Beyond the Benchmarks – Choose your Methodology Wisely

In our last post, we discussed the legal importance of creating data-specific call agreements.  This post will take a critical look at national benchmarks and median values.

Can we use the national median payment for a given specialty and consider it fair market value (FMV)?

The most basic FMV analyses rely almost exclusively on national surveys of physician compensation.  This type of analysis uses median values or some otherwise-specified range to determine “market” payment levels.  It is an approach that is easy to understand and execute; it is also extremely imprecise and may either restrict a hospital’s payments unnecessarily or create substantial risk of overpayment.

However, regulators don’t provide a methodology for arriving at FMV or meeting commercial reasonableness (CR) criteria.  In fact, it’s possible to use multiple processes in assessing the appropriateness of a given contract.  This affords your organization some flexibility in terms of its approach to determining FMV.  At the same time, many methodologies lack sufficient depth and market understanding to withstand regulatory challenges.

This is why detailed analyses must be performed on a true case-by-case basis, using a methodology that considers more than just national benchmarks.  A viable methodology should incorporate, for example, the burden of carrying a beeper, the frequency of being called into the emergency department, and any post-call-related activities and revenue.

Benchmarks are important to FMV analysis, but they’re only one piece of the puzzle.  The valuation process should take into account the relevant facts and circumstances in each arrangement.

Our next post in the series will look at the limitations of national surveys.

If you’d like to know more now, read the Diagnostic available on our Web site.

This entry was posted in Call Coverage, Fair Market Value, Legislative & Regulatory Issues, Physician Compensation and tagged , , , , , , by Sean Hartzell. Bookmark the permalink.

About Sean Hartzell

Since joining ECG in 2007, Sean has focused on strategic and financial planning, service line development, and hospital/physician alignment with a particular interest in hospital/physician employment transactions. He is a contributing member of the firm’s transaction advisory service line, which focuses on developing and disseminating the firm’s thought leadership in the areas of transaction planning, facilitation, and implementation, and he has published thought leadership pieces and spoken nationally on these topics. In addition to transaction advisory services, Sean has extensive experience in hospital strategic planning, orthopedic service line development, physician compensation plan design and implementation, and physician compensation fair market value analysis. Previously, Sean held business development and finance positions at Inova Health System. He received a master of business administration degree from the Darden Graduate School of Business at the University of Virginia and a bachelor of science degree in operations research and industrial engineering from Cornell University.

3 thoughts on “Beyond the Benchmarks – Choose your Methodology Wisely

  1. Pingback: Beyond the Benchmarks – Surveys Are a Piece of the Puzzle | ECG Management Consultants, Inc.

  2. Pingback: Beyond the Benchmarks – Lifestyle Considerations | ECG Management Consultants, Inc.

  3. Pingback: Call Coverage and the Road Ahead | ECG Management Consultants, Inc.

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