Q: What is Fair Market Value?

A: Definition of Fair Market Value (as defined by Internal Revenue Service Revenue Ruling 59-60): "Fair Market Value is the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts."

Q: Why do hospital/physician agreements need to be within Fair Market Value (FMV)?

A: The Centers for Medicare and Medicaid Services ("CMS") requires that compensation between physicians and entities be based on the fair market value of the particular items or services that the parties are exchanging.  As stated in the Federal Register, Final Rule, Stark II, Phase II Regulations, March 26, 2004, "Fair Market Value" means the value in arm's-length transactions, consistent with the general market value.  "General market value" means the price that an asset would bring, as the result of bona fide bargaining between well-informed buyers and sellers who are not otherwise in a position to generate business for the other party, or 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, on the date of acquisition of the asset or at the time of the service agreement.  Usually, the fair market price is the price at which bona fide sales have been consummated for assets of like type, quality, and quantity in a particular market at the time of acquisition, or the compensation that has been included in bona fide service agreements with comparable terms at the time of the agreement, where the price or compensation has not been determined in any manner that takes into account the volume or value of anticipated or actual referrals.

(Short answer: it is required by the Federal Government)

Q: Who should perform the valuation?

A: Valuation services should be provided by individuals who have been recognized by one or more of the following professional valuation organizations and are experienced in healthcare valuation services:

Institute of Business Appraisers (IBA),
American Society of Appraisers (ASA),
National Association of Certified Valuation Analysis (NACVA),
American Institute of Certified Public Accountants (AICPA)

Management Solutions Consulting, Inc. staff includes individuals with credentials for all of the above organizations as well as experience performing business and compensation valuations.

Q: How long does a valuation take to complete?

A: We will have an initial draft within 6 weeks of obtaining all the required information.

Q: How much does a valuation cost?

A: It depends on the type, scope and level of the valuation requested. Contact us for an estimate.

Q: What information does the hospital need to provide?

A: Depending on the type of agreement being valued, the information needed is listed on one of the following:

• Fair Market Valuation Request for Review form
• Major Equipment Information Form
• Time Share Data Form

Q: What if I initially just need a range of compensation values as guidance for the purpose of negotiating an agreement?

A:  We can provide an Opinion of Value or an Executive Summary prior to full report. 

Q: Can you provide guidance as to how to structure a compensation arrangement?

A: Our in-depth experience with many of the different types of arrangements gives us the confidence to provide guidance and advice on structure of arrangements and agreements.

Q: What if the other parties of the agreement don't understand the need for the agreement to be within fair market value?

A: We have successfully met with and educated physicians and other parties to these types of agreements to understand the need for these arrangements to be within fair market value.