Don’t Forget About the Stark Law Fair Market Value Exception

When setting up or analyzing an arrangement under the Stark Law, parties often get bogged down trying to meet the technical minutia of what seems to be the only exception applicable to their arrangement that they often forget to take a step back and consider whether they can use another exception. An exception applicable to many arrangements that is often overlooked is the fair market value exception (“FMV Exception”).

The FMV Exception protects compensation paid by a DHS entity to a physician (or group of physicians) or by a physician (or group of physicians) to a DHS entity for the provision of items or services as long as the following conditions are met:

  1. The arrangement must be in writing, signed by the parties and must identify the items or services being provided;
  2. The writing must specify a timeframe for the arrangement (it can be for any length of time, but the parties can only enter into one arrangement for the same items or services over the course of one year);
  3. The writing must specify the compensation that will be provided (the compensation must be set in advance, must be fair market value and must not be determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician(s)); and
  4. The arrangement must be commercially reasonable and not violate the Anti-Kickback Statute, and the services to be performed must not involve the counseling or promotion of a business arrangement that violates Federal or state law.

Essentially, the FMV Exception requirements are the basic Stark Law elements without any “extras” added. For example, if used in lieu of the rental of equipment exception, the parties do not need to deal with the exclusive use requirements of that exception. If used in lieu of the personal services arrangements exception, the parties do not need to meet the requirement that all of the contracts between them cross reference each other or that the DHS entity maintain a master list that is referenced in the contracts.

Note, however, that the FMV Exception cannot be used in place of all other exceptions. It is specifically disallowed from being used as a replacement for the rental of office space exception. Also, it likely would not make sense to use it as a replacement for the employment exception, which has fewer requirements to meet. But, when it can be used, the FMV Exception may provide everyone a bit of relief from the technical minutia that is Stark Law compliance.