Evaluating the Financial Component of a Physician-Hospital Arrangement

Page 1September 14, 2014

Prepared for Georgia Vascular Society

Evaluating the Financial Component of a Physician-

Hospital Arrangement

Georgia Vascular Society

2nd Annual Scientific Sessions

September 14, 2014



Financial Arrangements

• Asset Purchase Agreements

• Employment Agreements

• Professional Service Arrangements – Medical Directorships

– Call Pay

– Co-Management Arrangements

PSAs Physician LeasesStaff LeasesEquipment/Space LeasesManagement Services

Joint VenturesSupport/SubsidiesMarketing AssistanceRecruitment AssistanceEMR Support

Gain-sharingShared SavingsBundled PaymentsACOsUnder Arrangements



Evaluating anAsset Purchase Agreement

• Were qualified appraisers used?

• What assets were valued?

• How were they valued?

• Were intangibles/goodwill considered?

• Does bifurcation make sense?



Evaluating anAsset Purchase Agreement

• How do you “qualify an appraiser?”– Thorough understanding of Stark, Anti-Kickback, IRS, and

other healthcare law issues

– Can explain the FMV standard, commercial reasonableness, and healthcare-specific requirements

– Focus on healthcare

– Accreditation/credentials

– They do not advocate for either party



Asset Purchase Agreements

Furnitu

re &

Equip

ment

Supplies

& Inve

ntory

Leasehold

Impro

vem

ents

Software

/Lice

nses

Medica

l Reco

rds/

EMR

Work

forc

e

Tradenam

e

Physici

an Work

forc

e

Accounts

Rece

ivable

Goodwill

Assets Hospitals Buy% of Hospitals

Buying

What assets were valued?




How were the assets valued?

• Income, Market, Cost Approaches

• Fixed Asset Discussion




Were goodwill/intangibles considered?

Price / Valuation

- Net Working Capital

- Tangible Assets

- Identifiable Intangible Assets

= Goodwill Value




0.10 0.25 0.50 0.75 1.00

Classic View of Medical Practice Valuations

Revenue Multiple

% Medical Prac-tices

Practices with Midlevels & Ancillaries




Fixed Assets20%

Medical Records

5%

Intangibles15%

Net Working Capital10%

Goodwill50%

Hypothetical Value Allocation for Practice with a 1.0x Revenue Multiple




Does bifurcation make sense?

Professional Practice

40%Ancillary Business

60% Values



Evaluating anEmployment Agreement

• Does it make sense in light of the asset purchase agreement?

• How is base salary set and is it subject to change?

• What incentive programs are offered and are they reasonable?



Employment Agreements

• How is base salary set?

– Historical vs. Benchmarks

Compilation of Vascular Surgery Benchmarks

National Compensation Survey Data, Vascular Surgery Data Points25th

Percentile Median Mean75th

Percentile90th

Percentile

2014 MGMA Physician Compensation and Production Survey 204 $377,520 $466,895 $511,078 $580,515 $806,728

2013 SullivanCotter Physician Compensation and Productivity Survey 272 $328,795 $414,537 $441,798 $487,923 $627,591

2014 HHCS Physician Salary & Benefits Report 243 $269,194 $289,593 $344,092 $397,137 $511,253

2014 AMGA Medical Group Compensation and Financial Survey 318 $375,757 $449,637 $461,886 $517,465 $616,678

Average of Surveys, Rounded $337,817 $405,166 $439,714 $495,760 $640,563



Employment Agreements• What incentive plans are offered and are they

reasonable?

– Production What are you producing now?

Know the terminology

– Quality Is it quality or perceived quality or something else?

The timing issue

Can it be measured reliably?

What is the baseline?



Employment Agreements

Quality bonus example

Contract Year DescriptionAchievement

LevelCompliance Quarterly Opportunity

Tier 1 97% $2,500

Tier 2 95% $1,000

Tier 3 93% $500

Tier 1 97% $2,500

Tier 2 95% $1,000

Tier 3 93% $500

Tier 1 85% $2,500

Tier 2 92% $1,000

Tier 3 80% $500

Tier 1 100% $2,500

Tier 2 98% $500

On time when patient is in the operating room no later than 5 minutes after the scheduled case start time for first case and no later than 10 minutes after the scheduled start time for all other cases.

On time when surgeon has called the surgery control station and registered as present no later than 5 minutes after the scheduled case start time for the 1st case of the day; no later than 10 minutes after the scheduled start time for all other cases.

The actual case time for the surgeon's cases which, on average, must be within 120% of the scheduled case time.

The physician complies with the metrics for the appropriate antibiotic selection and timely antibiotic administration as specified in the Surgery Antibiotic Prophylaxis Metrics standards

Case on Time Start

Surgeon On Time

Accurate Case Minutes

ABX Metrics



Professional Service ArrangementsMedical Directorships & Other Administrative Arrangements

• Is compensation reasonable in light of the obligation?

- Opportunity Cost

- Administrative and Clinical Services provided by same physician may have different values

• Hospitals can’t pay for more than they need



Professional Service ArrangementsCall Coverage Arrangements

• Is compensation reasonable in light of the burden?

• What is the market rate for vascular surgery?

National Vascular Surgery On-Call Compensation Benchmarks:

Daily Rates Data Points25th

Percentile Median Mean75th

Percentile90th

Percentile

2013 SullivanCotter Physician On-Call Pay Survey Report 28 $400 $600 $632 $775 $1,000

2014 MGMA On Call Compensation: 2014 Report Based on 2013 Data 12 $500 $625 $731 $750 $1,400



Professional Service Arrangements

Clinical Co-Management Agreements

• What is being measured?

– Physician time

– Achievements

• How is compensation set?

– Rule of thumbs

– Market rates



Darcy E. Devine, MBA, CVAPrincipal

[email protected](404)-266-9876

www.pyapc.com

Healthcare

Evaluating the Financial Component of a Physician-Hospital Arrangement