Compensation Valuation & Provider Arrangements

Physician compensation methods are constantly evolving in response to changing organizational strategies, reimbursement shifts, physician demographics, and other environmental conditions. Pinnacle works with both integrated and independent physician practices to craft compensation methods that effectively respond to these factors. Recent trends in compensation reflect a greater emphasis on quality, value, and citizenship. The difficult challenge is that, while provider organizations need to prepare for a shift from volume-based reimbursement to value, fee-for-service payment models remain the most prevalent.

Pinnacle has extensive experience in developing compensation strategies and structures for clients, performing hundreds of assessments of compensation arrangements and FMV opinions annually. Pinnacle’s experience is broad and all-encompassing. Pinnacle has assisted with the development of compensation programs for employed and independent physicians (across all service lines and operation environments – e.g., salary-based clinic positions, productivity and incentive-based plans, hospital-based specialties, surgical specialists).

The types of physician arrangements requiring the support of valuation expertise to determine fair market value (FMV) continue to evolve, and the value drivers in any particular arrangement are usually unique. Pinnacle consultants work with healthcare organizations to dissect the most complex arrangements and identify the appropriate range of value. Pinnacle opinions are well documented and describe the central appraisal methods, data sources and analytical assumptions; allowing them to stand on their own if the arrangement is ever questioned by a regulatory body.

Pinnacle has assisted numerous clients with physician compensation and valuation matters involving large health systems, academic institutions, smaller community hospitals and physician groups. Key examples of the types of arrangements Pinnacle provides FMV support for includes:

• Employed physician arrangements / compensation;
• Recruitment agreements / income guarantee agreements;
• Medical director arrangements (employed and affiliate physicians);
• On-call coverage arrangements (employed and affiliate physicians);
• Professional services arrangements (affiliate physician groups);
• Hospital-based, exclusive provider arrangements;
• Miscellaneous physician arrangements; and,
• Other miscellaneous physician arrangements.

Pinnacle can also provide FMV and CR support on other provider relationships including but not limited to:

• Teaching services / graduate medical education (“GME”);
• Telehealth services;
• Clinical co-management;
• Advanced practice provider (“APP”) supervision;
• Quality, pay for performance, clinical efficiency and other value-based arrangements; and,
• Key Opinion / Thought Leader Services (Pharmaceutical/Medical Device Industry).

When a provider organization enters into a corporate integrity arrangement with the Office of the Inspector General, the organization will generally need to engage an independent review organization. Pinnacle is an approved IRO with the OIG. In our capacity as an IRO, Pinnacle can provide services in a few different ways:

1. Pinnacle can support a legal IRO by providing support such as independently reviewing a statistically valid sample of physician compensation arrangements, coding and medical necessity reviews, or any other non-legal reviews necessary under the CIA;
2. Pinnacle can act as the IRO, filing the annual plan, which may include a systems and a contract review; and
3. Pinnacle can work on behalf of the entity that entered the CIA to complete any necessary steps to comply with the terms of the CIA and facilitating the process with the IRO.

Examples of projects include:

• Worked with a national provider of ancillary services to divest or acquire interests in centers to comply with a settlement agreement with the OIG;
• Worked with a national health law practice to review a significant number of physician compensation arrangements for fair market value and commercial reasonableness, each year turning a five year CIA and worked with the systems independent valuation firm to make sure valuation reports were comprehensive enough to meet the needs of the OIG monitor; and
• Worked with a regional health system to monitor physician arrangements and their internal processes to manage the compliance of physician arrangements, filing annual reports and communications with the OIG monitor.

Several exceptions and safe harbors under the Stark Law and the Federal Anti-Kickback Statute require that arrangements be “commercially reasonable.”  In recent years, an emphasis has been placed on the commercial reasonableness of physician arrangements. It is important to recognize that a transaction can fail the commercially reasonable test even if the remuneration is below or within the FMV range.

Pinnacle believes it is important to acknowledge this regulatory consideration has developed a process and deliverables to address these items from a third-party perspective. Pinnacle leverages an in-depth industry knowledge to assist in the analysis or incorporate a separate third-party analysis in our valuations, as requested.

View Pinnacle’s Commercial Reasonableness checklist.

Traditional management services agreements (MSAs) have been established to serve a variety of functions, mostly to establish an agreement for a party to provide administrative/non-clinical services. Management services agreements are often entered into between Management Service Organizations (MSOs) and provider entities (e.g., physician practices, Ambulatory Surgery Centers, Hospitals/Health System Service Lines, Digital Health Platforms [should these be capitalized since not proper names or titles?]).

MSAs are intended to make the practice or service line more operationally efficient and afford providers the ability to focus a larger portion of their time on clinical duties and responsibilities. MSOs usually consolidate and coordinate certain non-clinical functions which are essential to the operation of practice or service line but lie outside the scope of a given clinician’s formal training.  By outsourcing management services to an external contract organization, clinicians/providers can optimize their time with patient care activities, more precisely, thereby benefitting patients.

While each arrangement will be unique and specific facts and circumstances, common non-clinical duties and responsibilities include:

• Personnel management (hiring, training and retaining);
• Patient management and medical records;
• Technology (clinical and business platforms);
• Financial planning and accounting support;
• Billing and collections services;
• Payor contracting; and,
• Marketing management.

Pinnacle has developed models to help assess the allocation of the duties and responsibilities as well as to value appropriate FMV payments for those services.

Co-management agreements are generally quality-oriented, pay-for-performance based arrangements in which physician groups contract with hospitals to manage a service line.  Co-management (or service line co-management) is one of several common integration models. Other models include gainsharing, equity/ownership, joint ventures, professional services arrangements, direct employment and other similar arrangements.

Clinical Co-management models are frequently implemented to address the following:

• Ineffective medical director agreements;
• Disparities in care among and across providers;
• Inefficiencies and problems with general hospital operations;
• Cost effectiveness balanced with improvements in clinical outcomes; and,
• Facilitation of process improvements as defined by external agencies in light of public reporting and pay for performance programs.
• From a valuation perspective, Pinnacle has developed methodologies to assist clients in establishing FMV payment rates for clinical co-management agreements.