Healthcare Valuation Solutions

The healthcare regulatory landscape is complex, making it difficult to determine proper and compliant physician compensation for services. Laws and regulations are constantly evolving, causing greater scrutiny on financial arrangements.

LBMC’s Healthcare Compensation Valuation team combines an understanding of complex financial and regulatory matters with an ability to analyze voluminous financial operations information to deliver Fair Market Value (FMV) opinions to ensure maximum compliance. Each valuation analyzes the healthcare arrangement to determine Fair Market Value (FMV) compensation using the cost, income and market approaches, as applicable.

Physician Employment Arrangements

Physician employment FMVs are approached by considering the unique facts and circumstances of the physician and the employer involved. LBMC considers the historical and projected production of the physician, published market surveys, and recruitment challenges, among other available and applicable information. The LBMC team leverages their expert knowledge to determine a compliant and defensible conclusion of FMV.

Physician compensation models continue to evolve as healthcare organizations balance productivity, financial sustainability, quality, and value-based performance. Learn more about data-driven physician compensation strategies and how Medicare work RVU changes continue to affect physician compensation, productivity benchmarks, and FMV analysis.

Independent Contractor Arrangement

Healthcare organizations utilize independent contractors when it is financially or operationally beneficial compared with employing a provider to perform the same services. Key considerations of these arrangements include the burden to the provider (e.g. time required, acuity of patients, malpractice risk, etc.), as well as whether the provider can bill and collect for services provided under the arrangement.

Physician On-Call Arrangements

On-call arrangements generally present themselves in two forms: restricted coverage and unrestricted coverage. The physician availability required by these arrangements can vary greatly. Restricted coverage requires the physician to be physically present at the facility during the coverage period. Hospital-based specialties are commonly arranged in this manner. Unrestricted coverage generally does not restrict the physician to the facility but requires the physician to be within a reasonable distance from the facility so they can be onsite within a reasonable time, such as 30 minutes. LBMC considers the facts and circumstances of each arrangement to determine a unique level of burden based upon guidelines and commentary in applicable Office of Inspector General (OIG) Advisory Opinions.

Factors such as physician availability, call frequency, utilization, acuity, and concurrent coverage can significantly affect the burden associated with an on-call arrangement. Healthcare organizations can explore key considerations when structuring physician on-call arrangements to better understand how these factors can affect FMV and compliance.

Medical Director Arrangements

Arrangements for medical director services (and other administrative services) take into consideration activities that are not directly related to the provision of healthcare services to patients. Stark Phase III Regulations make a critical distinction between the clinical and administrative work provided by physicians and require FMV compensation be determined for administrative physician services. LBMC completes a thorough analysis of the services provided, as well as the expertise and qualifications of the physician required.

Medical director compensation can also vary significantly based on the specialty, administrative responsibilities, required expertise, and time commitment. For an example of how these considerations apply in a specific healthcare setting, see LBMC’s analysis of fair market value for hospice medical director compensation.

Management Service Agreements

Healthcare management services can be either professional or clinical services. Professional management is typically performed by non-physician business personnel and provided in combination with other services such as billing, equipment leasing, staff leasing, information systems, or electronic health records services. Clinical management is similar to medical directorship arrangements; however, it is provided by a group of physicians, as opposed to a single physician.

The structure and scope of management services can have a significant effect on the appropriate fee. For arrangements involving physician practices and management organizations, learn more about determining the fair market value of physician practice management fees.

Joint Ventures and Leasing Arrangements

Joint Venture arrangements occur when two or more businesses agree to share profit, loss, and control in a specific enterprise. Leasing arrangements can occur when one hospital seeks to borrow equipment from another hospital. LBMC uses its resources and experience to value these rates and arrangements.

Professional Services Arrangements

Often hospitals contract directly with an independent physician or a physician group for various types of services. Under these arrangements, the physician group maintains its independent practice, for which the hospital is not financially or operationally responsible. This provides flexibility for the hospital and the physician group.

Subsidy and/or Collection Guarantee Arrangements

It is common for hospitals to make arrangements with physician groups in hospital-based specialties for coverage, particularly when the hospital experiences difficulty securing qualified staff for clinical areas. Hospitals often contract with independent healthcare providers for a combination of 24-hour onsite and on-call coverage. Due to low patient volumes and/or high indigent patient volumes, healthcare providers may be unable to collect sufficient professional fees. As a result, hospitals may subsidize the coverage or guarantee market based collections to secure consistent and adequate coverage.

Physician Compensation Consulting/ Planning

LBMC physician compensation consulting and planning begins by having discussions with providers about their vision, values, and goals to help align compensation with the organization’s objectives. LBMC completes a thorough review and assessment of current compensation models, recommends financially sustainable and compliant models, and assists organizations in implementing compensation plans. Healthcare leaders evaluating their current approach can also explore ways to enhance their provider compensation program through stronger Fair Market Value, commercial reasonableness, and compliance practices.

As compensation models become more complex, organizations also need to consider how individual components work together. Our guidance on physician compensation stacking explains how clinical, call coverage, administrative, and other compensation components can create potential overlap when evaluated collectively.

Clinical Co-Management Arrangements

Clinical Co-Management arrangements occur when facilities contract with a group of employed or independent physicians to manage the quality of a hospital’s service lines. These agreements are arranged to align the goals of the facility and the physician and often include an incentive for achieving quality outcome goals. LBMC analyzes the administrative duties, clinical duties and agreed upon goals to determine fair market value compensation for the services.

Due Diligence

The LBMC compensation valuation team understands the strict regulatory requirements and substantial financial penalties healthcare companies face today. We perform due diligence by collecting and analyzing material facts with careful attention to risks or concerns. For organizations evaluating an acquisition or other transaction, understanding pre-deal healthcare valuation considerations can help identify valuation issues earlier and support better-informed transaction decisions.