Our Approach to Fair Market Value

The La Penna Group, Inc. has been providing fair market value determinations for its hospital clients since 2003. These valuations are most often requested in support of physician employment agreements or other formal arrangements for call coverage, clinical oversight, or administrative leadership.

Our approach to fair market valuation is simple and straightforward. More importantly, our methodology relies on a comprehensive dataset only available from multiple sources endorsed by the marketplace and the governing bodies interested in such determinations. Our methodology has withstood the scrutiny of conservative legal advisors and governing bodies across the country and has been proven to meet the needs of every type of client from multi-facility religious systems to local, independent institutions.

The loosely defined and ever changing arena of fair market valuation requires an appropriate blend of both art and science. While benchmark data is open to limited interpretation, local market conditions, and certain aspects of physician marketability require a discerning eye to assess opportunities and their legitimacy. It’s at this intersection where The La Penna Group, Inc. differentiates itself from the cadre of attorneys and consultants fully equipped with the most current Medical Group Management Association compensation surveys. More than providing the data, The La Penna Group, Inc. provides 25 years of experience in interpreting how the data can be used to support your organizations goals and strategies as they relate to the challenges of fair market value.

If you have any questions regarding our approach, please contact us toll-free at 800-527-3662. We would be pleased to discuss your project with you without charge.

Our Methodology

The La Penna Group, Inc. has always recognized the value of a multi-step process in the calculation of fair market compensation. The methodology we have employed in such analyses for the past five years closely follows the methodologies specifically supported in Stark II guidance. More importantly, the methodology appears to remain consistent with regulations recently released in Stark III that advise reliance on:

“any commercially reasonable methodology that is appropriate under the circumstances” and dependent on “the nature of the transaction, its location and other factors.” 70 Fed. Reg. at 51,015-16.

The La Penna Group, Inc.’s methodology includes, but may not be limited to, the following:

  1. An examination of the costs associated with building or replacing the service being evaluated.
  2. A survey of the available and multiple sources of industry data (e.g., comparable service agreements in a relevant market under similar circumstance).
  3. An analysis of the specific circumstance (e.g., payer mix, patient volumes, sub specialization requirements, time requirements, etc.) surrounding the service or agreement being evaluated.
  4. Establishment of separate fair market compensation ranges for administrative and clinical service.
  5. Development of an “opportunity cost” value.
  6. Reliance on established hourly rates to determine annual salaries based on multipliers reflecting actual hours worked.

While The La Penna Group, Inc. acknowledges that CMS under Phase III reserves the right to second-guess both the methodology and the amount of fair market value, we feel that the methodology we employ is rigorous, reasonable, and appropriately specific to the individual circumstances of a particular market, taking into account the nature of the transaction, its location, and factors such as experience, specialty, supply, and demand. Further, because it is expected that the estimates determined by the various methods listed above for such arrangements will not be in exact agreement, The La Penna Group, Inc. often uses objectivity, experience, informed judgment, and reasonableness to determine an estimate or range of fair market value.

Data Sources

In our attempt to establish fair market compensation, The La Penna Group, Inc. typically begins an analysis by collecting specialty-specific data points available from four or five independent and separate survey sources. The sources include:

  1. Medical Group Management Association, Physician Compensation and Production Survey, 2002 – 2007.
  2. Sullivan, Cotter & Associates, Inc., Physician Compensation and Productivity Survey, 2006.
  3. Hospital and Healthcare Compensation Services, Physician Salary Survey Report, 2007.
  4. American Medical Group Association, Medical Group Compensation & Financial Survey, 2007.
  5. American College of Physician Executives, Physician Salary Survey Report, 2005.

The first three surveys listed were stipulated in the Stark Phase II regulations as approved sources for establishing the safe harbor hourly rate for physicians (eliminated under Phase III). While not specifically designated as an approved source of data, The La Penna Group, Inc. believes the American Medical Group Association survey is the next best applicable source for comprehensive physician compensation and productivity data. We feel that the American College of Physician Executives is the best source for compensation information for physicians serving in administrative capacities.

Our Final Product

While the final result of our work in the area of Fair Market Value can vary based on the individual client’s needs, our firm’s deliverables almost always include a narrative report defining the project background, summary findings, methodology, and identification of other issues for consideration. The reports typically include data tables and summary calculation exhibits, as well as a narrative description of the step-by-step process employed during the analysis.

The results of the analysis include a target compensation that is supported by both objective data and a consideration of factors unique to the local marketplace or the provider in question. The analysis also identifies a fair market value range that can more easily be applied to specific situations.

If you have any questions regarding our methodology, data, or deliverables, please contact us toll-free at 800-527-3662. We would be pleased to discuss your project with you without charge.

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