Fair Market Value - Pharmaceutical Executive


Fair Market Value

Pharmaceutical Executive

Step by step FMV Determination
This information is essential to determining the FMV for compensating different types of activities. It also allows for compensation premiums, which can be added to the base rate for various roles. For example, different premiums can be added for leading an advisory board versus facilitating a speaker-training event. Probably the most important adjustment to the base rate is the key opinion leader (KOL) or expert premium. This premium compensates a consultant for his or her higher level of expertise and experience in a field.

Other premium adjustments may be provided for preparation or travel time, if those factors prove substantial.

III. Create an FMV Rate Schedule

A schedule of FMV rates for a firm's key speaking and consulting activities may be thought of as a calculator with preset parameters to accommodate possible business variations in a consistent and predictable manner. The FMV calculator provides a practical, easy-to-use, objective platform for determining FMV fees for consultants and speakers. It blends the external information analyzed in phase one with the internal information gathered in phase two. The calculator includes premium adjustments for activities, roles, specialties, and levels of effort required.

In addition to a company-wide rate schedule, which is likely to accommodate most payments for consulting and advisory services, companies will need to establish a review committee to manage the process and deal with inevitable exceptions. For example, a physician with unique experience may demand a custom FMV appraisal. In such a case, the review committee provides critical controls to ensure compliance and, if appropriate, approve a premium payment with proper justification and documentation.

With these tools in hand, companies can confront the problems posed by the scenarios mentioned.

In the first scenario, ABC Pharma could convene its committee and discuss justifications for raising the rates of the liver specialist who seeks a raise.

In the second case, the calculator itself would account for the disparity between the fees of the primary-care doctor and the cardiologist on the basis of the different base rates for their respective specialties.

The third scenario highlights a problem that is only partly about FMV. Paying the cardiologist a higher rate may be justified by the work involved. However, in practice, consistency and transparency in payments is as important as the rates themselves. If the work involved is virtually identical and the expertise of the two physicians is also the same, then they need to be paid the same rate.

The company can either raise the rate of the lower-paid consultant or begin reducing the rate of the more highly-paid consultant.

Together, the calculator and review committee represent a quantifiable, procedural response to the inquiries of an OIG investigator or the charges of a prosecutor. From a compliance standpoint, that is the goal: In the absence of federal rules on how to calculate FMV, pharmaceutical companies must be prepared to match an OIG take on compensation with a well-reasoned version of their own.

Fred Eaton and Yoram Levy are managers at Polaris Management Partners. They can be reached at


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