Understanding Fair Market Value: Why It Matters and How Archbow Consulting Can Help You Navigate It

Fair Market Value (FMV) is a critical concept in the pharmaceutical industry, particularly regarding transactions involving product sales, licensing agreements, and consulting services. A clear understanding of FMV is essential to ensure compliance with legal and regulatory requirements and to optimize business strategies.

What Is Fair Market Value, and Why Does It Matter?

FMV is defined as the price at which a property or service would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having reasonable knowledge of the relevant facts. In the pharmaceutical industry, FMV considerations are often complex due to factors such as intellectual property rights, vertically integrated counterparties, and market dynamics.

FMV is governed by federal law. The federal Anti-Kickback Statute (AKS) (42 U.S.C. § 1320a–7b) is a criminal statute that prohibits the exchange (or offer to exchange) of anything of value in an effort to induce (or reward) the referral of business that is reimbursable by federal healthcare programs. Companies can avoid AKS penalties by ensuring that the goods and services exchanged between them are bona fide services for value, exchanged within the Fair Market Value range for such goods and services, as described in 42 CFR § 447.502.

Asymmetrical market power is a reality in the healthcare market, which can create conditions that lead to contracts that do not reflect FMV. For example, if a willing buyer and seller engage in a transaction, but one party attempts to exercise its market power over the other, fair market value considerations arise. For example, a small Specialty Pharmacy (SP) is effectively a price taker in the market and is willing to receive some payment from a manufacturer for services. However, when a large SP with a significant market share, along with a PBM sister company, tries to exert its negotiating leverage on the SP side, market power becomes a much more relevant concern.   Contractual terms must reflect the FMV for bona fide services rendered, regardless of the counterparty’s market power. This is one example (of many) of why FMV is an essential consideration for manufacturers to consider in their contracting work.

How Archbow Can Help

Archbow offers custom FMV solutions to clients across the pharmaceutical landscape, including manufacturers, Pharmacy Benefit Managers (PBMs), and Specialty Pharmacies, for various standard industry contracts and services. If you are considering entering into a new service contract or updating older ones, Archbow can provide FMV support. Fair Market Values are ever evolving. If your company is introducing a new product to market or has not updated its FMV opinions in years, you should consider obtaining a current FMV opinion from Archbow.

Contact us today to discuss FMV or for assistance with your strategic and tactical distribution, pharmacy, and patient support needs.