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FMVantage Point:New York Times Highlights Challenges for Hospital Based Service Lines

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FMVantage Point:New York Times Highlights Challenges for Hospital Based Service Lines

Published: 8/10/2017 | Author: Luis Argueso

Consolidation in the market for hospital-based physician practices has been making the headlines in relation to the efforts hospitals have undertaken to improve patient satisfaction.  A recent article published by the New York Times details the prevalence of out-of-network billing among national physician staffing organizations that employ physicians in hospital-based specialties (e.g., anesthesiology, emergency medicine, hospitalist medicine).  The reliance on out-of-network billing to augment professional services revenue has led to dissatisfaction among patients who received substantial, and often unexpected, bills for professional services.  Increasingly, HAI has observed that many hospitals have required their hospital-based independent contractor practices to go in-network with the major insurers in their marketplace.

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As hospital-based practices are encouraged to go in-network with major payors, these practices face the potential for decreased professional services revenue.  Faced with lower revenue, these practices often seek to obtain or increase existing financial support from hospitals.  Such financial support, typically in the form of “collections guarantees” or fixed “subsidies,” implicates the Stark Law, Anti-Kickback Statute, and the Internal Revenue Code, thus requiring the compensation arrangement to be at terms that are consistent with fair market value (FMV). 

While downward reimbursement pressures support the reasonableness of financial support, the FMV compensation for such coverage is dependent upon a large number of nuanced considerations.  HAI encourages hospitals to seek the advice of qualified valuation firms whose opinions adequately address the following key subjects:

  • The payor environment faced by the hospital-based practice
  • The estimated professional collections from the hospital-based coverage, especially in relation to market benchmarks
  • The proposed staffing level in comparison to industry staffing practices
  • The overhead expenses necessary to operate the practice

With over 15 years of experience in valuing financial support arrangements for hospital-based service lines, HAI has developed a deep understanding of the market factors and industry standards influencing these arrangements.  In addition to the latest market research, HAI’s experience and relationships with key participants in the hospital-based physician practice market position us to provide reliable insight to establish FMV compensation for hospital-based coverage.  

FMV Pitfall: Decreasing professional services reimbursement to independent hospital-based physician practices may result in the request for greater financial support.  However, hospitals and health systems must ensure that any additional support is consistent with FMV. 

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