A large regional healthcare system (System) was seeking to obtain physician pediatric cardiology coverage and graduate medical education (GME) supervision services for a facility by entering into a professional services agreement (Agreement) with a local pediatric cardiology provider group (Group). The System was seeking a fair market value (FMV) opinion of the compensation payable to the Group under the Agreement for regulatory/compliance purposes and to aid in negotiations.
Situation
The System was seeking to obtain coverage of its pediatric cardiology service line by qualified physicians. Under the Agreement, the Group would bill and collect for its providers’ professional services at the System’s facility, while the System would pay an annual subsidy to cover the projected shortfall between professional collections and staffing and GME supervision costs. The System was seeking valuation services from an independent, third-party valuation firm with extensive experience in hospital coverage arrangements. The System engaged VMG Health to perform an FMV analysis of the compensation to be stated in the Agreement.
Solution
VMG Health conducted an FMV analysis of the pediatric cardiology coverage services consisting of cost and market approaches. The cost approach calculated provider expenses using market compensation data for pediatric cardiologists and analyzed the FTEs needed for service line coverage based on onsite and on-call schedules. The market benchmarked WRVUs and professional collections for the Group against market survey data to determine a conclusion of value for the provider costs.
After assessing provider costs from two different perspectives through the cost and market approaches, VMG Health relied upon median levels of physician compensation, benefits, and malpractice insurance provisions as a reasonable measure of anticipated payment for the onsite and on-call coverage provided by the Group. The analysis then included a provision for billing and collection costs and other indirect costs (back-office overhead, practice management, etc.) that the Group would be expected to incur to provide the coverage. The analysis then deducted projected professional collections from total projected Group costs to arrive at a conclusion of value for the subsidy payment.
The analysis assessed compensation and productivity survey data for pediatric cardiologists from four national provider compensation and productivity surveys, reviewed the historical and projected production of the Group providers, reviewed the proposed Agreement and coverage schedules, and assessed overhead data from public physician staffing companies. VMG Health considered this information to derive the final FMV indications.
As VMG Health had concluded additional FMV cushion over and above the proposed subsidy for the pediatric cardiology coverage services, VMG Health supported the additional payments to the Group for the GME supervision services.
Success
VMG Health determined the FMV compensation for the Group’s provision of pediatric cardiology coverage and GME supervision services by considering the specific details, facts, and circumstances of the arrangement. The System then used the deliverable to support the contract renewal negotiation process and for regulatory and compliance purposes.
