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Using Market Data for FMV: Our Six-Step Guide

May 2014

Most organizations don't need an expensive FMV opinion for every physician contract, but you still need FMV documentation. High-quality market data like MD Ranger can empower organizations to internally document FMV based on market data and in turn create a more efficient, cost-effective system.

Organizations commonly use market data as a foundation for their physician contracting compliance programs. If you're already using compensation benchmarks, check out this resource to ensure it is being used correctly. Here are six straightforward steps for using data to find and document FMV for physician agreements.

1) Test for commercial reasonableness.
Before you consider using market data or an FMV opinion, decide if it is commercially reasonable to pay for the service in the first place. Market data can be used to help answer this question. MD Ranger collects comprehensive physician contract data from subscribing hospitals, making it possible to publish the Percentage of Subscribers Who Report Paying for a Service table. This table shows how common it is for a very large group of hospitals, representing thousands of physician contracts, to pay for specific services. For example, 75% of subscribers report paying for general surgery call coverage, making it one of the most common services to compensate for emergency coverage. Conversely, only 11% of hospitals report paying for infectious disease.

If your organization is considering paying for a service that's commonly unpaid, you should determine why you need to pay and what is the appropriate method and amount of payment. A higher level of documentation of the negotiation process and reasons for payment should be included in your files. Reasons such as very limited panel size and adverse payer mix may dictate the need for payment, but it is important to document those reasons in case of an audit.

2) Take into account all payments made to each physician, as well as your organization's overall strategy for physician compensation.
If the physician you are considering compensating is already being paid several medical director stipends, reconsider whether all payments are necessary. Review his or her overall payments to ensure the total amount paid is reasonable. Additionally, MD Ranger recommends that organizations benchmark how much they spend on physician services in total and by specialty. Monitor increases in physician spending, particularly if your organization spends more than your peers, to help identify potential compliance issues. MD Ranger has aggregated data useful for this type of benchmarking. Its Total Facility Payments reports detail how much hospitals pay for physician services, broken down by attributes like service and hospital demographics. Also available through MD Ranger are summary tables on total number of positions reported by each hospital. This is particularly helpful when determining whether or not you have too many medical directors.

3) Determine if the scope of services match the scope of services described by the benchmark rates.
Everyone knows that if you've seen one physician compensation agreement, you've seen one physician compensation agreement. Though no physician contract is alike, it is important to compare positions to like positions. Seemingly small differences between positions could have an impact on rates. A good example is comparing a physician who is restricted while they are on call to a benchmark that includes both restricted and unrestricted positions (i.e. restricted from doing surgery while on call). The burden of taking call that is restricted is typically higher, which often results in higher payment rates.

Likewise, if the duties for a medical directorship require more hours than benchmarks suggest, carefully document the basis for the additional hours through historical time records or schedules for meeting requirements, training, etc. Certain types of administrative roles have broad ranges of required hours depending on their scope. For example, a quality initiatives or EHR champion may require more hours than the committee chair for a single quality initiative, particularly during an implementation period.

If you find that the market data does not have a similar scope of service, you may want to consider a full-scale valuation to ensure the new contract is FMV.

4) Apply the market data to find an appropriate payment range.
Once you have determined that it is commercially reasonable to pay a physician and you have found the most appropriate benchmark, you can proceed with using market data to find a range for the rate. Straightforward call coverage, administration, and medical direction payment rates can be determined using market data in most cases. For more sophisticated hospital-based agreements, market data is a great place to start for budgeting and planning. A more robust analysis could be required for these complex arrangements. MD Ranger provides benchmarks for many facility characteristics - including hospital size, trauma/non-trauma, urban/rural, average daily census, Medicare disproportionate share, and payer mix. MD Ranger also offers specific benchmarks for a broad range of administrative positions, call coverage, and medical staff officer positions, as well as meeting attendance and ad hoc services such as IT/EHR and quality initiatives. These data slices allow you to precisely match your contracts with market data, to get insight into your payment levels and to provide reliable FMV documentation.

5) Use the market data to document FMV.
Your compliance team should develop a standardized process for determining what is considered a 'safe' benchmark for FMV documentation at your organization. Systems using MD Ranger often select a threshold payment benchmark, e.g. the 50th or 75th percentile, beyond which a request to a higher administrative or corporate review is required. We believe each organization should decide how to determine what system makes sense for their circumstances.

Organizations often adopt a 'stepwise' approach to FMV documentation, starting with the most basic 'all hospital' benchmarks for hours, hourly rates, and annual compensation for directorships or per diem rates for call, and allowing further refinements by specific hospital characteristics when needed.

6) Document compliance.
Benchmarking a contract for FMV documentation isn't the end of the process. Your organization needs a systematic approach for the archives and audits. Organizations often approach compliance documentation differently. As long as a consistent process is in place and is followed methodically for every new contract, you can avoid costly and time consuming challenges in the event of an audit. MD Ranger subscribers develop a system which integrates predetermined distribution ranges and MD Ranger's online reporting functionality to show proof of adherence to regulations. These reports outline critical information from the physician contract, most importantly the rate and proof that the rate is within FMV. Usually, a responsible executive signs off on these documents for the organization's records.

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