Valuation Issues to Consider in Stacking Physician Services
By: Ben Ulrich, AVA
As hospitals continue to assess and exercise various physician-alignment strategies, individual physicians are
being engaged to provide a variety of services. Medical directorships, administrative services, quality incentives,
service-line management, and, in some instances, on-call coverage are typically above and beyond the typical
requirements of a physician employment or PSA contract. When distinct payments are applied to each service,
the critical question arises concerning whether the aggregate compensation payable to the physician is
reasonable.
There are three key valuation issues to consider in analyzing a stacked set of physician services:
Hours Worked per Service – A vital point in analyzing multiple physician services is understanding the hours
devoted to each component. Ideally, contract terms and time logs are available to document the type of hours
worked by the physician. This typically requires input from the hospital and the physician regarding the amount
of hours required for each service. From a compliance standpoint, it is vital to clearly delineate hours worked
per service such that compensation is not being paid twice for the same hour of service.
Compensation Tests – Proper due diligence should be conducted to ensure individual compensation terms be
set at FMV rates. However, it is also important to consider whether the aggregate payment to the physician is
reasonable in light of the services being provided and the hours being worked. Market compensation surveys
report total cash compensation from all income sources including clinical services, medical directorships, on-call
coverage, and any additional earnings. Analyzing specialty survey data points on both an hourly and annual basis
can be valuable in understanding the percentile of a particular physician’s total compensation.
Total Hours Assessment – In analyzing the hours worked by a physician providing a stacked set of services, it is
important to consider whether aggregate hours worked are consistent with market norms. Depending on the
specialty and the burden of each service, there are certain levels of weekly hours worked that may be
unsustainable over time. There are a variety of articles, specialty journals, and market surveys available that
shed light on market norms related to average hours worked. Documenting whether a physician’s aggregate
hours worked are consistent with industry observations can provide an additional layer of assurance that the
contract requirements are reasonable.
Analyzing physician compensation for a stacked set of services requires a unique perspective and an analytical
framework. The risk for overpayment exists in situations where hours dedicated per service are not clearly
outlined in an agreement and compensation terms are not aligned with the services being provided. Being able
to compare a physician’s services and hours worked to market survey data greatly helps to validate a total
compensation structure as being reasonable and consistent with industry standards.