Defining, Determining, and Documenting FMV
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This document provides an overview of defining, determining, and documenting fair market value (FMV) for physician services and arrangements. It begins with defining FMV and its importance for compliance. It then outlines the key steps for determining FMV, including setting standards, reviewing contract scope, identifying benchmarks, selecting rates, and negotiating. Finally, it discusses best practices for documenting FMV, such as checking contract elements, ensuring rates meet standards, documenting exceptions, integrating information, determining sign-off processes, and record keeping. The document aims to help healthcare organizations establish robust processes for physician contracting and FMV compliance.
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Defining, Determining, and Documenting FMV
- 1. 1 DEFINING, DETERMINING, AND DOCUMENTING FMV FEBRUARY 2018
- 2. 2 • Setting the stage • MD Ranger overview • Defining Fair Market Value (FMV) • Determining FMV • Documenting FMV Today’s agenda
- 3. 3 Costs non-trivial • Average hospital spend: $8.26 million per year (average trauma centers spend 50% more) • Largely ignored • Impacts financial performance, organizational performance, physician relationships
- 4. 4 Factors driving payments • Economic and market forces • Bifurcation of hospital-based and office-based medicine • Increased time demands on physicians • Competing priorities for doctors
- 5. Common challenges • Current system isn’t working • Physician costs are spiraling • Unsure all your contracts are FMV compliant • No standardization across facilities • Concerned about government audits, whistleblowers • Don’t know what you don’t know
- 6. 6 What do you do? • Set up systems and processes • Determine if your current spend is appropriate • Valuing physician arrangements • Think strategically about the future, especially regarding: • Changing reimbursement • Evolving physician compensation structures • Unpredictable, dynamic industry
- 7. 7 What stands in your way? Lack of resources Poor sources of data from market surveys Expensive solutions
- 8. 8 275+ Physician Benchmarks • Call coverage rates • Medical direction payments • Administrative and leadership services rates • Hospital-based service stipends • Diagnostic testing, etc. • Clinic & hourly rates Online Platform • Benchmark lookups • Contract proposal tools • Contract reports by facility and service • Total facility costs + benchmarks Research and Support • Resources for education and training • On-call experts to help subscribers use benchmarks and tools Compliance Documentation • Contract-specific FMV documentation reports • Reports to assist with real-time monitoring and annual reviews Our platform
- 9. 9 Standardize processes and rates Document FMV Access 275+ payment benchmarks Review and monitor contracts Have data- driven physician negotiations Mitigate compliance risks The foundation of your contracting process
- 11. 11 • Call Coverage (55+) • Medical direction (85+) • Hospital-based services (15+) • Administrative • Medical Staff Leadership • Diagnostic/other services e.g. ROP, autopsy, dialysis • Hospital-based stipends • Clinics, professional services • Telemedicine • Residency/teaching/GME • Uncompensated care • Meeting attendance, peer review, IT/EHR and quality initiatives • 13 Pediatric services, with more emerging each year Hospital-characteristics drill down for ADC, bed size, trauma status, urban/rural, stroke centers, and more. Our benchmarks Used in academic medical centers, integrated delivery systems, and hospital organizations.
- 12. • Providers vs. facilities • Verified data • Thorough data audits • Physician contract experts on-call to review/advise on challenging contracts • Comprehensive scope of benchmarks based on full hospital contracting practices 12 Our methodology: key differences
- 13. Allison Pullins • Chief Marketing Officer at MD Ranger • Decade in the industry, developed expertise specifically pertaining to the hospital/physician relationship 13 Your host
- 15. • An estimate of the market value of a service based on what a willing buyer would pay a willing seller 15 What is FMV?
- 16. FMV cannot be determined by taking into account the volume or value or referrals to the entity Stark defines FMV as “price that an asset would bring as the result of bona fide bargaining between well- informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement” 16 How does the government define FMV?
- 17. • If you are paying a physician more than fair market value for services, you are in violation of both Stark and AKS • Paying too much for services is poor financial management, even if FMV can be documented • Maintaining positive physician relationships is essential for all healthcare organizations 17 Why FMV is important
- 18. Your organization’s definition 18 • Given the lack of a bright line, it’s on you to define how FMV will be interpreted at your organization • Most organizations define FMV as an agreement at or below the 75th percentile for the comparable service • Some organizations don’t want to exceed median benchmarks, particularly if they have no distinguishing characteristics
- 19. 19 Consistently define FMV Whatever you choose, it’s critical to define FMV and consistently that standard apply to all physician contracts
- 20. 20 DETERMINING FMV 1) OVERALL PROCESS 2) STEP BY STEP GUIDELINES
- 21. 21 Process Tip 1: Set your approach in advance • Most organizations decide an appropriate range for physician service agreements • Typical thresholds are either at the median or the 75th percentile • Make sure that your definition is supported and documented
- 22. 22 Process Tip 2: Be consistent • Apply your organization’s standards to each physician agreement and rate • Approve the final agreement by senior management and/or a board committee, depending on the value and hospital bylaw requirements • Stick to simple templates
- 23. Process Tip 3: Handle exceptions consistently and carefully • Document the reasons why your organization would consider a rate that is above FMV • Determine what supporting records and documentation are needed to qualify for an exception • Consider designing an exceptions process that intentionally limits the number of exceptions processed and permitted
- 24. Process Tip 4: Account for all payments to the physician • Before paying a physician for a service, check to see if she receives payments for other services • Aggregated payments for all administrative and coverage services to a particular physician or even group practice are important to determine for compliance purposes
- 25. Process Tip 4: Tally all payments • If the physician is receiving more than one payment, ensure that this is documented, along with total annual payments to that physician; also, compare benchmarks for total compensation in that specialty • Stacking agreements is a compliance risk • Want to learn more about Stacking? Check out our Bullseye, found on mdranger.com/resources
- 26. 26 Step 1: Test commercial reasonableness Before payment rates are set, determine if paying is reasonable CMS defines CR as "an arrangement will be considered 'commercially reasonable' in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential designated health services ("DHS") referrals."
- 27. 27 Step 1: Test commercial reasonableness • Check MD Ranger “Percent Paying” benchmarks • Once commercial reasonableness is established, document it
- 28. Step 2: Review the contract’s scope of services • Though no two contracts rarely are the same, it’s important to compare similar positions • Examine scope to ensure that hours per month are reasonable; use historical time records and market data to document • Pay special attention to positions with burdensome implementation or extended hours • Check restricted or in-house status for coverage agreements since this may increase FMV
- 29. Step 3: Identify benchmarks for the service • Find the most appropriate match for the service • Compare similar organizations • Check sample size • Examine the full market range, and ask: • What’s the median? What is the 75th percentile? • Are there reasons for my hospital rates to be higher than the median? • Are there characteristics of my hospital, the service or the physician that could impact FMV?
- 30. 30 No market data? • If you can’t find an appropriate match in market data, use another method • The cost method evaluates what it would ‘cost’ a physician to provide the service in place of the billings generated during clinical time • This can be done by someone at your organization who is qualified to do a cost valuation, or you can hire a consultant • Next month’s webinar: The Limitations of Market Data
- 31. 31 Step 4: Select your rate • Remember your organization’s rules • Your payment rate doesn’t have to be exactly the 75th percentile; in fact, we don’t recommend it!
- 34. 34 Process is key • Your organization should pre-determine a standard FMV documentation process • Don’t skips steps • Consistency is key across the compliance function • When audited, having a process documented is very important
- 35. Step 1: Check key elements of the contract • Counterparty • Service • Dates • Rates • Hours • Supporting documentation
- 36. Step 2: Ensure rates and hours meet your organization’s standards of FMV • Do you feel confident that the rate is within FMV? • Are the hours reasonable? • If market rate benchmarks shifted, would your rate remain compliant? • Has the work been performed and documented with time cards in the past?
- 37. Step 3: If not, document exceptions in a consistent, pre-defined manner • Your organization should develop a process for all contracts that must be negotiated above the 75th percentile for whatever reason • Reasons for the high rate, along with supporting documentation, must be provided • Consider requiring an extra level of review/approvals
- 38. Step 4: Integrate all elements into one document • FMV documentation should be consistent and streamlined • Collecting all the information previously outlined and inserting it into a supporting document is best practice • These documents should be reviewed and signed by the responsible executive MD Ranger subscribers have access to instant FMV Documentation Reports for each physician contract
- 39. Step 5: Determine sign-off process and timeline • Who is responsible for determining and documenting FMV at your organization? • When is supporting documentation reviewed and approved? • Who is the responsible executive for sign off? • What are the expectations for how long the process will take?
- 40. 40 Step 6: Keep records • Determine where the contracts, FMV documentation, and supporting documentation will be kept • Who will review the records when filed, and on a regular basis? • Are you keeping records electronically? • What is your process for timely renewal and updated FMV documentation?
- 41. 41 Additional resources: • Building a Cost-Effective Physician Contract Compliance Program Using Market Data • Using Market Data for FMV • Key Elements of Physician Contracting Compliance Programs • Audit Smart: Best Practices • Using Market Data for Physician Contracting For Subscribers: • Documenting FMV for Call Coverage Agreements • Documenting FMV for Administrative Agreements Available on mdranger.com/resources
- 42. 42 Do you feel confident in your organization’s physician contracting and FMV documentation process? Are you confused how much to pay physician leaders for their time? Do you feel like your organization has risky agreements? Reach out: apullins@mdranger.com or 650- 692-8873 Need help?
Editor's Notes
- Thanks for joining us for today’s webinar, defining, determining, and documenting FMV. Our hope is that you walk away today with some practical advice for your physician contracting programs. The goal of the webinar today is to help you make your physician contracting program more efficient, more reliable, and cheaper with just a couple of tweaks and best practices. A couple of housekeeping items. First, my colleague Daniel Oppenheimer is on the line to help with any incoming questions or comments. If you have any, please feel free to type them into your GTW console. If Dan is unable to follow up with you during the webinar, he will return your message by email or phone very soon. If you have feedback or questions to share with me, I will show my contact information at the end of the webinar so we can be in touch. I’d love to hear from you. We will send everyone a copy of the presentation by early next week, and we’ll make a video available within a week too. I also hope it goes without saying that MD Ranger experts are always available for questions or for a chat. Especially if you have follow up questions after the webinar today, I encourage you to send me an email or give me a call.
- After giving a brief “state of the state of physician contracting”, I’ll talk about who we are as a company since we do have some brand new attendees on the line. We will define fair market value Then, we’ll discuss best practices for determining the fair market value of physician contracts. Lastly, we’ll discuss how to document FMV step by step, offering what we think are very practical tips to operationalize your physician contracting compliance process at your organization.
- So let’s set the stage for why physician contracting is such a hot topic these days. Physician costs aren’t an insignificant part of a hospitals’ operating budget anymore—but the costs are frequently ignored by leadership. The average MD Ranger subscribing hospital spend just over eight and a quarter million dollars on physician arrangements—please note that these exclude employment or foundation arrangements. Ultimately, if healthcare organizations want to be high-performing, they must get a handle on physician spend. This area of spending can have significant impacts on the organization’s financial performance.
- There’s not a single reason why we’ve seen an uptick in physician contracts over the past decade or so despite the employment trend—rather there are many reasons. Economic and market forces such as lower reimbursements, larger group practices with productivity incentives, more part-time and employed physicians, and increasing internal governance demands of physician practices In addition, increased time demands of physicians and competing priorities mean that few doctors can or are willing to serve in administrative roles.
- We work with hundreds of hospitals across the US, and though each one has it’s unique physician contracting situation, we find there are common challenges that many organizations face. Sometimes though organizations can’t put their finger on it, they know their system just isn’t working. Other organizations are feeling the pressure of physician costs spiraling. Organizations who are unsure that all of their physician contracts are FMV compliant also feel the pressure, given that there are serious consequences to having non compliant arrangements. And to that end, many organization’s attorneys and compliance professionals are rightly concerned about government investigations, or more often, whistleblowers within their organization. And lastly, sometimes it’s just that you don’t know what you don’t know about your organization’s physician contracts. We’ve worked with facilities who keep mostly paper records and aren’t truly aware of the scope of their physician contract arrangements and don’t really have a good handle on even how to do straightforward renewals on their contracts. Do any of these resonate with you?
- What are best practice organizations doing to help them combat the creep of physician costs, and when it’s necessary, make sure they document why it is? Though each and every organization does have it’s own unique challenges, overall, the bullets on this slide are universal best practices for dealing with a challening physician contracting situation at your organization. Go through bullets
- But, there are a few key things standing in your way, namely lack of resources, poor sources of data, and expensive solutions from external sources If you are helping your organizations do any of the following, you could use OUR help at MD Ranger.
- We do have some new people listening today, so here’s some background on our company and who we are. MD Ranger is a physician contract management solution that integrates over 275bproprietary physician compensation benchmarks with a suite of compliance and financial tools. Our Online platform has features like contract management tools to collect and organize your data. We also provide benchmark look-ups and FMV documentation tools. On top of this we have a suite of reports and analytics. We help you benchmark contracts, review expenditures, identify compliance issues, and compare facilities across your organization. We offer Resources and research to support compliance efforts From experts in physician compensation, FMV documentation, and compliance
- IN fact, we aim to be the foundation of their physician contract compliance programs, all in an integrated, easy to use platform. The comprehensive scope of benchmarks provides facilities with a virtual one-stop-shop for documenting payment rates . MD Ranger helps subscribers standardize their physician contracting process in the way that is best for their organization. Because our benchmarks and online platforms can be integrated into all types of compliance and legal processes, we can be a resource to all types of organizations. . These types of financial arrangements can be very risky to organizations and to physicians—given federal regulations and hightened scrunity by the government. Our subscribers use the MD Ranger platform to mitigate that risk and monitor risky arrangements.
- We began producing benchmarks in 2009 have have grown from a database of 4,000 to 28,000 contracts since. This is a map of our subscribers and contract database MD Ranger has more than 225 participating healthcare organizations. We work with all types of facilities from large urban trauma centers to small, rural critical access facilities, surgery centers, dialysis centers and everything in between.
- Here is a comprehensive list of the types of different physician agreements we benchmark. We outpace other surveys when it comes to the scope of our call coverage and medical direction benchmarks, with over 55 and over 85 services, respectively. We publish unique hospital-based services, benchmarking stipend level payment as well as other service-specific metrics. We also benchmark a number of difficult to find positions for administrative services and medical staff leadership. We drill down all our benchmarks by meaningful hospital demographics, like hospital size, trauma status, and more.
- We have some key differences in our approach and methodology that I wanted to share. First of all, when it comes to sample size and reporting benchmarks, we take a more conservative approach. ATSZ guidelines require that a minimum of five providers be included to publish a compensation benchmark. While some surveys interpret the word provider to mean physician, we interpret it to mean hospital owner or corporation—not physician or even hospital! This ensures that our sample size has enough data to produce meaningful benchmarks. Instead of collecting data from physicians themselves, we get our data from hospitals and healthcare organizations contracting with doctors for services. We feel this approach is more reliable, especially when it comes to reporting annual hours. Not only do we thoroughly audit our data every year by reviewing line by line all new contracts coming into our database, we also have contracting experts on call and ready to answer our subscribers’ questions. We also produce benchmarks on total hospital spending so that you can benchmark your organization’s performance against others like you.
- And for those of you new to our webinars, here’s me your host. I’ve been with MD Ranger for the past five years, with my career mostly focused on the hospital-physician relationship. Previously I was at the Advisory Board where I worked on products like Crimson Market Advantage and the Clinical Advisory Board, which supported Chief Medical Officers.
- First thing’s first: let’s talk about what fair market value means. I doubt this is going to be new news for anyone on the line, so consider it a refresher.
- Fair market value means the value of a service that a willing buyer would pay to a willing seller.
- When we’re talking about how fair market value is defined by federal regulations like stark, tthere are important nuances to keep in mind. Most important of all, fair market value for services cannot take into account the volume or value of referrals. I’ve gone ahead and taken the Stark regulation’s definition of FMV so you can see exactly how it’s defined.
- First and foremost, it’s against the law to pay a physician above fair market value for his or her services. If that doesn’t convince you, paying above and beyond for goods just doesn’t make financial sense. Lastly, but very importantly, preserving physician relationships should be high on your list of priorities, and though paying physicians top dollar might not concern you for being potentially damaging to physician relationships, it could be as you recruit more physicians and cannot afford to pay them as much as others on the medical staff.
- Defining FMV isn’t straightforward; your organization should take it upon itself to define exactly how FMV will be interpreted at your organization. We have seen many MD Ranger subscribers define FMV as anything at or below the 75th percentile in MD Ranger market data. Other organizations keep contracts at or below the median.
- Whatever you end up choosing, it’s very important to consistently apply your definition to all physician contracts and when the occasional exception hits your desk, predetermine a way to handle those.
- Now we’re going to shift from defining what’s FMV to how to determine FMV for your physician contracts. First, I’m going to provide some overall strategic guidance on how to go about thinking through your determining FMV strategy. Then, I’m going to go step by step through some suggestions on how you might determine FMV at your organization. MD Ranger isn’t a valuation firm; we do not provide FMV opinions for our subscribers. Rather, we give you the tools, the market data, to determine fair market value yourselves. That being said, we’re always available to help guide and advise you when you need help.
- First and foremost, outline your FMV determination approach and philosophy in advance. Because there are so many ways you could go about doing it, being consistent with the way YOU will do it is best practice when it comes to compliance. When you have outlined how you will determine your process, and we’ll go over some suggested steps in the next few minutes on how you could build that process, run it by both compliance and legal at your organization. Finally, have the process approved by a board committee.
- Likewise, you want to make sure that you determine FMV consistently, each and every time. When you live and breath physician contracts, you realize that truly no two agreements are alike so this is a tall order. However, the standards we have to measure these contracts should be fair and consistently applied to ensure that agreements truly ARE FMV. Consistency begins at the contract level. Try to create and stick to templates for call coverage and medical directorships at the least. This hopefully will help your organization execute the contracts more efficiently and within the constraints of the negotiated agreement and not outside of it. We’ll talk about some common execution-related issues later in the webinar.
- make sure you are handling exceptions consistently. What are exceptions? They are rates that you negotiate that for one reason or another, do not fit within your organization’s standard definition of FMV. Every organization has a handful; where things get dicey is when you have too many. In your exceptions process, make sure you determine all the reasons why, in advance, your organization would grant an exception and negotiate a higher contract. This way, your bases are covered if you are getting significant physician pressure for no good reason. Determine what sort of documentation is needed, every time, for an exception to be cleared. No exceptions! Lastly, consider designing an exceptions process which intentionally limits the number of exceptions. For example, if you made hospital administrators jump through hoops and their exception contracts had to be approved at a corporate level, no exceptions, you would expect the administrators to negotiate at the FMV levels more frequently than allowing higher rates willy nilly. And, we’ve heard from one of our large health system subscribers who does this that it does lower costs and it works!
- It’s very important to take into account all payments made to one physician—even across multiple contracts. Aggregated payments are important to calculate from a compliance standpoint
- Make sure that if any physician or physician groups are receiving more than one payment, that all payments are documented and compared to benchmarks for total compensation in that specialty. Over the past few years, we have seen more and more organizations encounter stacking risks. Want to learn more about stacking? MD Ranger has a brief paper on this important compliance topic that you can download from our website.
- The first step is to figure out whether paying in the first place is reasonable. Let’s check out the definition of commercially reasonable.
- One way we recommend MD Ranger subscribers to help determine CR is to check our “percent paying” table. This table shows what percentage of MD Ranger subscribers pay for a service in the first place. Though certainly not the whole picture when considering your agreement, this statistic can help you determine the market for the service and be the first stab at defining CR.
- Examine the contract carefully to determine if the scope of services is appropriately outlined and if the proposed payment rate makes sense of the scope of the agreement. We recommend that you look extra carefully at agreements that include extended hours or have other special circumstances, like in house coverage. Those agreements might demand higher rates. Also make sure to check positions that could be more time-intensive than your run of the mill administrative positions--these could also warrant higher payments. If a physician’s commercial activities are restricted or the physician must be on campus for ED coverage, this could also warrant higher payments.
- You’ll want to then identify the benchmarks that are best to use, and review. Check out the sample size. Being aware of how many facilities and organizations are included in the data you’re viewing is important. If there are enough hospitals in the sample size, compare yourself to like organizations. MD Ranger slices data for key demographics like size, trauma status, and payor mix. Some key questions to ask yourself when looking at survey data is: -what are the quartiles? Focus especially on the 25th, median, and the 75th percentile, given that it’s likely you’ll want to aim for somewhere in this range. Ask yourself if there’s a compelling reason to pay above the median.
- If there’s no good match in available market data, you’ll need to consider Plan B. If you’re a subscriber, you should give us a call. We can either suggest a comparable service with available data or give you ideas for alternatives. Another approach, if we can’t help, is to get a cost valuation performed.
- Lastly, select your rate, keeping in mind your orgs rules. Your payment rate doesn’t have to be exactly the 50th or the 75th percentile. In fact, we don’t necessarily recommend it. So, let’s say you are putting together a critical care agreement. These are per diem payment rates, excluding medical direction services. Keep in mind these are not call coverage rates, but rates to provide the hospital-based service. Let’s say that based on your hospital’s characteristics, you’re shooting for between the 50th and 75th but want to keep it closer to the 75th percentile. A trauma center might find a $3,500 per diem good, while a non-trauma center might select a $2,000 or $2,250 per diem.
- Now, your organization is at a point where it can have informed conversations and negotiate with the physician or the group.
- The last part of our webinar is going to be how to document that the rate you negotiated with your physician is FMV, as defined by your organization.
- Because there are many different ways you can document FMV, it’s really important to create a process that works for your organization and is something you can stick with. Though this pre-planning is a lot of work, it will streamline your entire process and also be a compliance safeguard in case of an audit.
- First thing is first, review and double check all those key elements of your agreement!
- Ensure both the rate and the hours do no exceed your organization’s definition of FMV. The screen shot you see below is taken from a table that summarizes administrative hours worked for medical directors in particular specialties. As you can see, it’s quite dependent on the specialty regarding hours worked. You can negotiate a contract that is perfectly FMV within the boundaries of the contract but that doesn’t mean that it’ll be executed in a way that is still FMV. If your organization has trouble with contract execution, we have resources we can guide you towards.
- If the contract does not fall within your organization’s definition of FMV, you’ll need to document WHY it’s an exception. There should be a special process at your organization to document these rare, but necessary agreements. Exceptions could include limited supply that results in high call burden, exceptional qualifications, trauma status, going out to bid with resulting best price, etc. The screenshot you see on this slide is taken from one of our online audit tools. You can sort by benchmark range—so right now, we’re looking at an organization’s call coverage per diems that fall above the 90th percentile according to MD Ranger benchmarks. It’s best practice that they organization have supporting documentation for all of these agreements as to why they need to be paid at the upper end of the market range.
- Take all the elements we’ve just discussed, and integrate them into a single streamlined document or packet. MD Ranger subscribers already have a tool included in membership that does this for them, but designing a template can be done if you don’t have MD Ranger. This document should be signed off by a responsible executive.
- After you have documentation pulled together, you need to decide who is going to ultimately be the responsible party for signing off on the agreement and the documentation of FMV. What are reasonable deadlines to set at your organization to get documentation complete and filed away?
- You also need to figure out how you are going to keep record of your FMV documentation. How often will you review contracts internally to double check for any compliance issues/
- Thanks for joining us today. We’re glad to have you. If you haven’t already, please sign up on our website to receive MD Ranger materials or follow us on twitter @MDRanger