Fair Market Value and Physician Compensation: 4 Trends

At the Becker's Hospital Review 5th Annual Meeting in Chicago on May 16, Jim Carr, partner at HealthCare Appraisers, detailed several compensation trends for physicians and explained how physician employment has affected those trends. The basis for Mr. Carr's evaluations was data from MGMA's physician compensation surveys.

1. Physician employment continues to rise. For a lion's share of specialties, physicians are moving out of private practice and into the more predictable nature of hospital employment, similar to what has been seen in previous years. Internal medicine, medical oncology and hip/joint orthopedic surgeons are among the specialties that have moved most predominantly into the hospital space. Mr. Carr said interventional cardiologists have been the "poster child" for hospital employment: In 2009, only 22 percent were employed, but that figure rose to 66 percent in 2012 as their reimbursements were cut significantly.

2. There are some outliers. This is not to say all physicians are running out of independent waters, Mr. Carr said. Anesthesiology, radiation oncology and plastic/reconstructive surgery are three examples of where hospital employment has stayed stagnant or actually decreased.

3. Hospital-owned practices are losing tremendous amounts of money. The average multispecialty hospital-owned practice lost $1.7 million in 2012 — an observation that Mr. Carr said reflected some "pretty horrific economics." Losses are still steep for single-specialty hospital practices, like cardiology.

As hospitals are starting to see large losses associated with these practices, some organizations are making changes, like removing salary guarantees and instilling pure productivity compensation models. "The most dramatic thing we've seen: If a physician is underperforming, [the hospital] won't renew the contract," Mr. Carr said.

4. The definition of fair market value is becoming more difficult to peg. Hospital-owned practices have not generated much profitability, and this is putting fair market value and commercial reasonableness in conflicting positions, Mr. Carr said. On one hand, physician compensation surveys are saying physicians deserve a certain compensation figures and practices are worth a certain amount — but on the other hand, factoring in losses, would any reasonable party enter into those transactions because it makes business sense?

"Those concepts are really evolving as the economics of the practices deteriorate going forward," Mr. Carr said. "We have to sort through what makes sense, and it becomes a really important issue."

More Articles on Becker's Hospital Review 5th Annual Meeting:
5 Survival Strategies for Struggling Community Hospitals
The Rise of Physician Profiling in ACOs
10 Steps for a Successful Merger/Acquisition

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