The New Paradigm for FMV Compliance Programs

The new Stark regulations made it clear that Stark FMV should be based on “the economics of the subject transaction” along with buyer neutrality and not “survey says.” Furthermore, FMV compliance should address ongoing losses from physician arrangements. 

CMS also explicitly stated that an outside valuation prepared by a professional valuator is not needed to comply with the requirements of Stark FMV. Compliance with Stark FMV is about the substance of the analysis, not who prepares it.

These two key clarifications from the recent regulations provide for a new paradigm in Stark FMV compliance. That paradigm is based on using business intelligence processes that are adapted to meet the requirements of Stark FMV. Program integrity principles such as the “economics of the subject transaction,” buyer neutrality, and separate assessment of practice losses are best addressed through ongoing and routine business intelligence analysis rather than one-time, specialized, and outsourced valuation analysis that does not consider the facts and circumstances of an arrangement at a comprehensive level. 

Moreover, healthcare industry players should be performing business intelligence analysis as a routine part of their financial and operational reviews. Unfortunately, reliance on the “survey says” paradigm generally short-circuits the normal type of financial analysis and diligence that is usually performed by healthcare provider entities, as well as businesses in any industry. In practice, “survey says” tends to blunt the need to analyze why financial outcomes are what they are, along with any idea of remediation or improvement.

What is a Business Intelligence FMV Program?

A business intelligence FMV program is established by first developing and implementing the right kind of systematic business intelligence analysis processes within a healthcare organization. These processes are generally performed on an internal basis and focus on business operations, management, and planning with accompanying financial reporting.

At the same time, the findings of ongoing business intelligence analysis provide inputs for valuation methods that are used as part of an internal FMV determination program. These methods yield value indications that provide a basis for Stark FMV. The organization sets the parameters on how these value indications are used to determine FMV for individual arrangements and transactions. As long as the valuation methods used are reliable and the Stark FMV requirements are met in the final determination of value, the resulting internal FMV can meet regulatory compliance concerns.

An Alternative Use for Outside Valuation Opinions

A business intelligence FMV program also allows for an alternative use of outside valuation opinions. Under this program, an organization can seek opinion letters on the valuation methods that are used along with the processes and analysis that are deployed to determine Stark FMV. In this paradigm, outside valuators function like outside auditors relative to the financial statements of a company. External auditors assess and test the internal controls and processes for the preparation of financial statements, and thereby develop an opinion as to whether they meet accounting standards. In a business intelligence FMV program, outside valuators issue review opinions about the methodology and processes an organization uses to determine FMV for its arrangements or transactions.

The Benefits to an Organization

Whether an organization uses an outside valuator or not, a result of implementing a business intelligence FMV program is saving time and money on valuation fees, while improving the credibility of FMV determinations and overall FMV compliance. The program takes advantage of the fact that an outside FMV opinion is not required for Stark FMV compliance. What is required is the right kind of analysis that addresses the criteria for Stark FMV.

Business intelligence analysis also improves day-to-day operations and financial results because it provides insight into key operational and business metrics within the context of local market dynamics. It identifies areas for remediation that can improve the bottom line for an organization, or alternatively, allow it to better understand the “spend” that it needs to make in its physician enterprise.

Our Services

Our business intelligence FMV program services assist healthcare organizations in designing, implementing, and administering such a program. We provide consulting services that guide and facilitate the development and use of business intelligence analysis processes in determining FMV.

Our services also include providing methodology and process opinions relative to the determination of Stark FMV. These opinions allow your organization to do the work while accessing TSHC’s expertise for Stark FMV. Our design and implementation services, however, do not limit an organization’s use of outside valuation firms to provide methodology-related opinions. Organizations are free to choose whatever firms they think are appropriate to provide these opinions on methods, methodology, and process.