Medical Directors: What Is Fair Market Value?

The HHS OIG’s recent special fraud fraud alert makes it very clear that the watchdog agency is on the lookout for kickbacks disguised as medical directorships. “Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services,” the alert instructs.

How do you determine FMV when making sure a financial arrangement you’re considering stays on the the right side of the anti-kickback and Stark laws?

But what is fair market value?

Here, guidance from the experts:

The simple answer:

FMV means commercially reasonable compensation for bona fide professional services.

Why FMV is complicated when physicians are involved:

As diagnosticians, physicians are “gatekeepers.” A doctor’s work—by its very nature—refers patients to other health care services such as clinical labs, hospitals, and imaging services. A physician’s referrals mean revenue for those entities, and the value of those referrals muddies up the meaning of FMV for everyone involved—physicians, health care entities, and any regulators who may be looking on.

Tricky: There’s no case law that establishes what FMV means for physicians, and the regulators don’t provide concrete guidance. However, you can take practical steps that show you’re being paid for the work you do as a medical director, not for the value of the referrals you generate for the entity you’re working for.

1. Understand that your compensation for the position includes not just your salary, but the entire compensation package—which could include malpractice insurance and other perks. Is your total compensation package at fair market value?

2. Avoid any kind of percentage compensation related to the volume or value of your referrals.

3. Protect yourself and the entity you’re working for by drawing up a written agreement that you and the entity review annually and revise if necessary. The Kosenske case (2009) shows that a written agreement may protect you in court, observes attorney Wayne Miller, a speaker on Audio Educator. The written agreement may mention how it calculates FMV for your position, specify expected hours of service, require time records or reports, and specify an hourly rate.

4. Ask your attorney to review your agreement.

5. Don’t accept compensation beyond your formal agreement, such as bonuses, side payments, or free items or services. Tip: More-than-once-a-year revisions to your agreement will look shady.

6. Compare your compensation to other sources for FMV. You might turn to compensation surveys from groups like The Medical Group Management Association, The American Medical Association, or the American Medical Group Association.

7. Know that special skills or situations could put you above the FMV of doctors in the surveys. For example: Do you have unique qualifications or experience? Will you deal with difficult cases that most of your peers can’t handle? Are you serving in a rural or remote area?

8. Give your compensation arrangement the “jaw drop test,” Miller suggests. If the details or your compensation would make a colleague’s jaw drop with disbelief at the great deal you’ve got, it’s likely not FMV.

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