Why Fairmark Does Not Use Industry Benchmarking to Determine FMV

Fair market value (FMV) for physician consulting arrangements is often presented as an objective, data-driven exercise. In practice, however, many FMV rates are informed—directly or indirectly—by industry benchmarking. In some cases, benchmark data is explicitly incorporated into rate-setting processes; in others, it influences assumptions about what the market pays. This creates a structural challenge: the data used to establish FMV is often shaped by the same physician–industry relationships it is meant to evaluate.

Over time, this dynamic can introduce subtle but persistent distortion. Because the risk of overpayment is less visible than underpayment, elevated FMV rates tend to persist while low rates are quickly corrected. As a result, inflated rates can enter industry datasets through a range of well-intentioned but poorly structured processes. When those datasets are then used as reference points in FMV rate development, the distortion is not eliminated. It is reinforced. The result is a system that appears objective, but in fact reflects a circular process that can gradually shift FMV rates away from an independent, arm’s-length market standard.

The Appeal of Industry Benchmarking

When a pharmaceutical, biotech, or medical device company needs to establish fee schedules for HCP consulting and speaking engagements, looking to what others in the industry are paying feels like a logical starting point. The data is accessible. It can be framed as market evidence. It also provides a degree of internal comfort for commercial teams, and if a company’s rates are consistent with industry peers, it can argue it was following established norms. The approach has intuitive appeal, but it does not constitute a defensible FMV methodology.

Why Benchmarking Is Not an Objective Market Signal

The foundational concept underlying HCP fair market value is the arm’s-length transaction between unrelated parties. This is an FMV standard widely applied in healthcare compliance contexts. Prices agreed in other kinds of transactions between related parties or in a non-arm’s-length fashion cannot be presumed to represent a “market rate.”

The Structural Problem with Industry Transactions

The transactions that generate industry benchmarking data are not arm’s-length in this sense. Pharmaceutical and medical device companies do not have an independent, commercially neutral relationship with the HCPs they engage for consulting and speaking services. The same physicians who serve as consultants or speakers may also prescribe, refer, or otherwise influence clinical decisions that have direct commercial relevance to the company. That relationship is ongoing, multidimensional, and commercially material.

This structural overlap creates an inherent tension: the parties generating the pricing data have commercial interests in each other that extend well beyond any individual physician consulting arrangement. Rates negotiated within that relationship cannot be assumed to reflect what a genuinely independent market would produce. They reflect a price influenced, at least in part, by the broader commercial dynamic between the parties, and not by the independent economic value of the HCP’s time and expertise.

The Circularity Problem: How Overpayment Becomes “Market Data”

The deeper problem with industry benchmarking in FMV methodology is structural rather than incidental. When life sciences companies reference what other companies are paying for physician consulting and speaking arrangements, they are not observing an independent market; they are referencing a closed loop. Each company’s rates inform the benchmark; the benchmark then informs each company’s rates; and the cycle continues.

If physician consulting compensation has been shaped over time by commercial relationships rather than by the independent economic value of HCP services, those distortions become embedded in the benchmark itself. Over successive cycles, inflated rates are not corrected; they are normalized. What begins as overpayment in one company’s fee schedule gradually becomes “market data” across the industry.

How Excessive Rates Can Get Built Into FMV Fee Structures

In many cases, overpayment of HCPs is not the result of a concerted effort to reward or incentivize prescriptions. Far more often, it is the result of poor process. Poor processes that generate excessively low rates tend to be quickly reset based on natural market feedback from physicians to the company. When excessively high rates are generated, no such market feedback exists. These excessively high rates have a tendency to persist and naturally get included in industry benchmark calculations.

When industry benchmark data is then included in FMV rate development, the industry feedback loop is activated and the high rates get amplified into FMV standards. Distortion enters through multiple small, reasonable decisions, not one failure point. Two real-world examples of these well-intentioned but flawed processes include the following.

Asking a market research or speaker management company for what the going rate is for “x specialty” can seem innocuous. These players do see actual market transactions. However, we cannot presume that all those transactions are necessarily at a “market rate.” Moreover, we should recognize that these vendors are not FMV experts and their internal incentive would be to provide rates on the high side, because that is likely to make their job of facilitating HCP contracts much easier.

Another example occurs when organizations are faced with budget constraints and cannot purchase updated FMV data. There is a temptation to “ball park it” by applying a standard inflation adjustment and then rolling their old FMV rates forward for a year or two or five. When overpayment is compounded across several years, highly distorted rates can result. What seems like a minor issue can have major ramifications.

The key point here is that inflation is an average price change. In practice, the annual change in FMV rates varies significantly across specialties. The average increase may be 2%, but the range may be -7% to +15%. Here, the issue is not in making a 2% adjustment to a physician who should have gotten 15%. They will complain.

The real risk is the overpayment of physicians where FMV rates should have declined. They are happy and will not tell you they are overpaid.

Why Consensus Does Not Equal Compliance

From a regulatory standpoint, the fact that FMV rates incorporate industry benchmarking data does not make the rates defensible under healthcare compliance standards. Regulators evaluating HCP consulting arrangements are asking whether the rates paid reflect what physician services are actually worth in an arm’s-length transaction, not whether those rates are consistent with what competitors are paying in the same market.

“Everyone else is doing it” has never been recognized as a regulatory safe harbor, and enforcement history confirms this. The government has specifically targeted physician consulting arrangements where fees appeared to exceed FMV, even where those fees were consistent with prevailing industry rates. Consensus, in this context, is not evidence of correctness. It can be evidence of a shared compliance problem.

Why Averaging Does Not Correct Distortion in Benchmark Data

One common assumption is that any flawed or outlier data included in benchmarking datasets will be smoothed out through averaging. In practice, this is not how FMV benchmarking functions. Excessively high rates are not offset by excessively low rates, because the two do not behave symmetrically. Low rates tend to be identified and corrected quickly through physician feedback, while elevated rates are far more likely to persist.

More importantly, FMV decision-making in the life sciences industry is not anchored to averages. Companies typically rely on the distribution of observed rates—often referencing percentiles such as the 75th, 90th, or 98th—to support differentiated compensation based on levels of expertise. Distortion in the underlying data therefore does not dissipate through averaging. It concentrates in the upper ranges of the distribution, where many FMV decisions are actually made. As a result, even modest upward bias in benchmark data can have a disproportionate impact on the rates that companies ultimately adopt.

A More Objective Foundation:
Physician Compensation in Employment Markets

The relevant question for HCP fair market value is not what life sciences companies pay physicians for consulting and speaking arrangements. The relevant question is what the market pays HCPs for their time and expertise in settings that are genuinely independent of the physician-industry relationship.

That data exists. Physicians are compensated for their clinical and academic services by hospitals, academic medical centers, and private group practices. These employment arrangements are negotiated between parties with no conflicting interest in each other’s prescribing or referral behavior. Neither party has a commercial incentive to inflate physician compensation above what the role warrants. The resulting data reflects something considerably closer to a genuine arm’s-length transaction.

Why Employment Markets Provide a Cleaner Signal

National physician compensation surveys drawn from these clinical and academic employment settings provide a market anchor that is structurally independent of the pharmaceutical and device industry. The transactions underlying this data are not influenced by the commercial dynamics that characterize physician consulting arrangements in life sciences. They reflect what independent labor markets actually produce: compensation for physician time, expertise, and professional standing, without the overlay of commercial incentive.

Implications for FMV Methodology

Grounding FMV rates in the compensation for clinical employment has several practical consequences, all of them consistent with a more defensible approach to physician consulting FMV. First and foremost, the FMV rates will reflect an arm’s-length market value of a physician’s time rather than the value of the physician relationship or engagement to the company. Life sciences companies generally seek to contract with physicians who have above-average or even substantially above-average expertise. The market for clinical employment is large enough that it can provide meaningful information on the variability of physician income and thus support differentiated FMV rates.

Physician consulting FMV rates grounded in employment market data are less susceptible to the circular reinforcement that distorts industry benchmarks, and more straightforward to explain under regulatory scrutiny. The underlying data is not generated by the physician-industry relationship, and it is not shaped by the commercial incentives that sit at the center of the FMV compliance concern.

Conclusion

Industry benchmarking is not an independent measure of HCP fair market value. It reflects physician consulting transactions shaped by the same commercial relationships whose arm’s-length character is central to the FMV inquiry. When those transactions are used to construct benchmark datasets and then reused as market evidence, any distortion embedded in the underlying rates is not corrected. It is reinforced. Over time, this circular process can shift FMV rates away from an objective market standard.

The appropriate anchor for FMV in physician consulting, speaker programs, and advisory board arrangements is not what the industry pays. It is what the relevant labor market reflects in settings where commercial incentives are not a factor. Physician compensation in clinical and academic employment settings provides a more independent reference point, and one that is aligned with the arm’s-length standard that defines fair market value.

For these reasons, Fairmark does not use industry benchmarking to determine FMV. Instead, FMV rates should be grounded in independent market data, applied consistently, and supported by a methodology that can be clearly articulated and sustained under regulatory scrutiny.