Rural hospitals serve as the backbone of community health, providing essential services under challenging conditions. Even minor oversights in physician compensation arrangements can create issues. When compensation and other contractual arrangements don’t adhere to fair market value (FMV) standards, hospitals risk regulatory scrutiny and financial pressure.
Common FMV Pitfalls in Rural Healthcare
Here are seven common issues in rural healthcare settings, along with steps to prevent them.
Overreliance on Anecdotal Market Data
Compensation paid at nearby facilities provides valuable context but isn’t a defensible FMV benchmark on its own. Without proper data and appropriate documentation, arrangements valued in this manner may not withstand regulatory review.
How to avoid: Nationally recognized benchmark data, appropriately adjusted for a rural setting, offers a defensible basis for compensation. When in doubt, consult legal counsel or consider an independent valuation.
Relying on Outdated Compensation Benchmarks
Pay trends have undergone significant changes since the pandemic. Using outdated survey data can cause pay misalignment and compliance issues.
How to avoid: Regularly reviewing compensation plans with current, accurate data helps keep your compensation trends on track.
Overlooking or Misallocating Nonclinical Compensation
When properly documented and supported, payments for administrative and leadership duties, call coverage, or APP supervision may not need to be considered in total compensation or compensation per wRVU when comparing to the market data.
How to avoid: Each compensation component should be valued and documented, both independently and collectively, to ensure transparency and defendability.
Basing Long-term Compensation on Locums Rates
Locum tenens rates reflect urgent, short-term staffing needs, rather than permanent employment. Using them as a benchmark for ongoing pay can lead to overpayment relative to FMV.
How to avoid: 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 calls at full hourly rate equivalents may trigger regulatory concerns. An unrestricted call is generally less burdensome than a restricted call or on-site work.
How to avoid: Clearly document the nature of call coverage and seek FMV guidance that considers acuity, lifestyle, and opportunity cost.
Failing to Update FMV When Circumstances Change
Once-compliant arrangements can become misaligned as duties, volumes, schedules, or service lines change.
How to avoid: Setting internal triggers for FMV reviews, like new leadership roles, service expansions, or shifts in coverage, helps keep compensation defensible.
Assuming Low Volume Means Low Risk
Regulatory agencies don’t give rural providers a pass. Small and rural hospitals are subject to the same Stark Law and anti-kickback standards as larger health systems. Whistleblowers remain a common source of investigations, so thorough documentation is crucial for every arrangement.
How to avoid: Treat every compensation arrangement, regardless of size or perceived risk, as if it will be reviewed. Ensure you have defensible documentation and FMV support, especially for arrangements with physicians in a position to refer.
A Proactive Approach Protects Everyone
Maximizing every dollar is essential for rural hospitals, but neglecting FMV can ultimately result in significantly higher costs. A proactive strategy helps reduce legal and financial risks, while also supporting transparency, trust, and long-term alignment with your providers.
Let’s Talk
At CBIZ Healthcare Valuation, we help rural hospitals navigate FMV requirements with clarity and confidence. Whether you need a one-time opinion or a strategic compensation review, our team is here to support you. Contact us today to see how we can help your hospital stay compliant and competitive.
© Copyright CBIZ, Inc. All rights reserved. Use of the material contained herein without the express written consent of the firms is prohibited by law. This publication is distributed with the understanding that CBIZ is not rendering legal, accounting or other professional advice. The reader is advised to contact a tax professional prior to taking any action based upon this information. CBIZ assumes no liability whatsoever in connection with the use of this information and assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein. Material contained in this publication is informational and promotional in nature and not intended to be specific financial, tax or consulting advice. Readers are advised to seek professional consultation regarding circumstances affecting their organization.
“CBIZ” is the brand name under which CBIZ CPAs P.C. and CBIZ, Inc. and its subsidiaries, including CBIZ Advisors, LLC, provide professional services. CBIZ CPAs P.C. and CBIZ, Inc. (and its subsidiaries) practice as an alternative practice structure in accordance with the AICPA Code of Professional Conduct and applicable law, regulations, and professional standards. CBIZ CPAs P.C. is a licensed independent CPA firm that provides attest services to its clients. CBIZ, Inc. and its subsidiary entities provide tax, advisory, and consulting services to their clients. CBIZ, Inc. and its subsidiary entities are not licensed CPA firms and, therefore, cannot provide attest services.