Coverage Arrangements (Subsidy & Collection Guarantee)

Hospital-based coverage agreements stem from hospitals needing a supply of qualified physician’s readily available to meet the patient demand within particular specialties. The idea is that the hospital is outsourcing the physician requirements to service the hospital (versus employing) and that the professional collections earned by the physician services do not cover the market cost for those services. These types of arrangements typically involve hospital-based specialties, such as anesthesiology, hospitalist and emergency medicine. Similar arrangements may also branch out to further specialization among hospitalists, such as after-hours care (nocturnists), obstetrics (laborists) and neurology (neurohospitalist).

These arrangements are often referred to as ‘subsidies’, when the hospital provides financial support to cover expenses exceeding professional collections, or ‘collection guarantee’ when the professional collections and estimated expenses are reconciled. VMG Health has extensive experience in valuing these arrangements. As a result, our experts are able to guide hospitals in understanding what factors should be assessed in deriving an appropriate and defensible fee under these types of agreements.

Compliance

Documentation illustrating that coverage fees were set at fair market value represents best practice for compliance purposes. Typically, a large portion of the fee includes the cost of physician’s time, which should have robust support through multiple compensation surveys. Understanding other relevant expenses and the collections that offset these expenses are also key to any defensible fair market value coverage analysis. VMG has a keen understanding of these arrangements and can help hospitals navigate the value drivers and confirm the fee is consistent with fair market value.

For more information about professional services valuation, please contact Jen Johnson, CFA at jenj@vmghealth.com or 214-545-5882, or feel free to Ask An Expert below.

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