Cost Approach Commercially Reasonable?

July 16th, 2012 | Uncategorized

In my July 10 post, I stated “It is hard to envision that a transaction based upon an expectation of losing money is commercially reasonable for the hospital, although the presentation supports it based upon Bankruptcy case law.  Certainly, if all hospitals entered into such transactions expecting to lose money and did not have the benefit of referrals from the transaction to DHS, they would all go bankrupt.”

The current issue of Report on Medicare Compliance contains an article titled In New Angle on Stark Cases, Government Hits Hospitals for Lack of Physician Profit that indicates the DOJ is now pursuing cases where the physician practices are unprofitable as not meeting the commercial reasonableness test, thus moving the employment arrangement out of the general cover of Stark.

This is wholly consistent with “fair market value” as well which assumes a financial buyer with no strategic (referral) motivations. My forthcoming Guide to Physician Compensation with Tim Smith will contain a detailed chapter written by me laying out fair market value and commercial reasonableness requirements.

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