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Special Fair Market Value (FMV) Considerations for International Physicians

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Special Fair Market Value (FMV) Considerations for International Physicians

Author: Erica Jacobovits, JD | Published: 04/02/2019

Foreign physicians and their compensation valuationIt is a well-documented threat that the United States is currently facing a shortage of physicians, a trend which is expected to exacerbate in the near future.  According to one study conducted by the Association of American Medical Colleges (AAMC), the U.S. will face a shortage of as many as 120,000 physicians by 2030.[1]  This projection is particularly harrowing given the critical need for physicians to treat an aging population, which by 2030 is predicted to increase by 50%.[2]  While several legislative proposals are on the table to address these issues, these efforts have largely been stymied by the congressional process.[3]  Accordingly, many hospitals and medical practices have turned to foreign-trained or educated physicians to help alleviate this staffing shortfall.

The current predicament facing U.S. employers attempting to ameliorate physician shortages through efforts such as the recruitment of foreign-educated or trained physicians, has become more difficult given the current Trump Administration’s “Buy American and Hire American Executive Order”[4], which purports to safeguard and promote American workers, as well as difficulties in applying and obtaining green card applications and visas, and in particular H-1B visas[5] which support approximately 25% of current foreign medical residents training in the U.S.[6]

While there are certain non-monetary hurdles to overcome when recruiting a foreign-trained physician, such as admission to a U.S. medical residency program[7] and navigating the current regulatory complexities of the Trump Administration’s policies and proposals for immigration reform, there are various financial considerations that have both business implications as well as potential healthcare fraud and abuse regulatory implications.[8]  Examples of such financial considerations include the fees associated with a physician’s application for naturalization and other related fees,[9]  sign-on bonuses[10] and relocation allowances[11].

FMV Pitfall
 
When determining the FMV of compensation under professional services and employment arrangements, healthcare operators and employers must stay informed regarding the potential nuances in taxable compensation considerations as well as changes in U.S. regulatory policies and laws.  In the context of physician recruitment of foreigners, it is imperative to understand which benefits (for example, assistance with fees associated with a visa application) may ultimately have implications on taxable income, and therefore FMV compensation.

[1]
New Research Shows Increasing Physician Shortages in Both Primary and Specialty Care (April 11, 2018), https://news.aamc.org/press-releases/article/workforce_report_shortage_04112018/.
[2] Id.
[3] E.g., The Resident Physician Shortage Reduction Act of 2017 (H.R. 2267 ; S. 1301), which gradually increases the number of national residency slots available through Medicare funding by raising the federal cap on medical residency slots by 15,000 through 2023.
[4] Exec. Order No. 13788, 82 C.F.R. 18837 (2017)
[5] For eligibility and requirements please see https://www.uscis.gov/working-united-states/temporary-workers/h-1b-specialty-occupations-dod-cooperative-research-and-development-project-workers-and-fashion-models.
[6] See Jamie Ducharme, Trump’s Immigration Policies are Making it Harder for Foreign Doctors to Work in the U.S. – And That Could Hurt Patients (June 8, 2018), http://time.com/5299488/international-medical-graduates/.
[7] With the exception of Canadian-trained physicians.  See AMA, Residency Program Requirements for International Medical Graduates, at https://www.ama-assn.org/life-career/residency-program-requirements-international-medical-graduates.
[8] Notably, for example, the Stark law (as set forth in, inter alia, 42 U.S.C. § 135nn) and federal and state ant-kickback statutes.  Regarding Stark, a compensation arrangement will generally need to meet an exception, such as, that compensation to the physician referral source meets fair market value (“FMV”), as defined in  42 CFR §411.351 (as set forth by the Centers for Medicare and Medicaid Services (CMS) with respect to physicians’ referrals to health care entities with which they have financial relationships).  Furthermore, this definition is consistent with similar fair market value guidance related to the federal Anti-Kickback Statute (42 U.S.C. §1320a-7b) and with the definition relied upon by the Internal Revenue Service.  See, for example, “OIG Supplemental Compliance Program Guidance for Hospitals” at 70 F.R. 4866 (January 31, 2005), and see Treas. Reg. 53.4958 et seq.
[9] See U.S. Citizenship and Immigration Services delineation of fees at https://www.uscis.gov/forms/our-fees.
[10] We note that the Internal Revenue Services (IRS) considers these bonuses as “supplemental wages” for purposes of calculating withholding allowances.  See https://www.irs.gov/pub/irs-pdf/p15.pdf.
[11] We note that although traditionally, pursuant to the the 26 U.S. Code § 132, any “qualified moving expense reimbursement” is excluded from the internal revenue services (“IRS”) calculation of an employee’s “gross income,” IRS Publication 15-B published February 22, 2018, suspends that exclusion for any qualified moving expense reimbursements for tax years beginning after December 31, 2017, and before January 1, 2026 (with the exception of members of the Armed Forces on active duty).
 
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