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Academic medical center exception

Academic medical centers exception

This exception to the Stark law is for academic medical centers that allows financial relationships involving services provided by an academic medical center as a result of a physician’s referral, as long as certain conditions are met. Those conditions are related to:
  • The referring physician; 
  • The compensation received by the referring physician;  
  • Specific academic medical center requirements;
  • What organizations qualify as an academic medical center; and
  • The terms (implications) of the overall relationship.
The Referring Physician
The referring physician must be:
  • A bona fide employee of a component of the academic medical center on a full-time or substantial part-time basis. Components of the academic medical center include the affiliated medical school, faculty practice plan, hospital, teaching faculty, institution of higher education, departmental professional corporation or nonprofit support organization whose primary purpose is supporting the academic medical center’s teaching mission.
  • Licensed to practice in the state(s) in which s/he practices medicine;
  • Have a bona fide faculty appointment at the medical school, or at one or more of the educational programs at an “accredited academic hospital;” and  
  • Provide substantial academic services, substantial clinical teaching services or a combination of both, for which the faculty member receives compensation as part of his or her employment relationship with the academic medical center.
For purposes of the “substantial services” requirement referenced above, CMS indicates that a reasonable and consistent method may be used for calculating a physician's academic services and clinical teaching services. The rule provides a “safe-harbor” provision, however, by stating that a physician will be deemed to meet this requirement if he or she spends at least 20 percent of his or her professional time or eight hours per week providing academic services or clinical teaching services (or a combination thereof). The final rule also says that a physician who does not meet the 20 percent of time, eight hours per week (or combination thereof) requirements to meet the safe harbor will not be precluded from meeting the “substantial” academic services requirement. (although the physician will not meet the “safe harbor” provision).

The changes relating to when a physician is engaged in “substantial” academic activities were intended to provide greater compliance flexibility. Nonetheless, the final rule still requires that the physician must be a bona fide employee of a component of the academic medical center – therefore not extending the scope of the exception to physicians who are independent contractors but not W-2 employees of the academic medical center. While physicians with other employment relationships may still have relationships with academic medical centers, they will generally be able to meet another applicable exception to the Stark law, such as those governing personal service arrangements or indirect compensation arrangements

Compensation received by referring physician requirements. 
The academic medical center exception imposes the following requirements on the compensation received by the referring physician:
  • The total compensation received by the referring physician from all academic medical center components must be set in advance and, in the aggregate, does not exceed fair market value for the services provided. The amount of the compensation may not be determined in a manner that takes into account the volume or value of any referrals or other business generated by the referring physician within the academic medical center; and
  • The referring physician's compensation arrangement does not violate the antikickback statute, or any federal or state law or regulation governing billing or claim submission.
Academic medical center defined
For purposes of the academic medical center exception, an academic medical center consists of:
  • An accredited medical school (including a university, when appropriate) or an “accredited academic hospital” – defined as a hospital or health system that sponsors four or more approved medical education programs;
  • One or more faculty practice plans affiliated with the medical school, the affiliated hospital(s), or the “accredited academic hospital;” and
  • One or more affiliated hospital(s) in which a majority of the physicians on the medical staff consists of physicians who are faculty members, and a majority of all hospital admissions are made by physicians who are faculty members. The hospital for purposes of this provision may be the same “accredited academic hospital” referenced above.
For purposes of this provision, a “faculty member” is a physician who is either on the faculty of the affiliated medical school, or is on the faculty of one or more of the educational programs at the accredited academic hospital. This provision also allows aggregation of the faculty from any affiliated medical school or accredited academic hospital education program, with no need to count residents and non-physician professionals. Any faculty member may be counted, including courtesy and volunteer faculty.  In the phase III final rule, CMS noted that in determining whether a majority of the physicians on the medical staff consist of physicians who are faculty members, the hospital must include or exclude all physicians holding the same class of membership at the hospital (e.g., courtesy or volunteer) and the organization may not “pick and choose” faculty members for such purposes.

Implications of exception
Several comments regarding the requirements of the academic medical center exception are appropriate.

First, CMS made substantial changes to this exception of the phase II rule to expand the exception’s application to the numerous, complex relationships between academic medical centers and their physician faculty. Therefore, financial relationships that physicians may have with organizations meeting the definition of an academic medical center can be allowed under the exception. The expansion of the definition of “academic medical centers” to include affiliated hospitals that have at least four accredited educational programs, plus the inclusion of physicians on the faculty of an affiliated medical school further this end.  The exception was not materially changed in the phase III final rule.

Second, in recognition of the complexity common in the academic environment, the final rule eliminates any particular organizational form or structure for faculty practice plans. The faculty practice plan must be a part of a bona fide academic medical center and the practice plan must support the core teaching mission of that center. However, as long as those requirements and other requirements of the exception are met, any organizational structure for the faculty practice plan will suffice.

Third, the exception includes the requirement that the physician must be an employee of a component of the academic medical center. This eliminates the use of the exception with other physicians who have other relationships with medical center-affiliated practice plans, such as those with independent contractor arrangements.

Fourth, although the exception includes the requirement that the physician’s compensation must be fair market value, in comments to the phase II final rule CMS confirmed that this standard need not be measured by reference to other academic medical centers. Instead, fair market value may be evaluated by reference to the level of compensation payable to other private-practice physicians in the area, in addition to the rates paid to those in an academic setting.

Lastly, revisions made in the phase II final rule related to when compensation will be deemed to be set in advance enable many compensation arrangements used in connection with academic medicine to comply with the rule’s requirements. The revised set-in-advance definition allows for payment of base salary and/or incentive compensation arrangements in which the total amount of compensation depends upon physician productivity in clinical services or other activities, and when compensation for such services is determined through a percentage-based method.

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