This post is part of our ongoing Healthcare Transactions Series, where we explore legal, operational, and strategic issues that matter most to providers, investors, and entrepreneurs navigating the business of healthcare. In this installment, we focus on two foundational—but often misunderstood—regulatory concepts: Fair Market Value (FMV) and Commercial Reasonableness (CR). Whether you’re acquiring a practice, structuring a management agreement, or evaluating physician compensation models, understanding FMV and CR is essential to ensuring your deal is not just financially sound—but also legally defensible.
Fair Market Value (FMV) is not merely a valuation concept—it is a legal safeguard. Under the Stark Law and AKS, any compensation arrangement involving potential referral sources—such as medical directorships, employment agreements, or MSAs—must reflect FMV without regard to the volume or value of referrals. A misstep in FMV can trigger regulatory scrutiny, civil monetary penalties, and even criminal enforcement.
Commercial Reasonableness (CR), by contrast, addresses whether the arrangement makes operational and business sense. Even if compensation is FMV, the transaction may still be problematic if the services provided are unnecessary or not aligned with legitimate business purposes. For example, paying FMV to a specialty surgeon to perform purely administrative tasks may appear facially compliant but lacks business justification—and could raise compliance red flags.
To proactively manage FMV and CR risk in transactions, consider the following best practices:
In transactions involving Medicare or Medicaid revenue streams, internal valuations typically fall short. Independent third-party assessments offer objectivity, defensibility, and a broader market lens. Attempting to set internal benchmarks based on competitor pricing may not only fail to meet regulatory standards—it could also violate antitrust laws and constitute illegal price-fixing.
Independent valuations incorporate industry-wide data and maintain a neutral position, helping you align with federal fraud and abuse laws while avoiding anti-competitive conduct.
In healthcare transactions, FMV and CR are not optional—they are deal-critical standards that drive compliance, operational alignment, and regulatory defensibility. Whether you’re structuring a management services agreement, acquiring a practice, or entering into a joint venture, getting FMV and CR right can mean the difference between a smooth, successful transaction and costly enforcement action.
At Mooradian Law, we help healthcare providers, investors, and management companies navigate these complex requirements with confidence—ensuring compliance while optimizing deal structure and long-term business value.
This article is the latest installment in our Healthcare Transactions Series. Stay tuned for upcoming posts covering topics such as employment considerations in healthcare transactions. Our goal is to equip healthcare leaders with actionable insights to navigate transactions with clarity, speed, and confidence.
Contact us today to talk about how we can support your transaction from day one.
Email: info@mooradian.law
Phone: (734) 219-4890