Fair Market Value for Management Fees and Medical Director Pay: How to Document It
Fair market value is the standard both the management fee and the medical director's pay have to meet, and it is only useful if it is documented. Here is what a defensible file contains and when it has to be updated.
Key Highlights
- Both legs of the money flow, the management fee and the medical director's pay, have to be fair market value for services actually delivered.
- The amounts are set in advance, in writing, for a term of at least a year, and do not vary with the volume or value of referrals.
- A fair market value analysis is kept on file and refreshed when the service mix changes.
- Anything outside these rules should have written health care regulatory counsel sign-off before it goes live.
What the Standard Means
Fair market value is the price that would be paid for the same services between parties dealing at arm's length, without regard to the volume or value of any referrals or clinical revenue. For a management company it means the fee reflects the actual administrative services delivered. For a medical director it means the pay reflects the time and duties of real oversight. Both are the standard because they are what separates a payment for services from a share of professional fees.
What a Defensible File Contains
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What Must Not Move the Number
The amount cannot move with patient volume, collections, prescriptions, referrals or profitability. Compensation cannot be conditioned on a clinical outcome or on ordering volume. Marketing fees cannot depend on converting inquiries into clinical encounters. If any of those drives the figure, the payment looks like a cut of professional fees, which is what fee-splitting rules prohibit.
When to Refresh
Review the analysis whenever the service mix changes, new locations or providers are added, scope of the management services expands, or the director's duties change. A fee that was reasonable for a three-service clinic may not be for one that has grown into a multi-site operation, and the file should show that someone checked.
Get Sign-Off for Exceptions
Our rule is that any deviation from the standard approach requires written sign-off from health care regulatory counsel before it goes live. If you are doing something unusual, such as tiered fees, performance incentives or equity in exchange for services, get legal advice first and document the reasoning.
Disclaimer
This article is general educational information, not legal advice. State law varies and changes, and depends on the facts of a clinic's structure, so confirm specifics with health care regulatory counsel.
MedGrid MSO provides management services to independently owned practices; it does not practise medicine and does not direct clinical decisions. Requirements vary by state and by service, and change over time — nothing on this page is legal or medical advice. Talk to us or your own counsel before making a structural decision for your clinic.