Fair Market Value and Commercial Reasonableness

  • JUSTIN CHAMBLEE, CPA

    JUSTIN CHAMBLEE, CPA

    Senior Vice President

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  • RICHARD ROMERO

    RICHARD ROMERO

    Senior Vice President

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Physician and advanced practice provider compensation arrangements are continually progressing in healthcare, as compensation must be competitive with the market and in compliance with the established regulations in the industry. Compensation arrangements are not immune to the emerging developments in healthcare and must meet the standards for fair market value (FMV) and commercial reasonableness (CR).

The growth in hospital employed provider networks and the shift in the industry to value-based care require valuation methods that account for compensation methodologies under both fee-for-service and fee-for-value reimbursement. The most notable changes include incorporating elements that recognize quality outcomes, cost efficiency, and patient experience. As the commingling of fee-for-service and fee-for-value reimbursement continues, the complexity of evaluating these arrangements increases as the demands of healthcare providers expand to include more qualitative metrics. More rigor is needed to ensure that compensation remains compliant with the addition of other elements to the compensation model, or the value-based elements begin to replace the volume-based ones.

At Coker, we have extensive experience in assessing compensation arrangements from a fair market value and commercially reasonable perspective. Valuations can range from employment agreements to professional services agreements, co-management agreements, distributions from ACOs/CINs, call pay and medical director agreements, and others. We have valuation expertise in every transaction where remuneration changes hands between hospitals and physicians.

We tailor our approach to the needs of our clients and treat every situation as unique. Our consultants perform initial due diligence where we request data and converse with the client to ensure we understand the situation. Our team develops initial analytics, conclusions, and recommendations that we explain to our clients before drafting more formal documentation.

We see compensation valuation as a multifaceted analysis where it is incumbent upon the valuator to understand both the quantitative and qualitative aspects of a transaction. We use sound quantitative market data to serve as the foundation for any analysis, then apply our knowledge of the specific dynamics of the particular situation, coupled with our healthcare industry and valuation expertise to formulate our conclusions. Our conclusions and recommendations assist organizations as they strive for compliance in today’s evolving healthcare market.

Contact us today for more information about our healthcare consulting services and learn how we can help your organization.

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