Is 75th Percentile Physician Compensation Safe?

April 9, 2021

A look at the new definition of FMV and its applicability to physician compensation data

Amidst the backdrop of an already competitive and highly regulated environment, health systems are facing challenges from the convergence of the coronavirus pandemic, the new final rules under the Stark Law and Anti-Kickback Statute (AKS), and the financial impact from the 2021 Medicare physician fee schedule (Medicare PFS). Within this context, the number of healthcare transactions is expected to rise and return to pre-pandemic levels in 2021.  This means compliance teams will have to manage an increasing number of transactions, including but not limited to acquisitions, professional services arrangements, and physician employment agreements. As part of the compliance process, many of these transactions will be reviewed against compensation thresholds to establish fair market value (FMV) support. Given the importance of FMV to satisfying exceptions and navigating safe harbors, the determination of these compensation thresholds is of utmost importance.

To establish these FMV thresholds, many health systems have relied on compensation survey data at particular percentiles. The 75th percentile is a common threshold used. However, is a single FMV threshold at the 75th percentile relevant and comparable to all subject transactions within the health system? It depends.

Good news is that CMS is clear in their recent commentary that they are not setting a bright-line threshold.  This provides the opportunity for health systems and their compliance teams to set protocols to build the necessary data to support compensation levels at the 75th percentile and beyond.

This piece will examine the definition of FMV as stipulated in the final rule, review the applicability of physician compensation data at the 75th percentile based on the subject transaction, and provide recommendations for the appropriate use of surveys in deriving FMV.

To read more, click HERE.


Published in AHLA’s 2021 Health Care Transactions Guide.

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