Healthcare

Consider a small U.S. town that doesn't have local access to a cardiologist. The community can't support one on a full-time basis, so the hospital brings in a cardiologist twice a month. The physician pays to use the hospital's facilities, equipment, support staff and nurses during those two days. Patients are able to access the specialized care they need without having to travel, and the physician pays only for the space and support that he or she needs.

We described in the previous installment in this series how recent case law and DOJ settlements provide clear evidence of the position of qui tam relators, prosecutors, and government experts that losses on hospital operation of physician practices are being targeted. Because evidence suggests that hospital losses on physician practices are common in many markets, the questions on everyone’s mind are whether health system losses on physician practices put the organization and key individuals at significant fraud and abuse compliance risk, to what degree can existing physician practice losses be justified through documentation, whether the health system has a functional Fair Market Value (FMV) and Commercial Reasonableness (CR) enterprise risk management process, and—the subject of this series--is a plan at the ready to begin mitigating practice losses?

In earlier days of hospital-based physician coverage, specialties were mostly limited to radiology, pathology, anesthesiology, and emergency medicine. As the hospitalist specialty developed, more hospitals began contracting for inpatient coverage to provide a broader continuum of care. Later, additional specialties, including pediatric hospitalists, intensivists, nocturnists, laborists, surgicalists, and neonatologists, grew in popularity.

Coverage by hospital-based physicians can be based on shifts or hourly or daily coverage, and can extend to multiple facilities and hospital departments. Coverage can include restricted and unrestricted on-call coverage as part of the arrangement. In addition, administrative responsibilities, quality improvement, and program development are often required.

A major change to pension plan reporting takes place in fiscal year 2015 that could become a significant headache for governmental hospitals if they don’t get started now preparing for it. The ramifications of GASB 68 are substantial enough without the stress of waiting too long to prepare. Here’s why: 

On August 14, 2014, the U.S. Department of Justice reported a $1.3 million settlement between New York Heart Center, a New York cardiology group practice, and the United States government to resolve allegations that the practice violated the Physician Self-Referral (Stark) Law and the False Claims Act by "knowingly compensating its physicians in a manner that violated federal law."

The unique nature of services furnished by health care professionals and the possible conflicts of interest arising from financial arrangements between providers has resulted in laws and regulations that differ dramatically from other industries, like the Stark Law. The law was intended to ensure that a physician’s medical judgment is not compromised by improper financial incentives that encourage internal referrals of certain services known as Designated Health Services for Medicare patients.

Given the continued flurry of activity in hospital-physician financial arrangements and increased enforcement activity, hospital system CEOs and in-house and outside counsel all have a vested interest in getting optimal value from the working relationship between the health care valuation analyst and legal counsel.

Few subjects have provoked as much passionate debate in the health care valuation community as relying on the asset approach as the sole basis for a conclusion of physician practice value when the income approach indicates no supportable intangible value, including the value of a trained and assembled workforce. A new white paper, Intangible Asset Valuation, Cost Approach Methods and Procedures, authored by highly regarded valuation expert Robert Reilly and published by the AICPA, is a much needed and generally well-written technical resource on the application of cost approach methodology to the valuation of intangibles.