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    Stark II rules define fair market reviews

    Q: I hear the local hospital reference fair market value in respect to physician compensation. What does fair market value mean?

    A: The concept of Fair Market Reviews and Commercial Reasonableness comes from the section of the Social Security Act known as Stark II rules. The preamble to the Stark II rule states: an arrangement will be considered "commercially reasonable" in the absence of referrals if the arrangement would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician (or family member or group practice) of similar scope and specialty, even if there were no potential designated health service referrals.

    This means the arrangement between physicians and hospitals must not have anything to do with referrals that hospitals can generate from the relationship. The measure of these arrangements is the commercial reasonableness or fair market value. The physician and hospital must be able to feel comfortable that any other health system would enter into the same relationship, presuming that there is no referral opportunity.

    For physician compensation, fair market value is defined as the amount of compensation that a physician (independent of his or her relationship to a hospital and its medical staff) would receive from a health system, in an arm's-length arrangement, for providing professional services, with both parties having knowledge of the uses and purposes of the services, the physician being willing but not compelled to provide the services to the hospital, and the hospital being willing but not compelled to buy the services from the physician.

    In essence, hospitals are under constraints through a variety of rules, regulations, and compliance issues to not overpay for reasons other than market value of services. The rules are designed to protect the community and patients from a hospital paying higher than market rates to obtain physician referrals or procedures. Fair market value typically is determined by a third party or a hospital's compliance department. Available physician compensation survey data are used for a physician specialty. Examples of survey data include those from the Medical Group Management Association and Sullivan Cotter & Associates, Inc.








    Answers to readers' questions were provided by Thomas J. Ferkovic, RPh, MS, managing director, and Daniel E. Clark, MBA, senior consultant, SS&G Healthcare Services LLC in Akron, Ohio. Send your practice management questions to
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