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FMV for Healthcare Regulatory Compliance

Healthcare industry participants are subject to various healthcare regulations requiring compliance with the standard of fair market value (“FMV”) and commercial reasonableness.

The Need for Specialized Valuation Services
The unique definitions of FMV and the complex regulations surrounding them require specialized valuation skills.  These skills include an in-depth knowledge of the regulations and regulatory guidance and careful analysis to ensure compliance in the preparation of valuations.  Because the penalties for failure to comply with these regulations are acute, rigorous work and expertise are required to appraise transactions and financial arrangements at FMV for healthcare regulatory compliance purposes.

Our appraisers have studied the regulatory guidance on FMV methodology in the Stark, AKS and tax-exempt regulations.  Our methodology is based on an in-depth analysis of the regulatory commentary, and our reports include a critical discussion of FMV methodology from a regulatory perspective.

Our valuation work focuses on the application of critical thinking skills, and involves:

  • Rigorous and robust methodologies
    • We analyze the key economics of any subject transaction or financial arrangement.
    • We consider and use multiple approaches and methods in valuing a transaction or arrangement. Exclusive use of a single method may not capture all the key economics of the transaction or arrangement.
    • We base our valuation methodology on the appraisal body of knowledge and peer-reviewed literature.
    • We explore value from every angle, and treat each engagement as unique. We avoid one-dimensional thinking and one-size-fits-all models.  
  • Data-driven and evidence-based analyses
    • We focus on data-driven and evidence-based analyses, rather than assumptions that may or may not reflect local market conditions or relevant facts and circumstances. Our valuation work reflects in-depth analysis of these factors.
    • We study the transaction structure and terms of each deal and incorporate their impact into our work. Our opinions go where the evidence and analysis takes us.  We are not tied to a single model or method to arrive at an opinion of FMV.
  • Informative and usable reports
    • Our reports provide a clear picture of the work we performed to arrive at an opinion of FMV.
    • We detail the key data used in the valuation, discuss the subject transaction structure and deal terms, and provide comprehensive support for the data and methods used in our analyses.
  • Distinctive client service
    • We are proactive in our data-gathering processes, enabling us to begin engagements quickly and work efficiently toward completion.
    • We remain in constant communication with our clients, providing weekly updates and identifying and addressing roadblocks when they occur.
    • We strive to streamline our deliverables and work within our clients’ processes and systems.

A One-Stop Shop for FMV Valuation Services
American Appraisal provides FMV valuation services for healthcare regulatory compliance purposes in all appraisal disciplines, including real estate, business, compensation and equipment valuation. We can serve all of your FMV compliance needs. Our scope of services includes the following:

Business Valuation

Transaction Structures

  • Mergers and acquisitions
  • Joint venture formations
  • Unwinds and divestiture

Healthcare Entities

  • Health systems
  • Hospitals and specialty hospitals
  • Ambulatory surgery centers
  • Imaging centers
  • Radiation therapy centers
  • Physician practices
  • Rehabilitation and skilled nursing facilities
  • Assisted living centers and nursing homes

Intellectual Property

  • Healthcare brands
  • Clinical protocols and quality processes
  • Trade names

Compensation Valuation

  • Physician clinical compensation
  • Call coverage
  • Medical directorships
  • Hospital-based coverage arrangements
  • Clinical comanagement arrangements
  • Management services arrangements
  • Physician administrative, academic and executive compensation
  • Physician office time-share arrangements
  • Wound care service arrangements
  • Sleep centers service arrangements
  • Other service and resource-usage arrangements

Real Estate Appraisal

Buy/sell or space lease rates

  • Medical office buildings
  • Ambulatory surgery centers
  • Imaging and radiation therapy facilities
  • Hospital facilities
  • Rehabilitation and skilled nursing facilities
  • Assisted living centers and nursing homes

Equipment Appraisal

Buy/sell or equipment lease rates

  • Physician practices
  • Medical equipment
  • Hospital and surgery centers
  • Imaging and radiation therapy equipment
  • Electronic health records systems
  • Healthcare IT systems

Stark/AKS Compliance
Transactions and financial arrangements between providers of certain healthcare services and referral sources for those services are subject to two major sets of federal laws and regulations. The federal antikickback statute ("AKS") and the physician anti-self-referral law known as the "Stark"; law, along with the regulations for each, require the amounts paid in transactions and arrangements between these providers and referral sources to be consistent with FMV. Both sets of laws/regulations provide unique definitions of FMV to use for these types of arrangements:

     •   A key component of these definitions is that FMV must exclude the volume or value of referrals between the parties.
     •   These regulations also require that these transactions and arrangements be commercially reasonable.

Commentary in the Stark and AKS regulations and other pronouncements provides some guidance on FMV methodology.  A critical point is that healthcare regulators believe that the unique definitions of FMV in Stark and AKS require departures from standard appraisal practice. The specific example given by Stark for such divergence is the prohibition on using market data based on transactions from parties in a position to refer certain healthcare services. Parties in such a position are not considered by Stark to be at arm’s-length or independent. Stark allows for FMV to be determined by “any method that is commercially reasonable," yet provides no systematic guidance or criteria for assessing what is commercially reasonable with respect to valuation methodology. In addition, Stark indicates FMV depends on “the nature of the transaction, its location, and other factors.”  Outside of these instances, Stark provides no systematic or conceptual guidance that can serve as the basis of a distinct valuation framework or methodology for determining FMV for healthcare regulatory purposes. Similarly, AKS provides no conceptual or practical guidance for determining FMV.

Practitioners in the healthcare regulatory compliance space have aptly deemed the lack of regulatory guidance with regard to FMV methodology the “healthcare FMV conundrum.”

Tax-Exempt Compliance
Nonprofit healthcare entities that are tax-exempt in accordance with 501(c)(3) under federal tax regulations are subject to certain excess benefit transaction rules governing their transactions with certain parties deemed to have substantial influence on the organization.  These rules require the purchase or sale of property between the organization and these parties to be transacted at FMV as defined in the tax code.  They also require the compensation paid in service arrangements to be consistent with reasonable compensation, or the FMV of services, as defined in the regulations. The tax regulations include certain benefits in the definition of reasonable compensation.








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