Question

In 2014, Memorial Hospital (Hospital) enters into a call coverage agreement with a cardiology group, Carlton Cardiology Associates (CCA). Under the agreement, CCA is paid a fixed fee of $2,000 per call shift; CCA also bills and collects for any clinical services its physicians provide to hospital patients when they are on call.

In 2015, Hospital obtains an opinion from a valuation consultant that states that the compensation under the call coverage contract with CCA is within the range of fair market value. The valuation report is 2-pages long, and, includes no supporting documentation or explanation for the methodology behind the valuation. The call coverage contract between Hospital and CCA expires in 2016 and is not formally renewed or extended.

In 2017, CCA threatens to stop providing coverage unless the per call shift fee is raised to $2,500. Hospital agrees to the increase; however, no contract is signed by the parties.
In 2018, the Hospital Compliance Officer, new to the job, hires a valuation consultant to look at the call coverage arrangement with CCA. This valuation consultant generates a 20-page draft report, including the methodology used to arrive at the valuation opinion, that concludes that the Hospital’s per shift call coverage payments to CCA should not exceed $1,500. Based on this draft report, the Hospital’s Compliance Officer initiates an internal investigation.

1. Hospital’s General Counsel and Compliance Officer are considering a voluntary disclosure. Which mechanism should they choose?
2. Debate the pros and cons of a voluntary disclosure in this situation. Are there any concerns related to fair market value?

Answer 1