14 Apr 2016

Fair Market Value: Gaining Attention Within Life Sciences

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life sciences valuationFair Market Value: Gaining Attention Within Life Sciences

By Jen Johnson, CFA
American Bar Association Health eSource

As the count and monetary value of fraud and abuse settlements and judgments in the healthcare sector continues to rise year over year, the federal government has sought to keep pace through investing in infrastructure and legislating requirements of increased transparency on the part of healthcare entities, specifically companies in the life sciences industry. These investments and legislative changes are driven by a high return on investment for the federal government, as the Department of Health and Human Services (HHS) has reported that for every dollar invested in healthcare fraud and abuse investigations, approximately $7.70 has been recovered in settlements and other legal outcomes.1 New guidelines from the Department of Justice (DOJ) suggest that individuals, including employees and physician contractors of life sciences companies, will be targeted in civil and even criminal suits alongside the DOJ’s investigation of a company.2 Since federal law prohibits the payment of compensation to physicians in excess of fair market value (FMV),3 and any excess payment to a physician may be construed as an inducement for referrals and may result in litigation, it is imperative that life sciences companies develop a robust internal approach toward payments to physicians for necessary and legitimate consulting services. 

Tips for Life Sciences Company Compliance Programs

How can a life sciences company proactively demonstrate compliance with government regulation in order to avoid investigation and eventual litigation? Before establishing an internal methodology for FMV compensation to physicians, compliance personnel should adhere to the following practical guidelines regarding physician service agreements:

  1. Determine that a legitimate business need for the arrangement exists (absent potential referrals);
  2. Fully understand the services being provided as outlined in a written agreement (which should detail payments for identifiable services and be executed before services are performed);
  3. Determine necessary qualifications for the position such as specialty, credentials, and experience level;
  4. Identify and screen candidates based on the qualifications above; and
  5. Offer the position to the best candidate.

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