Why FMV Overpayment Persists
Even in Strong Compliance Programs

Compliance discussions around fair market value (FMV) are appropriately focused on the risk of overpayment. That risk has driven enforcement, shaped guidance, and remains a central concern for compliance functions. The more subtle challenge is that overpayment is often difficult to detect in practice. Overpayment is the issue that has drawn government enforcement, generated landmark settlements, and shaped the compliance obligations companies carry today. It is also the problem that tends to build slowly without triggering any obvious internal alarm.

The Natural Bias Toward Overpayment

Fair market value is grounded in the concept of an arm's-length transaction. This means a transaction between unrelated parties, neither under compulsion, with knowledge of relevant facts. In the life sciences context, that standard is structurally difficult to meet. The same physician who consults or speaks for a company may also prescribe or recommend its products. That relationship is inherently intertwined, and that intertwining creates a bias that can push compensation upward. This does not mean that every arrangement is problematic. It means that the data sources companies commonly use to set fee schedules are vulnerable to the same bias. That vulnerability compounds over time. It does not self-correct.

How Common Inputs Reflect the Problem

Three inputs have historically shaped how companies set their fee schedules for HCP speaking and consulting arrangements. Each carries the same underlying flaw.

The first is a company's own historical payment patterns. It seems reasonable to look at what was paid in the past, but this approach reflects only one company's behavior. It ignores what other employers, such as hospitals, group practices, and institutions with no financial interest in a physician's prescribing decisions, actually pay for the same time and expertise. If rates were set generously at the outset, historical data simply preserves that starting point and may, over time, justify continued increases against a benchmark that was never independent to begin with.

The second input is industry benchmarks. These include formal surveys of what other pharmaceutical and medical device companies pay HCP consultants, as well as informal understandings of competitor practices. These sources carry the same structural problem. Because the payments being benchmarked involve the same intertwined relationships, it can be difficult to demonstrate that those fees were set solely for the services provided. Referencing an industry standard that has been inflated over time does not produce an independent measure of FMV. It carries that inflation forward.

The third input is rates requested by HCPs themselves, often shaped by suggestions from meeting planning vendors or market research firms. These vendors typically bill HCP compensation as pass-through costs to the pharmaceutical or device company. This structure reduces their incentive to negotiate fees downward. A rate that enters a company's schedule through this channel, and that was never grounded in independent data, can persist long after the original engagement.

Why These Problems Persist

Each of these inputs shares something in common. They are easy to rely on and difficult to question. Historical rates feel validated by prior use. Industry benchmarks feel external and objective, even when they are not. Vendor-facilitated rates feel like market signals, even when the market they reflect is not independent. Once rates are established, they tend to remain in place. A defensible FMV methodology requires consistent application, meaning that once rates are set, they are expected to be applied uniformly. That is a sound principle. It carries an important implication. If the rates were set against a biased benchmark, consistent application does not correct the problem. It preserves it.

Over time, this dynamic can produce fee schedules that have drifted well above what objective, independent data would support. This can occur without any clear internal moment at which the drift becomes visible.

Why Detection Is Difficult

Underpayment tends to surface. HCPs push back. Arrangements fail to move forward. The signal is external and relatively quick. Overpayment does not produce the same feedback loop. An HCP receiving above-FMV compensation is unlikely to raise a concern. A vendor facilitating higher rates has no incentive to flag the issue. A compliance team reviewing a rate against internal history or industry benchmarks may see a rate that falls within an established range. That range may itself be the problem.

The data sources underlying a fee schedule are rarely examined with the same rigor applied to other compliance decisions. A company may have documentation showing that its rates are consistent with prior years or with competitor practices, without asking whether those prior years or competitors provide an independent basis for FMV. There is also an element of structural inertia. Revising rates downward is operationally uncomfortable. It raises questions about prior decisions and may require difficult conversations with HCPs who have come to expect a certain level of compensation. The path of least resistance is to leave rates unchanged.

What This Means in Practice

The risk of overpayment is not primarily a matter of intent. In many cases, the issue is that the inputs used to set and validate rates were never examined critically. The arm's-length standard requires data from sources that are genuinely independent of the relationship being evaluated. When the data sources themselves reflect the intertwined relationship between manufacturers and the HCPs they engage, the resulting rates may appear compliant while still carrying embedded bias.

That is what makes overpayment harder to detect. It does not arrive with a complaint or a flagged transaction. It develops quietly, embedded in fee schedules that appear consistent and well supported, even as they drift away from an independent measure of fair market value.