Health Law Blog - Healthcare Legal Issues

Fair Market Value Analysis of Physician Compensation

The Importance of Context In Fair Market Value Reports

physician compensation fair market valueFair market value assessment of highly compensated physicians can be critical.  Context is crucial to a complete understanding of the nature and approach of the appraisal.  For example, compensation studies for the purpose of determining future compensation of a physician group that is contracting with a hospital requires a different approach from a report that is applicable to determining the maximum overall fair market value screen applicable to employee physicians who are paid on production basis.

Hospitals who are employing physicians must ask two slightly different questions when analyzing employed physician compensation.  The first question is what the maximum amount of overall compensation that can be paid without disqualifying DHS revenues from reimbursement under the Stark Law.  This analysis does not consider whether one component of compensation may be above fair market value but is rather focused on overall value.  For example, clinical compensation may be high on the fair market value scale but defined administrative or call responsibilities may be low.  Total combined compensation may still comply with the Stark Law when the two are netted out against each other.

This is an error we often see in appraisal reports that limit each segment of services to a fair market value screen.  Many reports fail to appropriately consider uncompensated or under-compensated services and therefore end up grossly understating fair market value of overall services.

The Stark Law employment exception only requires an overall screen and does not limit the services that can be valued to clinical compensation.  This is an example of why the context definition is important.  Undervaluation can have significant impact on hospital finances as the conclusions that are reached may lead to a self disclosure that is unnecessary if an appropriate context was considered for the salary report.  Once self disclosure is made, there is no further analysis of the consequences.  The consequences of course involve repayment by the entity of DHS service revenues that result from tainted referrals whether tainted referrals turns on whether compensation exceeded maximum fair market value.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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