Valuing a Multi-Specialty Medical Practice and Physician Compensation
Client/Profile
Community-based health delivery system in the Northeast
Challenge/Situation
To conduct a valuation of a multi-specialty, multi-location medical practice for a potential acquisition. Veralon was also asked to conduct a fair market value assessment of the proposed employment compensation terms for 15 cardiology and primary care physicians. Unique challenges were posed by the interrelationship of practice value and physician compensation as well as by the preference for a group compensation model among physicians with wide-ranging productivity and specialties.
Process
Veralon reviewed and assessed historical financials, performed a site visit, and completed a valuation that relied on a cost approach conclusion acceptable to all parties. Deliverables included multiple iterations of summary presentations and a full fair market value business valuation report.
A briefing document was developed to explain tradeoffs and methodologies to the hospital client as well as physician participants.
Results
Veralon evaluated the proposed compensation model through a detailed analysis of prior compensation, productivity, and quality measures. Expected administrative and clinical compensation figures were based on prior performance, and the physicians were measured on an individual level and in the aggregate. Historical compensation recognized the primary care physicians as equal participants in the success of the practice overall. This “group model” was not entirely consistent with specialty-specific or compensation rates on an individual basis. While each physician’s compensation did not align with productivity, Veralon concluded that physician practice compensation as a whole was consistent with corresponding benchmarks. Deliverables included summary briefing documents and a fair market value compensation opinion letter.