The System contracted directly with a payor to provide neurological spine surgical services through a bundled payment at System-operated facilities, including both in the hospital and ambulatory surgery center settings. The System sought a fair market value (FMV) analysis of the services to begin its negotiations with the physician staff required to provide the surgical services: neurosurgeons, anesthesiologists, and hospitalists. These potential service providers were not employed by the System and, due to the global fee arrangement, were unable to bill and collect directly for their professional services. As such the System proposed to pay the physicians a fixed case rate for each type of spine surgery performed, based on the relative work effort for each type of case and each specialists’ involvement in the case.
To determine the case rates, VMG Health considered the specific services provided by each physician for each type of spine case. This included an analysis of the time and expertise required for the cases, market compensation survey data for each type of specialty (including national and regional compensation and compensation per WRVU rates), and reimbursement for commercial services in the local market. Using this data, professional experience, and an understanding of the unique circumstances of the arrangement, VMG Health developed a FMV compensation range for each case type for each specialist. Subsequently, VMG Health considered the operating margin the System could expect to earn on each case assuming a certain level of fixed and variable System costs including the FMV high-end case rate compensation for each specialist.
After developing the FMV compensation rate for each case type, VMG Health presented its conclusions to the System leadership to aid in the contract negotiation process. In addition, VMG Health presented its sensitivity analysis of the System’s operating margin to illustrate how the FMV compensation ranges would result in a reasonable margin earned by the System under the arrangement. System leadership later confirmed it successfully executed agreements with each physician at rates that fell within VMG Health’s FMV compensation ranges.
The System employs over 1,500 physicians covering 90+ sub-specialties. These physicians provide a wide range of services including clinical services, administrative services, and on-call services. The System needed to engage a third-party valuation firm to evaluate the compensation of the physicians for compliance purposes. The goal was to document FMV for all physicians in an efficient and cost-effective manner.
To streamline the FMV compensation review for the System, VMG Health conducted the analysis in two phases. The first phase consisted of a general assessment of the compensation paid to each physician utilizing productivity, FTE status, and market survey data to determine whether the physician’s total cash compensation was in alignment with market benchmarks. Through this Phase 1 assessment, VMG Health was able to identify that a significant portion of the employed physicians’ total cash compensation was low risk and consistent with FMV.
The remaining physicians received further review by VMG Health under a Phase 2 analysis where all services were valued individually and together. For clinical services, VMG Health considered the productivity and FTE status dedicated to the clinical services. For administrative roles, VMG Health considered the FTE status dedicated to the role, as well as the experience and qualifications of the physician. For on-call services, VMG Health considered the burden of call and excess shifts covered by the physician. All of these services were stacked together, and the reasonableness of the hours dedicated by the physician in totality was assessed to ensure the total hours of services could be reasonably provided by the physician without duplicative consideration of hours/effort.
VMG Health was able to quickly and cost effectively provide the System with a compensation assessment across all 1,500+ physicians. This assisted the System with due diligence related to ensuring that the compensation it paid its physicians was reasonable and in compliance with the FMV standard.
Historically, the Hospital contracted directly with the Group to provide cost savings related to certain medical devices and supplies on orthopedic surgery cases. Under this arrangement, the Group was eligible to receive a portion of the actual savings achieved. Having been in place for a few years, the targeted savings under this arrangement had been realized thereby leaving little-to-no compensation to be awarded to the Group despite continued efforts to keep costs low without sacrificing patient clinical quality outcomes. Therefore, the Hospital was seeking a fair market value opinion (FMV) and analysis of the maximum incentive compensation that could be paid to the Group based on quality outcomes at the service line.
VMG Health first suggested updating the metrics in the agreement to substantiate FMV compensation for quality outcomes, as opposed to savings alone. This entailed strengthening the quality gates listed in the existing agreement and considering new metrics that would align with the market. VMG Health conducted an in-depth review of the proposed quality metrics from a valuation perspective, which included detailed feedback and guidance of what creates a valuable quality metric based on VMG Health’s extensive market research on various value-based payment models in the market and how physicians are compensated for quality of care. VMG Health also worked closely with the Hospital and its counsel in discussing potential compliance considerations and pitfalls to avoid when selecting quality metrics. The FMV conclusion for the new incentive compensation considered market data for quality bonuses paid to physicians and included a reasonableness test of the maximum incentive compensation pool.
VMG Health determined the value of the maximum incentive compensation pool for quality metrics and provided feedback for the Hospital to use in selecting and determining quality metrics that were consistent with value-based care arrangements in the market. The deliverable was then used by the Hospital to support the maximum incentive compensation amount to be stated in the go forward arrangement and for regulatory and compliance purposes.
Due to the regulatory landscape of the healthcare industry, including fee splitting prohibition and the corporate practice of medicine (CPOM) doctrine, private equity investment in healthcare is not as straightforward as other industries. Instead of simply utilizing its capital to purchase a controlling stake in the dental practice (“Practice”), the PE firm needed to create a DSO to manage the non-clinical aspects of the Practice. As a result, the PE firm sought a fair market value (FMV) analysis to determine the fee for the management services provided by the DSO to the Practice for regulatory and compliance purposes.
To determine an FMV fee for the DSO management services, VMG Health considered expenses the DSO would incur to provide the full suite of management services to the Practice along with a reasonable rate of return. To determine the reasonable rate of return, VMG Health reviewed the management services agreement to understand all aspects of the arrangement including, but not limited to, the scope and nature of the services, the term and survivability of the agreement, and the business risk borne by each entity. Utilizing that information, VMG Health selected market comparables of companies that were providing similar services and taking on similar business risk. VMG Health then analyzed the returns of these comparables and selected an appropriate risk adjusted return that could be earned by the DSO for its provision of management services. VMG Health also contemplated fees charged by similar providers in the dental space for comprehensive management services.
VMG Health determined an FMV fee for the DSO's provision of the management services by considering the specific details, facts, and circumstances of the arrangement. VMG Health's FMV opinion was then used by the PE firm and its legal counsel to establish a fee to be included in the management services agreement.
The Hospital was seeking to obtain coverage of its ED by qualified emergency medicine physicians and nurse practitioners. Through the Agreement, the Group would bill and collect for the professional services. Additionally, the Hospital would pay the Group an annual coverage amount to cover the Group’s projected shortfall of professional collections to expenses. The System was seeking valuation services from an independent third-party valuation firm with extensive experience in hospital coverage arrangements to perform an FMV analysis of the compensation.
The FMV analysis of the ED coverage services considered a build-up of provider costs based on market compensation survey data for emergency medicine physicians and nurse practitioners, and an analysis of the provider FTEs required to cover the ED based on the Agreement’s coverage schedule. This required benchmarking historical and projected WRVUs and professional collections by provider type against market survey data to help determine total provider costs.
The analysis also included a provision for billing and collection costs and other indirect costs (back-office overhead, practice management, etc.) to be incurred by the Group, and considered overhead data from public physician staffing companies. To arrive at a conclusion of value for the coverage payment, the Group's total expenses, inclusive of a market-based return, was reduced by professional collections.
VMG Health determined the FMV compensation for the Group’s provision of ED coverage services by considering market data and the specific details, facts, and circumstances of the arrangement. The deliverable was then used by the System and Hospital to aid in the contract renewal negotiation process, and for regulatory and compliance purposes.
The System intended to end a joint venture imaging center with the Group, but wanted the Group to continue to provide the professional interpretation services at the imaging center under a professional services agreement. As such, the System needed to engage a valuation firm to assist with establishing a compensation structure amenable to the Group that was consistent with FMV.
VMG Health began this engagement by working with the System to outline the expected coverage to be provided by the Group, along with the historical and expected productivity. This enabled VMG Health to compare the services and production of the Group to radiology data contained in national market salary surveys. VMG Health used multiple approaches to benchmark the services which resulted in an aggregate compensation figure for the services. Subsequently, VMG Health worked with the System to identify a FMV compensation structure that was acceptable to the Group and could be easily implemented by the System. After analyzing several potential structures, the System settled on a dollar per WRVU indication.
VMG Health determined the FMV compensation for the Group’s provision of professional radiology interpretation services by considering the specific facts and circumstances of the arrangement, and an analysis of market compensation data for similar services. The deliverable was then used by the System to aid in the contract renewal negotiation process, and for regulatory and compliance purposes.
Hospital B was seeking to secure various specialty transplant surgery services to meet the community demand, patient volume, and transplant designation requirements of the market. Hospital B had historically experienced difficulty recruiting and maintaining specialized transplant surgeons required to fulfill the Organ Procurement and Transplantation Network (“OPTN”) guidelines. The guidelines must be strictly followed by each OPTN certified facility to operate a transplantation program. Hospital B requested to contract with the Group to travel to the hospital and provide clinical, administrative, and teaching services to meet the aforementioned guidelines on a temporary basis until permanent coverage could be secured.
In order to determine an FMV payment for the Group's services, VMG Health considered transplant surgery clinical compensation market survey data, the physicians’ unique education, experience, and certifications, and the expenses associated with the part-time nature of the services. In addition, VMG Health considered the community need and the possible impact on quality of care in the market, should the services not be provided by the Group. As part of the analysis, VMG Health analyzed the expected duties and time required to fulfill these responsibilities, such as reviewing active patient cases, transplant acceptance committee meetings, the burden of on-call coverage services, and timely response to transplant patients. Ultimately, VMG Health conducted a cost build-up analysis to provide a daily FMV indication that encompassed all facets of the services provided by the Group to Hospital B.
VMG Health determined the FMV compensation for each of the physicians’ provision of the clinical, administrative, and teaching services to the out-of-market hospital while considering the unique details and circumstances of the arrangement. The hospitals utilized the deliverable to aid in structuring a professional services arrangement to secure quality transplant surgery services at Hospital B.
The Practice had stated there was a demand for gastroenterology services that outweighed the current supply of physicians in the GSA, and as such, needed assistance from the System in recruiting an additional physician to fill that need. The System was looking to assess whether support could be provided based on a physician needs assessment conducted utilizing the Stark Law’s recruitment exception guidelines.
VMG Health conducted a physician needs assessment for the specialty of gastroenterology in the System’s GSA. The assessment included utilizing database resources to assess the current supply of physicians in the market, an analysis of the current population in the System’s GSA, and an analysis/selection of the appropriate physician-to-population ratio for the specialty. In assessing the appropriate physician-to-population ratio, VMG Health conducted research on the population in the market and incidence rates of conditions treated by gastroenterologists in the market relative to national incidence rates. In addition, VMG Health interviewed management to gain an understanding of any market optics not assessed in VMG Health’s initial research such as long wait times to see specialty physicians, patient outmigration for specialty services, etc.
VMG Health determined an appropriate supply and demand for the System’s GSA and determined whether the market had a deficit/surplus of gastroenterologists both in the current state, as well as a forecast of deficit/surplus in the future (based on population growth and anticipated physician retirements). This deliverable was then utilized by the System to assess whether to pursue recruitment support arrangements with the physician practice.
The System was located across the street from the Hospital and had various on-site professional service arrangements with the Hospital. Due to the proximity, the System would frequently receive emergent calls from the Hospital for life-saving support from System-employed physicians. The System wanted to engage an independent third-party valuation firm with extensive experience in on-call coverage arrangements to determine the fair market value (FMV) of the services they were providing to the Hospital.
As part of the FMV analysis, VMG Health considered clinical and on-call coverage compensation market survey data. In addition, VMG Health conducted a robust review of the services provided for life-saving support and the burden of the call coverage services in terms of supply and demand, frequency, and duration when called in. Since this would be a new agreement for both parties, VMG Health also provided compensation consulting services for how to structure the payments and scenario-tested compensation levels at different tiers of annual call-ins.
VMG Health provided the System with a tool that outlined tiered hourly rates applicable for various specialties allowing the System to easily reference for initial contract negotiations. Then, upon client request, VMG Health would consider the specific details, facts, and circumstances of the arrangement and the physician’s experience and expertise to aid in the selection of a fair market value hourly rate for regulatory and compliance purposes.
The System contracts directly with various physicians to provide their experience and expertise in the research and development of novel medicines, treatments, and devices, in addition to serving as liaisons for the education and promotion of these products. There was a desire to expedite the contract negotiation process and enhance compliance. VMG Health was engaged to develop an internal tool and streamline the FMV process.
To develop the internal tool, VMG Health reviewed the agreements to understand the key opinion leader consulting services. Subsequently relevant market survey data was considered including roles such as physician executive consultants, medical expert witnesses, clinical, and academic services for various specialties. Tiers were created based on various levels of experience to facilitate initial negotiations. Once the physician becomes a probable candidate, VMG Health is requested to consider the proposed services per the agreement and review the physician’s CV to help select an appropriate FMV hourly rate tier for the physician. Tier selection considered the physician’s clinical experience, specialty training and expertise, frequency of presentations and publications, leadership and academic roles, consulting experience, and national or international notoriety. This information was used to derive the final fair market value indication for a specific arrangement.
VMG Health provided the System with a tool that outlined tiered hourly rates applicable for various specialties allowing the System to easily reference for initial contract negotiations. Then, upon client request, VMG Health would consider the specific details, facts, and circumstances of the arrangement and the physician’s experience and expertise to aid in the selection of a fair market value hourly rate for regulatory and compliance purposes.
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