Coker Connection Newsletter

The Intersection of Compliance and Fair Market Value: Are You Sure Your Arrangements Coincide?

The Intersection of Compliance and Fair Market Value: Are You Sure Your Arrangements Coincide?

  • July 11, 2018

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established a national Health Care Fraud and Abuse Control Program (HCFAC or the Program) under the joint direction of the Attorney General and the Secretary of the Department of Health and Human Services (HHS). In 2017, under this initiative, the Federal Government recovered over $2.5 billion from health care settlements.[1] Given this fact, healthcare organizations must be diligent in their compliance efforts, particularly concerning physician compensation arrangements. It is critical that organizations create a process and policy that delivers a framework that will ensure that compliance is a priority across the organization. Unfortunately, some of the regulations can be far from black and white, which makes the necessity of a formal compliance review process all the more significant.


The policy of an organization related to its provider arrangements should set the standard for how deals are structured. The procedure should address areas such as:

  1. Responsible persons for required approvals
  2. Compensation parameters including recruitment incentive parameters such as
    • Signing/starting bonuses, educational loan repayment, relocation compensation, pre-employment stipends, etc.
    • Incentive compensation program including productivity incentives, quality incentives, etc.
    • Medical directorship compensation, payment for call arrangements, and other areas.
  3. Required documentation and support as well as maintenance of the required documentation
  4. Timesheet requirements where applicable
  5. Total compensation limits
  6. Compliance auditing and monitoring

The policy is not intended to be able to address every possible situation or circumstance in the intersection of compliance and fair market value. However, it is designed to provide boundaries within which you play as well as the possible plays that the organization has in its playbook. It should be developed in such a way to provide guidelines for organizational compliance.

Our experience is that organizations also need a well-developed process with internal and external checks and balances. The course of action should involve a committee structure that includes all relevant stakeholders in the organization. This committee should have a policy and procedure for operating, as described above. The regular review process should go something like this:

  1. Each member prepares proposed arrangements for committee review that are submitted in advance to each member. The details should include the key compensation terms of the proposed arrangement, the proposed term, and other relevant information related to the background of the situation, market data, recruitment priorities, etc.
  2. The committee review should consider critical factors such as the basis for the arrangement, comparable arrangements in the organization, capabilities of the physician/provider, etc.
  3. Legal considerations must also be addressed through the organization’s internal legal counsel or external counsel.
  4. Fair market value (FMV) and commercial reasonableness should be documented. Many organizations prefer to have the proposed arrangement reviewed by a third-party valuation expert to evaluate FMV and commercial reasonableness. The valuation expert should recommend the actual need for a formal opinion based on the specific components of the arrangement, as well as the circumstances surrounding the situation. A critical point here is the need to consult the third-party valuation expert at this point rather than later in the process when the negotiations are farther along.

This process, once implemented in an organization, can be streamlined to prevent unnecessary delays in the negotiation process with a physician/provider. It is critical that the executive leadership champion this process. By setting the “tone at the top” in this manner, it will be viewed as being as vital in the organization as quality or patient safety in care delivery.

Your organization can reduce the uncertainties of compliance issues and their potential subsequent federal penalties with the help of experienced reviewers. Coker Group is uniquely qualified to assist organizations in developing a compliant physician/provider arrangements process including the review and documentation of compensation arrangements from a fair market value/ commercial reasonableness perspective.


[1] The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program Annual Report for Fiscal Year 2017. April 2018. Accessed July 9, 2018.

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