Written by Joel Gomez, ASA
Before you begin the process of selling your medical practice, it is always in your best interest to ensure your practice’s value is accurately represented. Most buyers of medical practices, including healthcare systems and hospitals, begin the transaction process with a fair market value analysis of the business revenues to determine the purchase price. Unfortunately, many practices in the position of selling are in a break-even or negative cash–flow scenario. In these instances, the value of the practice may be most accurately represented by the fair market value of personal property and real property.
Some buyers opt to have personal property valued on a “desktop” scope of work, relying on data in the form of a depreciation schedule or practice inventory as the basis of the fair market value analysis. While acceptable for fair market value purposes, this approach may not capture all owned personal property.
The first approach for identifying personal property through accounting documents is the use of a depreciation schedule or fixed asset listing (FAL). While real property is easily identifiable (the space is either owned or rented), personal property listings are often less maintained, reliant on an accountant’s tracking of capitalized assets, and may not fully reflect what is owned. When preparing a valuation, an appraiser is always subject to the quality of available data. FALs maintained by an accountant only display equipment that meets the predetermined capitalization cost threshold determined by that accountant. Additionally, some capitalized assets are removed from the FAL once it has fully depreciated according to accounting standards. Providing an equipment appraiser, a FAL as the basis of their appraisal could mean valuable practice assets are not captured.
An on-site inspection and asset inventory by an appraiser allows them to capture all assets on a room-by-room basis, regardless of original purchase cost or visibility on the FAL.
Another alternative to an appraiser performing an on-site inspection is to have a practice employee create the inventory. While this may sound like a good approach initially, information captured by someone other than an appraisal expert tends to be inconsistent. Items captured in one room are missed in the next, and inconsistent asset descriptions will lead to follow-up information requests, requiring the selling practice to invest more work hours.
Hiring an appraisal expert to complete an on-site inventory and inspection of the practice’s tangible personal property ensures personal property listings are maintained, fully reflect what is owned, and include consistent asset descriptions from room to room. VMG Health reviewed a sampling of projects over the past 18 months, across several practice specialties, and noted that when completing a site visit as part of our valuation process, the fair market value conclusion of exam rooms was roughly 60%–70% higher on a per-room basis compared to relying on practice data/inventories.
VMG Health’s qualified equipment appraisers have the knowledge and experience to complete a discrete and comprehensive inventory, gathering all necessary data during the visit and minimizing interruptions to the practice operations and patient flow.
VMG Health’s team of equipment appraisers has over 55 years of experience in the equipment appraisal field across all sectors of the healthcare industry and includes three accredited senior appraisers with the American Society of Appraisers. Since 1995, VMG Health has earned the trust of our clients with extensive expertise in navigating the dynamic factors that influence value. If you are in the process of valuing your practice, use VMG Health’s equipment appraisers to complete an on-site inspection, inventory, and valuation of your personal property.
Written by Christa Shephard
Even in today’s ever-evolving world of leadership, there remains a belief that admitting vulnerability is a sign of weakness. However, in the latest episode of Coachify Over Coffee, Laura Baldwin and Savory Turman, leadership development coaches, challenge this misconception head on by diving into and emphasizing the importance of authenticity and its transformative power in leadership.
The fourth episode of Coachify Over Coffee, It’s OK Not to Be OK, addresses a common misconception among leaders in healthcare and across all industries: the fear that admitting they’re not okay diminishes their credibility. Our coaches discuss how authenticity breeds trust and connection, strengthening teams and organizations. They highlight lying about one’s well-being can undermine trust far quicker than acknowledging vulnerabilities.
It’s important to define what “fine” really means in different contexts. Rather than accepting superficial answers, Baldwin and Turman encourage leaders to dig deeper. When leaders ask probing questions and foster genuine conversations, they uncover the truth behind their team’s well-being. Recognizing signs of burnout early on can help leaders and teams address stress before it escalates, preventing the negative impacts of prolonged stress.
The conversation extends beyond individual leadership and acknowledges organizational culture. Baldwin and Turman share how fostering authenticity can positively impact employee morale and organizational trust. According to a recent survey by the Society of Human Resource Management, a significant percentage of organizations may claim to prioritize employee mental health, but many fail to implement meaningful strategies. Missing substantive opportunities to support employee mental health only reinforces the need for genuine, actionable steps toward creating supportive work environments.
Baldwin and Turman leave listeners and leaders with practical advice: Regularly self-assess and reflect, asking ourselves, “What do I need in this moment?” Though it may seem like a simple question, its answers may be complicated, which can inspire deep self-discovery and a more balanced approach to leadership. When leaders own and address their personal struggles, they both enhance their own credibility and create environments where others feel empowered to do the same.
If you’re looking to improve your leadership effectiveness and have a greater impact on your practice, Coachify Over Coffee offers valuable insights and actionable strategies. Learn to shift your mindset, view daily problems through a different lens, and apply a new approach to your leadership with the help of Laura Baldwin and Savory Turman, two certified coaches dedicated to sharing their expertise with listeners like you.
Written by Christa Shephard
As new tools come to the forefront of healthcare delivery, staying compliant with updated billing and coding policies is crucial. VMG Health’s Compliance Risk Analyzer (CRA) is designed to help health systems and practices navigate the shifting healthcare landscape with ease, ensuring they remain compliant and avoid small mistakes that can lead to big consequences, like audits. Additionally, the financial returns from the undercoding of E&M codes and the potential FTE savings through improved efficiency, resource reduction, and cost-effectiveness underscore the value of implementing CRA.
Analytics are increasingly driving healthcare and its delivery. Government agencies and private payors use advanced statistical models to identify improper claims and target providers for audits. To balance the scales, healthcare managers need a fundamental understanding of these statistical practices. A manager does not need to be an expert statistician, but a foundational understanding of statistics is critical to properly coding, billing, and understanding common mistakes. A fundamental understanding of trending analysis, time series, confidence intervals, and other factors empowers providers and managers to maximize the benefits of CRA’s data analytics.
Health systems and practices should closely monitor their billing and coding processes. It is crucial to efficiently perform internal, risk-based audits that produce accurate results that mimic how the government audits. Catching and addressing mistakes early is key.
CRA employs artificial intelligence to simplify the compliance process. Instead of requiring managers to become statisticians, CRA handles the heavy lifting. Through its sophisticated algorithms, CRA automates the complicated task of data analysis, allowing healthcare providers to conduct risk-based audits as efficiently and accurately as possible. It also employs predictive analytics to identify which claims or services will be most likely to be audited, allowing providers to take proactive, preventive measures, saving time and money.
Typically, organizations use about 1.3 full-time employees (FTEs) per 1,000 providers just to start identifying audit targets. CRA completely eliminates this step, saving much of the upfront work and boosting the accuracy of risk prediction by reviewing 100% of claims. Creating and implementing an audit plan usually takes 0.8 FTEs per 1,000 providers; CRA handles it in seconds with just one click. Finally, practices usually spend about 20% of their resources just digging through claims within the EHR to choose which claims to audit. CRA automates this process, picking claims based on statistically valid, random samples or non-probability convenience samples. This data-driven, proactive technology allows healthcare organizations to address potential issues before they escalate.
Ultimately, CRA is about empowerment. Understanding the basics of statistics and data analytics is vital to fully capitalizing on its services. CRA is designed to help healthcare providers protect themselves from unwarranted audits and compliance issues. By integrating advanced analytics into everyday operations, health systems practices can enhance their compliance strategies and focus on delivering exceptional patient care.
Stay tuned for more insights on how CRA and other VMG Health solutions are transforming healthcare compliance.
Written by Glenn Morley, Maureen Waddle, and Katrina Whitehair
The aesthetics industry has grown significantly over the past few years, driven mainly by investor-backed consolidation of practices. Whether large or small, buy- or sell-focused, organizations focused on growth should explore acquisition and de novo development strategies. Aligning the right and best growth strategy with your organizational vision is critical and requires an examination of the strategic advantages both options can offer.
Aesthetics practice consolidation typically refers to the trend of medical aesthetics practices and medical spas merging or being acquired by investor-backed organizations. Consolidation in medical aesthetics has gained momentum over the past five years for several reasons:
The de novo strategy is the process of opening a new practice or medical spa or expanding to a new location from scratch. When choosing the de novo path, it is crucial to understand your business model. You need to identify the target market that offers the most significant probability of success in your area. Key population factors to consider include age and financial bands, and the competitive landscape. Consider launching a target market analysis to focus on your ideal region and region and entail customers. You can also evaluate the demographic data in your practice management system, complete focus group research, or hire experts to ensure there will be demand when you build.
A de novo growth strategy can offer compelling advantages, including control over branding, culture development, service offerings, and management. This also allows you to initiate your build with the retail mantra: location, location, location. A de novo strategy may also require a lower initial investment than an acquisition. However, this strategy can be challenging and time-consuming due to factors such as building a patient base, recruiting providers, and a team willing and able to build from scratch. A less arduous approach to de novo location growth is securing an anchor practice poised for expansion, a target geographic location, or an organization with expertise building de novo in other sectors.
An acquisition growth strategy involves purchasing established medical aesthetics practices and integrating them into an existing organization. While this approach offers immediate access to an established patient base and can provide a steady revenue stream, it comes with its challenges and risks. When a business is acquired, careful due diligence is required to ensure the revenue streams, operations, and systems are reliable and scalable. It will also require integrating many components, starting with culture, HR/personnel, marketing, and operational and financial systems.
Owners looking to expand to multiple locations should carefully evaluate the pros and cons of both de novo and acquisition strategies. Furthermore, it is critical to align these strategies with long-term goals, your current organization’s ability to scale, risk tolerance, and existing market opportunities.
Many growth-minded medical aesthetics organizations seek expert guidance in this process. Engaging industry professionals, including financial advisors like VMG Health and BSM Consulting, can offer invaluable insights and steer you toward informed decisions that align with your strategic expansion goals. Once you have a plan, creating a model of your new acquisition or de novo location is essential for a thoughtful approach to growth.
Whether you build a practice from the ground up or acquire an existing one, you must complete thorough due diligence, including examining financial health through day-to-day operations. Early phase due diligence will reward you with greater prosperity and less disruption.
Acquisition or de novo growth strategies offer excellent business owner opportunities; the choice should align with your practice’s risk tolerance and growth goals. Regardless of your chosen strategic growth plan, stay abreast of the changing landscape and dynamics in the expanding medical aesthetics marketplace.
Written by Frank Fehribach, MAI, MRICS; Danny Cuellar
There was once a time when no one considered a lease as an asset. It was just an expense to be paid at the end of the month and ignored until the following month. Then ASC 842 came around in 2018 and operating leases became assets—right-of-use assets (ROUs), to be exact. ROU assets had to be put on the balance sheet and depreciated. Then they had to be tested for impairment. Now, for some firms that are downsizing their operations (or downsizing their physician practices), they must be impaired.
In the beginning, there was FAS 13, Accounting for Leases. For lessees, leases were either operating or capital leases. Operating leases were expensed and capital leases, if they passed the test, were put on the balance sheet. To be a capital lease, you had to meet one or more of the four criteria:
FAS 13, which came into effect in 1977, became known as ASC 840 under the codification of the accounting standards. ASC 840 would continue until it was replaced by ASC 842 in 2019 for public companies and 2021 for private companies. ASC 842 was developed over nearly a decade and released in 2016. The main difference between the ASC 840 and 842 was that all operating leases greater than 12 months in term would be recognized on the balance sheet as both an ROU asset and a liability. The Financial Accounting Standards Board had hoped this difference would increase transparency. It certainly had the effect of producing large lease guidance manuals from all the major accounting firms. It also produced a whole new category of assets that potentially need to be tested for impairment, and to be impaired if they failed.
Accounting firm guidance indicates that ROU assets are subject to ASC 360-10 impairment guidance applicable to long-lived assets. ROU assets must be assessed for potential impairment if there is an internal or external indicator, like the decision to vacate a leased space entirely or partially. However, vacating a leased space does not mean that it has been abandoned. Abandonment accounting would only apply if the space were vacated and not used at all (even for storage) without intent to sublease the space.
ASC Topic 360, Property, Plant, and Equipment was issued in August 2001. Because of ASC 842, former operating leases of more than one year are now long-lived assets. These leases are subject to the same asset impairment guidance in ASC 360 that applies to any other property, plant, and equipment assets. ASC 360-10-35-23 states, “For purposes of recognition and measurement of an impairment loss, a long-lived asset or assets shall be grouped with other assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.”
An ROU asset has identifiable cash flows based on the lease payments. Testing is performed based on an undiscounted cash flow. During normal business operations, leased space is often vacated as operations are right-sized to the current business environment, creating a need to test for impairment. If the undiscounted cash flow is lower than the carrying amount of the asset, ASC 360 requires the owner of that ROU asset to reduce it to its fair value.
What is the fair value of an ROU asset that is no longer used for the purpose that it was created for through the lease? To answer this question, we must know what market participants would pay for this asset if offered on the market as of the trigger date. For an ROU asset, this would be a sublease and the present value of future sublease payments. Typically, there is a certain period to find a sublease tenant, and then the sublease tenant would occupy the space for the remainder of the primary term. Option periods, that before may have been included in the ROU asset, may be excluded because the landlord may not allow it, or the actual tenant may want to end the lease and not exercise an option. If option periods were included in the ROU asset value originally, the impairment amount would increase. Additionally, the discounting of the sublease payments is done at a market rate not an internal borrowing rate (IBR) used to establish the ROU asset value initially.
During a lease term, an organization’s operations in the leased space can be completely shut down or downsized. Typically, a completely vacated space will fail Step 1 of the testing, as there is no cashflow being generated for the lease space. For a partial vacancy, the Step 1 test becomes even more important, as part of the space is still being utilized. However, our experience is that a partially vacated space will still trigger the need to test for impairment. For a completely vacated lease, there is usually the assumption that the ROU asset must be impaired.
In this new world of ROU assets, health systems need to be wary of physician practice downsizing in a leased space. Downsizing in a leased space could and should trigger impairment testing and possibly adjustment to fair value. The transition to ASC 842 represents a significant shift toward greater transparency in lease accounting, as the new standards provide a clearer picture of an entity’s financial obligations, though they also require more complex accounting. VMG Health has extensive experience assisting health systems and physician practices with this financial reporting exercise.
Written by Isabella Rosman and Tim Spadaro, CFA, CPA/ABV
The following article was published by Becker’s Hospital Review.
Throughout VMG Health’s client base, we are privileged to work with many major players across the physician practices landscape—from solo practitioners and independent physician groups to large platform practices, private equity (PE)–backed physician practice rollups, and those affiliated with large health systems.
VMG Health has been engaged to assist clients in varying capacities associated with transactions, ranging from providing business valuations to financial due diligence (quality of earnings). This insight has provided important visibility into the buyer’s perspective. Further, our work has delved into the operations of practices, including coding and compliance, physician compensation, and strategy work. As a result, our experience offers us a unique glimpse into physician practices and the underlying transaction environment. From our experience, including anecdotal discussions with clients and operators in this space, we’ve outlined a few major headwinds and tailwinds facing physician practice transactions in 2024.
Reimbursement Pressure: Physician practices continue to face reimbursement pressure. In November 2023, the Centers for Medicare & Medicaid Services (CMS) issued its final rule announcing policy changes for Medicare payments under the Physician Fee Schedule (PFS) for 2024. Per CMS, overall payment rates under the PFS will be reduced by 1.25% in 2024, following a 2.0% decline in 2023. Although the overall impact on reimbursement varies across specialties, the rate cuts will continue to suppress margins and put pressure on physician practices. For more information on operational challenges and opportunities with physician practices, see VMG Health’s most recent Physician Alignment Tips & Trends Report.
Persistent Inflation: Wage inflation (largely driven by a tight labor market, an aging physician base, and recruiting challenges) and the rising costs of drug and medical supplies have been persistent. According to the government’s Medicare Economic Index (MEI), medical practice costs are expected to increase by 4.6% in FY 2024 on top of last year’s 3.8% increase. Without reimbursement keeping pace with increasing costs, many physician practices’ profit margins have contracted.
Many physician practices seek out a partner to help combat the daily pressures they face. Practices may benefit from operational synergies by consolidating with a larger organization, particularly if the larger organization has favorable reimbursement rates or anticipated cost savings from duplicate services (back-office employees, external accounting, etc.). In fact, many buy-side clients run a managed care or “black box” analysis to assess the potential rate lift and the resulting practice economics on a post-transaction basis to better inform themselves and their investment committees during diligence. Contact VMG Health’s Revenue Consulting & Analytics team to analyze the potential rate lift on your next deal.
Record High Dry Powder: PE has been an active participant in the physician practice transaction space for many years, as evidenced by recent deal volume presented in the table below. Capital committed to PE funds but not yet deployed (dry powder) is presently at record highs for healthcare services. The current estimate of dry powder earmarked for healthcare services among U.S. headquartered PE managers is approximately $100 billion, according to Pitchbook’s Q4-2023 Healthcare Report. PE funds are regularly searching for a home to deploy this capital and physician practices are a common target.
Source: Irvin Levin, 2024 Health Care Services Acquisition Report
Source: Irvin Levin, Healthcare M&A Quarterly Reports
High Interest Rates: As the pandemic hit, fiscal stimulus and loosened monetary policy led to ultra-low interest rates relative to historical norms and spurred transaction activity. Interest rates began to materially rise throughout 2022, challenging overall transaction activity in the latter part of 2022 and during 2023 as access to capital tightened and the cost of capital increased. The below chart presents interest rates over the period as measured by the 10-year U.S. treasury.
Despite higher rates, transaction activity for physician practices has remained robust relative to pre-pandemic levels. However, there are signs that interest rates are having a lagged effect on deal volume considering the recent downward trend from Q3 2022 through Q4 2023 as observed in the above chart. While this does not necessarily mean that we should expect deal volume to revert to pre-pandemic levels, it does highlight that we have entered a new transaction environment. In this environment, the time to close deals lengthens as sellers digest lower valuation multiples and buyers increase scrutiny during due diligence given an uncertain future macroeconomic landscape. Contact VMG Health’s Financial Due Diligence team for details on how the changing tide is impacting the due diligence process.
At the start of 2024, interest rates remain elevated and volatile with an uncertain path to a normalized level, which continues to serve as a headwind for transaction activity. However, interest rates can change quickly, and the U.S. Federal Reserve has signaled that it will likely be appropriate to begin rate cuts at some point during 2024. Market participants have started anticipating rate cuts from this messaging, which could certainly serve as a tailwind throughout the remaining course of this year and into next.
Source: Federal Reserve 10 Year U.S. Treasury Market Data
Regulatory Transaction Oversight: Healthcare consumes a considerable amount of U.S. spending and is expected to continue increasing; CMS’ National Health Expenditure Accounts (NHEA) Healthcare projects healthcare spending to increase from approximately 18.3% of U.S. GDP in 2021 to 19.6% in 2031. Furthermore, it is an election year, with a current U.S. Presidential Administration keenly focused on the rising costs of healthcare. As a result, increased regulatory scrutiny has manifested itself over the ongoing consolidation across healthcare services, particularly within the physician practice space.
This heightened scrutiny is most recently evidenced by the Federal Trade Commission (FTC) suing U.S. Anesthesia Partners, Inc. (USAP), a prominent provider of anesthesia services in Texas, over an alleged “…anticompetitive acquisition spree to suppress competition and unfairly drive-up prices for anesthesiology services.” The FTC also hosted a workshop on March 5, 2024 to assess the public impact of private capital in healthcare. On that same day, the FTC, U.S. Department of Justice (DOJ) and U.S. Department of Health and Human Services (HHS) requested public comments on the effects of transactions involving PE, health systems, and payors on the healthcare providers and ancillary services space.
FTC Focus on Non-compete Agreements: It is not uncommon for physicians to a sign non-compete agreement upon joining a physician practice. The intent of a non-compete agreement, as well as the potential impact, are being hotly debated, with the FTC proposing a rule to ban non-compete clauses. A recent VMG article, Non-Compete Agreements: A Prevailing Quagmire provides details highlighting the arguments and broader implications of non-compete agreements and the proposed ban.
Overall interest in acquiring physician practices remains high, and we don’t expect that to change in the foreseeable future. The dynamics outlined above will likely dictate the path and volume of transactions throughout 2024 and beyond. To read more and stay informed as the year unfolds, please visit VMGHealth.com.
Centers for Medicare & Medicaid Services. Calendar Year (CY) 2024 Medicare Physician Fee Schedule Final Rule. Centers for Medicare & Medicaid Services website. Published November 2, 2023. https://www.cms.gov/newsroom/fact-sheets/calendar-year-cy-2024-medicare-physician-fee-schedule-final-rule
Centers for Medicare & Medicaid Services. CMS Finalizes Physician Payment Rule, Advances Health Equity. Centers for Medicare & Medicaid Services website. Published November 2, 2023. https://www.cms.gov/newsroom/press-releases/cms-finalizes-physician-payment-rule-advances-health-equity
Landi H. Physician groups decry finalized Medicare payment cuts as 2024 expenses rise. FierceHealthcare. Published November 3, 2023. https://www.fiercehealthcare.com/providers/physician-groups-decry-finalized-medicare-payment-cuts-2024-expenses-rise
American Medical Association. Only Cure for Medicare Payment Mess: Wholesale Reform. American Medical Association website. https://www.ama-assn.org/about/leadership/only-cure-medicare-payment-mess-wholesale-reform#:~:text=To%20put%20this%20into%20perspective,top%20of%20last%20year’s%203.8%25https://www.ama-assn.org/about/leadership/only-cure-medicare-payment-mess-wholesale-reform#:~:text=To%20put%20this%20into%20perspective,top%20of%20last%20year’s%203.8%25
VMG Health. 2023 Healthcare M&A Report. Published [publication date not provided]. https://vmghealth.com/2023-healthcare-ma-report/ https://vmghealth.com/2023-healthcare-ma-report/
PitchBook. Q4 2023 Healthcare Services Report. Published [publication date not provided]. https://pitchbook.com/news/reports/q4-2023-healthcare-services-report
Reuters. Fed’s Powell Set Election-Year Stage with Testimony on Rate Cuts, Inflation. Reuters website. Published March 6, 2024. https://www.reuters.com/markets/us/feds-powell-set-election-year-stage-with-testimony-rate-cuts-inflation-2024-03-06/
Centers for Medicare & Medicaid Services. National Health Expenditure Fact Sheet. Centers for Medicare & Medicaid Services website. Published [publication date not provided]. https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet
Federal Trade Commission. FTC Challenges Private Equity Firm’s Scheme to Suppress Competition in Anesthesiology Practices Across the United States. Federal Trade Commission website. Published September [publication date not provided], 2023. https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-challenges-private-equity-firms-scheme-suppress-competition-anesthesiology-practices-across
McDermott Will & Emery LLP. Top Takeaways: FTC Hosts Workshop, Solicits Public Comment on Private Equity in Healthcare. McDermott Will & Emery LLP website. Published [publication date not provided]. https://www.mwe.com/pdf/top-takeaways-ftc-hosts-workshop-solicits-public-comment-on-pe-in-healthcare/
Aguirre I. Non-Compete Agreements: A Prevailing Quagmire. VMG Health website. Published [publication date not provided]. https://vmghealth.com/thought-leadership/blog/non-compete-agreements-a-prevailing-quagmire/https://vmghealth.com/thought-leadership/blog/non-compete-agreements-a-prevailing-quagmire/https://vmghealth.com/thought-leadership/blog/non-compete-agreements-a-prevailing-quagmire/
Written by Holden Godat, CVA; Taylor Harville; and Trent Fritzsche
In the traditional sense, call coverage was a mutual obligation for physicians in addition to their clinical duties. Many physicians would provide uncompensated call coverage to a hospital to secure hospital privileges, build their own practices, and ensure proper patient care with specialized services when needed. Due to the passage of the Emergency Medical Treatment and Labor Act of 1986 (EMTALA), which requires Medicare-participating hospitals to provide sufficient levels of physician coverage to their emergency departments, hospitals are facing difficult task of determining the appropriate level of physician coverage. Several factors—including physician work-life balance, growing uninsured patient populations, increasing professional liability insurance costs, and a declining supply of physicians—have contributed to a decline in uncompensated call coverage and a significant increase in compensated call coverage stipends.
The healthcare sector has seen an increasingly high demand for physicians over the past decade, and projections show that there is a shortfall in supply that does not appear to be going away any time soon. According to The Complexities of Physician Supply and Demand: Projections From 2019 to 2034, a report released by the Association of American Medical Colleges (AAMC), “the U.S. faces a projected shortage of between 37,800 and 124,000 physicians within 12 years.” Such a significant shortage of physicians has left health systems and hospitals with few options to remedy the potential lapse in patient care. To combat this problem, many care organizations have turned to concurrent call coverage arrangements as a potential, efficient solution. As these arrangements become more common, it is important to ensure organizations are compliant from a fair market value perspective.
Concurrent call coverage is an arrangement whereby a physician may provide on-call coverage services to multiple locations and/or to multiple specialty panels simultaneously. These arrangements seek to provide an even distribution of work and ensure patients receive a sufficient level of care. Although concurrent call arrangements help to provide an efficient continuum of care, there are a few important considerations to weigh with each arrangement. Setting fair market value physician compensation for any concurrent call coverage arrangement brings forth a new set of difficulties and regulatory scrutiny that must be properly addressed.
In determining appropriate compensation for a call coverage shift, it is important to establish the actual burden of being on call. Factors impacting call burden include:
When determining appropriate compensation in a concurrent call coverage arrangement, it is important to consider the combined burden of call.
An important value driver for any call coverage arrangement is understanding the required specialty needed to perform the coverage. Typically, concurrent call arrangements are required due to the need for one group of specialized physicians to provide coverage for two or more unique, call coverage panels. Due to the nature of these arrangements, the physicians providing the concurrent services must be able to effectively provide both panels of coverage. Select the appropriate specialty for the subject services to ensure the physician can adequately cover multiple panels and to ensure the physician is appropriately compensated for the services being provided.
In a typical call coverage arrangement, the ultimate compensation rate contemplates the unrestricted availability of a physician for a given amount of time. When stacking panels or facilities to be covered in a concurrent setting, be aware of this availability and ensure the overall compensation does not account for the same time twice. Since physician availability is already being covered by an initial panel, stacking compensation related to additional panels could create overpayment concerns. Furthermore, concurrent arrangements often create additional efficiencies for an emergency department that should be reflected in the ultimate compensation. To ensure providers are appropriately compensated for the time they are providing coverage, it is common to use a discounted coverage rate on top of the existing stipend to account for the incremental coverage of additional panels or facilities.
To illustrate this point, consider a hypothetical Panel A and Panel B. Independently, Panel A and Panel B may be worth $500 per 24-hour shift and $600 per 24-hour shift, respectively. That does not necessarily mean that the concurrent coverage of Panel A and Panel B equals $1,100 per 24-hour shift. Each panel independently contemplates 24 hours of availability. When combined, there must be assurances that the availability of the physician is not compensated twice.
One of the last and most critical pieces of setting up any concurrent call coverage arrangement is to fully understand the compensation terms for the services. While these do not drive value for the services in the way other factors might, the specific terms relating to the compensation are critical to understand in providing an appropriate valuation. Factors like whether the physician is employed or an independent contractor, understanding who retains the rights for billing and collection under each individual arrangement, and a thorough review of whether providers receive production credit toward outside employment agreements are all vital pieces of structure to consider when evaluating a concurrent call coverage arrangement.
The many unique considerations of concurrent call arrangements, such as establishing the appropriate burden of call, determining the correct specialty for services being provided, contemplating physician availability in a shift, and sources of compensation, often make these arrangements tricky to structure in a compliant manner. Although it may seem as simple as adding two shifts together, this is a major misconception. Increased scrutiny from regulators and the tricky healthcare landscape has made it more important than ever to obtain third-party fair market value guidance to ensure you meet a compliant call compensation system.
Association of American Medical Colleges. (2021). The Complexities of Physician Supply and Demand: Projections from 2019 to 2034. Retrieved from https://www.aamc.org/media/54681/download ssociation of American Medical Colleges. (2021). The Complexities of Physician Supply and Demand: Projections from 2019 to 2034. Retrieved from https://www.aamc.org/media/54681/download
Written by Christa Shephard
VMG Health’s own Lukas Recio joined Scott Becker on the Becker Private Equity & Business podcast to discuss the rise in private equity acquisitions in physician practices. Lukas, who is a leader in VMG Health’s Financial Due Diligence division, broke down the key factors driving the surge in private equity investments and its impact on healthcare professionals.
Private equity companies’ interest in the healthcare sector has flourished over the past 15 years, and private equity purchases of physician practices have increased by over 600% from 2012 to 2022. That statistic, Lukas says, reflects the “growth of healthcare spend as a percentage of GDP… [In the last five years], we’ve really seen the dollars, allocated specifically to investment in the healthcare space, really take off alongside those investment figures.”
Those changes and trends already taking place were exacerbated by 2020’s global pandemic. “2020, 2021, and 2022, we really saw deals happening at a frenetic pace,” Lukas says. In the wake of the global pandemic, the healthcare industry experienced a seismic shift in priorities. With the urgent need to meet unprecedented demand for care, the prevailing mentality became “grow at all costs.” Against this backdrop, healthcare buyers and sellers began requesting VMG Health’s services earlier in the transaction process than usual.
However, healthcare margins are growing thinner thanks to inflation and increasing operational costs, forcing organizations to navigate a landscape where growth opportunities must be balanced against heightened regulatory limitations. “When we think about deals themselves,” Lukas says, “2023 was definitely a down year as far as deal volume. But what we found was that quality assets in attractive markets were still experiencing healthy multiples.”
Despite the challenges posed by regulatory scrutiny, there are still ample opportunities for innovation and expansion. However, achieving sustainable growth in this environment requires a strategic approach that emphasizes compliance with evolving regulations. States are now noticing that anti-trust and access to healthcare services are not currently aligned, which has prompted some states to begin reviewing healthcare transactions.
Lukas explains, “You can easily imagine a world where it becomes more difficult to execute an investment in these states that are imposing these regulatory reviews because, in some cases, they could take months review the information before they let you know whether or not it’s been green-lighted.”
On top of these dynamic changes, Lukas urges listeners, especially those in physician-owned practices, not to view private equity partnerships as a silver bullet: “Private equity can be a really great partner, but there are also things that you need to consider that are going to have their challenges—as with any other relationship that you’re going to be in, whether it’s personal or professional.”
For more of this insightful discussion, listen to the episode, The Rise of Private Equity in Healthcare: Challenges, Opportunities, and Regulations. VMG Health is dedicated to helping healthcare entities big and small through their transaction, strategy, and compliance needs. Contact our industry experts or visit our website for more information.
Written by Ashleigh Surgeon and Caroline Dean, CVA
In recent years, the anesthesiology market has seen many changes in compensation trends and practice models. With continued provider shortages and a growing demand for anesthesia services, providers in this specialty are becoming increasingly valuable. Specifically, certified registered nurse anesthetists (CRNAs) have become some of the most sought-after advanced practice providers in the industry, leading to significant increases in compensation for these providers. In addition, hospitals and health systems are shifting to expanded CRNA utilization as opposed to physicians due to the ongoing push for cost-effective treatment options. Understanding the factors impacting CRNA compensation trends is crucial to anticipating and addressing potential challenges in the pursuit of CRNA arrangements.
According to Becker’s ASC Review, the anesthesiology market is facing a projected shortage of 12,500 providers by 2033. As basic economic principle rules, a decrease in supply of any healthcare provider drives demand upward, forcing costs of anesthesia services and provider compensation upward as well. In 2023, median compensation for CRNAs in the United States was reported at $221,300, an increase in total cash compensation of 11.3% from 2022.
Source: Sullivan, Cotter and Associates, Inc. 2019-2023 Physician Compensation and Productivity Survey and 2019-2023 Advanced Practice Provider Compensation and Productivity Survey
This is a significant rise as compared to general physician assistants and nurse practitioners, who saw only a 5% increase on average from 2022 to 2023. This level of compensation is mostly accredited to the additional education and training required for the certification, as well as the increased risk and level of independence associated with their standard practice.
To receive certification from the National Board of Certification and Recertification for Nurse Anesthetists (NBCRNA), a candidate must first complete registered nurse training and the appropriate clinical experience. Then CRNAs complete a Nurse Anesthesia program, which grants the candidate a master’s degree. Program length varies from two to four years and includes a clinical experience requirement in addition to coursework. In total, the process of becoming a certified nurse anesthetist takes at least seven years to complete, surpassing a standard registered nurse by an average of three years in education and experience. As with any advanced degree, CRNAs often receive increased compensation due to a higher level of education and training than a standard practicing registered nurse.
Because of their advanced training, CRNAs have an increased level of independence in a clinical setting. Though anesthesiologists may manage high-acuity surgeries, CRNAs in many states and facilities may be responsible for primary patient care, including informing the patient, completing examinations, developing pain management plans, prescribing medications, administering and monitoring medications, and responding to adverse reactions or emergencies. A CRNA’s involvement in responsibility for patient care puts the provider in higher-risk scenarios when compared to other registered nurse professions. In 23 states, CRNAs may operate independently without the supervision of a medical doctorate. CRNAs are also typically the sole anesthesia provider in many plastic surgery centers, eye surgery centers, dental surgery centers, and gastrointestinal surgery centers. Additionally, in the U.S., many facilities in rural areas with limited healthcare providers use CRNAs for routine surgical services in the specialties of general surgery, obstetrics, and pain management. According to the American Association of Nurse Anesthesiology, CRNAs comprise over 80% of anesthesia providers in rural areas.
Though CRNAs’ level of autonomy may vary depending on location, state government regulations and a facility’s scope of services, the importance of CRNAs is often constant across markets. With their ability to operate nearly identically to an anesthesiologist in most general cases, CRNAs also incur the same level of risk as physicians and the increased costs associated with such risk. Increased utilization, higher malpractice insurance expenses, and reimbursement difficulties play a large role in these higher costs for CRNAs, which create a competitive environment amongst healthcare systems when considering compensation in recruitment efforts.
Historically, anesthesiology services have been provided by a mix of physicians and CRNAs together. However, with continued physician shortages and health systems and facilities seeking more profitable provider options, CRNA-heavy care team models have risen to the forefront. In a care team model, one physician typically supervises between one and four CRNAs, allowing the facilities to rely on CRNAs as opposed to more expensive physician coverage. As CRNA utilization grows, so grows CRNA compensation as facilities are forced to offer more lucrative recruitment packages, inclusive of commencement bonuses and higher-dollar salaries to retain top CRNA talent and stay competitive. In addition, as many U.S. lawmakers are pushing to expand the scope of CRNA independent practice, it is likely CRNA utilization will continue to increase.
Additionally, according to the Centers of Medicare and Medicaid Services (CMS), average CRNA malpractice insurance in 2024 is $5,968—nearly 50% higher than the average for all other midlevel providers. This is most likely attributed to the large number of CRNAs practicing independently, and therefore solely liable for any case complications. The most common malpractice claims involving CRNAs include subpar performance during procedures, poor patient monitoring and improper positioning. All three of these claims are extremely serious and can result in recovery complications, severe injury, and even death. As a result, CRNAs face higher medical malpractice premiums than providers not solely responsible for a patient’s care. Health systems and facilities must consider this expense when employing CRNAs’ services, whether they reimburse, subsidize, or include the expense in compensation.
Lastly, anesthesia has seen a downward trend in reimbursement based on the CMS Medicare Physician Fee Schedules as Anesthesia Base Units (ASAs) reimbursement have decreased from $22.27 per unit in 2019 to $20.44 in 2024. In the states where CRNAs can practice independently, CMS will reimburse services provided by CRNAs at these rates. This reduction in reimbursement can impact a provider’s ability to collect sufficient revenue based on professional services alone, often requiring additional compensation or subsidization from a facility to sustain operational costs. This issue is commonly present for providers in a community highly comprised of governmental payors. Public payor rates, such as Medicare and Medicaid, reimburse medical services at a significantly lower rate than private insurance, less than 28% of median commercial rates in 2022. As such, facilities serving a population with a significant amount of governmental insured patients must offer providers a compensation plan not only to offset the practice’s operational costs, but also as an alluring salary serving as incentive to relocate to the market. With a CRNA shortage looming, these underserved areas must stay competitive in compensation offers to recruit and retain the essential services CRNAs provide to the community. This level of competition contributes largely to the upward drive of average CRNA compensation, as majority of the CRNAs are operating in the U.S. in lower-income markets.
In summary, the CRNA compensation market will continue to evolve in the coming years, and health systems and facilities must understand and address these changes to capitalize on the benefits associated with CRNA utilization. VMG Health is frequently engaged to provide fair market value and consultative services to ensure CRNA compensation packages are both competitive and compliant with government regulations. Utilizing in-depth analyses of revenue, market data, costs and recruitment expenditures, and expert experience in similar arrangements, VMG Health can assist in navigating the increasingly important CRNA market.
Becker’s ASC Review. (June 28, 2022). Weathering the storm in Anesthesiology: making the business case and demonstrating the value of Anesthesiology. https://www.beckersasc.com/asc-news/weathering-the-storm-in-anesthesiology-making-the-business-case-and-demonstrating-the-value-of-anesthesiology.html
Sullivan Cotter. 2019-2023 Physician Compensation and Productivity Survey and 2019-2023 Advanced Practice Provider Compensation and Productivity Survey
O’Brien, E. Health eCareers. (January 23, 2023). How Long is CRNA School? https://www.healthecareers.com/career-resources/nurse-credentialing-and-education/how-long-is-crna-school
Munday, R. Nurse Journal. (November 16, 2023). CRNA Supervision Requirements by State. https://nursejournal.org/nurse-anesthetist/crna-supervision-requirements/
AMN Healthcare. (June 23, 2023). CRNAs Practice Updates and Trends. https://www.amnhealthcare.com/blog/physician/locums/crnas-practice-updates-and-trends/
Centers for Medicare & Medicaid Services. 2019-2024 Anesthesia Conversion Factors. https://www.cms.gov/medicare/payment/fee-schedules/physician/anesthesiologists-center
Baxter Pro. (May 6, 2022). The 3 Most Common CRNA Malpractice Claims. https://baxterpro.com/the-3-most-common-crna-malpractice-claims/#:~:text=Do%20CRNAs%20Get%20Sued%20More,the%20benefits%20of%20the%20job
American Society of Anesthesiologists. (December 2022). Anesthesia Payment Basics Series: #3 Payment, Conversion Factors, Modifiers. https://www.asahq.org/quality-and-practice-management/managing-your-practice/timely-topics-in-payment-and-practice-management/anesthesia-payment-basics-series-3-payment-conversion-factors-modifiers#:~:text=In%202022%2C%20the%20Medicare%20anesthesia,conversion%20factor%20survey%20was%20%2478.00.&text=Overall%2C%20Medicare%20was%20paying%20less,commercial%20rates%20in%20that%20year
Liao. C, et. all. Semantic Scholar (2015). Geographical Imbalance of Anesthesia Providers and its Impact on the Uninsured and Vulnerable Populations. https://www.semanticscholar.org/paper/Geographical-Imbalance-of-Anesthesia-Providers-and-Liao-Quraishi/77112f1f7ca09a86142b4f5e7c065ae9a073dec2
Written by Grayson Terrell, CPA
The following article was published by Becker’s Hospital Review.
In today’s complex healthcare environment, mergers and acquisitions (M&A) are proving to be more challenging than ever, with heightened governmental regulations impacting both the operation of an entity and the purchase and sale of an entity.
To successfully navigate a transaction in the healthcare sector, it is paramount that buyers and sellers make informed decisions through all of the tools made available to them. For sellers, this can come in the form of understanding how their business operates, understanding inefficiencies and growth opportunities, and even understanding what their business is worth. For buyers, informed decision making relies heavily upon understanding the markets in which they are investing, including governmental regulations in some states that may impact their ability to invest and operate; understanding the key operating metrics of similar companies in similar industries; and ensuring that they are paying an appropriate amount for the business. This is especially important because, in healthcare transactions, the capital used to purchase is often provided by investors who are counting on timely positive returns.
Financial due diligence (FDD) is pivotal to the success of any healthcare transaction, as it requires detailed investigation and analysis of a company’s financial information and is used to validate a company’s true run-rate operating potential. With most healthcare M&A transactions, purchase price is based on a multiple of a company’s salable earnings before interest, taxes, depreciation, and amortization (EBITDA). As such, the buyer and seller must perform the appropriate financial due diligence procedures prior to executing a transaction. Below are five vital aspects of the financial due diligence process.
The Quality of Earnings (QofE) process consists of making adjustments to the entity’s reported financial statements to normalize EBITDA. The bulk of these adjustments involve adjusting or removing impacts of non-recurring and one-time items from earnings to arrive at an adjusted EBITDA figure that represents a more accurate view of the entity’s true cashflows. This process also gives the FDD team the opportunity to pose pointed questions related to the entity’s operations, finances, and accounting functions, highlighting key information that could negatively or positively impact adjusted earnings. Specific to healthcare transactions, some of the relevant areas of interest with respect to potential EBITDA adjustments are:
The Quality of Revenue (QofR) analysis may be the most important part of the FDD process when it comes to healthcare-related transactions, given the unique characteristics and nuances of healthcare revenue. During this process in many middle-market healthcare deals, the conversion of revenue from cash basis to accrual basis is a fundamental exercise with respect to the QofE analysis. The cash waterfall approach is the gold standard and therefore the most common method for accomplishing the cash-to-accrual conversion. With this method, detailed billing data is obtained from the entity’s revenue cycle management (RCM) system, which includes charges by date of service and payments by date of service and by date of payment. In this analysis, payments are adjusted back to their specific date of service (accrual basis), and outstanding collections on charges billed during the period under analysis are estimated based on historical collection patterns cut by payor, CPT code, or various other means.
Pro forma adjustments are forward-looking projections on certain aspects of the business, which are layered back in across the historical financial statements. These assumptions can help buyers understand potential areas of future direction and growth opportunities for the company; however, these adjustments should be thoroughly scrutinized during buy-side FDD procedures to ensure the adjusted EBITDA and purchase price are not over- or understated. These estimations tend to lean more in favor of the seller and are often a primary area of focus by the opposing buy-side FDD team. As such, a seller should understand all aspects of the business, especially as they relate to these forward-looking projections, and should be able to support the key inputs utilized to derive these pro forma adjustments. If properly supported, these adjustments often increase the sale price of the business enough to cover the cost of FDD procedures incurred by the seller, if not many times over. Some examples of commonly observed pro forma adjustments in healthcare related QofE reports include:
Another common analysis in FDD procedures is a Net Working Capital analysis, which is used to determine the working capital (current assets less current liabilities, excluding cash and debt) required to operate a business in the post-transaction environment. This subsection of FDD typically involves substantial negotiation between buyers and sellers when approaching the close of a deal, as both parties will view various inputs differently, often striving to set a working capital peg that is more favorable for themselves. As a miscalculation of this peg can cost a seller on a dollar-for-dollar basis if the agreed-upon level of net working capital is not met, it is imperative that management and their advisors are involved and knowledgeable on this calculation.
Most of the time, healthcare transactions occur on a cash-free, debt-free basis. Standard with any cash-basis business, many debt and debt-like items have the potential to be inaccurately reflected within a company’s balance sheet. As such, a Debt and Debt-Like Items analysis can assist buyers and sellers in understanding a company’s debts and liabilities as of the date of sale. These items can include potential tax-related exposures, outstanding litigation and legal settlements, deferred compensation, notes payable, and others.
In closing, FDD is a necessary step in ensuring that sellers have the keys to sell their businesses at the best possible price, and buyers can protect the money of their companies, firms, or investors by making a sound investment in the target company. This proactive approach creates trust between all parties and leads to more lucrative transactions for all.
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