A common problem I see in compensation valuation is known as “stacking”. This is a scenario where the compensation arrangement may involve multiple roles in addition to regular clinical work requirements. Medical directorships, administrative and quality assurance roles are such examples. In an FMV compensation opinion, each component must be bench-marked and determined to fall within fair market value. However, a problem arises when each component is determined to fall within fair market value yet the overall arrangement does not meet a commercial reasonableness requirement.
Commercial Reasonableness vs. Fair Market Value
The nexus of commercial reasonableness and fair market value is emerging as an important topic in compensation valuation in healthcare. Health systems can still run regulatory risk if they do not meet the commercial reasonableness test even if compensation is within fair market value. Commercial reasonableness involves a test of the overall business case of the arrangement in the absence of potential referrals. For example, if providers in a certain specialty are over-saturated within a given market then it may be possible that no potential arrangement meets a commercial reasonableness test. Regulators may imply that the physician recruitment occurred solely to induce referrals, as no business case would normally exist to justify it. The risks can be immense as there may be no intent to direct referrals yet such inferences can be made if the CR test is not met.2