18 The Health Lawyer Volume 28, Number 5, June 2016

PAYMENTS AND FMV CONSIDERATIONS IN REVIEWING TELEMEDICINE ARRANGEMENTS Ben Ulrich, CVA VMG Health Dallas, TX

The growth in telemedicine adoption and demand for physician coverage services have raised a new challenge for healthcare providers and health systems alike. Navigating pro-vider availability, access and the reimbursement environment, as well as the ever-changing state-by-state regulatory environment requires heightened diligence for health sys-tems pursuing a telemedicine solution. Given these unique arrangements can often involve compensation between a hospital and physician or even between hospitals themselves, the need to ensure that these telemed-icine payment arrangements are consistent with fair market value (“FMV”) and meet fraud and abuse standards is critical. A compliant and defensible telemedicine FMV analysis requires an understanding of the nuances in the telemedicine industry.

Telemedicine Industry Overview

According to the American Telemedicine Association (“ATA”), telemedicine refers to the exchange of medical information from one site to another through electronic communi-cations to improve a patient’s health.1 Telemedicine is an attractive option for hospitals, physicians and patients alike. Hospitals leverage telemedicine as a means to reduce emergency department (“ED”) hospital utiliza-tion costs and improve access to care. The ATA reports that over half of all U.S. hospitals now use or offer some form of telemedicine.2 Physi-cians are able to expand their patient reach without incurring traditional brick and mortar practice expenses. Physicians also enjoy being able to set their own scheduling by

incorporating telemedicine work as they see fit in their day. From patients’ perspectives, traditional bar-riers such as mobility, distance and time constraints are less of a chal-lenge with telemedicine. The focus is on consumer choice, whereby patients can select their own health-care practice, provider and pharmacy.

In general, telemedicine can be classified as real-time (synchronous telemedicine), store-and-forward (asynchronous telemedicine), or remote monitoring.3 Synchronous telemedicine requires live communi-cation among all parties via video- conferencing, whereas asynchronous telemedicine involves the gathering and transmission of medical data, such as sending a medical image to a medical practitioner for interpre-tation. Remote monitoring consists of an external monitoring center for healthcare providers to monitor a patient remotely. All of the afore-mentioned services and wording are often used interchangeably with “telehealth,” which represents the broader umbrella under which tele-medicine resides.

From a reimbursement stand-point, synchronous telemedicine is reimbursed by Medicare nationally and by Medicaid and commercial pay-ors on a state-by-state basis depending on state-specific licensure and creden-tialing policies. Although the service is reimbursable in most markets, many physicians are opting to con-tractually align with health systems or independent telemedicine vendors to avoid the hassle and expense of tele-medicine billing. Compensation structures for physicians who inde-pendently contract with telemedicine vendors or companies (ex. Teladoc, MDLive, American Well) are typi-cally on a per-consultation performed basis. For contractual arrangements between a hospital and physician, or

even a hospital and a smaller/rural hospital, the compensation structures can be a bit more varied. Payments could be flat daily availability fees, per-consultation rates, per-ED visit fees (with the potential of a tiered structure based on increased ED volume), hourly stipends, or any combination thereof. As is the case with more tra-ditional delivery of care methods, contractual relationships and payment rates between hospitals and sources of potential referrals must be set at FMV. With this multitude of relationships, complexity of service combinations, and ever-changing reimbursement environment, determining an appro-priate FMV payment for telemedicine services can prove difficult.

FMV Standard Just as is the case when hospitals

contractually pay physicians for tradi-tional ED on-call coverage, or any other service for that matter, it is vital that those payment rates be set at FMV to avoid violating the Stark Law and/or the Anti-Kickback Statute (“AKS”). FMV is a key requirement in order to fall within an exception to the Stark Law’s prohibitions against certain types of referrals and is the standard which must be met in contractual arrangements within healthcare where at least one party is a physician or immediate family mem-ber with a financial interest in a party to the transaction.4 As defined by the International Glossary of Business Valuation Terms,5 FMV refers to:

The price, expressed in terms of cash equivalents, at which a prop-erty 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

19Volume 28, Number 5, June 2016 The Health Lawyer

continued on page 20

have reasonable knowledge of the relevant facts.

In relation to healthcare and par-ticularly service agreements within healthcare, Stark guidance suggests:

The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.6

Additionally, telemedicine arrange-ments can run the risk of violating the federal AKS. The AKS indicates that the existence of any payment by a hospital to a physician could create the risk that the compensation was used as an inducement for that physi-cian to remain on the medical staff or do business at the hospital. Addition-ally, AKS implications could arise when hospitals sell telemedicine ser-vices out to facilities in need of coverage. 7 Once again, FMV is a key safe harbor here to avoid AKS implica-tion.8 Ensuring that telemedicine payment rates are set at FMV is a vital step in establishing a compliant telemedicine arrangement.

Agreement Structures and FMV Considerations

In terms of service arrangements needing to meet the FMV standard, contractually health systems can pay physicians to provide telemedicine ser-vices and they can also sell those services to other hospitals in need. The latter arrangement is alternatively known as a “hub to spoke” model, whereby a hospital that is generally located in an urban area or has a stable coverage base (hub facility) provides services to one or more facilities either located in a rural area or in an setting lacking coverage in a particu-lar specialty (spoke facility).9 These arrangements typically involve the hub facility charging out a fee to the spoke facilities for access to the hub site’s phy-sician coverage base via telemedicine.

From a charge standpoint, the value of the provider service rendered by the hub facility is the incremental burden on the physician panel in expanding their coverage out to addi-tional facilities. Additionally, in some instances health systems will incur additional equipment, connectivity, and coordination costs that should be considered in determining an appro-priate fee.

As such, one of the primary val-uation considerations associated with both direct-to-physician pay-ments and hub to spoke models is an assessment of the provider service being rendered. Some of the direct value drivers associated with the value of a physician’s telemedicine coverage to a facility or network of facilities include:

• Service line being covered and the case acuity of the patient volume (ex. stroke neurology vs. inpatient neurology coverage)

• Volume of expected consultations both via direct video link or telephonically

• The potential for professional reim-bursement from third party payors or patients for any service rendered

• Response time requirements for a consultation

• Contractual scheduling limitations (such as mandated timeframes of availability or coverage at the phy-sician’s convenience)

• Number of physicians available to provide the contracted coverage

• Equipment cost and any additional expense incurred by the health system in providing telemedicine services.

It is not a coincidence that the listing above is consistent with the burden of coverage factors identified by the Department of Health and Human Services’ Office of Inspector General in its Advisory Opinions for on-call coverage arrangements.10 The scale of value associated with paying a

physician to be available to provide a clinical service is consistent whether the service being covered is an ED or a telemedicine service-line. From a compensation value standpoint, higher levels of compensation may be warranted if it can be demonstrated that the burden on the physician pro-viding the telemedicine coverage is material in terms of response time requirements, expected consult vol-ume and the likelihood of being reimbursed for any service rendered. Although there is a wide variety of potential services and specialties that could leverage telemedicine to enhance care, the value drivers asso-ciated with the physician service are consistent. Ultimately, the coverage burden of the telemedicine arrange-ment must be carefully considered in assessing a telemedicine compensa-tion structure. As with any other physician service agreement, it is vital from a compliance standpoint to doc-ument on the front end the facts, circumstances, and considerations that support any telemedicine com-pensation arrangement.

ConclusionAs telemedicine becomes more

prevalent and reimbursed more by the federal health care programs and commercial parties, it becomes critical to include FMV consider-ations when structuring and offering such services. While telemedicine affords health systems, physicians and patients with the increasingly desired aim of convenience, access to care and lower costs, proper diligence must be undertaken to ensure that a tele-medicine arrangement meets the FMV standard.

Ben Ulrich is a Director in the Professional Service Agreements Division at VMG Health and is based in the Dallas office. His focus is

providing valuation and consulting

20 The Health Lawyer Volume 28, Number 5, June 2016

services for professional service arrange-ments within the healthcare services industry. He has particular expertise in valuations relating to employment, on-call coverage, telemedicine, physician administrative and executive services, clinical compensation, staffing coverage, billing and management fees, and quality initiatives. He can be reached at ben.ulrich @vmghealth.com.

Endnotes1 American Telemedicine Association, “What

is Telemedicine?” www.americantelemed.org/about-telemedicine/what-is-telemedicine# .VuMNCeIrLRY.

2 Ibid.

3 “Telehealth Modalities,” Center for Connected Health Policy: The National Telehealth Policy Resource Center, 2015.

4 42 U.S.C. § 1395nn. The Stark law prohibits a physician from making designated health

services referrals payable by Medicare to an entity with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. Stark defines “referral” to include most physi-cian orders, “designated health services” to include inpatient and outpatient hospital ser-vices, and “financial relationship” to include compensation arrangements. The Stark exceptions related to telemedicine would be the personal services exception (42 U.S.C. § 1395nn(e)(3)(A)/42 C.F.R. § 411.357(d)), FMV arrangements (42 C.F.R. § 411.357(l)), and indirect compensation (42 C.F.R. § 411.357(p).

5 The Glossary of Terms was jointly developed by representatives of the American Institute of CPAs, the American Society of Appraisers, the Canadian Institute of Business Appraisers, the Institute of Business Appraisers, and the National Association of Certified Valuation Analysts www.aicpa.org/InterestAreas / F o r e n s i c A n d Va l u a t i o n / M e m b e r s h i p / D o w n l o a d a b l e D o c u m e n t s / I n t l % 2 0Glossary%20of%20BV%20Terms.pdf.

6 STARK II, PHASE II, Fed. Reg. Vol. 69, No. 59 and also reiterated in 42 C.F.R. § 411.357.

7 42 U.S.C. § 1320-7b. The AKS prohibits any

arrangement by which anyone knowingly and willfully offers, pays, solicits or receives any remuneration, including any kickback, bribe or rebate, directly or indirectly, in cash or in kind, to induce the purchase, lease, ordering or arranging for, or recommending the pur-chase, lease, or ordering, of any good, service or item for which payment may be made in whole or in part by a federal healthcare pro-gram such as Medicare.

8 The government has identified certain “safe harbors” by setting forth lists of requirements that, if met, will ensure that an arrangement will not be subject to government action under the AKS. To benefit from the protection of a safe harbor, an arrangement must comply with all requirements of the safe harbor.

9 “Stroke Telemedicine,” US National Library of Medicine: National Institute of Health, Jan 2009; 84(1): 53-64.

10 OIG Advisory Opinions 07-10 and 12-15 both speak to the importance of documenting the burden of call coverage in advance with con-sideration for a facility’s payor mix, expected number of emergent consultations, case acuity, and supply of available physicians to provide the service. The burden for physicians cover-ing a telemedicine service-line is identical.

Payments and FMV Considerations in Reviewing Telemedicine Arrangementscontinued from page 19

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