Which of the following best describes fair market value (FMV) under industry best practices?

Fair market value (FMV) is defined as the price at which property would change hands between a willing buyer and a willing seller, both of whom are acting in their own self-interest and are not under any compulsion to buy or sell. This concept is crucial in the healthcare industry for several reasons, especially in the context of compliance and reimbursement practices.

The correct description of FMV under industry best practices is that it reflects the value in an arm's-length transaction that is consistent with general market value. This means that the price is determined based on what similar transactions in the market are, ensuring that the valuation is fair and reflective of prevailing conditions in the marketplace. This definition helps prevent overpricing and ensures compliance with regulations, thereby safeguarding against potential legal and ethical violations.

In contrast, the other options do not accurately represent the concept of FMV. The highest price any payer is willing to pay does not account for the actual market conditions and may not reflect an equitable transaction. Using average cost criteria from previous years lacks relevance in an ever-changing market environment where costs and valuations fluctuate. Finally, a price set by the federal government does not account for the dynamic nature of individual transactions between entities in the private sector, where market forces play a significant role.