Most of us are familiar with the role fair market value plays in real estate, certain insurance payouts, and other business transactions.
A fair market value estimation is also important in the purchase of clinical services when one healthcare provider contracts with another.
Many Certified Community Behavioral Health Clinics (CCBHCs) rely on other behavioral healthcare providers to fill certain service gaps. Clinical services are purchased under contractual agreement, and the contracted entity is known as a Designated Collaborating Organization (DCO.) Under the DCO contract, clinical services are purchased at a rate determined by a fair market value estimation.
CCBHCs and contracted services expected to increase
The number of DCO agreements is expected to increase exponentially as more CCBHCs begin operating nationwide in response to two major events in recent months:
- A new Medicaid option. For the first time, U.S. Congress has included CCBHC services as an option under state Medicaid plans. (Learn more about this historic Medicaid statute change in my previous Compliance Report on this topic.)
- An expanded demonstration model. This summer, 10 additional states were added to a CCBHC demonstration model launched by a 2014 legislative act. This creates new opportunities for behavioral healthcare providers in Alabama, Illinois, Indiana, Iowa, Kansas, Maine, New Hampshire, New Mexico, Rhode Island and Vermont to join the CCBHC demonstration. Sixteen states were already participating in the model.
Together, these two events pave the way for many new CCBHCs and offer choices to behavioral healthcare providers in 26 states who can either join the existing demonstration or provide CCBHC services as an option under state Medicaid plans.
Either way, they will need to comply with CCBHC standards and regulations, including the execution of a DCO contract to fill gaps in clinical services that are required to operate as a CCBHC.
How DCO arrangements work for CCBHCs
CCBHCs are required by legislative act to perform certain services for certification, but the Substance Abuse and Mental Health Services Administration (SAMHSA) understands that a clinic may not be able to perform all of them directly.
SAMHSA allows some required services to be provided under DCO arrangement. Not all required services qualify, and SAMHSA specifies which ones are allowed. A few examples include targeted case management, psychiatric rehabilitation services, and mental health care for veterans. (Read detailed information about which services qualify for DCO agreements in my previous Compliance Report.)
Payment for clinical services under a DCO
When a CCBHC contracts with a DCO, the organization providing the services is not allowed to pass on the fee it already charges in its market for services. Instead, the rate must be negotiated based on an estimation of fair market value -- and this is not the same thing as actual market value.
A fair market valuation is based on certain economic principles and assumptions that are believed to render a more accurate reflection of value. This is why businesses and governments rely on fair market value instead of actual market value.
Because of the difference, fair market value can turn out to be lower or higher than actual market value.
How fair market value is determined
There is no precise formula for determining fair market value under a DCO agreement, but several considerations apply.
A fair market estimation may take into account market activity, industry standards and guidelines, and national and local regulations. Additional valuation methods may include income approach, cost approach and expert opinion. The valuation may also be based on expected income to be generated in the future.
The National Council for Behavioral Health recommends fair market value estimations for DCOs consider:
- Salary surveys: What is being paid for similar services in the market?
- Fee schedules: Are there lists of charges or established allowances for specific services or procedures which can serve as a reference?
- Historic costs: How can historical costs incurred by the DCO for providing similar services inform the fair market value estimation?
No matter how the fair market value estimation process is conducted to arrive at a purchase price for clinical services under a DCO, the methods used must be carefully documented and held in the CCBHC’s files for compliance.
Rules differ when CCBHC and DCO are related
Typically, the CCBHC and DCO would be entirely distinct organizations, but SAMHSA guidance has indicated that in some instances, a CCBHC and a DCO may be related entities. For example, the DCO and CCHBC may be separate clinics within a larger, non-profit organization. Similarly, a DCO may be a subsidiary of the CCBHC has a stand-alone site or subsidiary.
Some particular legal considerations apply when the CCBHC enters into a contractual agreement with a related organization. Prospective CCBHCs that intend to use a subsidiary or portion of their organization as a DCO should consult legal counsel concerning the structuring of the arrangement.
Where to learn more about DCO arrangements
For more guidance, both SAMHSA and the Centers for Medicare and Medicaid Services (CMS) provide detailed information about the legal requirements and recommended terms for DCO arrangements.
SimiTree’s behavioral health experts are also available to answer questions and work with CCBHCs on all aspects of compliance, including setting up the DCO arrangement and determining its fair market value.
How SimiTree can help
SimiTree’s financial strategists and compliance experts excel at market assessment and valuation, with a keen understanding of all aspects of the behavioral health market.
We help CCBHCs meet all certification criteria and provide guidance in data collection, calculation, quality reporting, and other CCBHC financial, operational, and compliance areas.
Reach out to us today to learn how we can help your organization comply with SAMHSA’s new CCBHC certification criteria, leverage quality data to improve care, streamline workflow, and drive optimal performance.
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J’non Griffin serves as Senior Vice President/Principal for the Compliance as well as Coding divisions at SimiTree. Her healthcare career spans three decades of clinical and leadership experience, and she has a track record of helping many provider types implement effective compliance programs. She is a certified ACHC and CHAP consultant and holds additional certifications in diagnosis coding and other healthcare specialties. As an AHIMA ambassador, she was instrumental in the implementation of ICD-10.