Our FMV Risk consulting services center on identifying and mitigating the risks associated with complying with the federal healthcare regulatory requirements for fair market value (FMV). These risks are assessed not in terms of whether an individual transaction or arrangement is compensated at FMV, but in terms of whether an organization’s processes for establishing FMV address the key requirements for FMV under healthcare regulations. Many healthcare entities have FMV compliance programs with organizational and process weaknesses and pitfalls that undermine their compliance efforts, including the use of outside valuations firms. Our services address two types of risk related to FMV: compliance risk and enforcement risk.

Compliance Risk

Compliance risk relates to meeting the requirements of the Stark regulations for FMV. Under the recently updated Stark regulations (2020), CMS established a program integrity framework for FMV that involves certain key principles and concepts. This framework is not based on meeting rules-of-thumb related to surveys or other data. Rather, it is based on the following key principles:

• Precluded reliance

• Buyer neutrality

• The economics of the subject transaction

• A valuation date based on the date of the transaction or arrangement

• Addressing ongoing practice losses

Many industry participants belive that if their deals fall within certain percentiles of survey data or they have outside valuations, they have met the requirements for Stark FMV. This view is actually not correct and reflects and incomplete understanding of FMV complaince. To remedy organziational weaknesses stemming from this flawed approach, our FMV Risk assessment services evaluate whether the processes for establishing FMV at a healthcare organization addresses the appropriate criteria for FMV. We also propose process improvements to mitigate the weaknesses we identify.

Enforcement Risk

Enforcement risk relates to the issues that commonly come into focus when an enforcement action emerges against a health system for its physician arrangements and involves questions of FMV. These issues go beyond the FMV numbers and relate to how physician deals are negotiated and administered, along with their financial outcomes. While most health system compliance programs focus on obtaining pre-transactional FMV opinions, enforcement actions examine many FMV-related questions that emerge over the life cycle of an arrangement or transaction. What happens after a deal is negotiated relative to FMV may be as important as how FMV was determined at inception. 

Our enforcement risk assessment looks at four key areas of risk:

• Deal risk involving the pretransactional processes for negotiating deals

• Implementation/Administration risk resulting from how the organization implemented and administered the arrangement over its term

• Circumstantial risk stemming from changes in the facts and circumstances over the term of an arrangement

• Outcomes risk arising from the financial results of the arrangement as implemented and administered

Our assessment looks at key FMV-related issues relative to each area of risk at the level of organizational structures, processes, and financial reporting.

Not an FMV Opinion

Our FMV Risk consulting services do not provide FMV opinions. Risk assessments do not develop a conclusion or opinion of value about specific arrangements or transactions. Rather, they evaluate the larger facts and circumstances of arrangements and transactions over their life cycle relative to how the organization established FMV. As part of our evaluation, we also examine whether the mechanisms an organization uses for establishing FMV create or mitigate FMV compliance and enforcement concerns.