Fair Market Value Analysis of a Residency Program
Client/Profile
Midwestern community hospital with a family practice residency
Challenge/Situation
To provide the community hospital with expert opinion on the fair market value of clinical and didactic teaching services in support of the residency program, subcontracted to a private family practice group. Patient volume attributable to the resident sessions generated significant revenue for the practice.
While the residents could not legally bill and collect for the professional services they delivered, the practice billed and collected for these visits. The practice also incurred certain expenses in providing these clinical teaching services, including an opportunity cost of the supervisory physician’s time. This arrangement was included as part of the fair market value (FMV) analysis.
Process
Veralon developed a detailed FMV analysis of the AS&T services performed by the practice. We reviewed the position description for the program director and assigned FMV compensation to the duties provided by the physician, consistent with published benchmarks and the physician’s experience level and efforts. We also considered the revenues and incremental expenses of the residents’ activity in the practice versus the time a family practitioner could dedicate to clinical practice in lieu of supervisory commitment.
These components of compensation – program director, didactic teaching, and the net impact of hosting the residency program – were considered in an income approach valuation to arrive at an FMV amount for the services. Veralon prepared an opinion letter and shared the results with hospital leadership and its legal team.
Results
The opinion letter was used by the hospital to successfully re-negotiate the contract for the continuation of the family practice residency training program at the practice.