Fair Market Value - Part I: What Does It Really Mean for Sites and Sponsors?

Fair market value (FMV) is hardly a new concept in the clinical research industry, but the complexities surrounding its determination are increasingly at top of mind for both sponsors and sites. Both parties equally face the difficult task of defining fair market value for medical services completed as part of clinical studies, and benchmark databases aren’t necessarily the single source of truth.  A lack of universal definition and an unclear understanding of the needs of the other party can leave both sides in a state of frustration as they attempt to manage trial negotiations. To help clear up some of the uncertainty and exasperation, this article provides some background information on fair market value and offers some tips sponsors and sites can use to make the difficult situation of determining FMV a more mutually efficient process.

What is FMV and what does it mean for sites and sponsors?

The foundational guidelines for FMV were outlined in the 2003 U.S. Department of Health and Human Services’ Office of Inspector General (OIG) Guidance for Pharmaceutical Manufacturers. This report emphasized that site and physician compensation must be “fair market value for legitimate, reasonable, and necessary services.”1 While this report mandated compliance with these standards, it did not offer a clear definition of FMV. This means that the exact definition becomes somewhat subjective, and the level of documentation required for these somewhat subjective definitions is left up to the industry.

While it is possible to view this subjectivity as a measure of flexibility that allows for the incorporation of varying state, federal laws and professional codes of conduct involved in research payment negotiations, it does not make the determination of FMV easy. Factors such as the federal Anti-Kickback Statute, Stark Laws (42 Code of Federal Regulations Parts 411 and 424 concerning physician referrals), the Physician Payment Sunshine Act (Open Payments), and regulations of the Affordable Healthcare Act must all be considered as structures under which fair payments are determined. Add to that the complexities of Medicare billing compliance (e.g. defining standard of care) that must be accounted for when assessing grant budgets and the seemingly common-sense concept of “fair” becomes nearly impossible to identify.

The lack of universal definition of FMV is especially frustrating when one considers the penalties for non-compliance – including monetary and PR nightmares for the organizations. Regulators are intolerant of sponsor organizations that engage in an unethical payment style that could influence physicians’ healthcare decision-making or prescribing behavior. Just as evident is the fact that individuals will be held accountable for non-compliance. This means that clear and defensible documentation of exchanges and processes for the determination of FMV payments is of the utmost importance.

FMV: Differences for Sites and Sponsors

Unfortunately, as sponsors and sites have found, creating and maintaining “clear and defensible documentation” is not necessarily a straightforward process—particularly when sites and sponsors have differing understandings of the factors that define FMV. One of the key challenges when developing a budget for sponsors-- whether leveraging internal sources or the commercial benchmark databases-- is consistency.  The universe of costing procedures and activities is vast, especially inside commercial databases. 

Some methodologies when developing budgets focus purely on the procedures, and nothing more.  Other sponsors and CROs take a more holistic approach and account for general personnel time as well – this could be viewed as a best practice.  At the end of the day, the goal should be to account for all efforts required by the protocol to safely and successfully manage the trial at the site.  The key to developing a budget is understanding the protocol and all the associated activities that must be completed, then leveraging your available resources to allocate cost to those activities. 

Areas that often result in frustration for sponsors and sites are differentiation of site type, location, and performance. 

  • Site Type - A classic example is the difference between a private practice or professional site and an academic/hospital-based center. There are different types of costs and needs at respective centers, which aren’t necessarily always accounted for in the initial budget. Higher overhead requirements, pharmacy fees, and more significant startup costs are often cited. Generally, the protocol and therapeutic area dictate the types of sites required for a trial, so costs should be accounted for appropriately.

  • Location – Costs also vary by geographic market. The budgets themselves fluctuate by country in general and should be adjusted as such before sending to the sites – factors such as national health programs, currency exchange rates, and local medical standards all contribute to differences in the budget. Once within country, the variation is usually handled within the negotiation latitude, if appropriate and applicable for that country. The challenge often lies in the agreement between sponsor and site representatives on the range to manage the costs at a particular site.

  • Performance – An often contentious topic, past or expected enrollment performance is an area that can spur spirited discussions amongst sponsor and site representatives. The simple answer here is you cannot pay more for patient procedures because a site is a high enroller – this will surely raise issues in an audit. However, what makes sites high enrollers is where site and sponsor negotiators need to focus efforts and allocate costs. High enrolling sites are typically a result of quality processes, infrastructure, and dedicated resource efforts which are differentiators. These usually include extensive chart reviews, dedicated enrollment efforts, marketing plans, quality control efforts for clean data, etc.

Not only do these disconnects compound the complexity of FMV determination, they also have the potential to damage the relationship between site and sponsor. As a result, study startups and timelines are postponed as negotiations are drawn out. In some cases, agreements over FMV just can’t be made, stifling the potential benefit of a new drug or therapy for patients.  In Part II of this series, we will discuss some approaches and tips to settling on a fair and reasonable budget.

 

References

1.       U.S. Department of Health and Human Services. 2003. OIG Compliance Program Guidance for Pharmaceutical Manufacturers. Federal Register 68(86), Monday, May 5, 2003, Notices.