Telemedicine Arrangements: Trends & Fair Market Value Considerations


Published by Compliance Today

Compensating physicians or hospitals for telemedicine service has become a new challenge for health systems across the country. Attempting to evaluate a highly fragmented reimbursement setting, a multi-practitioner-and-patient relationship, and the various services and technology involved highlight the complications for establishing these payments. Based on regulatory guidance and the inherent referral relationship within most of these arrangements, compensation between hospital and physician, as well as between two hospitals, must be set at fair market value (FMV).

FMV Standard

FMV is the standard which is pertinent for arrangements between hospitals and physicians, as well as arrangements between two hospitals. As defined by the International Glossary of Business Valuation Terms, FMV refers to “the price, expressed in terms of cash equivalents, at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant facts.” It is important to note that determining compensation under healthcare regulations may not always be consistent with generally accepted appraisal standards and may include additional guidelines. For example, a notable definition for compensation set at FMV as stated in the Stark law includes:

“The compensation must be set in advance, consistent with fair market value, and not determined in a manner that takes into account the volume or value of referrals or other business generated by the referring physician.”3

These guidelines are important to consider when establishing compensation for any telemedicine arrangement to maintain compliant with regulatory guidelines. In summary, the methodology and data points for determining FMV may not consider other referral relationships. This further complicates the process for establishing FMV.

Industry Overview

According to the American Telemedicine Association, telemedicine refers to the exchange of medical information from one site to another through electronic communications. More than half of all hospitals in the United States utilize some form of telemedicine as of May 2014. As illustrated below, a study on digital health markets published by Frost & Sullivan indicates that home and disease management/remote patient monitoring and video telemedicine are top growth areas throughout the next four years (see Figure 1 on page 50).

In general, telemedicine can be classified as real-time (“synchronous telemedicine”), store-and-forward (“asynchronous telemedicine”), or remote monitoring.1 Synchronous telemedicine requires live communication amongst all parties via videoconferencing, whereas asynchronous telemedicine involves the gathering and transmission of medical data, such as sending a medical image to a medical practitioner for interpretation. Remote monitoring consists of an external monitoring center for healthcare providers to monitor a patient remotely. All of the aforementioned services are often used interchangeably with “telehealth,” which represents the broader umbrella under which telemedicine resides.

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