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The Importance of Investing in Ambulatory Surgery Center Nurse Leadership
Christa Shephard
July 1, 2024
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August 28, 2024
Written by Dylan Alexander, CVA and Karly Bruss
The ambulatory surgery center (ASC) industry continues to experience steady, reliable growth, and remains a highly profitable segment within the healthcare provider sector. This growth has attracted significant attention from investors, captivated by the sector’s promising returns. The ASC industry’s success is underpinned by several key factors: an increase in demand for outpatient procedures, enhanced operational efficiency, technological advancements, favorable regulatory changes, elevated patient satisfaction, and, in some cases, favorable relationships with commercial payers. However, the success of ASCs has introduced a unique challenge: the difficulty of attracting and securing new physician investors.
Successful and stable ASCs typically have high profit margins and generate substantial returns to their investors. While health systems, management companies, and other corporate investors are common in ASCs, the most important class of investors in an ASC are its surgeon utilizers. For physicians to be investors, they are required to conduct a certain percentage of their surgical case volume at the ASC. In addition, most ASC operating agreements have redemption provisions requiring the sale of ownership to be valued at stated multiple of profitability or at fair market value (FMV) when physicians are not meeting case volume requirements, retiring, or exiting the marketplace.
As exiting physicians sell off their ownership, ASCs seek out new surgeon investors to buy in, provide care, and maintain a strong base of physician equity partners to retain case volume and protect or increase profitability. ASC operating agreements typically have buy-in provisions at the same multiple of profitability or at FMV mirroring the redemption provisions. Therein lies the challenge of attracting new investor or utilizer surgeons into the ASC depending on the life cycle of the ASC. New physician investors may not have the ability or the desire to pay the price required to have an ownership interest in the ASC that is on par with legacy investors. Potential new physician investors may be relatively new to their practice, have large debt burdens from medical school, young family considerations, or considering alternative investments in the financial marketplace.
The ASC life cycle, though similar to other businesses, is distinctive due to its cyclical nature and dependence on surgeon volume and investment.
In the start-up phase, significant investments are made to secure a facility, purchase necessary medical equipment, recruit staff, acquire the appropriate licensure, and fund initial working capital. Because the overall value of an ASC is typically at its lowest during the start-up phase, potential physician investors may be unwilling to accept the financial risk of a new venture that may not be cash-flow positive in the immediate future. However, the returns on their investments for the initial physician investors can be the highest for a successful ASC. During this phase, physician shareholders are usually unlikely to exit, and the ASC’s focus is syndicating the initial physician ownership base for what is expected to be a highly successful ASC given the desired surgical specialty mix.
In the growth phase, the ASC establishes its relationship with physician utilizers (both investor and not), managing surgical block times, developing its patient base, refining payer contracting, and reaching operational efficiency through case volume adequacy given the size and specialty mix of the ASC. During this phase, ASCs are often profitable but still not ramped to optimal and full capacity levels. The growth phase can represent an ideal time for new physicians to consider buying in, as the purchase price is often less and the potential for higher returns still exists. Physician investors exiting the ASC can also get strong returns on their initial investment from the start-up phase.
ASCs have achieved financial stability and operational efficiency in the maturity stage. Mature ASCs typically generate significant cash flow, leading to high valuations. As discussed, high valuations can be a barrier to entry for new physician investors. In a sense, ASCs can be a victim of their own financial and operational success. Though returns are stable, mature ASCs have usually reached their maximum capacity or are nearing capacity. Additional capital investment in space and equipment could be required to maintain the ASC’s current level of profitability. Most importantly, the ASC must manage the retirement and exit of certain key physician investors by replacing them with case volume from newer physicians. If new physicians successfully replace exiting physicians in ownership, the maturity stage can be maintained for the foreseeable future. Valuations at this stage are typically high and consistent over time with equitable returns to both exiting and buying surgeons. It is at the end of this stage that many ASCs encounter the challenges discussed previously. If an ASC is unable to attract new physician investors due to market factors, a shortage of physicians, or pricing constraints associated with success, it may face declining profitability and overall value.
The exit phase, or decline phase, is characterized by shareholder physician attrition outpacing new physician investment. The value of an ASC declines as the departing shareholders no longer contribute case volume, and finding physicians to buy in remains a challenge. At this point, it is common to see a few physicians or the corporate partner increasing ownership due to shareholder redemptions with no new physicians to invest.
ASCs remain one of the more attractive investments in the healthcare space because of their proven resiliency when managed appropriately. Long-standing, successful ASCs may have been through this life cycle several times. At the decline phase, the value of the ASC will likely be at one of its lower points, creating an attractive purchase price for interest by new surgeon investors. If ownership is re-syndicated to align with growth and key physicians, the ASC then starts at the growth phase and moves to maturity with its new base of physician owners.
The increasing demand for outpatient procedures and the opportunity for substantial returns make ASCs a desirable option for potential physician investors. Physician alignment through investment is critical to the success of any ASC and is the key factor in the life cycle of the business. When determining values for physician investment and redemption, it is essential to consider the current and expected future operations.
The valuation of the ASC should be as accurate and thoughtful as possible—not only for the relationship between physician buy-ins and redemptions to maintain the operations of the ASC, but for regulatory requirements as well. Often, ASCs engage an independent and unbiased third party to conduct a fair market value analysis pursuant to any ownership transactions. VMG Health, with its experienced team, provides expert knowledge and data-driven analyses to support parties in ASC transactions. Our expertise in the ASC marketplace enables stakeholders to navigate the challenges and opportunities associated with ASC investments as they move through their life cycle effectively.
August 21, 2024
Written by Frank Cohen
In recent years, key Supreme Court rulings have significantly altered the field of administrative law. One crucial decision involves the Court’s June 28, 2024 overturning of the Chevron deference, a long-standing doctrine that has governed how courts engage with agency interpretations of statutes. This change may have far-reaching implications for various administrative processes, including Medicare audit hearings. This article explores the impact of rejecting Chevron deference on administrative law judge (ALJ) hearings, particularly those related to Medicare overpayment estimates based on statistical sampling.
The Chevron deference doctrine was established in the 1984 Supreme Court case Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. This doctrine specifies that, when a statute is ambiguous, courts should defer to an agency’s interpretation of it as long as the interpretation is reasonable. The rationale behind this doctrine is that agencies are presumed to possess specialized expertise, making them better equipped to handle technical details than courts. Chevron deference was meant to respect the separation of powers by recognizing the executive branch’s role in enforcing laws, ensuring courts do not overstep their boundaries by second-guessing agency expertise.
Chapter 8 of the Medicare Program Integrity Manual (MPIM) offers only a broad overview of using inferential statistics and conducting statistical sampling to estimate overpayments (SSOE) in Medicare audits. These guidelines have traditionally been highly regarded in ALJ hearings and often carry more weight than the results, conclusions, and opinions presented by statisticians representing healthcare providers. This preference was based on the premise that the Centers for Medicare & Medicaid Services (CMS) possessed the expertise to interpret and apply complex statistical methods effectively. This is the definition of Chevron deference.
MPIM’s Chapter 8 contains only nine pages regarding the statistical models and processes involved in the SSOE analysis. However, an extensive body of literature exists on this subject in various formats and sources. When ALJs rely on the factors in these nine pages, it hampers the provider’s ability to mount a compelling defense that challenges the auditor’s methods using widely accepted standards within the statistical community. On the other hand, this deference is meant to ensure audit hearings are grounded in established regulatory interpretations, providing a consistent framework for decision-making. It does not preclude providers from challenging the auditor’s methods. Instead, it ensures any defense is presented within the context of recognized standards, maintaining the integrity and fairness of the process.
The Supreme Court’s overturning of Chevron deference represents a significant change in administrative law and, consequently, ALJ hearings. The decision reflects concerns about the separation of powers and the judiciary’s role in interpreting the law. Critics of Chevron deference argue that it gave agencies too much power to define their own authority, thereby weakening judicial oversight and denying healthcare providers’ due process. Supporters of Chevron deference argue that it allows agencies with specialized expertise to interpret complex and technical statutes, ensuring more informed and consistent regulatory decisions while promoting efficiency and stability in the regulatory process.
It is reasonable to expect that this ruling will have a significant impact on the financial damages incurred by healthcare providers due to extrapolated overpayment findings. However, the ruling could create a more complex and uncertain regulatory environment, making it harder to predict and comply with regulations. The impact can affect various areas of the audit process.
With Chevron deference no longer in play, ALJs will hopefully scrutinize CMS guidelines more critically, including Chapter 8 of the MPIM. This means the methodologies and assumptions used by CMS for statistical sampling and overpayment estimation could be subjected to more rigorous judicial review during Medicare audit hearings. ALJs will no longer automatically favor CMS’ interpretations of Chapter 8 but will evaluate them alongside expert testimony from statisticians representing providers. However, this also means that judicial rulings may be inconsistent without agency interpretations of ambiguous statutes. Different courts may interpret regulations differently, leading to inconsistent enforcement. This inconsistency could create a patchwork of regulatory requirements across different jurisdictions, complicating compliance efforts for healthcare providers operating in multiple areas.
The recent overturning of Chevron deference marks a significant shift in the landscape of expert testimony in ALJ hearings. Providers may potentially expect a fairer and more balanced evaluation of the analysis and methodologies presented by their statisticians. As a result, there is an increased incentive for providers to seek highly qualified experts who can effectively challenge CMS’ statistical approaches and provide alternative interpretations based on robust statistical principles. This shift promotes a more equitable playing field and encourages the use of expertise to strengthen the quality of evidence presented in ALJ hearings.
The CMS guidelines are not always beneficial for providers regarding Medicare audit disputes. By more mindfully following these guidelines, providers will likely have better results. ALJs may potentially consider the evidence from both parties more fairly. This could lead to lower overpayment estimates or the dismissal of the extrapolated overpayment findings. Now more than ever, providers need to be more strategic, focusing on the quality and persuasiveness of their experts’ analyses and testimonies.
The Supreme Court’s overturning of Chevron deference marks a significant paradigm shift in the power dynamics between administrative agencies and the judiciary. In the context of Medicare audit hearings, this shift implies that ALJs are no longer bound to automatically adhere to the guidelines set forth by CMS, as outlined in Chapter 8 of the MPIM. Instead, ALJs are now expected to assess all evidence presented, including expert testimony from healthcare providers, potentially leading to more favorable rulings for the providers. As the legal framework undergoes transformation, healthcare providers must proactively adapt by employing expert analyses and presenting counterarguments against agency methodologies to ensure accurate audit outcomes.
August 14, 2024
Written by Matthew McKenzie, CVA; Jay Ostrom, CVA
The following article was published by the American Association of Provider Compensation Professionals (AAPCP).
Due to the complexities of the modern healthcare environment, there is a broad range of compensation structures in provider services agreements to facilitate ease of administration while maintaining regulatory compliance. While common compensation structures such as a compensation-per-Work Relative Value Unit (wRVU) model can be effective in reimbursing providers for the value of professional services, independent physicians and physician practices are sometimes compensated based on a per-service rate for each individual unit of service they provide, rather than a rate per wRVU. To ensure arrangements utilizing this structure are commercially reasonable and consistent with fair market value (FMV), hospital administrators should understand the value drivers of the rates that can be paid for per-service fees. In this article, we will discuss potential benefits and drawbacks of the per-service fee structure, as well as explore several key considerations when setting rates and capturing appropriate expenses.
Similar to the compensation-per-wRVU model, a per-service fee structure determines the total compensation payable to a provider based on the unit volume of services rendered. However, rather than the unit of compensated service being the wRVU, the compensation unit is tied to the volume of each CPT code rendered or a broader service category.
For example, consider a scenario in which a radiology group provides a hospital with X-ray, MRI, CT scan, and ultrasound interpretation services. Rather than receiving fixed compensation-per-wRVU based on the wRVUs associated with each interpretation, each interpretation category (X-ray, MRI, CT scan, and ultrasound in our example) would have its own unique compensation rate.
In general, the primary sources of value for these arrangements are the professional services rendered by the provider. While there are various ways to quantify the value of providers’ professional services, the two most common methods are described below.
In determining the compensation for professional services per unit of service, one consideration is the clinical provider time required to provide that unit. In general, the more provider time required to perform a certain service, the greater the value of the service rendered. As such, a reasonable method of determining the value of the professional component of compensation for a unit of service would be to assess the average time spent by the clinical provider on said unit.
Professional reimbursement rates can also be a useful measure of the value of professional compensation on a per-service basis. In many cases, hospital administration will have data indicating the average professional reimbursement rates realized per unit of service performed. When this data is unavailable, a good starting point for assessing reimbursement for professional services is the Medicare reimbursement for the wRVU associated with the relevant Current Procedural Terminology (CPT) codes as reported by the Center for Medicare and Medicaid Services (CMS). This professional reimbursement should be based on the applicable CPT code or bundle of CPT codes that the provider will use for each unit of service. The reimbursement may quantify professional services more accurately than a solely time-based approach, as the Medicare reimbursement also considers the specific skill, training, and acuity of the subject service.
While Medicare reimbursement is a good starting point in understanding professional reimbursement for provider services, actual revenue generated for said services is unlikely to fall directly in line with Medicare reimbursement. Rather, professional reimbursement for a given service is a function of the payer mix of the subject services. While the specific payer mix of an arrangement needs to be understood to accurately determine the professional revenues generated per unit of services provided, there are a few general rules that can inform the directionality of the adjustment.
For most professional services, commercial reimbursement is typically greater than Medicare reimbursement. As commercial payers often reimburse at higher rates than Medicare, a service line payer mix primarily comprised of commercial payers will usually generate more revenue per unit than a service line comprised of fewer commercial payers. The higher revenue associated with the subject services may justify an upward adjustment in the per-service rates payable to the provider.
Medicaid and uninsured payers typically reimburse at rates lower than Medicare. As Medicaid and uninsured payers reimburse at lower rates than Medicare, a service line payer mix primarily composed of Medicaid and uninsured payers will generate less revenue per unit than a service line composed of fewer Medicaid and uninsured payers. In this scenario, the relatively lower revenue associated with the subject services may require a downward adjustment in the per-service rates payable to the provider.
While payer mix does have an impact on the revenue generated for the services provided, the actual services rendered by the provider are not dependent on the payer mix and, in many scenarios, the provider has little to no control over the payer mix. These dynamics should be considered when utilizing mix data to determine the per-service compensation payable to a provider.
Another method of quantifying the value of the professional compensation applicable to a unit of services provided is market survey data. For example, compensation-per-wRVU data for a wide array of provider specialties is readily available through healthcare compensation survey reports. This data may be applied to the average wRVUs that the provider would generate per unit of service to determine an estimate of the market professional compensation payable per unit.
As opposed to the use of actual professional reimbursement to determine professional compensation rates (which consider the actual funds available to compensate the providers), the use of market-based compensation data can provide an indication of value that reflects actual compensation rates paid in the market for similar services. However, the use of market survey data is limited by the reliability of the reported survey data and the data’s applicability to the subject services. It is important that organizations understand the survey data they are utilizing and how the specific details of an arrangement may impact the applicability of market survey data.
As previously mentioned, one benefit to the per-service compensation model is the ability to include provisions for certain variable overhead expenses incurred by the provider per unit of service. There are several ways to determine the value of these variable expenses.
One way to determine a provision for additional variable expenses is by assessing the actual incremental variable expense incurred by the provider. Should the provision for non-professional variable cost per unit be based on the actual costs incurred by the provider, the reimbursement for variable expenses is effectively a direct pass-through from the provider to the contracting entity. While this method reduces the risk of over- or underpayment for non-professional services, it is important that the contracting entity ensures the following assumptions are true:
In the absence of actual incremental expense data, Medicare reimbursement associated with practice expense (PE) RVUs can also be useful in determining a provision for overhead associated with a unit of services provided. Specifically, reimbursement associated with the PE RVUs for the CPT code, or bundle of CPT codes, for a given service indicates reimbursement for non-professional expenses incurred, consistent with guidelines from CMS.
When utilizing PE RVU data, it is important to recognize the site of services in which the subject services are provided. CMS illustrates PE RVU data for services provided in a facility setting (e.g., hospitals, ASCs, SNFs, etc.) and a non-facility setting (e.g., outpatient clinics, urgent care centers, etc.). PE reimbursement is higher for services provided in the non-facility setting because the provider is assumed to bear the responsibility of all overhead (i.e., space, equipment, etc.) while the facility is assumed to bear these costs in the facility setting. Therefore, identifying the correct site of service is imperative for accurate application of this method.
Another consideration in deciding the payment rate for each service provided by a provider is who has the authority to bill and receive payment for the services provided. If the provider is unable to bill patients for any of the services provided, compensating the provider with a fully loaded rate, inclusive of provisions for professional and any technical services provided, may be appropriate.
Should the provider bill and collect for services rendered under an arrangement and retain those collections, the collections earned by the provider should offset the fully loaded rate that would otherwise be payable to the provider. For example, if the provider’s collections per unit were sufficient to cover their expenses incurred to provide the service, it may not be appropriate to provide any additional compensation to the provider. However, a payment subsidizing provider services in addition to the collections retained by the provider may be appropriate if the provider’s collections per unit are not enough to cover their expenses (e.g., if the provider has expenses of $30 per unit but can collect only $20 per unit, a payment covering this disparity may be reasonable). Because reasonable payment to providers who can bill and collect is dependent on their actual collections per unit (which varies dependent on the payer of the service), organizations should be diligent when determining rates per service in these scenarios.
In addition to the actual collections generated by the provider in the provision of the services, the cost of billing and collecting should be considered when determining a reasonable per-service compensation rate. For example, professional reimbursement from payers typically includes a provision for the costs associated with billing and collecting. However, market provider compensation data does not typically include a provision for billing and collection costs. As such, make appropriate adjustments depending on the valuation method used and the billing and collection responsibilities of the subject arrangement.
When a service is requested on an urgent basis, an increase in the compensation payable to a provider may be justified. For example, per-service compensation for services ordered emergently (e.g., STAT cases) could potentially earn more compensation than the same services that do not require an expedited turnaround time to account for the on-call availability of the provider. Typically, additional compensation based on the urgency of a service is only contemplated if the expedited turnaround time is deemed medically necessary.
Per-service compensation structures can be an effective way to compensate providers for services that include additional variable expenses above and beyond the providers’ professional services. However, hospital administrators must understand the value drivers behind per-service compensation rates and the risks associated with the structure to ensure arrangements are commercially reasonable and compliant with healthcare regulations.
May 28, 2024
Written by Holden Godat, CVA; Taylor Harville; and Trent Fritzsche
In the traditional sense, call coverage was a mutual obligation for physicians in addition to their clinical duties. Many physicians would provide uncompensated call coverage to a hospital to secure hospital privileges, build their own practices, and ensure proper patient care with specialized services when needed. Due to the passage of the Emergency Medical Treatment and Labor Act of 1986 (EMTALA), which requires Medicare-participating hospitals to provide sufficient levels of physician coverage to their emergency departments, hospitals are facing difficult task of determining the appropriate level of physician coverage. Several factors—including physician work-life balance, growing uninsured patient populations, increasing professional liability insurance costs, and a declining supply of physicians—have contributed to a decline in uncompensated call coverage and a significant increase in compensated call coverage stipends.
The healthcare sector has seen an increasingly high demand for physicians over the past decade, and projections show that there is a shortfall in supply that does not appear to be going away any time soon. According to The Complexities of Physician Supply and Demand: Projections From 2019 to 2034, a report released by the Association of American Medical Colleges (AAMC), “the U.S. faces a projected shortage of between 37,800 and 124,000 physicians within 12 years.” Such a significant shortage of physicians has left health systems and hospitals with few options to remedy the potential lapse in patient care. To combat this problem, many care organizations have turned to concurrent call coverage arrangements as a potential, efficient solution. As these arrangements become more common, it is important to ensure organizations are compliant from a fair market value perspective.
Concurrent call coverage is an arrangement whereby a physician may provide on-call coverage services to multiple locations and/or to multiple specialty panels simultaneously. These arrangements seek to provide an even distribution of work and ensure patients receive a sufficient level of care. Although concurrent call arrangements help to provide an efficient continuum of care, there are a few important considerations to weigh with each arrangement. Setting fair market value physician compensation for any concurrent call coverage arrangement brings forth a new set of difficulties and regulatory scrutiny that must be properly addressed.
In determining appropriate compensation for a call coverage shift, it is important to establish the actual burden of being on call. Factors impacting call burden include:
When determining appropriate compensation in a concurrent call coverage arrangement, it is important to consider the combined burden of call.
An important value driver for any call coverage arrangement is understanding the required specialty needed to perform the coverage. Typically, concurrent call arrangements are required due to the need for one group of specialized physicians to provide coverage for two or more unique, call coverage panels. Due to the nature of these arrangements, the physicians providing the concurrent services must be able to effectively provide both panels of coverage. Select the appropriate specialty for the subject services to ensure the physician can adequately cover multiple panels and to ensure the physician is appropriately compensated for the services being provided.
In a typical call coverage arrangement, the ultimate compensation rate contemplates the unrestricted availability of a physician for a given amount of time. When stacking panels or facilities to be covered in a concurrent setting, be aware of this availability and ensure the overall compensation does not account for the same time twice. Since physician availability is already being covered by an initial panel, stacking compensation related to additional panels could create overpayment concerns. Furthermore, concurrent arrangements often create additional efficiencies for an emergency department that should be reflected in the ultimate compensation. To ensure providers are appropriately compensated for the time they are providing coverage, it is common to use a discounted coverage rate on top of the existing stipend to account for the incremental coverage of additional panels or facilities.
To illustrate this point, consider a hypothetical Panel A and Panel B. Independently, Panel A and Panel B may be worth $500 per 24-hour shift and $600 per 24-hour shift, respectively. That does not necessarily mean that the concurrent coverage of Panel A and Panel B equals $1,100 per 24-hour shift. Each panel independently contemplates 24 hours of availability. When combined, there must be assurances that the availability of the physician is not compensated twice.
One of the last and most critical pieces of setting up any concurrent call coverage arrangement is to fully understand the compensation terms for the services. While these do not drive value for the services in the way other factors might, the specific terms relating to the compensation are critical to understand in providing an appropriate valuation. Factors like whether the physician is employed or an independent contractor, understanding who retains the rights for billing and collection under each individual arrangement, and a thorough review of whether providers receive production credit toward outside employment agreements are all vital pieces of structure to consider when evaluating a concurrent call coverage arrangement.
The many unique considerations of concurrent call arrangements, such as establishing the appropriate burden of call, determining the correct specialty for services being provided, contemplating physician availability in a shift, and sources of compensation, often make these arrangements tricky to structure in a compliant manner. Although it may seem as simple as adding two shifts together, this is a major misconception. Increased scrutiny from regulators and the tricky healthcare landscape has made it more important than ever to obtain third-party fair market value guidance to ensure you meet a compliant call compensation system.
Association of American Medical Colleges. (2021). The Complexities of Physician Supply and Demand: Projections from 2019 to 2034. Retrieved from https://www.aamc.org/media/54681/download ssociation of American Medical Colleges. (2021). The Complexities of Physician Supply and Demand: Projections from 2019 to 2034. Retrieved from https://www.aamc.org/media/54681/download
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