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Defining, Determining, and

Documenting FMV January 15, 2015

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Outline:

• Introducing MD Ranger

• Defining Fair Market Value for physician service agreements

• Determining FMV: best practices

• Documenting FMV

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MD Ranger

MD Ranger is a market data company that collects non-employed

physician contract data directly from hospitals. Our approach to

capturing all contract data from an organization allows us to not

only determine what to pay, but also when to pay.

We help hospitals analyze their internal physician contracting costs

to enable negotiation of competitive rates with physicians, and

documentation of FMV and compliance with Stark.

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MD Ranger Includes:

• Benchmarks, available as full reports and online queries, with

market data for call, medical direction, leadership and other

services, hospital-based services, uncompensated care

programs, and diagnostic testing services

• A secure, web-based Data Tool to collect and organize contract

data (uploads via Excel available, too)

• Web-based Analytic Tools to benchmark a hospital’s individual

contracts, identify compliance issues, and analyze where dollars

are spent

• Contract Reports to document FMV compliance and assist in

audits

• Consultations with our experts

Our benchmarks:

• 80+ administrative services: hours, hourly and annual rates

• Includes hard to find data on: • Committee and meeting attendance

• Quality initiatives

• EHR and IT initiatives

• Department chairs and section chiefs

• Medical staff officers and leadership

• 50+ emergency call coverage services, including

uncompensated care rates

• 15 hospital-based services (pathology, hospitalists, etc.) • Stipends

• Methods of payment

• Incentives

• Diagnostic and testing services: EEG, EKG, stress, autopsy, etc.

• Key contract terms: payment type, scope of service, incentives

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Introducing me

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• Eight years experience in

healthcare consulting and

technology; specializing in

physician marketing,

recruitment, engagement,

compensation, negotiations

• Helps MD Ranger subscribers

leverage data, analyze internal

costs and structure physician

contract compliance programs

Defining Fair Market Value

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What is FMV?

• An estimate of the market value of a service based

on what a willing buyer would pay a willing seller

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How does the government define

FMV?

• When we’re talking health care, things get more complicated

• 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”

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Why FMV is important

• If your are paying a physician more than fair market

value for services, you are in violation of both Stark

and Anti-Kickback Statutes

• Paying too much for services is poor financial

management even if FMV can be documented

• Maintaining positive physician relationships is

essential for all health care organizations

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Your organization’s definition

• Given the lack of a bright line, it’s on you to define

how FMV will be interpreted at your organization

• In general, most organizations define FMV as an

agreement at or below the 75th percentile for the

comparable service

• Some organizations, however, don’t want to exceed

median benchmarks, particularly if they have no

distinguishing characteristics

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Most importantly…

• Whatever you choose, it’s critical to define FMV and

consistently that standard apply to all physician

contracts

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An example: is this contract FMV?

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• Urology per diem call coverage agreement for $400 at a non-

trauma center

How about this contract?

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• Second

trauma

surgery call

at a trauma

center for

$500 per

diem

Determining FMV

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Set your approach in advance

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• Most organizations decide what market range is

appropriate for physician service agreements at their

organization

• Typical thresholds are either below the median or the

75th percentile

• Make sure that your definition is documented and

those involved in physician contracting know your

organization’s rules and policies

Be consistent

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• Always apply your organization’s standards to each

physician agreement

• Contract payment rates should be evaluated in a

consistent manner for all agreements

• Have the final agreement approved by senior

management and/or a board committee, depending

on the value and hospital bylaw requirements

Handle exceptions consistently, and

with care

• Document the reasons why your organization would

consider a rate that falls above your definition of 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

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1) Test commercial reasonableness

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• 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."

• Check MD Ranger “Percent

Paying” benchmarks for market

insights into how commonly a

service is paid

• Once commercial

reasonableness is established,

document how you determined

it for your records

2) Take into account all payments to

the physician

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• Before paying a physician a particular rate 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

• If the physician is receiving more than one payment,

ensure that this is documented, along with total annual

payments to that physician and how that compares to

benchmarks for total compensation in that specialty

3) Review the contract’s scope of

services

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• 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

4) Identify benchmarks for the service

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• Find the best, most appropriate match for the service

• Compare similar organizations (MD Ranger allows you to look

up data slices based on hospital demographics)

• 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?

5) 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!

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Case studies: do these market data

“match”?

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1. Using general surgery benchmarks for trauma

surgery?

2. Using in-house general surgery benchmarks for a

physician who can be off site?

3. Using pediatric medical specialties data for pediatric

cardiology?

4. Using nephrology data for a pediatric nephrology

agreement?

No market data?

• If you can’t find an appropriate match in market data,

you’ll need to consider using 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 who will write an opinion on how much

the physician should be compensated using the cost

method

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Documenting FMV

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Process is key

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• Your organization should pre-determine a standard

FMV documentation process

• Each step should be undertaken for each contract

• Consistency is key across the compliance function

• When audited, having a process documented is very

important

1) Check key elements of the contract

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• Counterparty

• Service

• Dates

• Rates

• Hours

• Supporting

documentation

2) Ensure rates and hours do not exceed

your organization’s standards of FMV

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• Do you feel confident that the rate is within FMV?

• Are the hours reasonable and within FMV?

• If market rate benchmarks shifted at contract renewal time,

would your rate remain compliant?

• Has the work been performed and documented with time cards

in the past?

3) If not, document exceptions in a

consistent, pre-defined manner

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• 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

4) Integrate all elements into one

document

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• 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

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5) Determine sign-off process and

timeline

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• 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?

6) Keep records

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• 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?

Consider this: will you perform audits?

• Auditing contracts line by line is considered best

practice. You can perform these annually, or divide

your contracts by quarter and audit a small section

every few months to spread out the work

• How will you review contracts in aggregate?

• More auditing resources available at

mdranger.com/resources

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Additional MD Ranger 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

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Available on

mdranger.com/resources

Don’t forget to follow us on social

media!

• @MDRanger

• Blog posts every week!

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Your turn

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Do you feel confident in your organization’s physician

contracting and FMV documentation process?

Email or call me—we can help!

apullins@mdranger.com or 650-692-8873