In almost all circumstances when conducting a market and cost approach analysis related to physician compensation valuation (as is the most common of the three approaches), HealthCare Appraisers considers data from all major physician compensation surveys, including without limitation, the following sources:

Medical Group Management Association (“MGMA”) Hospital & Healthcare Compensation Service (“HCS”)
Sullivan, Cotter and Associates, Inc. (“SCA”) American Medical Group Association (“AMGA”)
Towers Watson (“TW”) Integrated Healthcare Strategies (“IHS”)
Association of American Medical Colleges (“AAMC”)  

We seek to find relevant data from these surveys to establish reasonable compensation based upon a comparable level of qualifications for the providing physician(s) and, whenever possible, a relative level of production.  Our market approach analyses begin with an examination of national data, with further consideration of available regional, sub-regional, and state data based on the facts and circumstances surrounding the particular engagement.  Additionally, if it is appropriate and available, we also consider ordering custom data sets from survey publishers.

Healthcare Specific methodology

As required by Stark regulations, any market data used to establish fair market value must represent arm’s-length transactions, between parties who are not otherwise in a position to refer business to one another.  As a result, while we consider all data for purposes of understanding the general nature of the marketplace, we typically do not rely on specific transactions between physician and hospitals or health systems in establishing market-based compensation. Double exposure of businessman hand working with new modern computer and business strategy as concept.jpeg

With recognition that there is variability in the data, HealthCare Appraisers has generally chosen to rely upon a weighted average blend of three to five of these surveys.  As a healthcare-focused organization, we have access to both internal and external data specific to physician compensation relationships that might be unavailable or too costly to obtain for a general valuation firm that does not routinely perform healthcare valuations.

HealthCare Appraisers individually evaluates the FMV of each distinct compensation element provided under a health care professional’s compensation arrangement (e.g., clinical services, administrative services, teaching services, physician benefits, overhead expenses, etc.) utilizing data and techniques appropriate to each unique service provided.  Our analyses of clinical services compensation usually rely on productivity-based techniques, using both work relative value units (RVUs) and professional collections, performed at the specialty/division, as well as the group, level.  Additional nonproduction-based analyses may be performed related to hospital-based specialties (e.g., hospitalists, intensivists, and laborists) or newly-hired physicians with salary guarantees since productivity is not generally reflective of FMV compensation for these types of healthcare providers. 

Using Benchmark Collections Data

Benchmarking is a tool that is frequently used to assess the performance and productivity of physician practices.  When using benchmark data, it is important to match actual performance indicators to those indicators reported by benchmark survey respondents.

For example, when reporting physician collections, Medical Group Management Association (MGMA), the American Medical Group Association (AMGA) and Sullivan Cotter and Associates (SCA) all "exclude" collections from physician extenders and ancillary services. SCA specifically states that "Collections include the collections generated for all direct professional services," and continues to say that, "This does not include collections for ancillary services and physician extenders." Therefore, when comparing collections of a physician practice to benchmark collections, caution must be taken to exclude the subject practice's collections related to services provided by physician extenders (e.g., nurses, physician assistants, and other mid-level providers), and ancillary services (e.g., laboratory services, imaging, and pharmaceuticals).

The importance of such comparisons takes on particular significance when a physician's compensation is established based on benchmark collections. Under such a compensation model, a physician, whose collections benchmark at the 75th percentile, might appropriately receive 75th percentile compensation. To accurately determine compensation under this model, the physician's collections must be determined in a manner consistent with the benchmark data (i.e., excluding collections associated with physician extenders and ancillary services). Including collections from physician extenders or ancillary services will inflate collections, and in turn, may overstate the associated compensation provided to the physician.

Typically though, physician practices do not have the ability to accurately report cash collections specifically related to their personally performed services. However, with a certain degree of effort, these collections can be established by analyzing the CPT codes and their modifiers as billed by the practice.

Employment arrangements that establish compensation using collections-based compensation models must ensure collections do not include collections from ancillary services or physician extenders. To ensure that a physician is not overcompensated under a collections-based compensation arrangement, the physician's collections base should be adjusted to exclude non-physician providers and ancillary services.

Compensation For Administrative Services

Our team of experts determines FMV payment for administrative services utilizing survey data specific to physician administrative services and an examination of both the services provided and the qualifications of the provider.  HealthCare Appraisers’ analyses of pass-through items such as physician benefits and overhead expenses are based on survey data specific to the types of compensation provided under the physician compensation agreement and may be evaluated at the specialty/division and/or group level.  We do not utilize any predefined compensation benchmarks in any of these analyses. 

Conversely, we evaluate the facts and circumstances of the services provided under the particular health provider’s compensation arrangement to determine the appropriate reference benchmarks.  Such benchmarks may well differ from specialty to specialty, as well as between the types of services provided (e.g., the benchmarks selected for determination of the fair market value (FMV) of administrative compensation might be different from those used to evaluate FMV compensation for clinical services).