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Healthcare FMV Briefing Trends, Red Flags and Best Practices February 1, 2018 Chris David, CPA/ABV, ASA Principal Alaska Bar Association by 1
Healthcare FMV BriefingTrends, Red Flags and Best
PracticesFebruary 1, 2018
Chris David, CPA/ABV, ASA
Principal
Alaska Bar Association
by
1
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Identifying Fair Market Value in the healthcare space
Chris David’s Experience
Founder & Principal of HealthValue Group; started in 2010.
18 years of professional experience in the areas of business valuation,
accounting and transaction consulting.
Extensive experience in the valuation of physician payment arrangements,
management services, tangible assets, intangible assets, medical practices,
outpatient centers and other healthcare entities for regulatory compliance
(Stark Law and Anti-Kickback Statue), Federal and State tax compliance,
litigation, marital dissolution and mergers and acquisitions.
Previously held positions at Ernst & Young and HealthCare Appraisers.
[email protected] 303-918-3607(direct)
Objective
Provide insight and guidance on
managing compliance risk with respect
to Fair Market Value issues under the
Anti-Kickback Statute and Stark Law.
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Agenda
Physician Compensation Trends
Best Practices for Determining FMV
Commercial Reasonableness
Case Review
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Trends in Physician Recruitment
and Compensation
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Most Requested Physician Search
Assignment – Merritt Hawkins 2017 Recruiting
Review
1. Family Medicine
2. Psychiatry
3. Internal Medicine
4. Nurse Practitioners
5. OBGYN
43% of search assignments were for hospitals and
27% for group practices
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Physician Compensation Trends
Average starting compensation for family physicians is
$231K vs $198K in the 2015 report (up 17% in 2 yrs) – Merritt
Hawkins
Average starting salary for a general internist is $257K vs
$207K in 2015 report (up 17% in 2 yrs) – Merritt Hawkins
Average starting salary for internal medicine is $244,186 –
The Medicus Firm
According to The Medicus Firm, primary care placement
salaries are up 11%
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Physician Compensation Trends
Total compensation packages for primary care up
13.6% to $257.5K – The Medicus Firm
Average salary per placement for family medicine
physicians up 5.9% to $222.7K– The Medicus Firm
Average signing bonus for family medicine
physicians up 40.2% to $27,191- The Medicus Firm
Average total compensation package for internal
medicine up 5.9% to $273,410 – The Medicus Firm
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AMGA’s 2017 Physician
Compensation Survey - Highlights
2.9% increase in physician compensation
3.2% increase in primary care specialists
Surgical specialists saw an average increase of
2.0% versus a 3.6% increase in prior year
Notable Increases:
Ophthalmology Surgery – 7.7%
Cardiac/Thoracic Surgery – 7.0%
Hematology & Medical Oncology – 6.7%
Allergy/Immunology - 5.9%
Pulmonary Disease – 5.6%
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Decline in Compensation
Radiology – strong shift toward “telerad”;
requirements for telerad have risen dramatically
Dermatology – low reimb for traditional derma work
(non-elective procedures)
Non-Invasive Cardiology – trend toward more
invasive procedures and less diagnostics. Staff the
invasive doc and have him do more of the non-
invasive work
Anesthesiology – increased use of CRNAs
Pediatrics
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Bonuses Signing bonuses averaged 12% & approx $29,000
(extrapolated from data above)
Signing bonuses – approx $12,000 to $60,000 (survey data)
39% of bonuses were tied to a value/quality component –
Merritt Hawkins
42% (approx) of bonuses were tied to a value/quality
component – The Medicus Firm
61% of AMGA group respondents say some comp tied to
value-based metrics
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Bonuses - continued
Don’t confuse a retention bonus with a signing bonus or a
forgivable loan
Retention bonuses should be paid out when earned
Retention bonuses for the military & private sector range
between $12,000 to $60,000 per year (according to a study
conducted by BuckheadFMV)
Retention bonuses seem to be a growing trend for the high-
demand specialists
Consider timing of payments to meet fair market value
First year total compensation should be FMV (commensurate
with productivity)
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Multiple Forms of Remuneration
What is included in “compensation” for FMV compliance?
Signing bonus
debt forgiveness
moving allowance
payment of tail coverage, etc..
Important to view it as whole and separately
If the total of all forms of remuneration reach 90th percentile,
then you should look at each of them separately
Consider the commercial reasonableness for the remuneration
unrelated to productivity
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Commercial Reasonableness (CR) Often taken for granted
Multiple sources for definition of CR
CMS
Stark Law
OIG
All basically mean the same
Fundamentals:
Would you do the deal in the absence of referrals?
Reasonable and necessary services?
Commercial sense (look at qualitative and quantitative
factors) ?
A prudent and sensible business agreement?
Requires attorney, appraiser and MOST OF ALL management
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Commercial Reasonableness..cont.
An arrangement can be FMV but not CR
A CR arrangement must also be FMV
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Best Practices for Determining
Fair Market Value
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FMV for Non-Clinical Physician
Services
Board Member/Advisor
R&D or Product Development
Management
Medical Directorship
Teaching/Training or Speaking
Supervisory
Strategic Consulting
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FMV for Non-Clinical Physician
Services – Best Practices FMV compensation is for a specific service not
a specific professional
Establish qualifications for the position
Clearly identify and document the specific role,
duties, responsibilities and tasks to be
performed and the direct report
Specify the time required for the duties and
insist the physician document his/her time
(good luck!) – call frequency
Avoid “opportunity cost” calculations
Be conscious of overlapping and/or stacking
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FMV of MSO or Administrative
Services – Best Practices
Cleary specify and detail the scope of
services to be provided
Identify the staff who provides the service and
their total payroll cost
Identify third-party fees (i.e. EMR, IT, etc..)
Identify any physical resources or assets used
Identify the deliverables
Market Approach not appropriate
Svcs not dispensed in a similar fashion
FMVs for miscellaneous admin/management services are
typically calculated using an industry standard mark-up
FMV of Clinical Services – Best
PracticesCompensation surveys are the most widely recognized and
utilized source of FMV compensation.
MGMA – Medical Group Management Associates
AMGA – American Medical Group Association
SCA -- Sullivan Cotter and Associates
IHS – Integrated Health Strategies
HHCS – Hospital & Healthcare Compensation Service
AAMC - Association of American Medical Colleges
Robust surveys with a large number of participants/respondents.
Surveys for Medical Directorship, Clinical Compensation and
On-Call services and other staff positions
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FMV of Clinical Services –
Best Practices
Use a consistent method
Don’t cherry-pick survey data points (median is not always a safe figure)
Use multiple data points
Look at Comp/wRVU and Comp/Collections (productivity primary driver)
Utilize more than one salary survey
Consider a weighted average based on sample size
Be cautious using a straight $/per wRVU compensation model. Safer to use
for productivity bonus.
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75th percentile compensation per wRVU 80.35$
75th percentile annual wRVU production 9,700
Total annual compensation 779,395$ exceeds the 90th percentile
Responsible Use of Survey Data &
Best Practices
Be cautious if total compensation/wRVU exceeds the 75th percentile
Be cautious if total compensation exceeds professional collections
Question the plausibility of excessive productivity. Suggest a chart audit
Encourage physicians to track and document their time and frequency
Understand the compensation being reported in surveys (total comp vs.
base)
Compare pre-employment compensation to post-acquisition compensation
(more than 20% increase is a red flag)
Survey Data Problems
Some data points can be misleading
Limited regional data (limited responses)
Survey responses vary greatly among groups
Data is voluntarily submitted; may not always report accurately
Compensation reported may not be FMV
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Responsible Use of Survey Data –
Compensation Defined
MGMA
Majority of respondents were from non-profits (2017 report)
All W2 earnings, contracted medical compensation (Form1099; call coverage, med
director, other admin svcs) and partnership distributions
HHCS
Hospital-employed physicians and group practices
Base salary, bonus and/or incentive payments
Sullivan Cotter
Base Salary
Total Cash Compensation – includes bonus but excludes on-call pay and other
1099 contract work
AMGA
Total reported compensation includes bonus pay and 1099 contract work
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Acquisition of Physician Practices
Best Practices
Must look at income of practice post-acquisition net of new
physician compensation (compare to MGMA benchmark)
Red Flag – post-transaction practice posts a consistent and sizable
loss
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Court Case Review
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Case Review – Stark & Anti-Kickback
Violations
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Dr. Sonjay Fonn & Deborah Seeker Vs. Dept. of Justice
Bingham v. BayCare Health System – Federal court ruled in favor of
healthcare provider – 4/18/2017
Dr. Holden vs. Mercy Hospital & Mercy Clinic - $34 million
settlement – 5/18/2017
Bingham v BayCare Health System
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Plaintiff/whistleblower was a real estate appraiser
(not his first rodeo)
Plaintiff alleged Baycare violated Stark, AKS and
FCA
Claimed BayCare provided free parking and valet
services to physicians and patients in order to
induce referrals
Federal court ruled in favor of healthcare provider
Bingham v BayCare Health System
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No direct financial relationship
Ground lease granted parking rights to tenants and sub-tenants
Physicians’ compensation was not tied to volume and value.....
Space rent reflected the parking amenity
District court indicated that free amenities may not be illegal if
there is no evidence its tied to volume and value of referrals
Landlord Tenant Sub-Tenants
BayCareDeveloper/
MOB space leasePhysician LLCs
& Patientsseparate, 3rd Party Rent reflected the parking amenityentity
ground lease
provided parking services
Dr. Holden (relator) vs. Mercy Hospital
Springfield & Mercy Clinic Springfield
Communities
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Overpaid physicians for chemotherapy services rendered to patients
Compensation formula took into account volume of patients
In 2009 Mercy Clinic transferred its ownership of an infusion center to
Mercy Hospital
Transfer resulted in $10 million more in revenues per year – 340(b)
drug pricing program
Prior to transfer, oncologists were paid under a collections-based
model – After transfer, oncologists were compensated less.
New compensation plan included the addition of a new wRVU for
drug administration (in hospital)
Physicians were credited with this new wRVU each time they sent a
patient to the infusion center for treatment
Dr. Holden (relator) vs. Mercy Hospital
Springfield & Mercy Clinic Springfield
Communities
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Alleged that the new wRVU required that physicians be
immediately available during infusion
Physicians never had to leave the offices to get credit for the
services (offices down the hall from the infusion clinic)
The new wRVU was 500% of the old wRVU for in-clinic care.
The complaint alleged the new wRVU was not calculated
based on physician work, clinic expenses or malpractice
overhead
Complaint alleged that Hospital paid mngt fee to Clinic for
physicians to manage – Government said the mngt
arrangement did not meet FMV and commercial
reasonableness
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