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Published April 1, 2021

New Stark and Anti-Kickback Regulations Shine Spotlight on the Commercial Reasonableness of Medical Directorships–What You Need to Know and Do

On January 19, 2021, the Centers for Medicare & Medicaid Services (CMS) and the Office of Inspector General (OIG) of the Department of Health and Human Services modernized the Stark Law (Stark) and the Anti-Kickback Statute (AKS). For hospitals, health systems, and other applicable providers that have medical director or similar administrative services arrangements, these revised regulations provide some insight into the way government may continue to scrutinize the commercial reasonableness of medical directorships.  

What do the new Stark regulations say about the commercial reasonableness of medical directorships?

The Stark regulations focus on ensuring medical directorships serve a legitimate business purpose, and there is no duplication. Specifically:

“[A]s we noted in the proposed rule, arrangements that, on their face, appear to further a legitimate business purpose of the parties may not be commercially reasonable if they merely duplicate other facially legitimate arrangements. For example, a hospital may enter into an arrangement for the personal services of a physician to oversee its oncology department. If the hospital needs only one medical director for the oncology department, but later enters into a second arrangement with another physician for oversight of the department, the second arrangement merely duplicates the already-obtained medical directorship services and may not be commercially reasonable. Although the evaluation of compliance with the physician self-referral law always requires a review of the facts and circumstances of the financial relationship between the parties, the commercial reasonableness of multiple arrangements for the same services is questionable.”

What does the AKS say about the commercial reasonableness of medical directorships?

The recent changes to the AKS impacted the safe harbor for personal services and management contracts and outcomes-based payments, eliminating the requirement that part-time contractual arrangements specify exact interval schedules. According to AKS, this change “allows for greater flexibility in protected personal services arrangements, while the safe harbor continues to incorporate safeguards that limit potential abuse,” including that the services contracted for do not exceed those that are reasonably necessary to accomplish the commercially reasonable business purpose of those services. Arrangements affected by AKS modifications include, for example, dialysis facility medical directors. The OIG recognizes that the “unpredictable nature of dialysis care and that the frequent need to respond to urgent medical emergencies can impede the ability of nephrologists serving as dialysis facility medical directors to adhere to predetermined schedules.” While such safe harbor modifications afford greater flexibility for providers to enter arrangements where the ability to predict the exact frequency of their need for services is difficult, such arrangements must still be commercially reasonable and meet a defined need.

How can I substantiate the need for and appropriately coordinate each medical directorship within my organization?  

The most common way to answer this question is to perform a Medical Director Needs Assessment (MDNA). Like a physician supply-and-demand study, an MDNA establishes the need for each medical director and matches that need with its appropriate supply. 

An MDNA generally follows a 5-step process, which usually includes the following:

  1. Gather all relevant data. This should include, but not be limited to, a list of all medical director contracts, a list of all similar contracts (such as program directors), the names of the physicians performing the role, the number of hours per week/year performed by the medical director, etc.
  2. Organize your findings by specialty and sub-specialty. Create an inventory matrix of medical directorships to identify areas of potential duplication and/or areas of specialty similarities.
  3. Conduct relevant interviews with key members of management familiar with each medical directorship. Look for answers to any outstanding questions regarding the need for, and current organizational structure of, each medical directorship.
  4. Research legal, regulatory, and accreditation requirements. Some medical directorships must meet these requirements. In assessing need, these become more “black and white,” although it is still important to assess the reasonableness of such items including, but not limited to, the number of hours a physician incurs performing medical directorship duties.
  5. Analyze the data to assess the need for each medical directorship. Perform both quantitative (e.g., comparisons to benchmark data where medical directorship data exists for a certain specialty) and qualitative analyses (e.g., any new service lines for which benchmark data may not have previously been published) to determine the support for each medical directorship.

For ways to apply each of these steps, or questions that you may want to consider as you apply this approach, refer to PYA’s MDNA checklist. Additionally, for a more detailed explanation of key considerations and the steps associated with performing an MDNA, access our article “A Compliance Framework for Evaluating Medical Directorship Need,” published by Compliance Today.

PYA has significant experience in performing MDNAs as well as related analyses, such as medical staff planning, physician compensation, and fair market value compensation/commercial reasonableness analyses. For additional information on any of these topics, contact a PYA executive below at (800) 270-9629.

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