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The Role of Valuation Firms in the Self-Disclosure Process

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The Role of Valuation Firms in the Self-Disclosure Process

Author: Barbara Landy, MBA, MHS, FACHE | Published: 04/17/2019

Healthcare physician compensation valuation appraiserOccasionally, healthcare entities may have the need to perform a review of their compensation arrangements with healthcare providers, which may surface compliance concerns about such arrangements.  Healthcare entities facing possible self-disclosure of violations under various federal laws to either the Office of Inspective General (OIG) or the Centers for Medicare & Medicaid Services (CMS) should consider a thorough internal investigation of any potential violations, including identification of scope of potential fair market value (“FMV”) concerns, as proper and timely self-disclosure may significantly reduce liability related to non-compliant compensation.

Disclosure under the OIG Provider Self Disclosure Protocol (“SDP”)[1] must address why the disclosing provider believes that a violation of criminal, civil or administrative law has occurred, including a concise statement of all details relevant to the conduct disclosed and a specific analysis of why each disclosed arrangement potentially violates the identified law.[2]  Two key illustrations cited in the SDP are “1. How fair market value was determined and why it is now in question[,]” and “[w]hy the arrangement was arguably not commercially reasonable….”[3]

In the context of the SDP, “fair market value” or “FMV” is considered as the value in arm’s-length transactions which is consistent with the general market value, and refers to the compensation that would be included in a service agreement as the result of bona fide bargaining between well informed parties to the agreement who are not otherwise in a position to generate business for the other party.

Establishing FMV retrospectively differs from that of prospective analysis in that all services provided, as well as exact compensation paid for such services, should be known.  Additionally, sufficient, reliable data sources applicable to the retrospecive period are often available.  As a practical example, when considering an arrangement between a hospital and a physician for medical director services, the hours of medical director services may only have been described as a minimum or maximum, versus actual known hours during a retrospective review.  Similiarly, benchmark compensation data that may have been used to established FMV compensation on a prospective basis could only have been based on data submitted prior to the time of publication, whereas a retrosepctive review enables the examiner to utilize compensation data congruous with the time period in question.

FMV Pitfall

Third party valuation firms can be beneficial to organizations involved in self-disclosure violations, and can help answer one of the key questions set forth in the SDP of “[h]ow fair market value was determined and why it is now in question….”   As noted above, the tools available to a valuator in the context of a retrospective analysis are much broader than those available for a prospective review, and the experience and perspective offered by a third party valuation firm can assist in identifying such resources.

 

[1] U.S. Department of Health & Human Services, Office of the Inspector General, Updated OIG’s Provider Self-Disclosure Protocol (April 17, 2013), available at: https://oig.hhs.gov/compliance/self-disclosure-info/files/provider-self-disclosure-protocol.pdf.

[2] While this article addresses the SDP, disclosure under the CMS protocol has similar requirements.  Refer to the CMS protocol for a complete description.

[3] U.S. Department of Health & Human Services, Office of the Inspector General, Updated OIG’s Provider Self-Disclosure Protocol (April 17, 2013), available at: https://oig.hhs.gov/compliance/self-disclosure-info/files/provider-self-disclosure-protocol.pdf.