QUESTION: We use the MGMA 75th percentile of compensation per wRVU as a fair market value benchmark for our physician employment contracts. Is that still OK?
ANSWER: Not necessarily. The amendments to the Stark regulations published in the Federal Register on December 2, 2020 set forth a more fluid definition of “fair market value” that calls into question whether hospitals need to be wedded to salary surveys like the MGMA. The new definition of FMV in the context of compensation arrangements provides as follows:
“Fair market value means— (1) General. The value in an arm’s length transaction, consistent with the general market value of the subject transaction….General market value means— … With respect to compensation for services, the compensation that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other.”
The commentary to the regulations said the following with respect to compensation surveys:
“It is not CMS policy that salary surveys necessarily provide an accurate determination of fair market value in all cases…. Consulting salary schedules or other hypothetical data is an appropriate starting point in the determination of fair market value, and in many cases, it may be all that is required. However, …a hospital may find it necessary to pay a physician above what is in the salary schedule, especially where there is a compelling need for the physician’s services…. [there is] a need for an analysis of the actual terms of a transaction and the actual facts and circumstances of the parties. In our view, each compensation arrangement is different and must be evaluated based on its unique factors.”
Therefore, you should look at all the facts and circumstances when determining the fair market value of physician compensation – not just compensation surveys.
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