Urgent Care Platform Expansion

A large, not-for-profit regional health system was looking to expand high-quality and convenient outpatient care options to patients through an urgent care strategy.  


Situation

Urgent care centers are a convenient access point into the health system. Demand for urgent care services has increased significantly over the past several years as patients demand accessible, convenient health services at a lower cost of care compared to emergency rooms. However, many markets are saturated with urgent care centers, and the ability to develop a successful urgent care platform takes time, capital, and a focused management team.  

Solution

The health system had conversations with multiple potential partners for urgent care services. VMG Health assisted in the initial evaluation of potential partners, including a review of post-transaction, contractual terms; potential purchase price; and geography. The health system selected a strategic partner that had an established platform of existing locations in a region where the health system also has a reputable presence within the market. The two entities jointly retained VMG Health to perform a fair market value analysis of the strategic partner’s existing urgent care platform to support the health system’s investment.  

Additionally, VMG Health assisted with the valuation of several post-transaction, contractual arrangements, including a management services agreement where the strategic partner will continue to manage the locations and a royalty agreement related to the post-transaction branding of the locations.  

Success

The parties signed a definitive agreement in which the health system invested in the existing urgent care platform to establish a new joint venture for urgent care services. In addition to the purchase agreement, the parties signed a royalty rate agreement and a management services agreement. The strategic partner benefits from the brand and scale of the health system. The health system has achieved additional, convenient access points of care through a large platform of established urgent care locations within their market. 

Assessing Fair Market Value of Clinically Integrated Networks for Joint Venture Integration

Two health systems (“Clients”) sought fair market value (FMV) opinions of their respective clinically integrated networks (CINs) for contribution to a larger joint venture between the parties. The clients aimed to integrate across both markets to access a wide range of patient populations, physicians, clinics, and hospitals, as well as share in the strengths of each parties’ contribution. 


Situation

CINs are collaborative networks of healthcare providers, including hospitals, physicians, specialists, and other healthcare professionals, working together to improve patient care quality, efficiency, and coordination. As part of a value-based care strategy, CINs can offer many benefits, such as reducing overall healthcare costs, lowering insurance premiums, and providing an increased quality of care to the patient population while delivering shared savings back to providers. CINs can be complex entities with unique revenue streams and earnings opportunities. Additionally, significant investment may be required to bring CINs to full maturity across several years. The parties needed an accurate measure of each CIN’s contribution value to the larger joint venture. 

Solution

The Clients engaged VMG Health to determine the contribution value that each CIN would bring to a potential partnership. To achieve an effective integration between entities, VMG Health compiled analytical projections and scenarios that advised the Clients on differences between each CIN’s relative revenues and earnings opportunities, life stage, service offerings, payment models of shared savings back to the providers, and opportunities for growth and collaboration given the dynamics of the target market.  

After considering the potential opportunities the CINs had on an individual basis absent a potential partnership, VMG Health completed independent valuations focusing on business enterprise value and the contribution value each entity would bring to a partnership.

Success

The Clients agreed to combine their respective CINs into one entity by forming a joint venture (JV). The JV allowed each health system to access a larger platform that supports growth and investment in the region, promoted full economic alignment between providers and the CIN, and delivered quality focused, value-based care to each health system’s patient population.  

Fair Market Value Study in Women’s Diagnostic Imaging

After several years of patient frustration and dissatisfaction, a local independent Radiology Group (“the Physicians”) identified strong demand for a free-standing imaging center focused exclusively on providing outpatient women’s imaging services within the local marketplace. 


Situation

The Physicians, a well-established group in the community, noticed a gap in women's imaging services, with existing facilities lacking personal connections and causing long wait times, resulting in low patient satisfaction scores. The Physicians also realized the tailwinds associated with payors steering patients to lower-cost sites of care and patients becoming more cost-conscious amidst a surge of high-deductible health insurance plans and self-funding. Recognizing an opportunity, they developed a business plan to establish the first outpatient diagnostic imaging center exclusively for women, securing a convenient site in a Medical Office Building on the hospital campus. After setting up the facility, securing contracts, and hiring staff, they expanded scheduling availability, resulting in a profitable $3 million in annual revenue in the second year. 

With the success of their venture, the local hospital approached them for a joint venture to expand services further, indicating the growing recognition and value of their offerings in the community. 

Solution

VMG Health was jointly engaged by the Physicians and the hospital to provide a fair market value opinion of an ownership interest in the business. VMG Health conducted an in-depth analysis of the current operations to understand the net operating revenue, payor mix and reimbursement, operating expenses, staffing metrics, competition in the local marketplace, and other available market data. VMG Health worked closely with both parties to understand the operational history and go-forward performance expectations for the business. Through detailed analysis, discussions and assistance from both parties, a pro forma was created and a fair market value analysis was completed. This analysis informed negotiations and adherence to regulatory compliance. 

Success

Ultimately, the Physicians and the hospital successfully negotiated a transaction that included the hospital’s purchase of an ownership interest in the business, relying upon the results of VMG Health’s fair market value opinion. The parties are now exploring their options to grow the services offered by their joint venture through expanding the capacity of their current service lines, adding additional service lines, and consideration for additional sites of service in the local marketplace.  

Post-Acute Market Assessment and Feasibility Study

A national post-acute operator (“Operator”) sought a market assessment and demand study to determine the feasibility of building and operating a post-acute service in a predetermined geography in the United States. 


Situation

The Operator contemplated the purchase of land in the desired market to develop real estate and operate post-acute services. One of the defining analytics was to consider the viability of obtaining referrals from local hospitals and health systems. The feasibility study allowed the Operator to understand the market utilization, capacity constraints, and forecasted demand for additional post-acute services. Each factor was considered within the framework of population growth trends and competitor analysis. Additionally, the Operator asked VMG Health to create a 10-year, multiscenario, financial forecast with detailed revenue and expense buildups to determine whether the Operator’s required internal rate of return (IRR) would be met through the selected post-acute market strategic plan. 

Solution

To determine demand in the desired market, VMG Health focused on three distinct categories in our analysis: demographics; competitors, potential referral sources, and market-share opportunities; and analytical approaches. VMG Health conducted demographic analysis for the targeted and surrounding geographic areas, sourcing statistics including population, age, Medicare beneficiaries, Medicare Advantage population, household income, and unemployment from multiple databases covering Hospital Referral Regions (HRRs), Metropolitan Statistical Areas (MSAs), and Public Use Microdata Areas (PUMAs). Additionally, competitor locations and services in the post-acute market were determined within a selected radius of the Operator’s target location, followed by compiling statistics such as bed count, discharges, patient days, and occupancy to assess post-acute need and potential market share opportunities. VMG Health also employed proprietary quantitative approaches, considering Medicare beneficiary discharges in the market’s hospital referral region and the market’s ability to support incremental capacity given competitive dynamics, to assist in scenario analytics supporting the Operator’s targeted IRR. 

Success

After determining market demand and service need and confirming IRR requirements in the selected geography, VMG Health presented its conclusions to aid the Operator in gaining board approval to seek financing and development for the de novo, post-acute site of service. Through the feasibility process and methodology, the Operator successfully identified and executed multiple de novo locations over a three-year period. While this engagement was specifically tailored to the post-acute market, VMG Health has successfully assisted clients with feasibility studies in the behavioral health, physician practice, ambulatory surgery center, and proton therapy industries. 

Managed Care Reimbursement Analysis

A large regional health system was seeking assistance in assessing the impact of billing and collecting under its managed care contracts for a potential joint venture with a large orthopedic practice (“Practice”), aiding in a successful transaction with the Practice amidst ongoing payor negotiations.


Situation

A large regional health system was considering a joint venture with a large orthopedic practice (“Practice”) to expand its service offerings and position itself strategically in the market. In its assessment of the potential transaction, the health system needed assistance understanding the impact of billing and collecting for the Practice’s services, post-transaction, under the health system’s managed care contracts. As the parties cannot share their managed care contract rate information with one another, there was a lack of clarity around proforma revenue and provider compensation on a go-forward basis. To further complicate matters, the health system was in ongoing negotiations with certain payors regarding its contracted rates throughout the transaction process, which may also have a material impact on proforma revenue. 

Solution

The health system engaged VMG Health to perform a “black box” reimbursement analysis, proforma sensitivity, and valuation analysis of the Practice. VMG Health completed the reimbursement analysis to provide insight into the expected impact on Practice revenue, assuming the health system’s managed care rates. Further, VMG Health worked closely with the health system’s managed care team to develop multiple scenarios modeling the potential revenue impact associated with the health system’s ongoing payor negotiations.  

Success

Based on VMG Health’s findings, the health system was able to clearly evaluate the impacts of their current and estimated managed care rates on revenue and provider compensation at the Practice. This accurate evaluation enabled the health system to manage expectations with the Practice throughout the deal process, and ultimately led to a successful transaction between the parties.

Health System Outreach Lab Benchmarking and Valuation

A regional health system ("System") was seeking help assessing the financial viability and valuation of their outreach lab business, clarifying historical economics outcomes to empower the System to negotiate a significant increase in the deal price for a proposed transaction. 


Situation

A regional health system was evaluating an offer they had received for their outreach lab business from a national operator. Unsurprisingly, the health system experienced several challenges in evaluating the offer, all driven by the internal structure and reporting of the organization. Such challenges are not uncommon when evaluating any departmental information across the health system enterprise.  

This included fragmented and incomplete departmental financial and operating data, which, while useful in some contexts, were not helpful in determining the real economics of the outreach lab business. 

Solution

The regional health system retained VMG Health to perform a reimbursement benchmarking, proforma sensitivity, and valuation analysis of their outreach lab business. VMG Health completed the benchmarking exercise and identified revenue at risk within the existing outreach lab business. Additionally, VMG Health performed a valuation of the outreach lab business enterprise, accounting for both a “market participant” perspective and various business case expectations as a sensitivity analysis, in the event that the health system did not pursue a transaction. Part of the VMG Health assignment included collecting, validating, and analyzing data from disparate sources, creating much-needed clarity around the historical outreach lab economics and outcomes.

Success

Based on VMG Health’s findings, the health system was able to both evaluate the proposed transaction economics relative to the existing outreach lab business and evaluate the potential outreach lab business economics and revenue at risk if they did not pursue the transaction. Equipped with this perspective, the health system pursued the transaction and successfully received a significant increase in the negotiated deal price. 

Anesthesiology Subsidy Arrangement 

A large regional healthcare system (“System”) was seeking to obtain physician and certified registered nurse anesthetist anesthesia coverage for multiple facilities by entering into a professional services agreement (“Agreement”) with a large anesthesia provider group (“Group”). The System was seeking a fair market value opinion of the compensation payable to the Group under the Agreement for regulatory/compliance purposes and to aid in negotiations. 


Situation

The System was seeking to obtain coverage of its various anesthesia service lines by qualified anesthesiologists and certified registered nurse anesthetists (CRNAs). Through the Agreement, the Group would bill and collect for the professional services rendered by its providers at the System’s facilities, and the System would pay the Group an annual coverage subsidy to cover the Group’s projected shortfall of professional collections to expenses incurred to cover the subject anesthesia service lines. The System was seeking valuation services from an independent, third-party valuation firm with extensive experience with hospital coverage arrangements. The System engaged VMG Health to perform a fair market value (FMV) analysis of the compensation to be stated in the Agreement. 

Solution

VMG Health conducted an FMV analysis of the anesthesia coverage services consisting of cost and market approaches. The cost approach entailed a build-up of provider costs based on market compensation survey data for anesthesiologists and CRNAs, along with an analysis of the provider full-time equivalents (FTEs) required to cover the service lines based on prospective onsite and on-call coverage schedules. The market approach entailed a benchmark of projected American Society of Anesthesiologists (ASA) units and professional collections by provider type against market survey data to determine a conclusion of value for the provider costs. After assessing provider costs from two different lenses via the cost and market approaches, the analysis included a provision for billing and collection costs and other indirect costs (back-office overhead, practice management, etc.) to be incurred by the Group to provide the coverage. The analysis then deducted projected professional collections from total projected Group costs to arrive at a conclusion of value for the subsidy payment.  

The analysis included assessment of compensation and productivity survey data for anesthesiologists and CRNAs from four national provider compensation and productivity surveys, a review of the historical and projected production of the Group providers, a review of the proposed Agreement and coverage schedules, and assessment of overhead data from public physician staffing companies. VMG Health used this information to derive the final FMV indications. 

Success

VMG Health determined the FMV compensation for the Group’s provision of anesthesiology coverage services by considering the specific details, facts, and circumstances of the arrangement. The deliverable was then used by the System to aid in the contract renewal negotiation process and for regulatory and compliance purposes. 

Out-of-Market Compensation Arrangements: Urology Call Coverage

An acute care hospital (“Hospital”) sought a fair market value (FMV) opinion on the out-of-market compensation arrangement for urology call coverage. This was for regulatory compliance purposes and to assist in determining appropriate guardrails to aid in compensation negotiations after facing a critically low supply of urology physicians able to provide emergency call coverage. 


Situation

The subject market faced increased supply and demand issues with urology physicians due to several employed physicians leaving the local market, resulting in higher compensation demands and limited options available to service the Hospital’s urology patient population. The Hospital was forced to utilize locum tenens providers to supplement the sole employed Physician, increasing the cost of the coverage significantly until an agreement could be reached with an out-of-market physician. The Hospital engaged VMG Health due to their vast experience with urology call coverage and extensive expertise surrounding unique and highly compensated call coverage arrangements. 

Solution

To assist the Hospital, VMG Health conducted an in-depth analysis of the burden associated with the call coverage, which included a review of in-person responses, phone call volume, payor mix, estimated time per case, among others. With this information, VMG Health completed a cost approach to determine an appropriate daily payment using market clinical compensation surveys and the application of a beeper rate percentage. To supplement the cost approach, VMG Health completed a market approach, which analyzed market call coverage surveys. Lastly, VMG Health analyzed its internal database of similar arrangements to better understand market comparables for the specific services to be provided and premiums associated with other out-of- market arrangements.   

Success

VMG Health determined the FMV compensation payable by the Hospital to the out-of-market physician for the provision of urology call coverage services by considering the specific details of the subject arrangement, market dynamics, and urology call compensation trends. After issuance of the FMV analysis, the Hospital was able to enter into a professional services agreement with the out-of-market physician, reducing their locum tenens spend and allowing for improved continuity of care for urology patients.

Specialty Air Ambulance Transportation Support Services Arrangement 


Situation

The hospital was looking to contract with a third-party air ambulance supplier for the provision of on-demand helicopter transportation services related to the hospital’s patients. The air medical transport company did not have the capabilities or resources to provide the incremental specialty clinical staff, specialty consumable medical supplies, or specialty medical equipment necessary for NICU/HROB transports and required the hospital to assist with providing these support services and resources when a NICU/HROB would take place. Under the arrangement, the air medical transport company would bill and collect from third-party payors for the transport services rendered. Since the air medical transport company would receive reimbursement intended to cover all necessary expenses associated with patient transport from third-party payors, the hospital needed a mechanism to charge the air medical transport company for its NICU/HROB support services on an as-needed basis. Not charging the air medical transport company in this scenario could also create a compliance risk since third-party medical transport companies can be seen as a source of referrals.

Solution

VMG Health has substantial experience valuing contracted rates for medical transport arrangements and assisted hospital management in determining a fair market value rate for its support services that could be charged to the air medical transport company. Due to differences in state regulations for ambulances, differences in acuity among patient populations, and differences in operational decisions, VMG Health has observed a wide range in the type and quantity of staff, supplies, and equipment that may be required for a transport. VMG Health worked with the hospital to identify the specifications for the type and quantity of specialty clinical staff (RNs, RTs, etc.) and consumables/assets (tecotherm, isolette, etc.) required to go on each transport. Next, VMG Health employed a cost approach methodology to reasonably ensure the hospital would cover its costs of providing the subject services and resources. VMG Health considered cost of readiness, utilization, time on transport, underlying cost detail, willing sellers of similar services, and other pertinent value drivers as part of this analysis. VMG Health concluded a fixed fee per transport for the hospital’s support services that simplified the arrangement, despite the situation’s complexity. 

Success

VMG Health determined a fixed fee per transport for the hospital’s specific NICU/HROB helicopter support services that was consistent with fair market value. The fixed fee was customized and tailored to the exact services provided by the hospital and helped ensure the hospital would reasonably recoup its costs for the services provided. The hospital then used VMG Health’s fair market value conclusion to charge for its services on a per transport basis and to support regulatory compliance.  

Multi-Specialty PSA Payment: Fair Market Value, Stacking, and Commercial Reasonableness 

A large regional health system sought to renew a professional services agreement (“PSA”) with a multispecialty orthopedic group (“Contractor”) for the provision of clinical, call, and various administrative services to the health system. 


Situation

Before negotiating contract renewals, the health system sought a fair market value (FMV) analysis of the services rendered by the Contractor providing orthopedic surgery: spine, orthopedic surgery: spine (fellows), surgery: neurological, pain management: anesthesia, and PA: orthopedic (surgical) services. The services provided by the Contractor include clinical services, medical director services, and call coverage services, aimed at providing extensive coverage to the patient population.   

Solution

VMG Health conducted the FMV analysis of the Contractor’s services under a PSA compensation structure, indicating the health system will not cover certain expenses typically incurred in an employment compensation model. The valuation of the clinical services included a market approach involving a review of the Contractor's WRVU and professional collections, broken out by specialty and compared to market survey data. Furthermore, VMG Health discussed clinical expansion efforts and physician retirements in detail with the Contractor. Lastly, VMG Health conducted CPT code analyses of the physicians’ go-forward production, which included an analysis of unlisted codes, which was vital in determining an accurate, clinical FMV indication for each specialty. Lastly, VMG Health “stacked” additional FMV services, including call coverage services and medical director services, to completely represent all compensation the Contractor will receive from the health system. 

When comparing the compensation to collections percentage to market survey data, VMG Health believed a commercial reasonableness assessment was necessary for the subject arrangement. VMG Health utilized experience, observed industry norms, and provided two reasonability tests and commentary from the health system and Contractor to evaluate the commercial reasonableness of the subject arrangement.  

Success

VMG Health determined that the arrangement was commercially reasonable and identified the FMV compensation payable by the health system to the Contractor for the provision of the full set of services in all specialties. The health system was able to enter a new PSA with the Contractor, allowing the continued expansion of the comprehensive services provided by the Contractor.  

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