In establishing reasonable or fair market compensation for physicians, most valuation experts focus on survey data. But this practice is often flawed because it is based on several false premises, according to Tim Smith (Ankura), who has done extensive research on this topic.
These false premises include:
- The surveys have statistical significance for the 90% or so of physicians not included in the surveys;
- Survey compensation per work relative value units (wRVU) is always fair market value and commercially reasonable—the common wRVU technique utilized virtually assures that the employing institution will lose money on the practice, something that appears to be commercially unreasonable based on the recent court cases;
- Physicians will relocate to earn the median and therefore everyone should earn the median—an idea that is both statistically incoherent and not borne out by academic research; and
- The 75th percentile of compensation per wRVU or compensation-to-collections ratio is a mythical ceiling on fair market value.
During a recent webinar, Smith also pointed out that local-market conditions not measurable in the surveys may necessitate losses on physician practices due to factors such as supply and demand, payer contract rates, local-market competition, and national shortages of high-demand specialties. The commercial reasonableness of these losses should be documented in advance and can, in fact, be documented through use of a different method as well as other techniques. Ashley Artibee, a data analyst with the Medical Group Management Association (MGMA), a provider of physician compensation survey data, joined Smith on the webinar.
Smith is co-editor along with Mark O. Dietrich on the newly released 2nd edition of the BVR/AHLA Guide to Valuing Physician Compensation and Healthcare Service Arrangements.The two-volume work is the industry’s only peer-reviewed comprehensive body of knowledge for healthcare compensation valuation, and it provides a complete alternative to reliance on surveys to determine fair market value.
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