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Fair Market Value Appraisal Judgment

Fair Market Value Compliance – The Exercise of Appraisal Judgment

fair market value physician compensation appraisalAssessing Whether an agreement complies with fair market value is one of the most difficult compliance functions that exists.  Other issues have relatively clear answers; either something was billed correctly or it was not; adequate documentation to support the services that are billed either exists or it does not.  But fair market value determinations are largely a subjective determination.  Fair market value appraisals, particularly in the health care industry, involve more of an out than a science.

Looking at fair market value survey data is fairly easy.  Valuation gets much more difficult in situations where there is no true comparable.  Oftentimes, this is the case in remote areas, HPSAs, and other rural areas.  There is no benchmark data that provides a good comparable for the small hospital physician who does everything from delivering babies, treating nursing home patients to performing surgery and treating trauma patients.  These “jack of all trades” are often undervalued due to inappropriately limiting their value by not making appropriate adjustments to “comparables.”

Survey data is skewed against “small hospital” physicians.  Appraisers who are not familiar with the unique value that is provided by these physicians will often inappropriately assign benchmark amounts based only upon primary care.  This overlooks the true practice mix of these providers.  These providers are often longtime fixtures in the community.  They are the real face of the local health care community.  Often these physicians have practiced in the community for 20 plus years.

At some point someone may suggest (quite appropriately I may add) that the physician’s salary be reviewed based on fair market value screens.  If appropriate judgments of true value are not made, these valuable physicians will almost inevitably be found to be compensated above fair market value.  Is this because these physicians are paid too much or are out of compliance with the Stark Law?  I would argue vociferously that this is not the case.  Sure, there could be some instances where the physician is engaged in an ongoing referral scheme.  In most cases however, you would expect that these physicians would be well paid based on their longevity, experience, diverse services, expanded role, and importance to the community.  If you add to this mix the fact that it may be nearly impossible to replace the physician because of this remote or rural nature of the area that is served, justification for compensation well over the highest benchmark percentage is often very justifiable.

Appraisers who apply an overly strict adherence to benchmark data without making appropriate adjustments to reflect the reality of the overall situation do a great disservice to both the physicians and the hospital.  Appraisals that do not consider all factors can lead to the hospital inappropriately making a self disclosure when the compensation paid to the physician is quite justifiable when all circumstances are appropriately considered.  Once self disclosure is made, there is no turning back.  The self disclosure process is not a form for the objective determination of fair market value.  Rather, the self disclosure is an admission of wrongdoing.  The only issue involved is how the institution that provides the designated health service will settle the case.  The temptation in these cases is strong to throw the communities most crucial health care resource “under the bus.”

The medical appraisal business is not easy.  Sometimes it is even more difficult because of the need to deviate from benchmarks and use judgment to arrive at a result that would accurately reflect value.  Appraisers are paid for the appropriate exercise of their judgment.  If the process was based simply on the calculation of compensation based on strict conformity to benchmark data, there would be no real need to pay for an appraisal.  Fair market value would simply be a matter of math.  Appraisers are not trained in the skills of math.  It is assumed that they have the necessary basic math skills.  Physician compensation appraisers are paid for the appropriate exercise of their judgment.  This judgment requires a weighing of all necessary factors and a subjective placement of value on these factors.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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Wausau, WI 54402-8050

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