In December 2023, an Indianapolis-based health system agreed to pay $345 million to settle allegations of False Claims Act and Stark Law violations. The Department of Justice ("DOJ") alleged that Community Health Network ("CHN") paid above fair market value compensation to its cardiologists, cardiothoracic surgeons, vascular surgeons, neurosurgeons, and breast surgeons and awarded referral-based bonuses to physicians while submitting claims to Medicare for services that resulted from the physicians' unlawful referrals.
The settlement stems from a 2014 whistleblower complaint filed by former CHN executives under the qui tam provisions of the False Claims Act. The United States filed its complaint against CHN in 2020, alleging the organization paid above fair market value to recruit local physicians, many of whom already had staff privileges with CHN, in order to capture their patient referrals. According to the DOJ announcement, "The salaries offered to cardiologists, cardiothoracic surgeons, vascular surgeons, neurosurgeons, and breast surgeons for CHN employment were sometimes up to double what physicians earned in private practices."
A focal point of the settlement was that CHN was alleged to have engaged fair market value appraisers who concluded that compensation was above fair market value. The DOJ alleged that CHN ignored warnings from valuation experts regarding the risks associated with overcompensating the physicians, sought second opinions of valuation firms, and, in some cases, knowingly provided appraisers with false compensation figures to get a favorable opinion.
The case is the United States and the State of Indiana ex rel—Thomas Fischer v. Community Health Network, Inc., et al., 1:14-cv-1215.
The matter raises several issues related to proper interactions with valuation firms. Improper interactions may include:
Shopping for a valuation opinion
Giving valuators a "beauty test"
Pushing back against valuators for no other purpose than to get a higher valuation conclusion
Hiding deficiencies and/or not providing reliable data
Dismissing valuators' concerns and recommendations
Even though certain protocols should be followed when dealing with appraisers, there are circumstances when it is reasonable to request that the appraiser reconsider their opinion of value. Valid reasons for such a request include:
Bias or discrimination
Errors or omissions
Inclusion of inappropriate data
Unreasonable, unsupported, or unrealistic valuation methods, assumptions, data sources, or conclusions
Some real-life examples of appropriate circumstances for reconsideration of an opinion include:
When appraising employed physician services, the appraiser relied on compensation benchmarks that differentiated between male and female physicians, resulting in lower FMV opinions for female physicians.
The appraiser did not consider critical data available for review when the appraisal was conducted.
The appraiser benchmarked a physician's productivity against annualized benchmarks but calculated the physician's work RVUs using only 11 months of data instead of 12 months.
The appraisal used benchmarks for general pulmonology when critical care medicine would be a more relevant comparison.
In certain circumstances, reconsidering value isn't the solution and a new appraisal assignment is needed. This may be the case if critical information becomes available that was not available at the time of the appraisal. For example, say, an appraiser issues an FMV compensation opinion for a physician in a highly specialized area, and a month later, a landmark benchmark survey is released with significant new findings related to the subspecialty. In this situation, a new appraisal may be warranted.
Finally, in some situations, the deficiencies in an appraisal are such that they cannot be resolved with the original appraiser. For a second opinion by a different appraiser to be warranted, the deficiencies in the first appraisal should be significant and objective to avoid allegations of wrongdoing. Recurrent use of second opinions can set up a negative fact pattern and usher in risk.
BFMV is a boutique healthcare valuation firm that specializes in the valuation of healthcare assets, businesses, and services. Contact us for more information or assistance regarding physician compensation and fair market value opinions.