Fair Market Value

Posted on
December 7, 2018

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.

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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 info@mdranger.com. We’re happy to help.