A physician-owned private practice (Contractor) was seeking a fair market value (FMV) opinion of the compensation associated with urology (Specialty) call coverage services to be stated in professional services agreements (Agreements) between the Contractor and local hospitals (Hospitals) in a small market. The Contractor sought the FMV opinion to assess reasonable compensation and relevant market, regulatory, and compliance factors for negotiating the Agreements.
Situation
The Contractor is one of very few urology providers in the local market. The Contractor was negotiating Agreements with the Hospitals for the provision of Specialty Call Coverage Services, including primary, backup, and concurrent unrestricted coverage. The Contractor engaged VMG Health to perform an FMV analysis of the compensation to be stated in the Agreements.
Solution
VMG Health considered both cost and market approaches while conducting the FMV analysis of the Call Coverage Services.
The cost approach utilized clinical compensation market survey data for the Specialty and the calculation of a “beeper rate,” or the burden of call associated with the specific arrangement. The beeper rate is based on various call-burden metrics, such as the provider’s ability to collect, the payer mix risk, the volume of call, patient contact time, and the level of acuity. VMG Health also considered the supply of Specialty physicians in the market, which is extremely limited and primarily comprised of locum tenens physicians that service outside of the market. Based on the information provided by the Contractor, VMG Health derived a beeper rate adjustment that was applied to the Specialty clinical compensation data. VMG Health factored benefits and malpractice cost estimates into the rate to account for the independent contractor relationship between the Contractor and the Hospitals.
The market approach used specific, on-call market survey data for the Specialty. Based on the beeper rate calculated under the cost approach, VMG Health selected the appropriate percentile of the on-call market survey data that best represents the provision of the Call Coverage Services for the specific arrangement. VMG Health also factored the benefits and malpractice cost estimates into the market approach to account for the independent contractor relationship.
Lastly, VMG Health reviewed the indications under both the cost and market approaches and considered both approaches while deriving the FMV conclusion. Providing concurrent and backup rates, VMG Health ensured the higher burden when a physician covers multiple facilities at one time was also reflected. VMG Health then concluded an FMV range for the daily, 24-hour shift rates for each call–coverage scenario.
Success
VMG Health determined the FMV compensation of a primary, daily, 24-hour shift rate, plus additional rates for concurrent and backup Urology Call Coverage Services. VMG Health used specific details, facts, and circumstances of the arrangement to accurately assess the services and market. The Contractor then used the FMV opinion to gain market information surrounding Urology call– coverage services and to support negotiations for the contracts.
Contributor:
Ashleigh Surgeon
