Everyone in life wants to be paid what they are worth. If we believe that our medical services are worth $600/hour, then why is it that we can’t get a facility to compensate at that rate?
In the medical profession, compensation rates of employed and contracted physicians of a hospital are limited in pay by what federal regulators refer to as “Fair Market Value ” or FMV. This term applies to how much a facility can compensate a practitioner for their services. Facilities that are found to overpay a practitioner for their services or the lack thereof can be fined heavily by the government. In some ways, medical practitioners are the only professionals for whom the government limits pay.
Our government and agencies limit how much a facility can pay a practitioner for their services to avoid egregious medical practices. The Center for Medicare and Medicaid Services (CMS) is responsible for defining FMV. The initial intentions of CMS were to 1) avoid practitioners being paid too much by a facility for work not performed and 2) prevent incentivizing practitioners to overprescribe, place unnecessary referrals, and recommend unwarranted surgery, procedures, and imaging studies. These days, facilities compensate physicians based on their actual services and not their prescribing or referral habits. FMV mainly applies to physicians, but this will change over time as the government investigates the compensation rates of CRNAs, PAs, and NPs.
FMV is defined by the regulations within the Physician Self-Referral Law, also known as Stark Law. FMV applies to payments or compensation for space, equipment, or services. Since locums practitioners provide a service, facilities must compensate them based on FMV. This only applies when practitioners contract directly as sole proprietors. It does not apply when practitioners go thru locums companies or contract thru self-formed entities like an LLC or PLLC.
Unfortunately, facilities cannot run to the Federal Government to get their immediate input on physician compensation rates. To determine FMV, most large facilities rely on in-house compensation committees that set their own compensation rates based on the available data. These committees can include hospital administrators, accountants, and attorneys. To get an unbiased evaluation of FMV, facilities, and physicians can hire 3rd party FMV experts to provide an evaluation of compensation rates.
This article lists the factors that go into evaluating and determining Fair Market Value for physicians looking to contract directly rather than through a locums agency. Please recognize that FMV is usually presented as a range of values (i.e., $200-250/hr) rather than an exact compensation rate.
Factors that Determine Fair Market Value
National Compensation Surveys. Compensation surveys provide benchmark data on average salary, call pay, and RVU rates. Experts must consider multiple surveys when calculating FMV, not just one. These national surveys have many limitations as they do not apply to independent contractors, specifically part-time and atypical work schedules. These surveys offer a good place for experts to start looking at FMV, but these surveys do not represent FMV for independent contractors.
Specialty. It is not rocket science that a neurosurgeon’s average pay for call and clinic will be higher than a hospitalist. Compensation rates will also be affected by geographical region, demand, acuity, type of procedures performed, and experience required.
Supply and Demand. A practitioner’s demand is not factored into compensation surveys. FMV experts will use thoughtful judgment and careful analysis to gauge if practitioners should be paid more based on the demand and supply of practitioners, along with the services needed.
Rural or Urban Setting. The facility’s location, community size, and desire to live in such a community can all be considered when determining FMV. Distance to get to such a location can also be considered. The more rural and less desirable areas, the FMV pay rates may be better.
Volume and Workload. Compensation rates may be altered by the expected volume and workload, but the facility must not appear to compensate physicians for increased referrals and other services.
Comps. Like real estate agents, FMV experts can use “comps” or comparable compensation rates for other facilities with similar needs, demands, and geographical areas.
Locums Rates. FMV experts can compare what the locums companies are charging facilities and paying practitioners to compare compensation rates with other recognized data and material.
Restricted vs. Unrestricted. FMV will depend on whether your scheduled hours are restricted or unrestricted. Typically, restricted hours refer to a practitioner having to be onsite and/or be able to respond within a specific time frame. Unrestricted hours refer to hours not on-site or what others refer to as pager/beeper rates.
Operating Expenses. As an independent contractor, you are responsible for your operating expenses. This can include general administrative and overhead costs such as licensing fees, CMEs, and dues. It can also include tangible items like computers, scrubs, luggage bags, and vehicles that allow you to do your work. It also incorporates the cost of your time doing what locums companies usually do for you, like filling out credentialing paperwork and arranging travel. FMV ranges should reflect this additional work and expenses.
Benefits. As an independent contractor, you are not provided with the same benefits as a traditional employee. Benefits include health insurance, long-term disability insurance, 401k matching programs, and splitting one-half of the self-employment taxes. Thus, FMV ranges should consist of the cost of practitioners having to cover their own benefits.
Malpractice Insurance. If practitioners are responsible for paying for their own malpractice insurance and it is not reimbursed, then FMV ranges should account for this.
Commercial Reasonability. This term is loosely defined within the Stark Laws yet not consistently applied. In theory, a businessman or woman should be able to look at the facility’s ledger and determine that paying a practitioner directly makes more financial sense than paying for a more expensive locums agencies. This knowledge should be factored into FMV but not pursued by many facilities.
Since there is no nationally recognized compensation data for locums practitioners contracting directly, it is wise to know the elements that determine FMV. This way, physicians can be better informed on how FMV is calculated and how it should be determined for independent locums practitioners. Remember that FMV at one facility may not be FMV at another. Hopefully, you now better understand what items FMV experts will consider in their valuation.