Determining fair market value is a challenge that device companies face when paying healthcare professionals for various services. If payments aren't made properly (or documented correctly), a company runs the risk of prosecution under the False Claims Act or the antikickback statute. This challenge is made more difficult by the fact that there are no established payment rates or formulas to calculate fair market value. So, what's a company to do?
Sidebar: A Fee Service Analysis
“It's important to establish processes up front to prove fair market value,” emphasized John Rah, partner at Epstein, Becker & Green (Washington, DC), at a compliance conference in June. Fair market value is the rate that services are exchanged between a buyer and seller when neither is under pressure to buy or sell. In the case of medical device companies, payments made to anyone in the healthcare supply chain are now being looked at more closely. Research grants, medical education, and contracts with distributors are considered part of the supply chain, as are payments to doctors and hospitals.
“There's tremendous scrutiny put on pharmaceutical, medical device, and biotechnology companies,” said Debjit Ghosh, director at Huron Consulting Group (New York City). Manufacturers must be able to prove that payments are bona fide, or legitimate, and represent fair market value.
Fair market value payment rates should also be analyzed using a cost, income, or market approach. Under the cost approach, actual or projected costs are evaluated. The profit level is estimated to determine fair market value. The income method forecasts revenue and various rates of return. For the market approach, companies look at agreements involving the sale of similar services—basically, what other companies are paying for services. However, it can be hard to gather those types of data.
Because the determination of fair market value is fact- and circumstance-specific to each manufacturer, it's important that companies are vigilant in analyzing and scrutinizing any payment they make to a healthcare professional. Unfortunately, in the words of Ghosh, “there's no one-size-fits-all analysis.” Each company must assess its risks and needs relative to the overall market.
The point was driven home a month after the talk was given at the Medical Device and Diagnostic Marketing Compliance Congress in Washington, DC. In July, Medtronic Inc. (Fridley, MN) agreed to pay the federal government $40 million to settle allegations that its spinal division paid kickbacks to doctors via sham consulting arrangements and other methods. The firm did not admit wrongdoing but chose settlement over protracted litigation.