Stark and AKS Appraisals

The Department of Health and Human Services (HHS), on November 20, 2020, released final rules for the federal physician self-referral law (Stark) and the anti-kickback statute (“AKS”). Protections for value-based arrangements clarify existing Stark and AKS requirements to better coordinate value-based care and clarify confusion and burdens. Most of these changes have taken effect on January 19, 2021.

The Centers for Medicare & Medicaid Services (“CMS”) changed definitions of “fair market value” under the new final rule 42- CFR 411.511. Fair market value is the value in an arm’s length transaction and would apply to both the rental of office space and rental of equipment. The definition is to stay consistent with the general market value of the subject transaction. The compensation must not take into account the volume or value of the referrals. It does not include the additional value the prospective lessee or lessor would attribute to the proximity or convenience to the lessor where the lessor is a potential source of patient referrals to the lessee.

The “general market value” has been clarified with the respect to rental of office space and rental of equipment as the price that rental property would bring at the time the parties enter into the rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other.

However, the CMS will continue to allow valuation methodology that is commercially reasonable and provide evidence of compensation that is comparable to what is ordinarily paid for an item or service in a certain location by arm’s length parties.

The definitions for fair market value and general market value is described below.

Fair Market Value – Revenue Ruling 59-60

“The price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, In Archive May 2021 July 2020 June 2020 April 2020 March 2020 August 2017 August 2014 April 2014 Stark & AKS Appraisals when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.” (IRS Rev Ruling 59-60)

General Market Value – Stark Law (42 C.F.R. 411.351)

With regards to the following categories, General Market Value means:

1Assets. With respect to the purchase of an asset, the price that an asset would bring on the date of acquisition of the asset as the result of bona fide bargaining between a well-informed buyer and seller that are not otherwise in a position to generate business for each other.
Compensation. With respect to compensation for services, the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well informed parties that are not otherwise in a position to generate business for each other.
Rental of equipment or office space. With respect to the rental of equipment or the rental of office space, the price that rental property would bring at the time the parties enter into rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other.

Under these statutes, it is important to remember that there is a new developing standard that appraisals are permitted to use. Commercial Reasonableness, 42- C.F.R. 411.351, means that a particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. An arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.

Federal Appraisal LLC performs valuations according to these methodologies for Clients who have concerns as to how these regulations apply to lease transactions and purchase transactions. In all cases, clients must make sure that these transactions fall under the fair market value definition mandated by the CMS. There are nuances and unique considerations that require qualified appraisers to sort out. Real estate transactions in the healthcare industry are more complex than general commercial transactions. Federal Appraisal LLC understands these statutes and can ensure consistency with these new definitions.

If you have any additional questions, please do not hesitate to call us at 908-534- 3590 or email us at mark@federalappraisal.com.

The Department of Health and Human Services (HHS), on November 20, 2020, released final rules for the federal physician self-referral law (Stark) and the antikickback statute (“AKS”). Protections for value-based arrangements clarify existing Stark and AKS requirements to better coordinate value-based care and clarify confusion and burdens. Most of these changes have taken effect on January 19, 2021. The changes will impact appraisals. Federal Appraisal LLC can provide appraisals that meet these new rules.

The term “general market value” has been clarified with the respect to rental of office space and rental of equipment as the price that rental property would bring at the time the parties enter into the rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other. However, the CMS will continue to allow valuation methodology that is commercially reasonable and provides evidence of compensation that is comparable to what is ordinarily paid for an item or service in a certain location by arm’s length parties.

The definitions for fair market value and general market value are described below.

Fair Market Value – Revenue Ruling 59-60 “The price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.” (IRS Rev Ruling 59-60)

General Market Value – Stark Law (42 C.F.R. 411.351)

With regards to the following categories, General Market Value means:

Assets. With respect to the purchase of an asset, the price that an asset would bring on the date of acquisition of the asset as the result of bona fide bargaining between a well-informed buyer and seller that are not otherwise in a position to generate business for each other.
Compensation. With respect to compensation for services, the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well informed parties that are not otherwise in a position to generate business for each other.
Rental of equipment or office space. With respect to the rental of equipment or the rental of office space, the price that rental property would bring at the time the parties enter into rental arrangement as the result of bona fide bargaining between a well-informed lessor and lessee that are not otherwise in a position to generate business for each other.

Under these new statutes, it is important to remember that there is a new developing standard that appraisals are permitted to use, “commercial reasonableness”. Commercial Reasonableness, 42- C.F.R. 411.351, means that a particular arrangement furthers a legitimate business purpose of the parties to the arrangement and is sensible, considering the characteristics of the parties, including their size, type, scope, and specialty. An arrangement may be commercially reasonable even if it does not result in profit for one or more of the parties.

If you have any additional questions, please do not hesitate to call us at 908-534- 3590 or email us at mark@federalappraisal.com.