Legal Buzzwords: Fair Market Value and Commercial Reasonableness

Federal fraud and abuse laws often require that arrangements between health care providers are “fair market value” and “commercially reasonable.” And while these terms look like legalese and are easy to overlook, in fact, they are important.

For example, the Federal Stark law requires strict compliance with its terms. A physician may enter into a prohibited arrangement with the intention that it falls within an exception to the law. If, however, the arrangement is not fair market value (fmv), the physician’s arrangement would violate the law, subject the physician to fines and risk the physician’s ability to participate in Medicare. We write this article as a cursory overview to these complex legal requirements.

Fair market value is defined in the Federal Stark Law as the value in an arm’s length transaction, consistent with compensation that may pass between two or more well-informed parties as the result of bona fide bargaining and who are not in a position to generate business for each other. Payments that exceed fair market value are viewed as payments for referrals. Fair market value compensation is required in many arrangements where involved parties are in a position to refer patients to each others, including, but not limited to, leases for space and equipment, employment arrangements, personal services arrangements and call coverage arrangements.

Providers may note that, in many cases, compensation passing between two parties must not only be fair market value, but also be commercially reasonable. It is important to make a distinction between fair market value and commercially reasonable compensation. For an arrangement to be commercially reasonable, it must be considered both sensible and prudent even if the parties are not in a position to refer patients to each other. Regulators have stated that an arrangement is commercially reasonable if it would make commercial sense if entered into by a reasonable entity of similar type and size and a reasonable physician of similar scope and specialty. Thus, it is possible for an arrangement to be commercially reasonable but not fmv, and it is possible for an arrangement to be fmv and commercially unreasonable.

How can a health care provider determine whether a proposed arrangement is fair market value and/or commercially reasonable? Engage an independent appraiser or valuation consultant who is skilled and experienced in the type of transaction you are proposing and request a written fair market value study. The final study should be a document on which a health care provider could rely if the compensation is called into question by federal or state regulators.

Appraisers are not attorneys, and their reputation in the industry is of paramount importance in the event of a regulatory investigation. The appraiser interacts with the parties regarding the services to be provided and delivers as part of the study a compensation range for those services. The final study should include a detailed description of the arrangement and the parties, and a thorough analysis leading to the appraiser’s final determination.

How the Funeral Industry Can Begin Changing With the Times

In the spring of 2012 the Funeral Service Foundation engaged Olson Zaltman Associates to apply its patented ZMETTM research process to better understand the deep unconscious metaphors triggered in the minds of those consumers seeking alternative services and vendors.

The Funeral Service Foundation chose to target that part of the market that had chosen or was seriously considering alternatives to traditional funeral homes and services because they believed re-engaging them is the most important current priority. The study spanned:

• Ages 50 to 70 with an equal balance of men and women
• A range of ethnic groups
• A range of religious beliefs from Atheist to fundamentalist Christian
• A range of educational back grounds.

In August 2012 the ZMENT Study was done for The Funeral Service Foundation by Olsen Zaltman Associates and was co-sponsored by Service Corporation International, Stewart Enterprises Inc., Foundation Partners Group LLC, Batesville, Trigard, Allen Creedy Business Advisors, Aurora, Johnson Consulting Group Funeral Home & Cemetery Consulting and Mueller Memorial Funerals Cremation Reunion Centre.

The study was launched out of recognition by the funeral service industry, that it was troubled and needed answers, and it certainly wasn’t inexpensive, drawing on a proprietary model, as well as “excellent” experienced analysts.

The Olson Zaltman Associate’s patented ZMETTM Research is the “Holy Grail” of consumer marketing based on a model used by many progressive and very profitable firms in the technology, automotive and consumer packaged goods industries.

It is therefore very telling that they chose to end their study with this exact quote:

“This person seemed to say it all: When [my friend] died his wife asked us to come celebrate his life by sitting in a room with the possessions that had a lot of meaning for him. And we talked about Jim in a circle, his kids were there, his dog was there. I read a poem that I dedicated to him. We celebrated his life rather than marked his death.”

A copy of the Olson Zaltman Associate’s Study done for The Funeral Service Foundation is available for download by visiting their Professionals Tools & Resources Page.

On the very popular social media network LinkedIn the following Professional Funeral Industry Groups have had many discussions regarding funeral industry’s current state.

• Australian Funeral Directors
• Batesville
• Celebrant
• ConnectingDirectors.com
• Front Runner Professional
• Funeral Content
• Funeral Industry Think Tank
• Funeral Service Insider
• Funeral Services Worldwide
• Funerals Today Magazine
• International Cemetery, Cremation and Funeral Association
• National Funeral Directors Association
• UK Funeral Directors
• UK Funeral Service Professionals

As a result, these discussions have indicated two very important things.

1. Everyone agrees that the funeral industry needs to do something to engage its customers.

2. Its customers need something to get them interested in talking about and pre-planning how they would like to be memorialized.

I.E. The Funeral and Memorial Information Council’s “The Talk of a Lifetime”

In fact, all these Funeral Professionals agree that their industry has a lingering image problem, is bogged down by old traditions and needs to look toward the future, as it has become a victim of the seven most expensive words in business. “WE HAVE ALWAYS DONE IT THAT WAY!”

The most effective way to build a successful, sustainable business is not to ask what changes could affect it within the next ten years, but to instead ask yourself what won’t change and then apply your efforts toward building on those things.

So, what’s the one thing that’s never going to change within the funeral industry in the next ten years or ever for that matter?

It’s the fact that every funeral we’ll ever attend is always going to be for either a person’s Grandparent, Father, Mother, Husband, Wife, Son, Daughter, Brother, Sister, Aunt, Uncle, Cousin or Friend.

As the growing trend toward the use of Funeral Celebrants has already proven, funeral customers, along with an aging generation of Baby Boomers in particular want to see, feel and celebrate these relationships, thus enabling them to come away with a sense of encouragement, hope, inspiration and comfort in the knowledge that perhaps one day someone attending their funeral could be provided with the very same kind of feelings.

Now imagine if you will, the foyer and hallways of a funeral home as a calm area of transition to remove our coats, adjust from the outside elements, as well as the mood and the preconceived thoughts we carried in with us.

A place with a display of well-illustrated colorful funeral home and office wall art with the following example of an inspirational message that allows one time to reflect before making a sea of difficult and very important decisions regarding burial or cremation, funeral stationery and service options.

Remember When

Remember when,
We first met and the feelings we would get.
The day that we were wed,
And all the days that lay ahead.

Remember when,
All we had were our dreams of what may come.
The way they kept us young
And although we did not realize every one.
How we felt, achieving some.

Remember when,
We used to fight, especially the times that I was right.
And when Christmas makes you sad.
Be thankful for all the ones we had.

Remember when,
It is said and done, with all the laughter.
And the tears, there was never anyone.
I loved more throughout the years.

Remember when we meet again.
It will be, as it was then.

Remember when.

©2004 RichardLawrenceBelford

I believe the introduction of products to the funeral industry that evoke these kind of emotions, whether on wall décor and/or funeral stationery, will not only create a much more inviting funeral home environment, but can only encourage consumers to begin talking with funeral directors about how they’d like to be remembered, while reinforcing the fact that funeral professionals are incredibly; approachable, compassionate and trustworthy people who truly have empathy for those seeking guidance, comfort and support, whether it be in their time of need, or pre-need!

Now it isn’t that unusual, as is the case with anything new or innovative to find nine out of ten people telling you something cannot work. A person just needs to have enough persistence to keep looking for the one with the necessary vision to see that it can.

A vision that is also in keeping with the belief that a person may not remember everything you say, but they will always remember how you made them feel.