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.
The Operator and Group planned to set up new imaging centers in a specific geographical market. Through the arrangement, the Group would bill and collect on a global basis for all imaging services and be responsible for providing the professional component of the operations. The Operator would serve the technical side of the business which included, but was not limited to, providing the technical staff, the imaging equipment, the space, supplies, and other services. In return for its provision of the technical services, the Operator would receive a fee based upon a predetermined percentage of global collections.
VMG Health conducted an FMV analysis of the technical services fee by considering the expenses the Operator would incur to provide the technical services to the imaging center along with a reasonable rate of return. To determine an appropriate market rate of return, VMG Health considered the technical imaging services listed in the agreement, as well as the nature of the Operator’s expenses and returns earned by similar companies. In addition, VMG Health analyzed the specific CPT codes the Group would bill for and analyzed the professional/technical reimbursement split as reported on the Physician Fee Schedule published by CMS. Lastly, VMG Health benchmarked expected productivity metrics to published surveys to determine a reasonable level of compensation to be earned by the Group. The indications from each of these analyses were considered in deriving the final FMV range.
VMG Health determined the FMV technical services fee for the Operator’s services by considering contractual details, costs, and market data. The FMV report was then used by the Operator to aid in determining the technical fee amount to be included in the technical imaging services agreements in the new geographical market.
A physician group (“Group”) owned an ASC and chose to joint venture (JV) with a hospital (“Hospital”). The physicians previously managed the ASC and wished to continue providing some of the management services for the new JV. The Hospital had experience in managing ASCs and planned to provide management services as well. Due to the referral relationship, the management fees charged to the ASC by both the Group and the Hospital needed to be set at fair market value (FMV).
VMG Health reviewed the agreements outlining the services between the JV and the Group, and between the JV and the Hospital. Subsequently, each party confirmed the services and resources they would dedicate to servicing the management agreement. VMG Health considered the relevant costs along with a reasonable rate of return for each set of services. VMG Health also considered ASC market data which included its internal database of management fees from performing hundreds of ASC valuations each year, as well as other market research. Both the cost analysis and market data were considered in determining the FMV management fee for each party.
VMG Health provided the JV with an FMV report which established a range of management fees for the Group and the Hospital based on services provided. The arrangement has been successful and transparent as both parties were part of the valuation process which helped ensure the services and dedicated resources were agreed upon.
The System needed a fair market value (FMV) of the fees to be charged to joint venture entities for the System’s provision of various administrative services. Specifically, the System needed an FMV analysis of an aggregate fee for the provision of all management and revenue cycle services, and an FMV analysis of a la carte fees for the provision of a specific bundle of services and/or a standalone service.
To value this arrangement, VMG Health considered cost information provided by the System, market returns for similar services and VMG Health’s market data for the provision of similar services to various types of healthcare facilities. As it relates to the cost information analysis, VMG Health conducted interviews with the System’s department leaders to determine the appropriate cost allocation methodology for each corporate department providing the services. The interview process was geared towards understanding each department’s cost structure and analyzing the results for a variety of different cost allocation methodologies. This allowed the System to determine which allocation methodology was most consistent with each department’s cost structure.
After receiving the relevant cost information and analyzing the cost allocations, VMG Health built a custom model to clearly illustrate the allocation data utilized in the analysis and how each department was allocating its cost information. Ultimately, the System received a deliverable of the FMV analysis for regulatory and compliance purposes.
Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.
A myriad of 2022/2023 stewardship issues are confronting hospitals and health systems, and physician integration and relationship models are not immune to the underlying financial stress. As these challenges mount, there are alternative physician strategies developing in the market with a subset of physicians seeking greater independence and returning to private practice, dry capital investments from private equity including robust ambulatory assets, and clinical network solutions making a bolder step towards value.
For many hospitals and health systems the value proposition of investing in an integrated delivery system with employed/contracted physicians has not been realized or accounted for in a way that feels economically sustainable. To this end, new platforms and strategies are emerging that health systems need to be aware of in the context of making sound strategic decisions.
VMG Health experts have developed a leading solution set to reposition physician practice alignment that is customized for your unique market and underlying facts and circumstances. A sampling of physician enterprise strategy offerings include:
Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.
For many health systems 2022 was one of most challenging years in recent memory. Labor costs, stagnant reimbursement, consumer preference, demographics, and increased competition from non-traditional organizations combined to negatively impact profitability and future sustainability.
The factors contributing to a decline in operating performance are not likely to change in the coming years. Labor costs, demographics, and competition are likely to continue trending in ways that challenge performance.
VMG Health does not believe 2022 was an aberration, but rather portends what future clinical and operating performance will look like when absent of change and innovation. Organizations will need to maintain or improve patient access and quality but at a lower cost. How, where, and by whom care is provided will need to be evaluated and reimagined to achieve a sustainable operating platform.
VMG Health’s experts have partnered with health systems across the country to identify opportunities for improvement in clinical and operating performance. The work effort begins with understanding the current state of the organization and its operating environment. VMG Health then works with organization leadership to identify a short list of opportunities the organization can further explore and implement. At the conclusion of the work effort organizations will have a menu of strategies and tactics that can advance the organization towards clinical and financial sustainability when fully implemented.
Healthcare providers across the country are facing significant financial and operational challenges amid several competing trends such as losses in investment income, staffing shortages, increased inflation, increasing wage pressure, and the like. VMG Health’s Strategic Advisory Services Division works with hospitals, health systems, medical groups, and providers to take strategic steps that help move the system in the right direction.
The varying types of physician compensation models being used by health systems today can result in a misalignment of physician and organizational incentives. This can limit the health system’s ability to maximize revenue opportunities as the industry moves towards empanelment and patient outcomes.
With more of a health system’s revenue at risk for quality, panel management, and other non-productivity factors, aligning physician and health system incentives is key. These incentives help get the compensation formula right which is essential to the continued success of the health system.
As organizations continue to enter payor contracts with either partial or full risk (i.e., capitation), one key factor for organizations to understand is panel size and panel management. Accurately measuring and acuity adjusting primary care physician (PCP) panel size and implementing quality metrics tied to how well a PCP and the rest of the care team takes care of the patients on their panel, will drive organizational successes under these value-based reimbursement models.
VMG Health’s experts have helped numerous health systems design physician compensation plans that incentivize physicians to provide high-quality care for a strong panel of patients to ensure alignment of physician and organizational goals.
Through this body of work, VMG Health works with organizations to profile their reimbursement environment so organizations better understand how revenue flows into the system through payor contracts. VMG Health’s experts also help organizations learn which levers need to be pulled in order to maximize revenue under these value-based contracts. Once the reimbursement environment is fully understood by all parties, VMG Health works with organizational leadership to create a compensation model that incentivizes physicians to work in a way that maximizes revenue while providing high-quality care.
Successful physician alignment with numerous oncologists is critical to experiencing regional growth, sub-specialization, and strategic differentiation. This regional health system was hampered by a lack of economic and strategic alignment with a large group of independent medical oncologists which is a common issue in this sector. Although the physicians fully participated in select cancer center programs sponsored by the health system, the lack of practice integration created conflict and competitiveness across infusion services, growth initiatives, and care model innovation. Further, most of the care delivery in the community did not maximize available drug purchasing programs under eligible 340B programs which resulted in raising the overall cost of care in the community.
The regional health system retained VMG Health to perform a comprehensive service line assessment and recommend potential strategic affiliation options for the health system’s consideration and the independent medical oncology practice’s consideration. VMG Health completed various analytical frameworks to evaluate affiliation opportunities, including capacity planning, retail pharmacy sufficiency, value-based care and ACO waiver eligibility, combined growth opportunities, business combination models, and 340B cost savings.
Upon selection of a preferred practice affiliation model by the independent group practice and the health system, VMG Health completed several independent valuations connected to business enterprise value, provider compensation, assets, and value-based compensation programming.
A Hospital was facing a potential lapse in laborist coverage due to an OBGYN shortage in the immediate area. To get the necessary coverage, it wanted to engage with a System and its associated physicians. Specifically, the System would provide physicians to the Hospital for 24-hour restricted shifts, bill and collect for all professional services rendered, and remit an amount to the physicians for the totality of coverage. In exchange for these services, the System was seeking a fair market value (FMV) opinion for the amount they would charge the Hospital for providing the physicians and the shift rate they would pay the physicians for regulatory and compliance purposes.
VMG Health considered the restricted coverage schedule, survey compensation data, and amounts paid for comparable services (via VMG Health’s internal database) to understand market rates for the laborist coverage. VMG Health then considered arrangement-specific details such as the level of community need for the coverage, the burden placed on the physicians to provide the subject services, and which party had financial and operational risk in the arrangement. From this, VMG Health was able to determine an FMV shift rate the System could charge the Hospital for providing the laborists. To establish a rate the System could then remit to the physicians, VMG Health contemplated what services the System was providing on behalf of the physicians and reduced the shift rate accordingly. The System services included covering the physicians’ benefits and malpractice, as well as providing administrative staff and overhead to ensure the ongoing compliance of the arrangement.
VMG Health determined an FMV shift rate that could be charged by the System for aiding a Hospital in providing laborist coverage by considering specific details, market data, and circumstances of the arrangement. Additionally, VMG Health determined an FMV shift rate that the System could then remit to the participating physicians. The opinion enabled the Hospital to retain full coverage for its OBGYN department and it was able to avoid any lapse in hospital care.
Case Studies
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