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Determining the Fair Market Value of Medical Center and Teaching Hospital Compensation Funds Flow


Major academic medical center


To review and opine on a funds flow agreement between an academic medical center and its major university affiliate. The single fair market value opinion related to over $100M of compensation for diverse services including patient care, education, hospital administration, clinical program support, and various purchased services provided by the university to the medical center.

Historical justification of funds did not always correspond to the current programs and services and due to legacy funding of programs, standard documentation was not always available. The high level of indigent and uncompensated care provided at the medical center, required innovative approaches in assessing fair market value compensation levels, due to the impact on professional collections.


Veralon requested considerable data and conducted detailed discussions with university and hospital administrators to understand the underlying services provided by the university on a program by program level. This included articulating operational requirements, physician and non-physician staffing requirements, payer mix, service mix, and reimbursement.

Veralon’s valuation of the services provided under the terms of the agreement considered a range of valuation approaches. Veralon applied valuation methodologies to a multitude of programs and services provided under the agreement spanning 20 departments and hundreds of physicians. Our work included:

  • Researching the costs of other academic medical centers related to clinical instruction, residency and fellowship program administration, and overhead expenses;
  • Benchmarking various physician professional and administrative efforts across clinical departments related to direct indigent care services, residency and fellowship clinical instruction, and hospital administrative oversight;
  • Analyzing fee schedules for various directly purchased services including transplant, laboratory, and tissue bank services;
  • Assessing projected profit and loss statements of programs or departments for which the health system supports losses generated by insufficient program revenue; and
  • Benchmarking physician productivity and effort levels to ensure that resource levels utilized under the agreement are appropriate.


Veralon was able to render an opinion on the fair market value of the compensation under the terms of the funds flow arrangement.