PYA White Paper Explores Commercial Reasonableness in Healthcare Transactions

cr-imagePYA has released a white paper outlining commercial reasonableness and regulatory compliance in financial relationships between hospitals and physicians. 

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A new white paper from PYA, “Commercial Reasonableness: Defining Practical Concepts and Determining Compliance in Healthcare Transactions for Physician Services,” provides a framework for ensuring compliance with regulatory requirements to avoid sanctions and penalties related to the Stark Law, the Anti-Kickback Statute, the False Claims Act, and Internal Revenue Service 501(c)(3) status for tax-exempt entities.  The paper is an adaptation of a chapter from a book forthcoming this summer, BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements, and is accompanied by an additional resource—“Practice Aid: Commercial Reasonableness Assessment Tool”–which represents some key exercises for evaluating the commercial reasonableness of physician-hospital arrangements.

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To avoid costly penalties, financial relationships between hospitals and physicians must be both commercially reasonable and at fair market value (FMV).  While valuators have limited guidance as to how to determine FMV, the concepts and methodology for determining commercial reasonableness (CR) on its own terms continue to evolve.

According to the authors of the paper, “As a whole, the standard of commercial reasonableness remains broad in scope and speaks to an arrangement’s general business characteristics, including matters pertaining to strategy, economic factors, and operations. However, when one wants to evaluate commercial reasonableness in the healthcare setting from a practical perspective, specific terms of the proposed arrangement should be examined and analyzed in relation to the transaction’s: (1) business purpose; (2) provider of service; (3) appropriateness with regard to the provider’s facility and patient population; (4) suitability, considering the human and capital resources of the provider; and (5) aptness related to current and proposed methods for independence and oversight. By following such a process, commercial reasonableness analyses (based on available regulatory guidance) become more concrete and help mitigate any potential ambiguity that may exist between fair market value and commercial reasonableness.”

PYA’s valuation experts provide FMV compensation and CR opinions for a wide range of financial arrangements entered into by physicians, hospitals, and other healthcare entities.  Most often, our reviews are deemed helpful to healthcare providers that are compliance- focused and are desirous of compensation arrangements that comply with the Stark Law and the Anti-Kickback Statute, and any other regulations governing transactions in the healthcare industry.

Carol Carden

Carol Carden


Lyle Oelrich

Lyle Oelrich


Martin Brown

Martin Brown


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