Fair Market Value: It Is Not As Easy As You May Think

What to Consider When Determining the Reasonableness of a Proposed Compensation Arrangement

Most health care professionals are well aware of the fact that the Stark law and the anti-kickback statute are the federal government’s principal tools in combating governmental payor program fraud, waste, and abuse. Given that the federal government’s objective with these laws is to prohibit health care organizations from incentivizing physicians to make unnecessary referrals, in order to comply with both the Stark law and the anti-kickback statute, the total compensation paid by a health care organization to a physician in the context of an employment or independent contractor relationship (e.g., a professional services agreement) must be fair market value (FMV) and commercially reasonable. Although these considerations are relevant in other contexts as well, including leases and asset purchase agreements, this article focuses solely upon the implications of FMV and commercial reasonableness in the context of compensation arrangements with physicians.

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