Valuing an Out-of-Network Center in 2012: Thoughts from VMG Health’s Kevin McDonough

Published by: Becker's ASC Review When looking to buy a surgery center, the percentage of out-of-network cases an ASC does is one of the most important factors a buyer considers. In a recent VMG Health survey, 93 percent of buyers said heavy reliance on out-of-network payors had a "very high" impact on the ASC's value. Seven percent said it had a "high" impact." A high percentage of out-of-network cases results in a lowering of the multiple a surgery center sells for, says Kevin McDonough, CFA, senior manager of VMG Health. The reduction can often be as high as 50 percent. The general trend in surgery center valuation is a widening margin in the multiples, Mr. McDonough says. "Our observation of the ASC transaction market over the last five-10 years is that the valuation ranges we're seeing and the relative multiples have widened significantly," he says. "With respect to valuation, you simply cannot paint the entire industry with a single brushstroke. We’ve observed almost as many acquisitions occurring at discounted multiples as we have observed at the very top end." Five to seven years ago, control-interest acquisition multiples fell consistently right around a 7 times EBITDA range. Now, Mr. McDonough says, acquisition multiples are significantly more varied. "For those ASCs that are deemed high-risk, buyers will either discount the multiple offered or utilize higher multiples however adjust or "normalize" underlying EBITDA to account for significant risk factors." Of the myriad of headwinds facing the industry, an out-of-network reimbursement strategy can be considered one of, if not the most significant, risk factors for a surgery center. Click here to continue to the full article.

Trends and FMV Considerations in Structuring On-Call Coverage Payments

Published by PHA Pulse Payments to physicians for providing on-call coverage have become increasingly popular in the marketplace. As such, on-call compensation arrangements have been thrust into the regulatory spotlight, and the importance of ensuring a fair market value (FMV) compensation structure has never been greater. Understanding the trends, payment methodologies and FMV considerations are vital in structuring a compliant on-call coverage arrangement.

On-Call Coverage Trends

Historically, it has been standard practice for physicians to provide call coverage. They provided uncompensated emergent coverage to gain admitting privileges at hospitals and as a means of building patient volume for their practice. Hospitals generally required physicians to participate in call rotations as a contractual expectation to maintain emergent coverage at their facilities. Today, the trend and market for physician on-call coverage has completely transformed. Physicians have become increasingly averse to providing uncompensated emergent coverage. Key factors influencing this trend include the rise in the uninsured population, fear of malpractice lawsuits, and the disruption of their personal lives and private practices. Additionally, there is a shortage of physicians in the United States that is only expected to worsen. According to the Association of American Medical Colleges, there could be a shortage of up to 90,000 physicians in the United States within the next eight years. Recent trends have also indicated that it has become more common for tenured physicians to negotiate on-call opt-out clauses. Click to continue to the full article.

The Sunshine Provision, Fair Market Value and Compensating KOLs

Published by Pharmaceutical Compliance Monitor Starting January 1, 2012, manufacturers of drug, device, biological or medical supplies must track virtually any transfer of value or payment to physicians and/or teaching hospitals. These payments are to be available on a public, searchable website and will be reported to the Secretary of Health and Human Services on an annual basis. This new requirement is due to the Physician Payment Sunshine Provision in Section 6002 of the Patient Protection and Affordable Health Care Act (“Sunshine Provision”). Unfortunately, industry is currently awaiting additional guidelines related to how to comply with the Sunshine Provision. These guidelines were planned to be released October 1, 2011 but no information has been provided. This postponement has left pharmaceutical executives wondering how best to prepare for the Sunshine Provision considering the short time period companies will have to implement systems, compliance programs and training. Although no one can predict what the specific guidance will be related to the Sunshine Provision, I can assure you a company’s compliance policies as it relates to payments to Key Opinion Leaders (KOL) will be critical. There has been a considerable amount of public attention associated with payments from industry to prescribing physicians. An additional challenge is that one must consider the anti-kickback statute which mandates that payments to physicians must be set at Fair Market Value (“FMV”). As a result, it will be imperative that pharmaceutical companies understand the FMV requirement and appropriate methodologies for determining payments to physicians. This article will address important points for establishing FMV as well as essential considerations when assessing compliance programs. Click here to continue to the full article.

How Does Your Surgery Center Measure Up: Same Center Performance Trends

Published by Becker's ASC Review

Part I: Same center volume trends

There was a collective hope by ambulatory surgery center market participants that performance declines experienced during 2008 and 2009 were only temporary and largely driven by extraordinary market dynamics brought on by the economic downturn that plagued the United States and world economies during this period. Growth would return to the ASC market as the economic environment as a whole gradually improved. It has been our observation, however, that performance trends in 2010 and early 2011 have not entirely supported such a theory. Although it's clear that the downturn accelerated and amplified declining performance trends, there continues to be numerous headwinds the industry is presently facing that are outside of the recent recession and subsequent sluggish recovery. These headwinds include the following:

Oversaturation of ASCs in many markets.
Increasing employment of specialists by health systems.
Declining ability to bill and collect using an out-of-network strategy.
Increasing consolidation within the managed care payor industry — large, poor reimbursing payors have an increased market share.
Inability to recruit young physicians to replace high volume utilizers that are nearing retirement.

In an effort to further explore recent ASC performance, VMG conducted a study of same center volume and reimbursement trends and will highlight our observations in a two-part piece that focuses specifically on volume and reimbursement trends. This column, part I, will focus exclusively on same center volume trends, broken out by specialty and region. In part II, to be published in the near future, net revenue per case trends will be analyzed. Click to continue to the full article.

4 Common Mistakes in Determining Fair Market Value for Physician Compensation

Published by Becker's Hospital Review Industry regulations require healthcare organizations to pay fair market value (FMV) compensation to physicians for their services.[1] Due to the lack of a published set of standards that define a process to establish FMV for physician compensation, misconceptions of what determines and substantiates FMV are common in the market. The following provides a list of four common mistakes that VMG Health, a healthcare valuation firm and my company, has observed. Click here to continue to the full article.

Big Pain or Big Gain? Important Factors for Hospitals Considering Partnerships With Retail Clinics

Published by Becker's Hospital Review Hospitals and health systems partnering with retail clinics, such as CVS' MinuteClinic and Walgreens' Take Care Clinic, is a growing trend. Recently, New Orleans-based Louisiana State University Health Sciences Center and the LSU Healthcare Network partnered with area Take Care Clinics and Detroit-based Henry Ford Health System partnered with MinuteClinics. Although the partnerships with health systems are relatively new, retail clinics have been growing increasingly common for years. As of July 1, 2011 there were 1,251 retail clinics in the United States, an increase of 74 from the previous year, according to a July 2011 Merchant Medicine report. There are a variety of potential benefits motivating partnerships between health systems and retail clinics, including greater access to care and lower costs. However, hospitals and health systems still face challenges, such as relying on a retail-based entity to deliver healthcare services. Experts discuss these pros and cons of hospital-retail clinic relationships and what factors healthcare leaders should consider when thinking about forming such a relationship. Click to continue to the full article.

Compliance Checklist: Compensating Physicians for Quality Care

Published by Compliance Today Because hospitals’ critical success factors are shifting towards quality performance benchmarked to national standards, many health systems are involving physicians in various types of service arrangements to assist in the effort to improve quality outcomes. It is important to understand that compensating physicians for assisting in the attainment of high quality care must be set at fair market value (FMV) and that the terms of the arrangement must be consistent with regulatory guidelines. Failure to do so could result in criminal and/or civil penalties based on health care fraud and abuse laws. Numerous pay-for-performance (P4P) programs indicate that compensating hospitals and physicians for quality care is becoming more common. Currently, there are a growing number of governmental and private payor P4P programs. In 2003, the Centers for Medicare and Medicaid Services (CMS) started financially incentivizing hospitals for quality through a P4P program launched by CMS and Premier Inc., the Hospital Quality Incentive Demonstration (HQID) program. HQID includes more than 250 hospitals and is based on 30 nationally standardized and widely accepted care measures to patients in five clinical areas.1 Similarly, there are governmental pilot P4P programs specifically related to physicians’ quality outcomes. Although there is not yet a nation-wide CMS P4P program, a national Value Based Purchasing (VBP) program is expected. On January 7, 2011, CMS released a proposed rule establishing the VBP program. This program would be mandated under Section 3001 of the Affordable Care Act and is expected to provide value-based incentive payments to hospitals beginning in Fiscal Year 2013, based on their achievement or improvement related to quality care measures.2 Meanwhile, the commercial payor landscape shows the number of P4P programs continues to experience rapid growth for both hospitals and physicians. Continue to the full article.

Fair Market Value and the Sunshine Act: Preparing for Mandatory Disclosure

Published by RX Compliance Report It is now imperative for all life science company executives to understand the Fair Market Value (FMV) requirement and appropriate methodologies for determining payments to physicians. Beginning January 1, 2012, manufacturers of drug, device, biological or medical devices must report virtually any transfer of value or payment to physicians and/ or teaching hospitals. This new requirement is due to the Physician Payment Sunshine Provision in Section 6002 of the Patient Protection and Affordable Health Care Act (Sunshine Provision). The payment information will be reported to the Secretary of Health and Human Services on an annual basis and will be available on a public, searchable website. The Sunshine Provision is the major catalyst to the transparency and disclosure movement in the life sciences industry. However, it is important to recognize that establishing a system for reporting these payments should only be part of a company’s transparency initiative. Ensuring the payments are considered FMV will be critical to withstand regulatory scrutiny. This article will discuss valuation guidelines for determining FMV and compliance considerations to prepare for the Sunshine Provision. Click to continue to the full article.

5 Things You Should Know About Co-Management Arrangements

Published by Healthcare Financial Management Association Hospitals today are increasingly turning to co-management agreements as tools for physician alignment. These arrangements, a direct outgrowth of pay-for-performance programs, are typically structured in two parts: a fixed fee for services rendered by the physicians and a variable fee based on the quality of the outcomes. Services provided by the physicians most often include time spent working on protocols and best practices to improve quality and efficiency of the service line. Common quality metrics include improving patient satisfaction and lowering infection rates. When implementing a physician integration strategy, healthcare leaders should be mindful of federal regulations mandating that payments to physicians be set at fair market value (FMV). Healthcare fraud and abuse laws have identified FMV as the standard of value for determining compensation between a physician and hospital in order to prevent overpayment to a physician based on the value or volume of referrals. As a result, if an agreement between a physician and healthcare organization is audited by federal or state healthcare authorities, the analytical process and documentation to justify the payment is FMV will be essential in defending the compensation level. Co-management agreements are no exception. Failure to set payments under these arrangements at FMV could result in criminal and/or civil penalties. Regulatory authorities may subject not only the payments, but also the structure and terms of the arrangement to close scrutiny. Determining the appropriate structure and FMV for the fees associated with co-management agreements can be challenging for two reasons. First, co-management arrangements are relatively new and the structures continue to evolve. Second, there is very little regulatory guidance on how these agreements should be structured and valued. Discussions among healthcare leaders, attorneys, consultants, and valuation firms when developing these arrangements tend to focus on five topic areas: Click to continue.

7 Critical Questions on Surgery Center Transactions and Valuation Issues

Published by Becker's ASC Review 1. Q: How are ambulatory surgery centers being priced today? Stephan Peron: In today's economic environment there has been a greater segregation in pricing based on quality due diligence in the eyes of a buyer to qualify an investment as a high-quality investment versus a low-quality investment. The same holds true for the surgery center market. ASCs considered high quality from a general market perspective must possess certain attributes that surgery center investment companies find to be attractive in regard to the ability to generate a strong return on investment. The prices on the high-quality surgery centers are still strong as compared to the market before the financial crisis in 2008 and 2009. The prices on the lower-quality surgery centers came down a few years back and have remained depressed as compared to times when the debt was readily available. Click here to continue to the full article.