Guide to FMV Documentation Best Practices & When to Get a Third-Party Opinion

The following article was originally published by the American Health Law Association.

Whether determining support for provider compensation in-house or engaging with a third party during the fair market value (FMV) process, it is important for health care organizations to follow certain compliance and documentation steps. This article outlines a checklist for health care organizations to consider during the FMV process and highlights what elevates arrangement risk and complexity—and when to seek a third-party valuation. Health care organizations must be fully informed to efficiently and effectively meet their FMV compliance needs. The following points will outline what should be gathered and completed, in no particular order, to have a comprehensive file for FMV purposes.  

1. The Provider’s Profile: When reviewing a financial arrangement with a provider, it’s a prudent step to gather a robust profile on the provider, including documentation on items like their qualifications and experience, their resume, and details on their clinical specialty training and expertise. The provider’s skills and training are important factors for determining what levels of compensation might be appropriate for a provider. Documenting and compiling items like their education, years of clinical experience, certifications, and types of positions they have previously held in an aggregated file will ensure you have those supporting factors in an easily accessible place should questions around compensation arise. For example, these details are helpful when considering medical director or executive-level administrative services and reviews where a provider’s compensation may be over the 90th percentile, as distinct facts around their training/unique expertise can help justify those determined levels of compensation.  

2. Description of the Services: In addition to the provider’s background, a detailed outline of the proposed services to be supplied under the arrangement is a critical component of documenting FMV. For example, it is important to document whether the role involves part-time or full-time services, as well as to outline the mix of services the provider will deliver. If a mix of services is involved, this may include clinical care, administrative duties, call coverage, or other compensated activities such as graduate medical education and supervision. Clearly defining and documenting the services, especially within a written agreement, is key for FMV compliance. Should the arrangement ever be scrutinized, having the description of each service the provider delivers to warrant the compensation will be fundamental. 

3. Business Justification and Commercial Reasonableness: Another important step is ensuring the arrangement is commercially reasonable, which typically includes documentation to support the need for the services without the consideration of Commercial reasonableness and FMV must both be met to comply with the Stark Law and the Anti-kickback Statute (AKS), so having solid evidence of these facts will help reduce any potential compliance issues, as failure in one or the other creates risk for potential scrutiny. To ensure your arrangement is justifiable, consider asking the following sample questions:

• Are the services necessary to help the organization’s strategic needs, like program and service line growth and development?
• Does the agreement help with filling gaps in coverage?
• Does the agreement support or address a community need?

Another potential justification could be that the services are required for a licensure or regulatory obligations. Justification can vary and may not aways be tied to services that are profitable in nature. Because justification for compensation isn’t always based on whether the services generate profit, it’s helpful to document the reasons and requirements for the services being provided—even if a clear business justification is not immediately apparent. Performing this exercise at the initiation of the agreement is always an ideal time, as this is typically when these facts and circumstances are most clearly known and understood.

4. The Provider’s Productivity and Work Effort: Details and data around the specific provider’s productivity and work effort for the services being contracted should be clearly documented to show how these metrics underpin the expected compensation. Details include personally performed historical and/or projected work relative value units (wRVUs) and professional collections, expected patient volumes, and hours of coverage associated with the services, including whether the time is provided on site or on call. These metrics are important, objective factors to use in an FMV analysis and demonstrate how the provider’s workload compares to peers in the reported market survey data. They also demonstrate how the provider’s compensation aligns with compensation for similar providers in the market data.  

5. Compensation Terms: Within provider agreements, it’s critical to clearly define the compensation terms for the subject services and how compensation will be calculated and For example:

• If the services are clinical in nature, will the provider be paid a base salary or will their salary be based on wRVU/productivity compensation, or a mixture of base and productivity compensation?
• If the services are administrative in nature, will it be a flat stipend amount, with a minimum set of hours, or will it be a straight hourly rate that requires hourly tracking sheets?

In addition to looking at each individual component on its own, it is important to take into consideration the aggregate services the provider will supply and the total compensation expected to be generated under the arrangement. Reviewing the whole compensation package will help bring awareness to any potential duplication or overlapping in payments.

Furthermore, analyzing each compensation term on its own and in total helps organizations recognize the total dollars to be paid to the provider, including any additional compensation components such as any incentives, bonuses (sign-on or retention), benefits, continued medical education, malpractice insurance, and more. Taking these additional payments into consideration will help ensure compliance in an apples-to-apples comparison of the total proposed dollars to be paid to the provider and the FMV third-party opinion or internal support analysis conclusions. 

6. FMV Opinion or Internal Support Analysis: With all the information outlined above, an internal analysis to determine FMV will have a robust set of supporting documentation. If at this point, it is decided that an external valuation would be prudent, you will have a great start on the information needed to engage a third-party valuator to provide their own FMV opinion. Whether an internal or external FMV valuation is performed, it is important that the opinion documents the market sources that were utilized (national surveys, such as MGMA, AMGA, Gallagher, etc.) and the approaches and methodologies that were applied (cost approach, market approach, income approach) to support the compensation rates being offered to the provider for their services. Having the records of an external FMV opinion or the internal support analysis that supports the levels of compensation proposed, and properly filing it in a provider’s folder, is essential to completing compliance goals.   

7. Contract Documents: Properly organizing and gathering all of the contract documents—with start and end dates, signatures, and inclusion of any amendments (if it is a renewal)—will ensure there is a written agreement to minimize any risk. In addition, compiling and reviewing all these documents will ensure all the services and terms are accurately memorialized with clear services and payments. If an arrangement becomes the subject of scrutiny, these documents will be recorded in the provider’s file. 

8. Approvals and Records by Robust Teams: As all the proper documentation and support have been completed, it is important to facilitate a final approval and review by all appropriate board or compensation committee This could include a team with various department stakeholders, such as business teams and human resources, finance, and legal and compliance representatives to review and give the final approvals and signatures. Having multiple sets of eyes and perspectives from various departments can help expose any areas of potential compliance concern or risk with the arrangement and analysis. Once reviewed by this robust team, at this point, you should be well on your way to ensuring compliance goals for your organization are being met and/or exceeded.   

Potential Reasons to Seek Third-Party FMV Opinion 

As discussed, it is always best practice to complete the bullets outlined in this article whether reviewing a provider’s compensation in-house or engaging a third-party FMV valuator. But when does an arrangement warrant a third-party FMV review? Many organizations are increasingly bringing compensation and FMV reviews in-house, however, there are several situations where engaging an outside firm may still be appropriate.

• It is important to consider potential referral risk when determining whether an outside FMV review is warranted. The risk seen in potential for referrals varies from the different provider types (e.g., physicians, advanced practice providers, registered nurses, etc.). The type of specialty is also something to consider as primary care has a high number of referrals to specialists, diagnostics, labs, and procedures, or orthopedic services that have high referral volumes to imaging, physical therapy, and hospital surgeries. In contrast, specialties like pathology or emergency medicine have less risk of referral potential. Lastly, while penalties and violations have occurred in arrangements without government payers, the level of government payers and whether it is substantial should be reviewed when considering the risk level, as regulations are in place to minimize any fraud or abuse on government programs.  

• Consider the complexity of the arrangement: How easy is it to gather benchmarks and market resources to support compensation for the services? How many compensation components and tracking will there be on the services? Arrangements that include compensation for services, such as co-management, telehealth, or value-based metric payments, are valued in ways that are not as straightforward in applying market data and benchmarks. Instead, these types of valuations have unique or multi-layered components to consider in valuing the services. Similarly, for arrangements that have multiple compensation components (e.g., clinical, administration, and call coverage), consider how each is separately tracked and ensure there is no duplicate or overlapping of services. Separate tracking and duplication can make these types of arrangements more complex, so it is critical to ensure appropriate valuation of each component.  

• Lastly, is the health care organization equipped with the correct resources to feel confident and secure in the review for the type of services and arrangement? For example, do internal resources have access to multiple survey data sources and the expertise to benchmark production metrics effectively? This could be through the organization purchasing their own licenses to these resources or using internal benchmark tools and schedules prepared by external valuators. Another factor is whether staff are effectively and thoroughly trained in valuing these specific types of services. Can they prepare their own independent analysis confidently, or do they have technology- or software-enabled, third-party valuator tools that can support the internal analysis? Having the correct internal resources along with setting internal corporate guardrails on what might trigger a more extensive review can minimize risk and ensure compliance.  

Conclusion

Completing each of these steps will help ensure that your organization has the proper information needed to remain compliant when it comes to FMV requirements. As health care organizations enhance the sophistication of their internal compensation review teams, it’s important to remember the key elements needed to successfully conduct these reviews in-house.