Fair Market Value

Welcome back to our Compliance 101 series, where we simplify complicated compliance topics to help you review or better understand our corner of the healthcare world. This week we’ll be talking about fair market value, or FMV.

A hospital’s contracts with physicians must be compliant with federal regulations. Paying a physician within fair market value range for their services is a key component of what it means for an arrangement to be compliant. It is illegal to pay a physician too much for a service without a justifiable and documented cause. This ideology ties in with the Medical Practice Act, which we discussed last week; it’s all about restricting the potential for the commercialization and corruption of the practice of medicine.

Back to FMV range. Market data like MD Ranger benchmarks survey hospitals and physicians for information on how much physicians are paid for services. With a large enough sample size, compensation surveys can show the low, middle, and high ranges for how much physicians are paid for the different jobs they do. Hospital administrators use market data to decide how much they should be paying physicians. They also use the data as documentation to show that at the time of negotiation, the contract was considered within fair market value.

For example, a compliance officer might be renegotiating a contract for a physician to be on-call at the Emergency Department for General Surgery. The compliance officer’s hospital has procedures in place that designate that every call coverage contract be paid at the median market rate. The MD Ranger benchmarks report that at the 50th percentile, General Surgery call coverage is compensated $1,000 per diem. The compliance officer now knows how much to offer that physician, and how much room she has to negotiate. If the government ever performed an audit on that hospital and had questions about that contract, the compliance officer could show them those benchmarks (if she had documented FMV properly and kept the record) and prove that $1,000 per diem was at the 50th percentile at the time of negotiation.

Most healthcare organizations who use market data define FMV as falling somewhere between the 50th and 75th percentiles. They negotiate the majority of agreements in that range. There are sometimes outliers, but as long as the hospital can explain and document the particular reasons that they had to pay outside of normal FMV range, they should be in the clear. However, many healthcare organizations get in trouble with the OIG every year. These organizations may not have policies and procedures in place for defining, determining, and documenting the fair market value of agreements. Lacking a coherent compliance policy could cost millions of dollars in settlements, depending on the case and the different regulations violated.

Here are key take-aways to help ensure your contracts are being paid fairly:

  • Define FMV: Consistently define fair market value across physician agreements at your organization.
  • Determine FMV: Determine commercial reasonableness (is paying for the service necessary?), review the contract’s scope of services, and use market data to find the appropriate rate.
  • Document FMV: Have a consistent process in place for documenting that every contract is fair and keep records.

Watch this helpful webinar on defining, determining and documenting FMV.

We hope this clarified the concept of fair market value for you. If you are looking for more in-depth dives into physician compensation compliance, check out our Insights page. Further questions? Email us at This email address is being protected from spambots. You need JavaScript enabled to view it.. We’re happy to help.

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Corporate Practice of Medicine Laws

Welcome to MD Ranger’s Compliance 101 blog series, where we break down the basics of physician compensation compliance. This week, let’s discuss the legislature related to the corporate practice of medicine.

The Medical Practice Act, or the corporate practice of medicine doctrine, states that corporations cannot employ physicians to practice medicine. We know what you’re thinking: “Wait, what about hospitals?” Well, there are exceptions, aren’t there?

Why the Medical Practice Act?

The doctrine exists to restrict the commercialization of medicine as a practice. There are concerns about the differing obligations of a corporation and a physician. A corporation acts in the interest of its shareholders; a physician prioritizes his or her patients. Involving corporate interests in that physician’s practice could jeopardize the physician-patient relationship. A corporation might be tempted to involve itself in physicians’ medical decisions, which could endanger patients and the medical practice as a whole.

State Laws

Every state has its own laws and exceptions regarding the corporate practice of medicine. Most states prohibit corporate employment of physicians, but with important exceptions. These exceptions include employment by professional corporations (like medical groups) and certain types of healthcare organizations (like hospitals). In fact, every state allows professional corporations to employ physicians, but with certain restrictions. They often delineate how medical groups must be structured and demand that a majority of members (if not all) be physicians. This limits the number of stakeholders with external, corporate interests.

Many states have exceptions allowing hospitals to employ physicians, although how explicit these exceptions are depends on the state. Written into many of these exceptions are clauses prohibiting hospitals from interfering with a physician’s professional judgment when it comes to the practice of medicine.

You might ask, how are hospitals less likely to involve commercial interests than any other corporate entity? The reasoning behind this exception lies in the laws preserving physicians’ independence as medical professionals. As long as the hospital does not interfere with a physician’s decision-making, the practice of medicine should remain safe from potentially harmful corporate interests.

Federal regulations like Stark Law and the Anti-Kickback Statute come to mind here; both of these laws exist to further manage the potential for illegal activity (such as rewarding referrals) that can come of these corporate relationships.

At MD Ranger, we survey physician compensation arrangements for non-employed physicians, or physicians who are not directly employed, but bill and collect for services they provide to a hospital or health system under a contract.

Do you have questions about physician arrangements and compliance? Want to learn how MD Ranger could help your organization build a strong compliance program? Email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to talk to one of our experts.

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What is the Anti-Kickback Statute?

Welcome to MD Ranger’s Compliance 101 series, where we break down the must-know concepts regarding physician compensation compliance. Last week we discussed Stark Law. This week, let’s tackle Stark Law’s scary older brother: the Anti-Kickback Statute, or AKS.

The Anti-Kickback Statute states that it is illegal to exchange or offer to exchange anything of value in an effort to entice or reward the referral of federal health care services or business. An obvious example is one where a hospital blatantly offers to pay physicians for referring their private practice patients to the hospital. However, even if those physicians refused the offer, the offer itself is illegal. This can happen the other way around, too. If a physician mentioned that she would send more patients from her private practice to the hospital if the hospital gave her salary a boost, that physician is violating AKS.

There are exceptions (or “safe harbors”), of course. Examples include Electronic Health Record items and services, ambulatory surgical centers, and space rentals. You can see a full list of safe harbors here.

AKS is a criminal statute – meaning violators can go to jail. But before we get into that, let’s go over a few key differences between AKS and Stark:

  • Stark Law is a civil statute, so jail time is not a risk.
  • Because AKS is a criminal offense, the government must prove that violators intended to break the law (i.e. were aware that their activity was illegal) to find an organization or individual guilty. When it comes to Stark Law, intent does not matter, although it can affect the severity of the fines.
  • AKS forbids soliciting referrals of all federal health services from any clinician, not just doctors. Stark Law restricts physician self-referrals only. Non-physician clinicians are not restricted under Stark.

Let’s get to it! What are the penalties?

  • A charge of up to $100,000 plus a prison term of up to ten years per violation
  • If found guilty for additional civil penalties (such as Stark violations), fines up to $50,000 per violation plus payment of three times the assessed cost to the government
  • Providers involved can be excluded from federal health programs

Okay, so repeat after me: It is illegal to solicit or reward referrals for any sort of compensation. Just don’t do it! In fact, under the False Claims Act, someone within your organization can report AKS violations to the government and even share in the settlement. So the risk of getting caught can be quite high. But how can you make sure you’re always within the lines?

Staying out of trouble is where your organization’s physician contracting procedures become very important. The stricter an organization is about defining, determining, and documenting fair market value for every arrangement, the better. If a healthcare organization is diligent about keeping a detailed contract describing every service a physician provides (even unpaid ones), tracking time sheets, ensuring accounts payable is paying physicians the amount defined in their contract, and performing regular internal audits, that organization is in a great place and is unlikely to run into many compliance roadblocks. If not? Honestly, it’s normal. To create such a streamlined physician contracting process takes a lot of work. But when you consider the costs of violating AKS, it’s worth it.

Do you have questions about compliance regulations and how they affect you? Do you think your organization could use a compliance check-up but don’t know where to start? We are here to help! Email us at This email address is being protected from spambots. You need JavaScript enabled to view it. to talk to one of our experts.

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What is Stark Law?

Stark Law, or the Physician Self-Referral law, is a civil law that restricts physician self-referrals, including by family. Anyone who has close familial ties with a physician and could have a financial stake in their practice cannot refer a Medicare or Medicaid patient to that physician for designated health services (DHS). A number of services count as DHS, from inpatient and outpatient hospital services to physical therapy services.

There are many exceptions to Stark Law. These exceptions are complex and specific to the scenarios they address.

Stark Law is a strict liability statute, meaning that the federal government doesn’t have to prove that you intended to break the law to prosecute you. If a health care provider is caught violating Stark Law, there is no risk of jail time because it is a civil law. However, the penalty fees can be devastating.

Whatever claims a physician filed and was paid for must be paid back. A provider is issued civil monetary penalties of up to $23,863 for each service in violation of Stark. Here’s where it matters whether the law was intentionally violated: if the Office of Inspector General (OIG) discovers that a provider tried to get around the law (known as “circumvention schemes”) or knew they were in violation, they could be charged up to three times the original penalties, plus a fine of up to $100,000. Some health care organizations are found to have hundreds of illegal arrangements, leading to fines of hundreds of millions of dollars. Providers can also be excluded from participating in CMS programs.

Wait, so how does this connect to physician contracts?

You must understand Stark Law if you are working with physician compensation arrangements, because strong documentation that your organization’s arrangements are within Stark Law regulations is the best way to ensure that you will never find yourself in the OIG’s bad books.

A short list of how to stay out of trouble:

  • Contracts should outline the relationship with the physician
  • Be specific about services provided by the physician in the contract
  • Document non-monetary compensation
  • Set rates at fair market value (FMV)
  • Don’t pay for referrals! It is illegal under the Anti-Kickback Statute – learn more here.
  • Audit your contracts

We hope this simplified breakdown of Stark Law and its implications in physician contracting improved your understanding of the government’s involvement in how physicians are paid. If you want to learn more, check out these resources.

If you have further questions about how to structure physician contracts and document compliance, we would love to talk to you. Email us at This email address is being protected from spambots. You need JavaScript enabled to view it..

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