Common FMV Pitfalls in Physician Compensation Arrangements – Considerations for Legal Counsel and Healthcare Organizations
This sponsor content is part of AHLA's 2026 Health Care Transactions Resource Guide
- March 23, 2026
- Lindsay Beets, Director , CBIZ
- Jeremy Holloway, Director , CBIZ
Physician compensation arrangements remain a focus of regulatory enforcement under the Stark Law and Anti-Kickback Statute. Even minor misalignment with fair market value (FMV) principles can create compliance risk. When compensation and other contractual arrangements do not adhere to FMV standards, hospitals risk regulatory scrutiny and financial pressure.
In many cases, these issues are not the result of intentional misconduct, but rather compensation structures that evolved over time without periodic reassessment.
Legal counsel is often asked to work alongside FMV advisors to evaluate whether proposed compensation arrangements align with FMV principles while also supporting recruitment, retention, and operational needs. The following are common FMV pitfalls that arise in physician compensation arrangements and considerations that may help mitigate regulatory risk.
Common FMV Pitfalls in Physician Compensation Arrangements
Here are common issues we see in physician compensation arrangements and steps you can take to prevent them.
Overreliance on Anecdotal “Market Data”
Compensation arrangements observed at nearby facilities provide valuable context but are not necessarily a standalone FMV defense. Without proper data and appropriate documentation, arrangements valued in this fashion may not hold up under regulatory review.
Considerations:
Evaluate compensation using nationally recognized benchmark data and assess whether adjustments for specific facts and circumstances are supportable.
Reliance on Outdated Compensation Benchmarks
Compensation surveys are often used to support FMV opinions, but reliance on outdated survey data or incomplete benchmarking can create misalignment between compensation structure and market conditions.
Considerations:
Hospitals and health systems should periodically review compensation arrangements against current market data and reassess assumptions as productivity levels, service mix, or market conditions evolve.
Overlooking or Misallocating Nonclinical Compensation
Compensation for administrative duties, leadership roles, call coverage, or APP supervision should be clearly defined and appropriately valued. Improper aggregation or misclassification can distort comparisons to market benchmarks.
Considerations:
Each compensation component should be valued both independently and collectively to ensure transparency and defendability.
Basing Long-term Compensation on Locums Rates
Locum tenens rates reflect urgent, short-term staffing shortages and market urgency rather than long-term relationships. Using locums rates as a benchmark for ongoing compensation may result in compensation exceeding FMV.
Considerations:
Distinguish between temporary coverage needs and long-term recruitment and relationships, and ensure compensation reflects the actual responsibilities and duration of the role.
Paying Full Hourly Rates for Unrestricted Call Coverage
Paying providers for unrestricted call at full hourly rate equivalents may raise compliance concerns. Unrestricted call generally carries a lower burden than a restricted call or on-site work.
Considerations:
Clearly document the nature and intensity of call obligations and ensure compensation reflects the associated acuity, lifestyle impact, and opportunity cost.
Failing to Update FMV When Circumstances Change
Once compliant arrangements can become misaligned as duties, volumes, schedules, or service lines change.
Considerations:
Establish internal review triggers such as leadership appointments, productivity changes, or service expansions.
Assuming Low Volume Means Low Risk
Regulatory agencies don’t give small organizations a pass. Small and rural hospitals are subject to the same Stark Law and Anti-Kickback standards as larger health systems. Whistleblowers continue to be a common source of investigations, so thorough documentation is crucial for every arrangement.
Considerations:
Maintain consistent documentation and FMV support for all compensation arrangements, especially for those with physicians in a position to refer.
Treating FMV as a Benchmarking Exercise Rather Than an Arrangement Analysis
Some FMV analyses focus on placing compensation within a target survey percentile without fully evaluating the specific facts and circumstances of the arrangement. While benchmark data is an important component of many FMV analyses, it should not substitute for a comprehensive assessment of the services being provided, the structure of the arrangement, or the associated responsibilities.
Considerations:
A well-supported FMV opinion typically incorporates both quantitative benchmark data and qualitative analysis of the arrangement’s structure, scope, and expectations.
The Role of FMV Analysis in Transaction Structuring
In many healthcare organizations, physician compensation structures must balance regulatory compliance with operational realities such as recruitment challenges, call coverage needs, and leadership responsibilities. Independent FMV analysis can help legal counsel and their clients evaluate whether proposed compensation arrangements are supportable under applicable Stark Law exceptions and Anti-Kickback safe harbors.
Early coordination between legal counsel and valuation professionals can help identify FMV issues before compensation arrangements are finalized. Addressing these issues during transaction structuring may reduce the risk of compliance concerns arising after implementation.
