Key Takeaways
- Survey data is only part of the picture. Relying solely on benchmarking or median values can misrepresent fair market value. Each arrangement requires context-specific analysis — including wRVUs, compensation type, and service mix.
- Higher productivity doesn’t always mean higher pay per unit. Physicians with greater wRVUs often see lower compensation per wRVU due to how base compensation interacts with productivity.
- Automation can reduce cost and complexity. FMV calculators like LBMC’s Pulse streamline physician compensation assessments, offering an efficient alternative to traditional, time-consuming valuation methods.
LBMC’s Healthcare Compensation Valuation team delivers Fair Market Value (FMV) opinions. Our services combine detailed understanding of complex financial and regulatory matters with the ability to analyze substantial financial and operational information. Each valuation analyzes the applicable facts and circumstances of the subject arrangement to determine FMV compensation with consideration of the cost, income, and market approaches.
Here are six common fair market value myths to look out for:
1. Relying on Benchmarking and Survey Tables is Enough.
Fact: Internal benchmarking and using survey tables is generally a limited approach to evaluating compensation arrangements. There are other factors to consider such as fee schedule changes and the application of various compensation surveys.
Consideration: Questions that organizations should ask themselves are “Am I using the right survey?” and “Is the survey on the same basis as the physician I’m benchmarking to?” Partnering with a valuation expert that understands these challenges and offers various solutions is an important consideration in establishing an FMV process.
2. The Median is Always FMV.
Fact: The services and productivity levels are important value drivers when considering fair market value compensation. Although median market data is useful information to review, the best representation of FMV is specific, comparable market data and is unique to each set of facts and circumstances. Half of physicians make less than the median.
Consideration: When assessing whether compensation per Work Relative Value Unit (wRVU) is FMV, the wRVUs are a key determining factor. Without an assumption of projected wRVUs, a compensation per wRVU rate cannot be considered fair market value.
3. Market Survey Compensation only includes Clinical Work.
Fact: Reported compensation differs between various surveys and many times includes all forms of compensation, such as administrative, call coverage, bonuses, etc., which makes it imperative to review and understand the makeup of the data for benchmarking purposes. Because of the different types of compensation included in the surveys, it is critical to perform a stacking analysis, which considers all forms of compensation.
Consideration: Many healthcare organizations utilize a valuation firm to assess compensation terms and support their compensation arrangements. Valuators should be familiar with the various sources of survey data and how to value both clinical and total compensation to address any of the client’s FMV needs.
4. Using an Automated Solution is always expensive and time consuming.
Fact: An automated solution such as an FMV Calculator can be a helpful resource when obtaining FMV support. Healthcare organizations can save time and money by streamlining their FMV process through an online platform.
Consideration: Make sure you’re not spending unnecessary amounts of time and money on obtaining FMV support. LBMC has developed the Pulse FMV Calculator, an automated web-based solution to support various physician compensation arrangements, including physician employment, call coverage, and administrative services. Request a free demo of today!
5. Higher wRVUs means Higher Compensation per wRVU Rate.
Fact: Market survey data has shown that busier physicians with higher wRVUs often have lower compensation per wRVU rates. The increasing wRVUs tend to have an inverse relationship with compensation per wRVU since the guaranteed base compensation for physicians with low production is being divided by the number of wRVUs. Source: Benchmark data by quartile of production.
6. Regional Data is Always the Best.
Fact: Although regional data can be a useful metric to review when calculating FMV opinions, the sample sizes for regional data can be small, and it may not be comparable for a physician in a particular market. Often there can be significant variability in the reported compensation from year to year. This can create defensibility issues, and therefore regional data cannot be solely relied upon for FMV purposes.
Consideration: Internal benchmarking with survey data is a simplified approach that does not take into consideration many other facts and circumstances. To assure your process is sound and your compensation is FMV, you should partner with a valuation firm with a long track record in the healthcare industry.
Don’t get fooled by these and many other FMV myths. For help moving your organization from fiction to fact, contact Katie Tarr, Shareholder, at katie.tarr@lbmc.com, Jessica Webster, Senior Manager, at jessica.webster@lbmc.com or visit this page.