> ## Documentation Index
> Fetch the complete documentation index at: https://mso.getlemma.com/llms.txt
> Use this file to discover all available pages before exploring further.

# Structure friendly-owner compensation

> Compensation models for the clinician-owner, the fair market value and referral-neutrality guardrails, and how to document duties so the arrangement holds up.

The friendly owner is paid for two distinct things: **practicing medicine** and **governing the professional entity**. Keeping the two streams separate, sizing each at fair market value, and documenting the duties behind them is what keeps the arrangement outside the Anti-Kickback Statute's problem space.

## Prerequisites

* The clinician's actual role defined: will they practice, and how much?
* A written description of the governance duties
* Market compensation data for the specialty and geography
* Counsel engaged

## The two streams

| Stream                                        | For                                        | Typical structure                                                     |
| --------------------------------------------- | ------------------------------------------ | --------------------------------------------------------------------- |
| **Clinical compensation**                     | Practicing medicine                        | Employment agreement: base, productivity (wRVU), or collections-based |
| **Medical director / ownership compensation** | Governance, oversight, clinical leadership | Flat monthly stipend, or documented hourly rate                       |

Keep them in **separate agreements or clearly separate sections**, with separate documentation. Blending them makes it impossible to show that either is FMV for what it covers.

## The three guardrails

Every compensation arrangement here must satisfy all three. They come from the Anti-Kickback Statute's personal services safe harbor and the general shape of Stark's compensation exceptions.<sup>1</sup>

### 1. Fair market value

What an unrelated party would pay for the same services in the same market.

**How to support it:**

* Published compensation surveys for the specialty and region (MGMA, SullivanCotter, and similar)
* For medical director roles, published medical director hourly rate benchmarks
* A formal FMV opinion for larger or unusual arrangements
* Documented reasoning, retained

### 2. Commercially reasonable

The arrangement makes business sense **even absent any referrals**. You need the services; the hours are plausible; the person is qualified.

A medical director stipend for 20 hours a month at a practice with three clinicians invites the question of what those 20 hours consist of. Have an answer, and have time records.

### 3. Not varying with the volume or value of referrals

The compensation does not increase because the clinician refers more, orders more, or generates more downstream business.

<Warning>
  **This is why a percentage-of-practice-revenue stipend is the wrong structure.** It varies directly with practice volume. If the clinician also refers within the group, the arrangement rewards referral generation, the core AKS concern. See [Stark and anti-kickback](/concepts/compliance/stark-and-anti-kickback).
</Warning>

## Steps

<Steps>
  <Step title="Define the governance duties in writing">
    Be specific. Generic "medical oversight" is not documentable. A real list:

    * Chair or participate in clinical quality review
    * Approve and periodically review clinical protocols and policies
    * Supervise and evaluate clinical staff
    * Make clinical hiring and termination decisions
    * Approve clinical equipment and supply specifications
    * Serve as the PC's officer and director; attend board meetings
    * Sign payer contracts and provider agreements
    * Own and oversee medical records governance
    * Serve as the PC's point of contact for regulatory and licensing matters
    * Participate in incident review and patient complaint resolution

    Estimate the hours each requires. That estimate is the basis for the stipend.
  </Step>

  <Step title="Benchmark both streams">
    Clinical compensation against specialty survey data for the market. The medical director stipend against published medical director rate benchmarks, multiplied by documented hours.
  </Step>

  <Step title="Choose the stipend structure">
    | Structure                       | Fits                                                                          |
    | ------------------------------- | ----------------------------------------------------------------------------- |
    | **Flat monthly**                | Predictable duties; simplest to administer and defend                         |
    | **Hourly for documented time**  | Variable duties; strongest documentation, most administrative burden          |
    | **Folded into employment comp** | Where the clinician practices substantially and the governance role is modest |

    Flat monthly with **contemporaneous time records** is the common middle ground.
  </Step>

  <Step title="Set it in advance, in writing, for at least a year">
    The AKS personal services safe harbor's shape: written, signed, at least a one-year term, specifying the services, with aggregate compensation set in advance and not varying with referrals. Design to it even if you don't need to fit it exactly.
  </Step>

  <Step title="Require time records">
    For the governance role, contemporaneous records of hours and activities. This is the single best evidence that the arrangement is commercially reasonable and that the services were actually rendered.
  </Step>

  <Step title="Document the FMV analysis and retain it">
    The benchmarks used, the hours estimated, the conclusion, and the date. Refresh annually.
  </Step>

  <Step title="Have the clinician's own counsel review it">
    Their exposure, their lawyer.
  </Step>
</Steps>

## What the clinician-owner typically does not get

**Distributions of PC profit.** By design, a well-run PC ends up near break-even after clinical compensation and the management fee, because the management fee is where the investable earnings sit.

This should be explained to the clinician up front, not discovered by them in year two. A clinician who believes they own a profitable business and finds it runs at break-even has a grievance, and a grievance held by the person who owns your professional entity is a genuine risk. See [Where the profit lives](/concepts/finance/where-the-profit-lives).

## Verify it worked

* [ ] Two separate compensation streams, separately documented
* [ ] Governance duties listed specifically, with estimated hours
* [ ] Both streams benchmarked against market data
* [ ] Written agreement, signed, term of at least one year
* [ ] Aggregate compensation set in advance
* [ ] Nothing varies with referral volume or value
* [ ] Time records required and actually kept
* [ ] FMV analysis documented and dated
* [ ] Clinician's own counsel reviewed
* [ ] Annual review calendared

## Common failure modes

| Failure                               | Consequence                                      |
| ------------------------------------- | ------------------------------------------------ |
| Percentage-of-revenue stipend         | Fee-splitting and AKS exposure                   |
| No documented duties                  | Cannot show commercial reasonableness            |
| No time records                       | Cannot show services were rendered               |
| Compensation set retroactively        | Fails the "set in advance" requirement           |
| Blending clinical and governance comp | Neither stream is separately defensible          |
| No FMV support                        | The weakest position in an investigation         |
| Never refreshed                       | A defensible 2022 rate may not be defensible now |

## Sources

1. Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b); personal services and management contracts safe harbor at 42 C.F.R. § 1001.952(d). OIG, [Fraud & Abuse Laws](https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws/).


## Related topics

- [Vet and select a friendly clinician-owner](/guides/formation/vet-a-friendly-clinician.md)
- [Draft clinician employment agreements](/guides/agreements/draft-clinician-employment-agreements.md)
- [Set the management fee](/guides/agreements/set-the-management-fee.md)
- [Stark, AKS, and why comp design is constrained](/concepts/compliance/stark-and-anti-kickback.md)
- [The friendly PC, explained](/concepts/model/the-friendly-pc.md)
- [Where the profit lives: MSO economics and fee structures](/concepts/finance/where-the-profit-lives.md)
- [MSA clause anatomy](/reference/legal/msa-clause-anatomy.md)