Evaluating the Financial Component of a Physician-Hospital Arrangement
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Increasingly, physicians are entering into employment agreements with hospitals. A presentation given by PYA Consulting Principal Darcy Devine offered guidance for “Evaluating the Financial Component of a Physician-Hospital Arrangement.”
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Evaluating the Financial Component of a Physician-Hospital Arrangement
- 1. Evaluating the Financial Component of a Physician- Hospital Arrangement Georgia Vascular Society 2nd Annual Scientific Sessions September 14, 2014 Prepared for Georgia Vascular Society September 14, 2014 Page 0
- 2. Financial Arrangements • Asset Purchase Agreements • Employment Agreements • Professional Service Arrangements – Medical Directorships – Call Pay – Co-Management Arrangements PSAs Physician Leases Staff Leases Equipment/Space Leases Management Services Joint Ventures Support/Subsidies Marketing Assistance Recruitment Assistance EMR Support Prepared for Georgia Vascular Society Gain-sharing Shared Savings Bundled Payments ACOs Under Arrangements September 14, 2014 Page 1
- 3. Evaluating an Asset Purchase Agreement •Were qualified appraisers used? • What assets were valued? • How were they valued? •Were intangibles/goodwill considered? • Does bifurcation make sense? Prepared for Georgia Vascular Society September 14, 2014 Page 2
- 4. Evaluating an Asset 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 Prepared for Georgia Vascular Society September 14, 2014 Page 3
- 5. Asset Purchase Agreements % of Hospitals Prepared for Georgia Vascular Society September 14, 2014 Page 4 Buying Assets Hospitals Buy What assets were valued?
- 6. Asset Purchase Agreements How were the assets valued? • Income, Market, Cost Approaches • Fixed Asset Discussion Prepared for Georgia Vascular Society September 14, 2014 Page 5
- 7. Asset Purchase Agreements Were goodwill/intangibles considered? Price / Valuation - Net Working Capital - Tangible Assets - Identifiable Intangible Assets = Goodwill Value Prepared for Georgia Vascular Society September 14, 2014 Page 6
- 8. Asset Purchase Agreements Classic View of Medical Practice Valuations 0.10 0.25 0.50 0.75 1.00 Prepared for Georgia Vascular Society September 14, 2014 Page 7 % Medical Practices Revenue Multiple Practices with Midlevels & Ancillaries
- 9. Asset Purchase Agreements Hypothetical Value Allocation for Practice with a 1.0x Revenue Multiple Goodwill 50% Prepared for Georgia Vascular Society Fixed Assets 20% Medical Records 5% Intangibles 15% Net Working Capital 10% September 14, 2014 Page 8
- 10. Asset Purchase Agreements Does bifurcation make sense? Ancillary Business 60% Values Prepared for Georgia Vascular Society Professional Practice 40% September 14, 2014 Page 9
- 11. Evaluating an Employment 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? Prepared for Georgia Vascular Society September 14, 2014 Page 10
- 12. Employment Agreements • How is base salary set? – Historical vs. Benchmarks Compilation of Vascular Surgery Benchmarks National Compensation Survey Data, Vascular Surgery Data Points Prepared for Georgia Vascular Society 25th Percentile Median Mean 75th Percentile September 14, 2014 Page 11 90th 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
- 13. Employment Agreements • What incentive plans are offered and are they reasonable? – Production What are you producing now? Know the terminology Prepared for Georgia Vascular Society September 14, 2014 Page 12 – Quality Is it quality or perceived quality or something else? The timing issue Can it be measured reliably? What is the baseline?
- 14. Employment Agreements Quality bonus example Contract Year Description 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 Prepared for Georgia Vascular Society Achievement Level Compliance 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 September 14, 2014 Page 13 Case on Time Start Surgeon On Time Accurate Case Minutes ABX Metrics
- 15. Professional Service Arrangements Medical 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 Prepared for Georgia Vascular Society September 14, 2014 Page 14
- 16. Professional Service Arrangements Call 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 Points Prepared for Georgia Vascular Society 25th Percentile Median Mean 75th Percentile September 14, 2014 Page 15 90th 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
- 17. Professional Service Arrangements Clinical Co-Management Agreements • What is being measured? – Physician time – Achievements • How is compensation set? – Rule of thumbs – Market rates Prepared for Georgia Vascular Society September 14, 2014 Page 16
- 18. Darcy E. Devine, MBA, CVA Principal ddevine@pyapc.com (404)-266-9876 www.pyapc.com Prepared for Georgia Vascular Society September 14, 2014 Page 17