Determining Fair Market Value for Leasing a New Cardiac Care Technology
Client Profile: Mid-west academic medical center
Project Type: Healthcare Business and Medical Practice Valuation and Fair Market Value for Physician Compensation
Challenge: Develop a fair market value assessment for a new cardiac care technology that the client proposed to offer to small to medium-sized cardiology practices on a mobile basis. The practices would be unlikely to be able to obtain this technology on their own due to the high cost of equipment and operations, the need for trained technologists and a lack of experience in interpreting the exams. The hospital developed a business model designed on the premise that the cardiology groups would want to have access to this technology through leasing arrangements. DGA was asked to develop an opinion on the fair market value and commercial reasonableness of the contemplated lease arrangements and on the value of related services to be provided by the hospital and by the cardiology groups.
DGA Solution and Results: Our work considered the revenue generating capacity of the new service, as well as how payers were likely to treat the service. We also considered the costs that each physician group would incur including:
DGA completed the valuation and concluded that the business model was a fair market value and commercially reasonable arrangement. The hospital pursued development of the mobile business model.
- Space on which to park the mobile unit
- Electricity and telecommunications required to operate the equipment
- Supervising physician services
- Nursing services
Medical Staff Planning to Grow Primary Care
Client Profile: An East Coast academic medical center located in a densely populated metropolitan market
Project Type: Medical Staff Planning and Community Need
Challenge: Develop a medical staff plan that would grow loyal primary care practices and close specialty departments with an over-supply of physicians to new appointments
DGA Solution and Results: DGA compiled and analyzed an inventory of over 3000 community-based physicians during the study. Our recommendations led the hospital to initiate an aggressive program to redirect primary care referrals and to recruit and seed new practitioners into the service area.
Physician Compensation Benchmarking
Client Profile: Urban tertiary care teaching hospital affiliated with a major medical school
Project Type: Fair Market Value: Physician Compensation, Directorships and PSAs
Challenge: This hospital takes a very proactive position on legal compliance with federal regulations for physician compensation. DGA was engaged to provide an independent review of compensation for the hospital’s 176 compensated physicians, against reliable and current market-based data. Compensation levels of physicians exceeding the hospital’s identified "safe harbor" threshold needed to be audited and solutions proposed to bring their compensation within a fair market value range.
DGA Solutions and Results: We assessed compensation using published data from five national surveys and DGA’s private market datasets. Our projections indicated that all but nine physicians were receiving fair market compensation.
These "outlier" physicians were interviewed to determine whether special factors justified their higher compensation. Where the compensation level could not be supported, recommended solutions including freezing compensation levels until market data supported their level and restructuring compensation into base compensation and incentive arrangements tied to measurable goals.
We recommended that the hospital establish time and effort reporting for all compensated physicians and begin developing base plus incentive compensation arrangements for the majority of employed physicians.
As a result of this engagement, the client has a strong compensation framework that will guide all future hiring, provide a basis for negotiations with physicians and control exposure to regulatory risk.
Strategic and Financial Assessment of Surgical Department
Client Profile: Northeastern academic medical center
Project Type: Academic Department Assessment
Challenge: Conduct an objective assessment of a surgical department for leadership of the department, hospital and medical school, while respecting the concerns and sensitivities of all stakeholders. The department was plagued by high turnover among clinical faculty, below market faculty compensation levels, uncertain institutional financial support, operational problems within the clinical practice and a changing strategic and market environment.
DGA Solutions and Results: DGA analyzed operational data (productivity, compensation, work flow, capacity), financial data (program support, direct and indirect expenses) and market data. We interviewed key department physicians, medical school and hospital stakeholders and conducted observations of the clinical environment.The resulting strategic assessment of the department confirmed certain perceptions in the institution and dispelled others. Our conclusions and recommendations included:
- Organizational restructuring, reflecting:
- Change in the structure of physician leadership
- Creation of a new non-physician clinic director position with responsibility for clinical operations
- Creation of clinical patient care teams in which physicians are paired with nurses to support their practice
- Two separate and distinct strategic directions
- Development of a three-year program to increase physician compensation levels, funded through increased program support from the hospital, and increased clinical revenues
- DGA’s conclusions and recommendations provided leadership with an objective framework for evaluating program development and funding requests from the Department
Financial Modeling for a Specialty Hospital Being Built at an Academic Medical Center
Client Profile: Mid-Atlantic academic medical center
Project Type: Financial Feasibility and Modeling
Challenge: Develop projections of the financial performance of a new orthopedics specialty hospital and the impact on the existing hospital. The new hospital, envisioned as a teaching and research center, was to be developed in partnership with a market-leading orthopedics group.
DGA Solution and Results: DGA started the financial modeling process by clarifying the likely organizational structure and financing plan for the new orthopedics hospital. We estimated volumes and revenues from historical data, building in growth projections. Through facilitated meetings of a project team, we worked closely with hospital operations staff to determine how the new facility would operate and to estimate detailed operating expenses.
We then estimated the impact of shifted cases on overall hospital financial performance. Finally, our consolidated financial model integrated this information into a single estimate of financial impact.
Alternative locations were considered, and their financial results were modeled. Medical center leadership had the clear financial estimates needed to assess its options, negotiate terms with the physician group, obtain board approval, and to begin to plan the new facility.
Fair Market Value Compensation Analysis for Teaching Program
Client Profile: Urban academic medical center with both full-time faculty and voluntary medical staff
Project Type: Fair Market Value: Physician Compensation, Directors and PSAs
Challenge: To provide the academic medical center with expert opinion documenting the scope and amount of AS&T effort required for its multi-million dollar orthopedic surgery teaching program and to determine a commercially reasonable fair market value (FMV) compensation range for the specified services to be used in re-negotiating a new contract for continuation of the program. The program comprises over 30 residents and numerous sub-specialty surgery fellowship programs. All of the program’s administrative, teaching and supervision (AS&T) requirements are provided under contract with a large affiliated private practice orthopedic group; more than 15 surgeons actively participate in the program’s AS&T activities.
DGA Solution and Results: DGA developed a detailed fair market value analysis of the AS&T service arrangement between the medical center and the orthopedic group. We reviewed position descriptions for each existing director position and created several new position descriptions. We conducted interviews with individual surgeons to understand and document their respective AS&T duties and to develop estimated effort levels for each activity.
Based on this analysis, we benchmarked effort levels against published compensation surveys for five orthopedic sub-specialties to develop hourly rate benchmarks. Individual surgeons were benchmarked against their respective sub-specialty compensation benchmarks. An opinion letter with supporting documentation was prepared and presented to academic medical center leadership that determined a commercially reasonable annual fair market compensation range for all AS&T services provided by the orthopedic group. The opinion letter was used by the medical center to successfully re-negotiate the contract for the continuation of the orthopedic surgery residency and fellowship programs.