A Hospital renewed a professional services agreement with a women’s health provider (Contractor) that employs various OB/GYN physicians and certified nurse midwives (CNMs). The Hospital sought a fair market value (FMV) opinion of the compensation associated with the Contractor’s restricted and unrestricted coverage services for regulatory and compliance purposes. 


Situation

The Contractor provides CNMs who are required to remain onsite at the Hospital, as well as physicians who must be either onsite or immediately available to support the CNMs as needed. In addition to providing these coverage services to the Hospital, the Contractor operates an outpatient OB/GYN clinic that is not associated with the subject services of the professional services agreement. VMG Health needed to ensure that the FMV compensation did not include any subsidization of the Contractor’s clinic.

Solution

VMG Health conducted an in-depth analysis of revenue, costs, and market data. The firm derived professional collections estimates using Contractor management representations and a benchmarking analysis, based on estimated provider full-time equivalents (FTEs) and market survey data. VMG Health carefully reviewed Contractor management representations to exclude any collections associated with the Contractor’s assigned patients. Cost figures considered interviews with the Contractor and were calculated by reviewing compensation market survey data, analyzing the costs associated with the physicians and CNMs, and applying an appropriate overhead allocation and profit margin.  

In addition to the review of the Contractor’s revenue and costs, VMG Health considered the time spent with patients related to the Contractor’s clinic. As a result, VMG Health applied a discount to the physicians’ and CNMs’ time, where applicable, when calculating the providers’ estimated FTEs to ensure that only the coverage associated with the subject services was captured.

Success

VMG Health determined the FMV compensation payable by the Hospitals to the Contractor for the physicians’ and CNMs provision of the coverage services. The Hospital then used the deliverable to aid in the contract negotiation process and for regulatory and compliance purposes. A professional services agreement was executed by and between the parties. This allowed the Hospital to continue using the current group of established providers. In addition, the Hospital was able to maintain a relationship with the Contractor that led to other facilities within the health system establishing coverage through the Contractor.  

Contributor:

Madison Sterling