Based on the healthcare industry’s increased emphasis on the require- ment for physician compensation
arrangements to be fair market value (FMV)
and commercially reasonable, health system
executives are faced with the importance of
these standards. These standards can
sometimes seem challenging to digest
and apply to arrangements based on
vague regulatory guidance, as well
as evolving physician alignment
strategies. That said, many factors
supporting these standards can be
met by stepping back and applying
The nuances of how to determine FMV
compensation appropriately for the myriad
of physician arrangements (e.g., on-call, pay
for performance, employment) is beyond
the scope of this article. Similarly, navigat-
ing all the appropriate questions, which
should be asked to ensure an arrangement
is commercially reasonable, is often a robust
analysis that is also not the focus here. The
point is to demonstrate that both of these
standards have some common themes,
which are easy to “check the box” on, and
important to keep in mind for any physician
A growing number of settlements
involve the breach of the FMV and commercially reasonable standards. These
settlements often display obvious
non-compliant structures for compensating physicians. In addition, there are
simple steps to ensure an arrangement
is properly set up, and these steps will
be critical to any compliance policy for
The following is a checklist to help
ensure your physician compensation
arrangements have met the “common sense”
regulatory litmus test:
1. Understand if the service is needed
(absent referrals) to help establish
that the arrangement is commercially reasonable. Here are a few
common sense questions:
– Do you need the service?
– Do the services being provided by
the physician(s) overlap with what
by Jen Johnson, CFA
Compensation and compliance:
Five common sense steps
» Understand if the service is needed (absent referrals) to help establish that the arrangement is commercially reasonable.
» Confirm that the value or volume of referrals is not considered as a basis for compensation.
» Ensure the transaction or compensation terms are clearly outlined, set in advance, and agreed upon in writing.
» Properly document the supporting evidence for establishing the compensation is at fair market value.
» Monitor the arrangement to ensure the services are still necessary and being performed in accordance with the agreement terms.
Jen Johnson ( Jen.Johnson@vmghealth.com) is Managing Director and Chief
Commercial Officer at VMG Health located in Dallas.