Compliance University
FMV Is Complex Topic
Last month we began to explore “fair market value,” an important and dangerous concept. FMV essentially reflects the commercially reasonable payment one would make for products or services rendered.
This concept is essential for home care companies because the government uses the idea of FMV to ensure that collaborations and financial relationships do not disguise referral payments as if they were fees for services or items supplied. FMV 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 often more complex than one would imagine. It reflects a range of acceptable dollar amounts within the parameters of “fair value,” and is rarely a specific, single, unchanging, fixed price. Also, FMV requires that you actually get what you pay for. A consulting contract will not reflect FMV if no consulting actually occurs.
Here are three more rules that inform the concept of fair market value:
- Paying for goods or services you don't need
It is not enough for services or goods actually to be provided. They must actually be needed as well. If you are paying for space you don't really need, it doesn't matter whether you figure out some way to make use of that space. If you have a branch operation a half mile away, it may be hard to justify a second space rental in a referral source's offices. (“Why would you need that space, except to obtain referrals in exchange for the rent?”)
Similar risks arise when paying a consultant to give you information you already know, or to make recommendations you never implement. Another example would be paying setup and instruction fees to a physician for setups done in the doctor's offices, while your own personnel sit underutilized because you are paying someone else to do their work.
In all of these examples, the unnecessary services fail the fair market value test. This is a frequent problem for home care companies that pay for services they don't really need or that pay for a lot of service when only a small amount is required. If you only need hamburger but keep paying for prime rib, the government will take notice.
- Things change
Remember that fair market value is a reflection of current realities. Market comparables change within a course of a year or two. Changes must be acknowledged to ensure that this year's fair market value continues to hold up next year.
