What’s so Fair about Fair Market Value?

What’s So Fair About Fair Market Value?

By: Steve Worthy, Managing Partner

doctor handshake with a patient at doctors bright modern office in hospital

When negotiating on-call compensation rates, it’s necessary to have access to reliable compensation benchmark data. Fair Market Value surveys are the most universally used benchmark resources in the industry. These surveys, however, are flawed. Oftentimes, they do not have enough records to amount to a sufficient sample size, and their results are biased based on the backgrounds of the respondents.

 

Furthermore, FMV rates can quickly become unsustainable and usually prohibit broader inclusion. If an organization based its call pay solely on FMV rates for every specialty, it would quickly deplete the pool of money available without much consideration as to what is actually fair given their unique situation and local call burdens. Adding up the cumulative FMV cost of each specialty, an average hospital can only afford to pay the top 4 or 5 specialties. Without a defensible process in place, it’s hard to justify why other burdened specialties are not included in the program. This leads to increased agitation among specialties wanting to be paid and those wanting to be paid more.

 

We were recently engaged by a hospital facing this problem after trying to pay a large number of specialties at FMV for a number of years. The hospital was working within a culture where physicians wanted to remain independent and it was competing with a larger, metropolitan hospital nearby. Due to these factors, they felt they had no choice but to continue to increase their budget. When we were called in to help, the program had gotten out of hand. Their call pay budget was by far the largest we’ve ever seen. The executives were afraid it would continue to grow and would soon reach a point of financial and legal peril.

 

The only way to avoid a crisis in this situation is to create a better process for determining call burdens. Our process begins with the establishment of a physicians’ call committee. This committee, made up of representatives from key specialties and select members of administration, uses our proprietary methods to arrive at a more accurate estimation of each specialty’s call burden. This relative burden of call goes beyond FMV to capture the unique circumstances at a particular location. In our experience, call committees almost always vote to be more inclusive than not with the payments, even if this inclusion means taking a lower per-diem for each tier in order to achieve a more balanced program. The result of the committee’s work is a defensible method for determining who is paid. Having a defensible method instills a sense of fairness among the medical staff that far exceeds the fairness of commonly used surveys and single specialty negotiations.

 

After going through this process, the hospital with the ballooning budget had a method that suited their needs. The committee voted to redistribute the budget to better capture the true burden of call being experienced in the community. And since the process illuminated the financial and legal dangers of the hospital’s former approach, it fostered support among key physician leaders at the hospital, diminishing the division between administration and staff that so often comes with the traditional approach to call pay.

 

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P:  877-643-7520
F:  800-314-8281
info@maxworthconsulting.com
M-F: 8AM - 5PM