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Overview Of HealthCare Appraisers,
Inc.
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Founded in 2000
Sole business focus is FMV analysis of healthcare transactions
and arrangements, such as
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On-call arrangements, medical directorships, employment agreements,
hospital based MD collections guarantees, service and management
agreements, etc.
Staff consists of 4 principals with a highly educated and
experienced staff of 14 professionals.
Perform almost 2,000 FMV analyses each year.
Of these reports, over 500 were related to on-call
arrangements.
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Kaufman and Canoles Overview
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Root Causes of the Current
On-Call Predicament
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Changes in Physician Practice Patterns
and Attitudes
Changes in Reimbursement
Changes in the Methods of Health Care
Delivery
Malpractice Considerations
Weakened EMTALA Requirements
Relatively New Problem
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Legislative Framework
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Florida Law Regarding Emergency
Treatment
Federal Law Regarding Emergency
Treatment
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Legislative Issues
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Florida Statute Section 395.1041 applies to every
general hospital that has an emergency department
and requires each such hospital to provide
emergency services and care for any emergency
condition when:
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Any person requests emergency services and care; or
Emergency services are requested on behalf of a person by:
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Another hospital seeking a medically necessary transfer; or
An emergency medical services provider rendering care or
transporting a person. (Florida Statute Section 395.1041(3)(a))
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Legislative Issues
(Cont’d)
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Except in certain limited circumstances, every Florida hospital
shall ensure the provision of services “within the service
capability of the hospital.” Florida Statutes Section
395.1041(3)(d)(1). An exception is to apply if, prior to the
receiving of a patient needing such service capability, such
hospital has demonstrated to AHCA that it lacks the ability to
ensure such capability and it has exhausted all reasonable
efforts to ensure such capability. In making this determination,
AHCA is to look at all relevant factors inclusive of:
 The number and proximity of hospitals with the same
service capability;
 The number, type, credentials and privileges of specialists;
 Frequency of procedures; and
 The size of the hospital. (Florida Statutes Section
395.1041(3)(d)(3))
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Emergency Medical Treatment
and Active Labor Act of 1986
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As of the 2003 amendments to
EMTALA, hospitals are now obligated to
provide “[n]ecessary stabilizing
treatment for emergency medical
conditions . . . within the capabilities of
the staff and facilities available at the
hospital.” 42 C.F.R. Section 489.24(d)
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In pertinent part, the new regulations adopt the
positions taken by the CMS State Operations
Manual dated June 13, 2002:
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Each hospital has the discretion to maintain the on-call list
in a manner to best meet the needs of its patients.
Physicians, including specialists and subspecialists (for
example, neurologists), are not required to be on call at
all times. The hospital must have policies and procedures
to be followed when a particular specialty is not available
or the on-call physician cannot respond because of
situations beyond his or her control. (Federal Register,
Vol. 68, No. 174, Tuesday, September 9, 2003, page
53250)
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NO LONGER A FEDERAL
MANDATE FOR CALL COVERAGE
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In light of, among other events, the 2003 amendments to
EMTALA, the political activity of state medical associations, the
changes in practice patterns, and the pressure on physicians
from the malpractice insurance industry, the obligations on
physicians to take Emergency Department call have been
waning. There simply is no longer any compelling state or
federal regulatory or legislative method by which to force
physicians to take call coverage as part of their medical staff
participation on a hospital’s medical staff. Instead, hospitals are
turning to independent economic incentives to induce physicians
to assume call coverage obligations that the host hospitals
deem to be integral parts of their operations and, more often
than not, community obligation—whether for profit or not for
profit in structure.
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Legal Considerations
Anti-Kickback Statute and Applicable Regulations
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Whoever knowingly and willfully solicits or receives any
remuneration (including any kickback, bribe, or rebate)
directly or indirectly, overtly or covertly, in cash or in kind
 in return for referring [or to refer] an individual to a
person for the furnishing or arranging for the furnishing
of any item or service for which payment may be made
in whole or in part under a Federal health care program,
or
 in return for purchasing, leasing, ordering, or arranging
for or recommending purchasing, leasing, or ordering [or
to purchase, lease or order] any good, facility, service, or
item for which payment may be made in whole or in part
under a Federal health care program,
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Personal Services “Safe Harbor”
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The arrangement is set out in writing, signed by the
parties, and specifies the services covered by the
arrangement;
The term of the arrangement is for at least one year;
The agreement specifies the aggregate payment
amount as well as the services covered; AND
The payments are based upon fair market value and
do not vary with the volume or value of any referrals
reimbursed by a federal or state reimbursement
program.
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Stark Law and Applicable
Regulations
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The Stark Law prohibits a physician (or his or her
immediate family member) who has a financial
relationship with an entity from referring patients to
the entity for the provision of designated health
services (“DHS”) covered by the Medicare or
Medicaid programs, absent an applicable exception.
DHS does include inpatient and outpatient services.
Similarly, absent an exception, an entity that
furnishes DHS pursuant to a prohibited referral may
not submit a claim or bill for such DHS to the
Medicare program.
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Personal Services Exception
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The arrangement is set out in writing, signed by the parties, and specifies the
services covered by the arrangement;
The arrangement covers all of the services to be provided by the physician to
the entity;
The aggregate services contracted for do not exceed those that are
reasonable and necessary for the legitimate business purposes of the
arrangement;
The term of the arrangement is for at least one year (to meet this
requirement, if an arrangement is terminated during the term, the parties may
not enter into the same or a substantially similar arrangement for a year);
The compensation to be paid over the term of the arrangement is set in
advance, does not exceed fair market value, and does not take into account
the volume or value of referrals or other business generated between the
parties;
The services to be furnished under the arrangement do not involve the
counseling or promotion of a business arrangement or other activity that
violates any state or federal law; AND
A holdover arrangement involving the same terms and conditions does not
exceed six (6) months.
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Advisory Opinions
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Expense
Likelihood of Success/Result of Failure
Utility
Limitations
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May not address all federal and state laws
Does not address FMV considerations by
statute
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OTHER LEGAL CONSIDERATIONS
Revenue Procedure 97-13
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Goal is to avoid Private Business Use
Management Contracts means a management, service or
incentive payment contract between a qualified user [the
hospital] and a service provider under which the service
provider provides services involving all, a portion of, or any
function of, a facility.
Per-unit fee means a fee based on a unit of service provided
specified in the contract or otherwise specifically determined . .
Separate billing arrangements between physicians and hospitals
generally are treated as per-unit fee arrangements.
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Per-unit fee limitations
 No more than 3 years in length
 Terminable without cause and without penalty upon
reasonable notice [i.e. 90 days] after second year
Employment exception
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REBUTTABLE PRESUMPTION OF
REASONABLENESS
(Treas. Reg. Section 53-4958.6)
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Arrangement must be considered and approved by
an authorized body composed entirely of individuals
who do not have a conflict of interest with respect to
the transaction.
Approving body must obtain and rely upon
appropriate data as to comparability (pay attention to
quality and quantity of data—use closest functional
equivalent)
Board or committee must adequately document the
basis for its determination (no retroactive
documentation)
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Excess Benefits Transactions include:
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Non-fair market value transaction
Unreasonable Compensation Transaction
Prohibited Revenue Sharing Transaction (proportionality vs.
reasonableness standards)
Disqualified Persons generally means any person
who, in the preceding five (5) years, was in a
position to exercise substantial influence over the
affairs of the exempt organization and includes
certain relatives of and entities owned (3570 or
more) by disqualified persons. IRC § 4958(f)(1) and
(3).
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Under Treas. Reg. § 53.4958(c) following are
deemed to be disqualified persons:
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voting members of the Board
President, CEOs, COOs, CFOs, treasurers, and
anyone having ultimate responsibility for
implementing board decisions or for supervising
the management, administration, operations or
finances of the entity
persons with “material financial interests” in a
provider sponsored organization.
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Under Treas. Reg. § 53.4958-3(d)
following are NOT deemed to be
disqualified persons:
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other 501(c)(3) organizations
employees receiving total direct and
indirect economic benefits that are less
than “highly compensated employee”
threshold of IRS § 414(q)
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Additional Considerations
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Deferred Compensation Rules under
new Section 409(a)
Antitrust Laws
Florida Board of Medicine Decisions
State Laws
Others ?
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How Is Fair Market Value for On-Call
Coverage Established?
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Business Considerations
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The Overall Cost of the Program (current and future)
Who To Select to Staff the Program
How Best to Administer the Program (moving from a
reactive to a pro-active solution)
Payment Options (e.g., pay for call, pay for call only
when service required (Activation Fees), pay for call
AND ongoing treatment, fee subsidies, malpractice
subsidies in lieu of pay, other alternative payment
options such as deferred compensation
arrangements)
Intrahospital vs. Interhospital solutions
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Prevalence of Compensated Call
Coverage Arrangements
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In a survey conducted by Sullivan & Cotter,
almost 50% of all surveyed healthcare
organizations reported that compensation is
provided for on-call availability
Establishing the FMV of on-call arrangements
is HealthCare Appraisers’ most requested
type of analysis
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On-Call Compensation Payment
Mechanisms
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Per diem (typically a 24-hour period)
Per diem plus payment for unfunded care
Payment earmarked to defray
professional liability expense
Payment for unfunded care (e.g.,
percentage of Medicare)
“Activation fee”
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Factors Affecting the Value
of On-Call Services
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Frequency and nature of call events
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Telephone consults
Required presence at the ED
Required response time
Integrity/availability of data
Call frequency surveys
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Factors Affecting the Value
of On-Call Services
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Nature of the specialty
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OB (typically unfunded patients with no prenatal
care)
Surgeons (a surgical procedure is likely required,
including follow up care)
Compensation earned by such specialists for
clinical work
Number of physicians available to participate
in call rotation
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Factors Affecting the Value
of On-Call Services
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Exposure to unfunded care
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Unfunded patients
Low pay patients (e.g., Medicaid)
Additional considerations
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“Restricted” vs. “unrestricted” call
Required rapid response (e.g., TPA
administration)
Professional liability exposure
Required coverage by medical staff bylaws
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Establishing the Value of On-Call
Services
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Approaches to Value
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There is no OIG safe harbor for on-call
compensation
The Market Approach is the most viable
valuation approach
A Cost Approach (i.e., hiring physicians)
is generally impractical
An Income Approach is not applicable 30
Establishing the Value of On-Call
Services
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Market Values are of Limited Worth
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Generally, insufficient details are
available to ensure comparability
Two nearby hospitals may have
significantly different operational
characteristics
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Frequency of call
Payer mix
Trauma status
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Establishing the Value of On-Call
Services
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Physician-Reported Data May Be
Unreliable
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The physicians are actually employed
A certain number of days of call each month
are uncompensated
The compensation includes other services
(e.g., GME responsibilities)
The physician-reported values are simply
incorrect
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Establishing the Value of On-Call
Services
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Proprietary Valuation Algorithm
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“Scores” the factors described above in a consistent
and objective manner
Certain factors are correlated. For example, if the
call frequency is minimal, payer mix and professional
liability may not be factors
Establishes the value of clinical “work time”
Determines the FMV range of “on-call time” as the
product of the “score” and the value of “work time”
Market data is still pertinent to corroborate the
“analytical approach”
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Hypothetical Example
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Specialty: General Surgery
Step One: determine salary range for
clinical services of general surgeons
n=
Mean
25th
Percentile
1,001
$326,000
$236,000
$301,000
$376,000
$496,000
SCA
448
$283,000
$204,000
$264,000
$348,000
$400,000
HCS
377
$255,000
$192,000
$211,000
$296,000
n/a
AMGA
971
$332,000
$241,000
$311,000
$393,000
$465,000
WW
134
$306,000
$245,000
$278,000
$350,000
$452,000
HG
215
$268,000
$207,000
$255,000
$322,000
$398,000
$255,000
$192,000
$211,000
$296,000
$398,000
$332,000
$245,000
$311,000
$393,000
$496,000 34
MGMA
Lowest Value
Highest Value
3,046
Median
75th
Percentile
90th
Percentile
Hypothetical Example
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Step Two: “Gross up” salary range for
benefits and taxes:
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Low: $255,000 + $45,000 = $300,000
High: $393,000 + $57,000 = $450,000
Then, convert to an hourly rate:
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Low: $300,000/2,080 hrs = $144/hour
High: $450,000/2,080 hrs = $216/hour
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Hypothetical Example
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Step Three: Determine appropriate oncall factor using proprietary algorithm
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Typical Factors:
 Nature of the subject specialty
 Number of specialists on the call panel
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Number of call shifts per physician per month
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% of poor payors (Indigent, Medicaid, etc.)
Call frequency
 Events requiring physician presence at ED
 Events requiring telephonic response
Payor Mix
Other factors impacting the arrangement
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Hypothetical Example
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Step Four: Calculate On-Call Rate
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Proprietary algorithm result:
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FMV range for On-Call hourly rate:
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10% On-Call Factor (for example)
Low: $144/hour x 10% = $14.40/hour
High: $216/hour x 10% = $21.60/hour
FMV range for On-Call per diem rate:
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Low: $14.40/hr x 24 hrs = $350 /24 hours
High: $21.60/hr x 24 hrs = $520 /24 hours
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Hypothetical Example
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Step Five: Consider Market Data
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Sullivan Cotter on-call market data
Arrangements in our client database
Other arrangements not in our client database
Client/physician provided data for nearby
hospitals
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HealthCare Appraisers, Inc.
East Coast-Corporate Office
75 NW 1st Avenue, Suite 201
Delray Beach, FL 33444
561-330-3488
West Coast
858 Happy Canyon Road, Suite 240
Castle Rock, CO 80108
303-688-0700
5175114v2
www.healthcareappraisers.com
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