Pharmaceutical companies often rely upon valuation professionals to provide accurate and defensible Fair Market Value (“FMV”) assessments of activities provided by healthcare professionals (“HCPs”) and non-HCPs— but that doesn’t mean outsourcing responsibility. Compliance-focused risk management demands rigorous evaluation of the underlying valuation methodology employed by the rate provider. And when it comes to the FMV of HCP and non-HCP services, benchmarking payments made by pharmaceutical manufacturers and healthcare providers (as consulting payments) as a basis to determine FMV rates has inherent limitations, ones that manufacturers might not realize until they are enmeshed in an investigation. Consider the following:
- A benchmarking methodology may create a “Black Box” where the methodology is wholly unclear and may change from year to year without your knowledge. Questions inevitably arise with many benchmarking methodologies including:
- From which pharmaceutical, biotechnology, medical device and diagnostics companies did the rate provider draw the raw data? Is this sample representative of my payments? Does the mix of source data change every year?
- Does the underlying methodology change substantively from one year to the next?
- How was the source data manipulated before presentation to the client?
- What was the tiering structure relative to the observed rates?
- What was the time frame involved in the benchmarked rates of an activity? Could it be that multiple years of rates are included in the FMV analysis to overcome problems arising from the employed methodology?
No manufacturer seeks the dubious distinction of becoming the first to be investigated for violating anti-kickback and bribery laws and regulations based on a benchmarking payment methodology. The mere lack of a complaint is insufficient evidence that an FMV rate-setting process is “approved” or “safe”. Just because an FMV rate-setting process has not been flagged by regulators does not mean that a manufacturer would have legal cover in the event of a future investigation into HCP payments.
An alternative methodology to benchmarking pharmaceutical payments, and one that is supported by most valuation professionals, is the survey method in which FMV assessments are based on the compensation paid between willing market participants in the deep and robust labor market as observed by independent associations in their compensation surveys (e.g., Medical Group Management Association (MGMA). None of the critiques noted above apply to such a methodology.
Carefully consider the valuation methodology, valuation expertise, size, and breadth of service offering of your rate provider. A best-practice FMV methodology should be consistent from year to year, transparent, defensible, and easily support unique or uncommon questions, appeals, and related HCP tiering and screening that might result during the ordinary course of business.
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