4 Tips on Reducing the Frustrations of the FMV Process for Physician Service Agreements

Published by Becker’s Hospital Review

As hospital and health system executives continue to be flooded with physician alignment opportunities, one recurring compliance topic is present in nearly every physician service agreement: fair market value compensation. Mandated by industry regulations, FMV compensation remains an unavoidable element of a PSA that can easily develop into a source of frustration and misunderstanding for both the hospital and the physician. This article provides a few suggestions that can minimize the negative impacts of the FMV process during the negotiation of a PSA.

1. If a valuation expert cannot be involved early in the process, then structure a reasonable compensation offer.

Circumstances may prevent the involvement of a valuation expert early in the negotiations. In this situation, the best course of action is to develop a compensation offer that is reasonable and supportable. Here are a few valuation guidelines to consider:

  • Compensation for clinical services should be correlated to physician productivity. For example, if a physician’s professional collections are equal to the median, then a reasonable compensation rate for these services is the median.
  • Compensation per work relative value unit is inversely correlated to work RVU volume. MGMA tells us that the higher a physician’s work RVU volume, the lower the compensation rate per work RVU. Therefore, if a physician’s work RVU volume is at the 90th percentile, a compensation rate per work RVU at the 90th percentile should not be selected.
  • Be wary of developing a compensation proposal based solely on offers made by local, competing hospitals. Stark law provides guidance regarding the use of market data that reflects referral relationships. Although a local offer from a competing hospital might be considered, from a valuation standpoint it should not be the sole basis to support FMV compensation.
  • When determining compensation for physician administrative services ensure that the compensation survey data matches the services being provided. Stark law guidance indicates that clinical compensation may not be an appropriate proxy for physician administrative services. Other sources of data (i.e., published medical director compensation surveys) should be considered.

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