Compliance University

Fair Market Value

The anti-fraud rules require that financial relationships between independent parties be at fair market value (FMV). This concept is often misunderstood

The anti-fraud rules require that financial relationships
between independent parties be at “fair market value”
(FMV). This concept is often misunderstood by home care companies,
and this failure to understand can lead to big trouble for
unsuspecting suppliers. If you don't know all the different
meanings for FMV, rest assured — the government does.

The reason all of this matters is because the anti-kickback
rules (as well as other laws and regulations) try to ensure that
providers do not disguise payments for referrals as if they were
fees for services or items supplied. “Fair market
value” is the measure by which a payment may be evaluated to
verify that it was truly for services or items provided, and not a
disguised kickback.

FMV is, essentially, the commercially reasonable payment one
would make for products and services rendered. It sounds simple,
but the reality is more complex.

First, FMV rarely means a specific, single, unchanging, fixed
price. Rather, there is usually a range of acceptable dollar
amounts within the realm of fair value. Second, FMV requires that
items or services being purchased actually be provided. Third, FMV
requires that items or services actually be needed by the
recipient. So, perhaps the better definition for FMV is the range
of prices one would reasonably pay for items or services needed and
used by the recipient.

Let's examine the components of this definition in more
detail.

FMV is actually a range of values. What would be a fair rent for
office space in a physician-owned medical office building?
Comparable rents range from $13 to $22 a square foot. So,
technically, any rent within that range might be within fair market
value.

But be careful. If you are worried about the government or a
competitor challenging the reasonableness of the rent, you may want
to choose a payment within the middle of the range.

If market comparables are not readily available, you may
evaluate a fair rent by assessing costs plus reasonable profit. For
space rental, 10 to 30 percent profit will usually pass muster.

Document your analysis in a file memo.

FMV also requires that services or goods actually be provided.
In 2006, two Lincare companies agreed to pay the government $10
million and to enter into a five-year company-wide Compliance
Integrity Agreement. Among the settled allegations was the
contention that physicians were paid “pursuant to purported
consulting agreements,” even though the physicians rarely or
never actually provided any consultations.

In 2005, I was an expert witness for a cardiologist suing the
University of Medicine and Dentistry in New Jersey (Newark) for
unlawful termination. He alleged he was fired because he spoke
against the University's plan to offer professorships to
cardiologists who did little or no work in exchange for the
academic positions. He argued the salaries were disguised kickbacks
for referrals.

Ultimately, the case settled for several million dollars, the
feds got involved and fines, firings and heightened government
scrutiny followed.

The point is that paying FMV for services means paying fair
value for services actually rendered. Few suppliers would feel safe
entering into a sham consulting agreement.

However, it is not uncommon for home care companies to seek a
medical director relationship or some service agreement that
contemplates a certain amount of use. If the anticipated
utilization upon which the contract was premised does not actually
occur, then the home care company is, in effect, paying for
unrendered services. (This is why I recommend that service
agreements be on a “pay as you go” basis.)

Other examples are paying for rental space that turns out not to
be needed, or paying for more space than is needed or paying full
rent for space that you only need part-time. Each of these
scenarios, not uncommon, create problems under the anti-fraud rules
because they do not reflect “fair market value.”


Materials in this article have been prepared by the Health Law
Center for general informational purposes only. This information
does not constitute legal advice. You should not act, or refrain
from acting, based upon any information in this presentation.
Neither our presentation of such information nor your receipt of it
creates nor will create an attorney-client relationship.

Neil Caesar is president of the Health Law Center (Neil B.
Caesar Law Associates, PA), a national health law practice in
Greenville, S.C. He also is a principal with Caesar Cohen Ltd.,
which offers compliance training, outsourcing and consulting and
the author of the Home Care Compliance Answer Book. He can be
reached by e-mail at target="_blank">ncaesar@healthlawcenter.com or by telephone at
864/676-9075.



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