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Automated Physician FMVs: Providing Instant, Defensible Results

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Automated Physician FMVs: Providing Instant, Defensible Results

Whether it be the result of the hospitals and health care system's desire to expand their affiliated physician network, decreasing reimbursement rates and bargaining power with commercial payors, anticipation of new delivery models, or lifestyle considerations, physician employment and similar types of arrangements are only expected to continue to increase in the foreseeable future.  Given this increase in activity, coupled with the demanding regulatory environment, the fair market value experts at HealthCare Appraisers embarked on developing suite of web-based Automated FMV Solutions, revolutionizing the process of delivering defensible FMV opinions in an efficient and cost-effective manner.

the rise of physician employment

In recent years, HealthCare Appraisers has seen a steady rise in hospital-physician employment arrangements.  Given this increase in activity, coupled with the rigorous regulatory demands, hospitals and healthcare entities are faced with the need to determine a supportable level of Fair Market Value (“FMV”) for these arrangements.  Unfortunately, turn-around time, cost, and the intricacies of physician contract negotiations have created environments where hospitals are facing issues in obtaining defensible FMV opinions, with both sides of the arrangement essentially needing the results “tomorrow.”  Because of this urgency, many hospitals are simply turning to benchmark compensation surveys to justify compensation of physician employment arrangements.  While these physician benchmark surveys may offer good insight into physician compensation data, looking only at survey data to justify FMV of the proposed compensation is a risky undertaking, as each physician employment arrangement is a unique transaction. 

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Furthermore, a simple review of benchmark data only provides a ”one-dimensional” view.  Employers often assume that compensation reported by physician compensation surveys solely relates to clinical compensation or to compensation from professional services only.  In reality, the major physician compensation surveys report total cash compensation received from all sources, including salaries, incentive bonuses, call coverage, medical directorships, practice distributions, etc. and provide no segregation of the amounts of compensation service.  As a result, the amounts reported by these physician compensation surveys represent the compensation for all services performed by a typical full-time equivalent (“FTE”) physician. 

In light of this, setting the compensation for a physician that provides multiple services pursuant to an employment arrangement also requires careful scrutiny of the physician’s total basket of responsibilities.  This is often referred to as a “stacking analysis.”  In evaluating the FMV of a particular physician employment arrangement, it is critically important to understand the magnitude of the additional elements that are being “layered in” over and above the underlying clinical services. While each separate element may be found to be consistent with FMV, when considered in totality, it may be found that either:

  1. The resulting total compensation is at a level beyond a comfortable FMV support; or
  2. The subject physician is committed to rendering a basket of services that require him/her to function as a 1.6 FTE, for example, which would then further complicate matters by introducing issues of commercial reasonableness.

It is often at this point that the hospital or health system realizes that an outside FMV opinion is most applicable, but as mentioned earlier, time is likely of the essence.

The Solution… The Physician Employment Calculator

As a solution, and without compromising on the defensibility or thoroughness of the FMV analysis, HealthCare Appraisers developed a cost-effective and easy-to-use Physician Employment Calculator.  Introduced in 2014, our Physician Employment Calculator is the perfect a complement to our traditional, in-depth valuation reports.  Meant to provide FMV support for physicians who are anticipated to received lower levels of annual compensation, but still require a third party FMV opinion to maintain compliance, the FMV calculator allows our clients to focus their time (and their valuation budgets) on those physician employment arrangements that are expected to result in more aggressive levels of compensation (i.e., above the 90th percentile) or that are comprised of complicated employment structures. 

The Physician Employment Calculator is a unique and highly sophisticated interactive tool that within minutes, and in an unbiased manner, establishes FMV compensation for a specific physician employment arrangement.  By relying on HealthCare Appraisers’ proprietary employment analysis methodology, the Physician Employment Calculator is an interactive web-based tool that relies upon a sophisticated data gathering interface. 

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Using a series of drop down menus, the calculator captures relevant information related to the physician’s specialty, skills, qualifications, the historical and/or projected productivity (both work relative value units (i.e., wRVUs) and professional collections (i.e., PCs)), the specific compensation model, details of the physician’s services, and characteristics of the marketplace.  The Physician Employment Calculator incorporates data for almost 100 different physician specialties, supports seven of the most common compensation structures we have observed around the country (and can be customized for others), and supports additional compensation for call coverage, administrative time, and supervision time. 

Just as would be the case in a more traditional valuation report as prepared by HealthCare Appraisers’ professional staff, the Physician Employment Calculator establishes FMV compensation based on the unique framework of each proposed arrangement, considering variables including but not limited to:

  • Full or part-time arrangements;
  • Compensation structure: base salary, production-based, and base salary plus production;
  • Traditional or “synthetic” employment arrangements;
  • Additional compensation components: sign-on bonuses, student loan repayments, and quality bonuses;
  • On-call coverage requirements: including whether excess call coverage services are provided;
  • Administrative and/or management services provided;
  • Location specific information: including difficulty of recruiting and rural areas; and
  • Physician specific information: including training, experience and track record.

If productivity metrics for the subject physician are provided, the Physician Employment Calculator analyzes three independent market-based approaches for both wRVU and PCs productivity, for up to six independent market approaches, each based upon multiple physician compensation surveys.  If productivity data is unavailable, the Physician Employment Calculator assesses the compensation based upon the physician’s specialty, qualifications and experience, characteristics of the market and prior recruitment efforts.  The method is then synthesized into a single FMV determination, provided in a printed report within minutes, that reflects whether the proposed compensation structure is deemed to be consistent with FMV. 

Generally, just as with our traditional written valuation reports, the results of the Physician Employment Calculator are effective for up to three years, with the allowance for transactions to be re-analyzed with nominal changes made to the agreement and without the need to re-enter all of the data. 

what if the proposed compensation doesn't Comply?

If a user inputs aspects of a proposed compensation plan and the Physician Employment Calculator “fails,” two options are available:

  1. Users are permitted, and even encouraged, to alter aspects of the proposed compensation plan to seek a successful Physician Employment Calculator outcome; or
  2. If the proposed compensation plan cannot be altered, a secondary analysis can be performed by HealthCare Appraisers’ professional staff at a reduced expense, and with greatly enhanced turnaround times. 

How can the Automated FMV help your team? 

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  1. Quick The Physician Employment Calculator provides an FMV opinion in minutes rather than days or weeks, thus allowing improved efficiency in contract negotiations.

  2. Simple With its web-based platform, and easy-to-use data gathering interface, users easily input readily available information regarding the physician employment arrangement.
  3. Defensible The FMV analysis is based on the specific terms of the proposed arrangement, factors specific to the particular physician’s background, including historical and projected performance, as well as local market conditions, and utilizing the same proprietary valuation methodologies as deployed in our traditional valuation reports.
  4. Efficient - The Physician Employment Calculator is designed to opine on approximately 60% to 70% of all proposed arrangements without the need for a secondary analysis.
  5. Cost-effective The cost of the Physician Employment Calculator provides its users with an affordable mechanism by which to obtain FMV by reducing cost, both per transaction and in the aggregate.
  6. Flexible Produces consistent and objective FMV outcomes for all physician specialties.