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Defining, Determining, and Documenting FMV

March 23, 2017

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Outline:

• Setting the stage• MD Ranger overview• Defining Fair Market Value for physician agreements• Determining FMV• Documenting FMV

Costs soaring

• 4-6% total operating expenses

• Expense that has been largely ignored

• Huge impacts on financial performance, organizational performance, physician relationships

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Physician costs per ADC as a percent of total hospital expense (OSHPD*)

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*Office of Statewide Health and Planning Department (California)

Administrative payments increasing

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Direction and admin total

hospital payments now $1.8M, up 25% from 2014

Leadership position payments

at the 75th percentile grew from $52,630 in

2015 to $60,000 in 2016

Chief of Staff median payments

increased from $36,000 in 2015 to

$48,500 in 2016

Factors driving increased payments

• Economic and market forces such as lower reimbursements, larger group practices with productivity incentives, more part-time and employed physicians, and increasing internal governance demands of physician practices

• Bifurcation of hospital-based and office-based medicine

• Increased time demands on physicians• Competing priorities for doctors mean fewer want

(and can) serve in admin roles

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Specific (and common) challenges in physician contracting

• Current system isn’t working• Physician costs are spiraling• Unsure all your contracts are FMV compliant• No standardization across facilities• Concerned about government audits, whistleblowers• Don’t know what you don’t know

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What do you do?

• Set up systems and processes• Determine if your current spend is appropriate• Valuing physician arrangements• Think strategically about the future, especially

regarding:• Changing reimbursement• Evolving physician compensation structures• Unpredictable, dynamic industry

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What stands in your way?

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Lack of resources

Poor sources of data from market surveys

Expensive solutions

250+ Physician BenchmarksCall coverageMedical direction paymentsAdministrative and leadership servicesHospital-based service stipendsDiagnostic testing, etc.Clinic & hourly rates

Online PlatformBenchmark lookups

Contract proposal toolsContract reports by facility and service

Total facility costs + benchmarks

Compliance DocumentationContract-specific FMV documentation reportsReports to assist with real-time monitoring and annual reviews

Research and SupportResources for education and training

On-call experts to help subscribers use benchmarks and tools

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The foundation of your compliance process

Standardize processes and rates

Document FMV

Access 250+ payment

benchmarks

Review contracts and monitor with

easeHave smarter,

data-driven physician

negotiationsMitigate

compliance risks

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Our subscribers and database

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Our benchmarks• Call Coverage (55+)• Medical direction (85+)• Hospital-based services (15+)• Administrative• Medical Staff Leadership• Diagnostic/other services e.g.

ROP, autopsy, dialysis• Hospital-based stipends• Clinics, professional services• Telemedicine• Residency/teaching/GME

• Uncompensated care• Meeting attendance, peer review,

IT/EHR and quality initiatives• 13 Pediatric services, with more

emerging each year

Hospital-characteristics drill down for ADC, bed size, trauma status, urban/rural, stroke centers, and more.

Used in academic medical centers, integrated delivery systems, and hospital organizations.

Our methodology: key differences

• Providers vs. facilities• Verified data• Thorough data audits• Physician contract experts on-

call to review/advise on challenging contracts

• Comprehensive scope of benchmarks based on full hospital contracting practices

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About your host

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• Chief Marketing Officer at MD Ranger

• Decade in the industry, developed expertise specifically pertaining to the hospital/physician relationship

Defining Fair Market Value

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What is FMV?

• An estimate of the market value of a service based on what a willing buyer would pay a willing seller

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How does the government define FMV?FMV cannot be determined by taking into account the volume or value or referrals to the entity

Stark defines FMV as “price that an asset would bring as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or the compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, on the date of acquisition of the asset or at the time of the service agreement”

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Why FMV is important

• If you are paying a physician more than fair market value for services, you are in violation of both Stark and AKS

• Paying too much for services is poor financial management, even if FMV can be documented

• Maintaining positive physician relationships is essential for all healthcare organizations

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Your organization’s definition

• Given the lack of a bright line, it’s on you to define how FMV will be interpreted at your organization

• In general, most organizations define FMV as an agreement at or below the 75th percentile for the comparable service

• Some organizations, however, don’t want to exceed median benchmarks, particularly if they have no distinguishing characteristics

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Most importantly…

Whatever you choose, it’s critical to define FMV and consistently that standard apply to all physician contracts

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Determining FMV

1) Overall process2) Step by step guidelines

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Process Tip 1: Set your approach in advance

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• Most organizations decide what market range is appropriate for physician service agreements at their organization

• Typical thresholds are either below the median or the 75th percentile

• Make sure that your definition is documented and those involved in physician contracting know your organization’s rules and policies

Process Tip 2: Be consistent

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• Always apply your organization’s standards to each physician agreement

• Contract payment rates should be evaluated in a consistent manner for all agreements

• Have the final agreement approved by senior management and/or a board committee, depending on the value and hospital bylaw requirements

• Consider sticking to simple templates

Process Tip 3: Handle exceptions consistently, and with care

• Document the reasons why your organization would consider a rate that falls above your definition of FMV

• Determine what supporting records and documentation are needed to qualify for an exception

• Consider designing an exceptions process that intentionally limits the number of exceptions processed and permitted

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Process Tip 4: Take into account all payments to the physician

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• Before paying a physician a particular rate for a service, check to see if she receives payments for other services

• Aggregated payments for all administrative and coverage services to a particular physician or even group practice are important to determine for compliance purposes

Process Tip 4: Take into account all payments to the physician

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• If the physician is receiving more than one payment, ensure that this is documented, along with total annual payments to that physician and how that compares to benchmarks for total compensation in that specialty

• Stacking agreements is a compliance risk• Want to learn more about Stacking? Check out our

Bullseye, found on mdranger.com/resources

Step 1: Test commercial reasonableness

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• Before payment rates are set, determine if paying is reasonable

• CMS defines CR as "an arrangement will be considered 'commercially reasonable' in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential designated health services ("DHS") referrals."

Step 1:Test commercial reasonableness

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• Check MD Ranger “Percent Paying” benchmarks for market insights into how commonly a service is paid

• Once commercial reasonableness is established, document how you determined it for your records

Step 2: Review the contract’s scope of services

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• Though no two contracts rarely are the same, it’s important to compare similar positions

• Examine scope to ensure that hours per month are reasonable; use historical time records and market data to document

• Pay special attention to positions with burdensome implementation or extended hours

• Check restricted or in-house status for coverage agreements since this may increase FMV

Step 3: Identify benchmarks for the service

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• Find the best, most appropriate match for the service• Compare similar organizations (MD Ranger allows you to look

up data slices based on hospital demographics)• Check sample size• Examine the full market range, and ask:

• What’s the median? What is the 75th percentile?• Are there reasons for my hospital rates to be higher than the median?• Are there characteristics of my hospital, the service or the physician that

could impact FMV?

No market data?

• If you can’t find an appropriate match in market data, you’ll need to consider using another method

• The cost method evaluates what it would ‘cost’ a physician to provide the service in place of the billings generated during clinical time

• This can be done by someone at your organization who is qualified to do a cost valuation, or you can hire a consultant who will write an opinion on how much the physician should be compensated using the cost method

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Step 4: Select your rate

• Remember your organization’s rules• Your payment rate doesn’t have to be exactly the 75th

percentile; in fact, we don’t recommend it!

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Step 5: Negotiate

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Documenting FMV

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Process is key

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• Your organization should pre-determine a standard FMV documentation process

• Each step should be undertaken for each contract• Consistency is key across the compliance function• When audited, having a process documented is very

important

Step 1: Check key elements of the contract

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• Counterparty• Service• Dates• Rates• Hours• Supporting

documentation

Step 2: Ensure rates and hours do not exceed your organization’s standards of FMV

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• Do you feel confident that the rate is within FMV?• Are the hours reasonable and within FMV?• If market rate benchmarks shifted at contract renewal time,

would your rate remain compliant?• Has the work been performed and documented with time cards

in the past?

Step 3: If not, document exceptions in a consistent, pre-defined manner

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• Your organization should develop a process for all contracts that must be negotiated above the 75th percentile for whatever reason

• Reasons for the high rate, along with supporting documentation, must be provided

• Consider requiring an extra level of review/approvals

Step 4: Integrate all elements into one document

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• FMV documentation should be consistent and streamlined

• Collecting all the information previously outlined and inserting it into a supporting document is best practice

• These documents should be reviewed and signed by the responsible executive

• MD Ranger subscribers have access to instant FMV Documentation Reports for each physician contract

Step 5: Determine sign-off process and timeline

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• Who is responsible for determining and documenting FMV at your organization?

• When is supporting documentation reviewed and approved?

• Who is the responsible executive for sign off?• What are the expectations for how long the process

will take?

Step 6: Keep records

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• Determine where the contracts, FMV documentation, and supporting documentation will be kept

• Who will review the records when filed, and on a regular basis?

• Are you keeping records electronically?• What is your process for timely renewal and updated

FMV documentation?

Additional MD Ranger resources:• Building a Cost-Effective Physician Contract Compliance Program Using Market

Data• Using Market Data for FMV• Key Elements of Physician Contracting Compliance Programs• Audit Smart: Best Practices• Using Market Data for Physician Contracting

For Subscribers:• Documenting FMV for Call Coverage Agreements• Documenting FMV for Administrative Agreements

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Available on mdranger.com/resources

Need help?

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Ø Do you feel confident in your organization’s physician contracting and FMV documentation process?

Ø Are you confused how much to pay physician leaders for their time?

Ø Do you feel like your organization has risky agreements?

Call us: apullins@mdranger.com or 650-692-8873