How to Assess Medical Group Performance

June 14, 2022

By: Cordell Mack and Scott Ackman

The following article was published by the American Association of Provider Compensation Professionals

Organizations are revisiting medical group strategy and physician alignment in the face of private equity investment, growing medical group losses, and a decline in overall performance. Approaches on how to address medical group performance vary but can broadly be categorized as performance optimization (i.e., enhancing the current alignment vehicle) or pursuing a structure change to an existing model that improves sustainability. In lieu of performance-focused optimization, organizations are increasingly considering whether there are alignment models that are more sustainable and functional than traditional employment given the price transparency and site neutrality trends. The following article explores the evaluation of current medical group performance.

More health systems are taking a multi-faceted approach to maximize medical group performance. The exponential growth in physician and advanced practice provider employment and the growth in reimbursement tied to cost, quality, and access have heightened the importance of medical group strategy. However, many organizations continue to experience underperformance across several domains (cost, growth, access, etc.), and attempts to improve performance have stalled or been met with significant resistance. In most cases, the definition of performance is too narrow to identify the actionable strategies necessary for improvement.

Measurement of medical group performance and provider efficiency has historically been based on investment or operating loss per physician. In VMG Health’s experience, questions pertaining to a medical group optimization are complicated and require consideration of several indicators. Commonly used measures like investment per physician and provider FTE are helpful but can be misconstrued without proper context due to a myriad of factors. Some of these factors include but are not limited to medical group provider composition (e.g., primary care, hospital-based, pediatric subspecialties, etc.), medical group structure, care model, payor contracting strategy, overhead allocation, and payor mix.

ASC Reimbursement Considerations for a Transaction

April 25, 2022

By: Nick Taglioli and Dylan Alexander

The following article was published by Becker's ASC Review.

As buyers and sellers are considering a transaction in the ambulatory surgery center (ASC) marketplace, all involved parties must consider and quantify potential revenue impacts as they relate to that ASC’s contracted managed care reimbursement.

Payor contract reimbursement is a critical component of revenue, as is an understanding of the impact that an acquirer’s managed care contracts have on a target’s revenue. A “black box” reimbursement analysis can help assess the overall impact on revenue by comparing the target’s and acquirer’s managed care reimbursement (as applied to the target’s utilization data) while maintaining the confidentiality of each party’s payor contracts and allowable rates. In addition, black box analyses can offer insight into why an acquirer’s managed care contracts perform favorably or unfavorably when applied to a target’s utilization.

Contract Pitfalls: Why One Party’s Contracts Perform Better Than Another’s

There are several reasons why an acquirer’s contracts may perform more or less advantageously when applied to the target’s utilization data. Often, we hear expectations like, “we know our rates are better,” but there is far more to it than that. The primary reasons are: case mix, payor mix, and contract structure (payment logic).

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Compensating Physicians for Graduate Medical Education Services

April 6, 2022

By: Matthew McKenzie, CVA

The following article was published by the American Association of Provider Compensation Professionals (AAPCP).

A growing and aging population is increasing the gap between physician demand and supply in the United States. A recent study published by the Association of American Medical Colleges (“AAMC”) indicates there will be a shortage of between 37,800 and 124,000 physicians by 2034. While some of the increased demand for healthcare services can be met by increasing utilization of nurse practitioners, physician assistants, and other advanced practice clinicians, expanding the output of graduate medical education (“GME”) programs will also be key to reducing the shortage.

GME refers to the period of training in a particular medical specialty (residency) or subspecialty (fellowship) following medical school. Residents and fellows undergoing GME typically require some form of oversight and proctoring by board-certified physicians. The physicians who supervise and train these students dedicate significant time and energy to the GME programs. However, determining how to compensate physicians for these supervision and teaching services can be a difficult exercise, as physicians are often able to bill and collect, generate compensated work RVUs (“WRVUs”), or log hours towards their clinical compensation model while simultaneously teaching residents and fellows. The following section describes various ways of compensating physicians participating in GME programs.

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Medical Director Arrangements: FMV Considerations and Tips to Remain Compliant

April 1, 2022

By: Krista Patterson and Caroline Dean, CVA

The following article was published by the American Health Lawyers Association (AHLA) Fair Market Value Affinity Group.

As the health care industry shifts to value-based reimbursement, the benefits of including physicians in administrative roles are becoming more apparent. Medical director arrangements can be imperative to the smooth operation of a hospital or health care organization. Because physicians can provide firsthand knowledge and experience of providing patient care, utilizing physicians in leadership roles can provide immense benefits including improved quality and efficiency.

Physicians are knowledgeable about the current patient care landscape, as well as the nuances within their specialty and area of expertise. Additionally, they are typically respected and credible among their peers and can often assist in attracting new physician talent. As medical directors are in a position to generate or potentially steer referrals, there has been increased government scrutiny concerning these compensation arrangements. This article will discuss the various regulations surrounding medical director arrangements and key factors that organizations should consider in meeting the regulatory guidelines.

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ASCs in 2021: A Year in Review

February 16, 2022

By: Jack Hawkins, Connor Green, and Colin Park, CPA/ABV, ASA

2021 has been an expansive year for the healthcare industry as it continued its rebound from the coronavirus (COVID-19) pandemic. While the healthcare industry as a whole has seen a speedy recovery, the Ambulatory Surgery Center (ASC) subindustry has seen an even more swift rebound to pre-COVID levels.

Along with expectations of an ongoing major, multi-site transaction in the ASC market in 2022, the ASC industry continued to consolidate throughout 2021. The ASC subindustry has seen recurring trends that started pre-pandemic: the shift of higher acuity procedures from the inpatient setting to the outpatient setting, increased Medicare reimbursement rates, consolidation of ASCs by management companies, and a push by hospitals to grow their ambulatory footprint with a particular focus on the outpatient setting.

COVID-19 Pandemic Recovery

For a detailed, macroeconomic analysis on the impact/recovery of the COVID-19 pandemic on healthcare M&A, please see VMG Health’s Healthcare M&A Report.

In March of 2020, the world was impacted by the spread of the COVID-19 pandemic, subsequently, 2021 was a hopeful year of rebuilding and recovering from the lasting effects brought on by the pandemic. ASC’s experienced a relatively quick recovery in 2020 with the hope that 2021 would reflect a full year of operations that mirrored pre-pandemic performance. Throughout 2021, additional variants of the original virus emerged presenting challenges for ASC’s. However, it appeared that ASCs learned from 2020 and were able to navigate the variants and continued to operate at a normal pace.

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Hospital Subsidy Support for Exclusive Anesthesia Group Practices Expected to Rise

November 10, 2021

The percentage of hospitals financially subsidizing their anesthesia groups has been reported in excess of 80% for many years and is expected to rise even more. As a result, there has been an increased focused on this expense, along with fair market value requests from hospitals who are under pressure from their anesthesia groups to increase financial support. Looking into 2022, there are several factors which will likely put further pressure on an anesthesia group’s economics.

Anesthesia revenue per unit is likely to decline

The natural aging of America, and the corresponding change in payor mix, will have a disproportionately negative impact on anesthesia vs. most other specialty physician segments. The American Society of Anesthesia refers to the gap in commercial reimbursement to Medicare reimbursement as “the 33% problem.” The Medicare reimbursement for anesthesia is typically 33% of that for commercial payors. In modeling required financial support for an anesthesia service, one of the most important factors in determining the level of support is payor mix.

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Compensating Physicians for APC Supervision

October 14, 2021
Published in partnership with the American Association of Provider Compensation Professionals (AAPCP). In recent years, demand for medical services has increased significantly due to a growing and aging US population. To aid in managing this increased demand, many healthcare providers have expanded utilization of nurse practitioners, physician assistants, and certified registered nurse anesthetists (“CRNAS”), commonly referred to as advanced practice clinicians (“APCs”). APCs are licensed practitioners, typically with an advanced or graduate level of education, who can provide clinical care and may bill insurers for their services. Evidence of increased APC utilization can be seen in the year-over-year changes in the number of Physicians vs. APCs billing Medicare between 2014-2019 is illustrated in the following charts.

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Evaluating the risk of substituting fixed-asset NBV for FMV

June 10, 2021
Published by the Health Care Compliance Association (HCCA) Did you know that when comparing fair market value (FMV) to net book value (NBV), the difference in value could be as much as three times? Medical equipment, fixed assets, and other tangible personal property (capital assets) are commonly a significant element in healthcare transactions. Capital assets represent a diverse range of tangible asset investment, from general office furniture, fixtures, and equipment used in a professional medical practice to sophisticated equipment and technology systems operated in hospitals, ambulatory surgery centers, imaging centers, and radiation therapy facilities. When considering a potential transaction, the regulatory requirements with the Stark Law set a precedent of establishing FMV—defined as “opinion expressed in terms of money, at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts, as of a specific date”[1] —related to all components of a healthcare business that have financial relationships with physicians. Additionally, broader implications of a transaction may warrant support, for all parties involved, that asset value is consistent with current market levels. Depending on the healthcare business and facility, capital assets are often a material component of value when determining the following:
  • Capital asset FMV in support of compliance and financial planning for acquisitions, mergers, divestitures, and asset transfers;
  • Capital asset FMV in support of a broader business valuation;
  • Capital asset FMV in support of financial planning for federal tax purposes; and
  • Capital asset FMV in support of liquidations, bankruptcies, and collateral audits.
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Two Major Healthcare Strategies to Prepare for 2022

June 4, 2021

The following article was published by Becker's Hospital Review

As we move into the second half of 2021, we have much more clarity on where healthcare transactions and physician alignment models are headed.

First, we can say with confidence that transaction activity is on the rise. In fact, transaction deal volume in Q1 2021 was 75% higher than transaction activity in Q1 2020. Second, under the new Stark Law and Anti-Kickback Statute (AKS) rules, the flexibility created to encourage value-based care models with physicians has healthcare leaders racing to figure out new physician alignment models. We have only just begun to see new and creative strategic activity from these two movements within the healthcare industry.

Being proactive with strategy in 2021 will be essential for revenue growth, as well as solidifying key alliances in the upcoming year. If you are not thinking about what 2022 will look like for your healthcare company, you may be behind the curve. Nearly every sector within healthcare is active with transactions and rethinking their physician alignment models. In addition, there are new players in the market, such as management companies specialized in certain sectors, along with a surge of private equity players. The need to be thinking strategically has perhaps never been greater, and the breadth of knowledge required to succeed can be daunting. That said, there are ways to break this all down into bite-sized pieces – do you want to get involved with a specific healthcare sector, or update your physician alignment strategy, or both?

Three Questions to Consider Before Distributing Value-Based Payments to Physicians

June 2, 2021
By Jen Johnson, CFA Published in partnership with the American Association of Provider Compensation Professionals (AAPCP). With the growth in value-based care, many payor contracts now tie a portion of reimbursement to savings and quality outcomes. In addition, full risk contracts are becoming extremely prevalent in primary care, while bundled payments continue to evolve within orthopedic surgery.  Plus, there are various forms of integrated healthcare delivery networks, including Clinically Integrated Networks (CINs), which often have risk-based contracts. As a result, healthcare leaders are thinking through this major question, how can I maximize reimbursement from value-based care contracts? Not surprising, the answer has something to do with physician alignment. Physicians have a significant impact on value-based care reimbursement and have proven to drive both savings and quality. Where it gets tricky is deciding how much of this value-based compensation can be allocated to the physicians for their contribution in earning those extra dollars. When a payor is able to tag reimbursement to incremental savings or quality, it is common for the contracting entity to allocate a percentage to physicians for their part in earning those dollars. The percentage often hovers around 50% in the market, although, it has been observed to be as low as 0% and as high as 100% based on historical Accountable Care Organizations (ACOs) payment data to providers. The appropriate percentage should consider factors related to the value added by the physicians, as well as expenses incurred by the contracting entity. Since physicians must be paid consistent with Fair Market Value, it is important to understand these factors. The following three questions and commentary can help you navigate what should be considered when determining how much can be allocated to the physicians for their contribution in maximizing your value-based care reimbursement, while being mindful of the Fair Market Value requirement.

1. To what extent are the savings and/or quality payments driven by the physicians?

When payments are tied to quality and savings it is often clear that the physicians have helped create those funds. That said, sometimes payments are actually tied to care coordination functions or other services not provided by the physicians, and at the expense of the contracting entity. Therefore, it is important to understand what exactly is driving the additional reimbursement that is to be shared, as well as the physicians’ impact, before determining the value-based distribution percentage.

2. What part does the contracting entity play in generating the savings and/or quality payments?

It is typical for a health system, hospital, or other entity to hold the value-based payor contract, as well as provide certain services such as care coordination and IT infrastructure. The contracting entity serves a similar role to an ACO or CIN in that they negotiate with the payor and provide support services for the value-based care. As a result, it is important to understand both services and costs incurred by this entity prior to determining the value-based distribution percentage to the physicians.

3. Is it appropriate to allocate value-based dollars onto an existing compensation model with a contracted physician?

To answer this, one needs to understand the terms and valuation of the existing contract with the physician, whether it be an employment agreement or PSA. If the underlying contract is consistent with Fair Market Value and based on productivity, there will likely be more flexibility to provide the additional value-based payments to the physicians.  That said, depending on how close you are to the upper limit of Fair Market Value, it may be prudent to make a value-based care deduction to any relied upon survey data that was used to develop the underlying compensation model to ensure no duplicate payments for value initiatives. In a different example, if the underlying contract is based on a guaranteed fixed amount for a low producing physician, allocating value-based distributions to the physician may not make sense from a Fair Market Value perspective. Bottom line, all compensation and services should be considered to make sure there are no duplicative payments and total compensation makes sense.

Final Note

Since there is no survey data that can answer the questions listed above, it is important to understand the full picture before creating a value-based distribution plan for your physicians. Being able to demonstrate the physicians have a demonstrable impact on generating the funds is a key basis for sharing these dollars. It is also important to ensure that the funds distributed consider the role of the contracting entity, and any other payments the physician is receiving, to help establish Fair Market Value.