Fair Market Value
One of the most critical first steps in preparing to launch a clinical trial is the development of a budget that covers expenses and compensates the research site. The budgeting process can be complex and requires detailed review of the protocol and a methodical line-by-line attention to detail. A properly negotiated budget ensures that a research site is reimbursed for all direct costs for conducting the study, as well as indirect administrative and overhead costs.
The challenge is in determining what is a “fair market value” (FMV) for those services. The U.S. Department of Health and Human Services’ Office of Inspector General (OIG) Guidance for Pharmaceutical Manufacturers provided initial guidelines for fair market value in 2003. The guidance stated that compensation must be “fair market value for legitimate, reasonable, and necessary services.” Since then, a variety of other federal regulatory agencies have also developed rules and laws regarding the compensation of investigators, clinicians, and medical facilities. While compliance with these standards is a mandate, the process of defining FMV may still be opaque.
Institutions at a Disadvantage
In determining the budget, research analysts or those developing the budget often rely on charge masters from each clinical department to set fees for services delivered during a clinical trial. On the other hand, sponsors use algorithms and databases to define so-called “fair market value.” The sponsors’ approach can put some institutions at an unfair disadvantage if the fair market value is determined to be below what the institution typically charges for the service.
The potential for dissonance between the two approaches can impact both large academic institutions and smaller research sites. Fair market value for one institution may not represent fair market value for another. For example, if an institution charges $2,000 for a procedure and another one charges $1,000, a sponsor may average them to $1,500. The institution that charges the higher fee may receive less than their estimated research budget on that service or procedure. On the other hand, a research site might not have access to a charge master or well-established methodologies for establishing their own fair market value and, therefore, have less insight to the real cost of conducting those services. The sponsor’s fair market value determination may well be below what the institution needs to cover its own costs, therefore they may operate the clinical trial at a financial loss.
Beyond the Budget: Ensuring Compliance
An accurate fair market value assessment also requires familiarity with federal regulatory guidelines and laws. Several regulations from a variety of agencies can influence how a research site sets a fair market value. They include:
- US Sunshine Act
- False Claims Act
- Stark Law for anti-kickback statutes
The Centers for Medicare & Medicaid Services (CMS) recently clarified key valuation terms for physician services. This may have implications for how physician-investigators approach their budgeting process. In addition to services, budgets need to account for administrative costs.
The CMS defines FMV as: “The value in arm’s‐length transactions, consistent with the general market value.” The final rule, published earlier this year, defines general market value as “compensation that would be paid at the time the parties enter into the service agreement as a result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other.”
Creating Defensible Methodologies
There are several approaches to valuating compensation: based on projected income, costs, or the overall market. Each requires a careful analysis, and some approaches may not be appropriate for determining a clinical trial budget.
When evaluating budget line items, research professionals often gauge fair market value against the prevailing market rates. That means the budget reflects the analysis of recent similar transactions and may be based on industry or specialty percentile rankings. This can be problematic if the assessment is not done correctly. For example, the analyst should have a large enough sample size of comparable services against which to benchmark a cost.
Institutions should develop and adhere to a consistent and transparent methodology for evaluating fair market value. To help ensure adherence to federal guidelines, mitigate risks of non-compliance, and shore up a defensible FMV, we advise documenting the sources of information used in developing the budget. For example, what kind of database or charge masters do you use for assessing market rates for services? If you are estimating the time it takes to do a task, such as conducting an informed consent, be sure to have staff track and document their hours over a period of time so you can use this data collected to substantiate the rate utilized.
Of course, comparing your institution’s FMV against a community or regional benchmark is difficult, if not impossible, for individual research sites. At BRANY because we have worked with a multitude research sites, we are able to benchmark rates across regions and types of institutions. This positions research sites for better leverage in budget negotiations with sponsors.
Budgeting for a clinical trial is essential in ensuring fair compensation for the value of services offered by a research site. However, the field is complex and there is a large margin for error that can put the institution at risk of non-compliance. It is important for institutions to leverage the expertise of analysts with a comprehensive understanding of new guidelines, as well as standards that will ensure fair compensation and adherence to federal rules.