The most astute executives in health systems are rightfully concerned about compliance risks in physician contracting. Among these risks are that a transaction or an arrangement between a hospital and a physician are consistent with fair market value (FMV) and are commercially reasonable (CR) as those terms are defined in the healthcare regulatory context.

Many such transactions and arrangements are susceptible to FMV and CR compliance risk, including acquisition transactions, direct employment relationships, medical directorships, part-time coverage arrangements, on-call arrangements, joint ventures, and leases. Components of transactions and arrangements that may raise red flags include the following: payments inconsistent with fair market value, contract terms that are not commercially reasonable (e.g., long-term commitments, hospital-owned physician practices operating at a loss, and payments for efforts that cannot be documented), and the inclusion of revenue in compensation that can be linked to the volume or value of referrals.

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