations state:

A fair market value hourly rate may be used to compensate physicians for both administrative and clinical work, provided that the rate paid for clinical work is fair market value for the clinical work performed and the rate paid for administrative work is fair market value for the administrative work performed. We note that the fair market value of administrative services may differ from the fair market value of clinical services.

Hours Vary

Many hospitals and health systems set a standard hourly rate for all physician administrative contracts, sometimes paired with a FMV opinion on that rate. This can be an effective policy, however, it does not negate the need to define and monitor the hours associated with each position since total payments must also be reasonable. Ensuring that the job description justifies the hours, and that time records are kept, collected, and reviewed is essential to a robust compliance process.

Hours among non-director positions tend to vary since the variety of assignments is broad. Meeting frequency, residency or teaching duties, nature and scope of quality initiatives or intensity of training for IT, POE or other training programs each vary by institution, subject and physician role, hence good recordkeeping is essential. Committee chairs and administrative/initiative leaders of non-clinical initiatives often require more hours than non-leaders as well.

The graph below shows the variation between types of non-clinical administrative positions:

Annual Hours of Service for Non-Clinical Administrative Positions

To learn more about paying for non-director administrative positions, email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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Federal Regulations and the Risk to Physicians

Recent actions by the OIG make it clear that they are investigating physicians as well as hospitals when they suspect a physician contract violates Stark, Anti-Kickback, or False Claims Act regulations. The OIG recently published a Fraud Alert, which warns physicians that they could take on personal risk under the Anti-Kickback Statute for noncompliant compensation arrangements. This debunks the common misconception that the government only prosecutes hospitals for noncompliant contracts.

From a business standpoint, if physicians are not employed by the hospital, the IRS considers them to be independent businesses that enter into contracts with hospitals. Much like when you sign a contract with a contractor to remodel your house, there are negotiations on price—you want the cheapest price for the highest quality work and the contractor wants the most money, but also wants to be hired for the job. However, when you hire the contractor to do the remodel, the government does not have anything to say about how much you pay the contractor. In the hospital business, they do because the government has a vested interest in the hospital either as a payer (Medicare, Medicaid), as the grantor of a tax exemption, and a protector of consumers from kickbacks, price-fixing, and inurement.

Although most health care executives understand FMV restrictions imposed by the Stark regulations, Anti-Kickback statutes and False Claims Act, many physicians do not. Hence it is often important to come to a negotiation armed with market data to support or help structure a discussion on payment rates as well as other regulatory requirements such as prohibitions on payments tied to volume, signed agreements set in advance, and limitations on contract length.

The new OIG advisory “encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.”1 If the OIG finds that a physician is violating Stark or the Anti-Kickback Statute, the settlement and associated legal fees could have severe financial implications for the physician.

In 2014, 12 Texas physicians settled with the OIG for $50,000 to $195,000, or exclusion from Medicare, to resolve allegations that they entered into medical directorship agreements with Fairmont Diagnostic Center and Open MRI, Inc. The government alleges that these medical directorship payments took into account the volume or value of referrals.2

An essential part of any negotiation should be educating the parties about the risks of noncompliance for both the facility and physicians as well as the behaviors that the OIG has targeted. Understanding the gravity – and reality – of these risks may help as you explain why you cannot pay whatever is asked—and why they can’t accept a payment that doesn’t meet the test of fair market value.

To read more about the topic, here are some helpful analyses:

1 http://www.fcaupdate.com/files/2015/06/Fraud_Alert_Physician_Compensation_06092015.pdf 2 https://oig.hhs.gov/fraud/enforcement/cmp/kickback.asp

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Reports for Hospital Boards and Executives

In April 2015, the OIG released Practical Guidance for Health Care Boards on Compliance Oversight. MD Ranger’s analytic tools generate an Executive Summary which provides day-to-day compliance and physician contracting staff a report to share with executives and the board. This report graphically displays payments by service and facility for health systems.

This report allows administrators and boards to see where money is going and compare across facilities. It can also highlight areas of potential compliance concern, or areas that should be examined more closely.

Executive Summary 1

Executive Summary 2

If you are curious about the Executive Summary, email This email address is being protected from spambots. You need JavaScript enabled to view it. to learn more.

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Individual Contract Reports

A single page report is automatically created for each physician contract which summarizes the contract rates and terms. This report also includes a graphical comparison to MD Ranger’s benchmark ranges and the percent of MD Ranger subscribers who report paying for the service. The percent paying figure serves as a measure of commercial reasonableness.

Many MD Ranger subscribers include this one page report in the contract file to serve as documentation of FMV.

Individual Contract Documentation

If you are curious about the Individual Contract reports, email This email address is being protected from spambots. You need JavaScript enabled to view it. to learn more.

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