Learn how Withum helped a leading New Jersey health system’s successful implementation of updated professional service agreements.
Executive Summary
Withum was engaged by the CFO of a leading New Jersey health system (the “System”) to provide insight and assistance on renegotiating its professional service agreement (“PSA”) and practice lease agreement (“PLA”) with a cardiology practice comprised of nine physicians (the “Practice”).
Withum’s work efforts focused on determining the fair market value compensation per work RVU for the Practice’s physicians as of a current date, and developing a comparison of the Practice’s expense levels, on a per FTE physician basis, to the latest national benchmark data for cardiology practices. As part of this engagement, Withum also reviewed the reasonableness and validity of a third-party report that the System had previously relied upon to establish the terms of the PSA and PLA.
The Client
A nationally recognized New Jersey-based health system with well over 1,000 physicians and an annual revenue of over $1 billion.
The Challenge
The System had previously engaged another outside firm to determine the fair market value compensation payable under the PSA and develop an operating expense budget based on industry benchmarks for the PLA. Concerns subsequently arose over the prior firm’s conclusions, which called into question the validity of the assumptions that the System incorporated into the PSA and PLA.
Given that both agreements were up for annual renewal, the System engaged Withum to examine the reasonableness of the prior firm’s conclusions and establish updated compensation and budget metrics where appropriate.
The Approach And Solution
Withum aggregated data from three nationally recognized surveys and examined relevant benchmarks for the cardiology subspecialty of each provider. Using this data as a starting point, Withum developed an interpolation analysis that considered each provider’s productivity levels relative to industry benchmarks. Unlike the prior firm’s report, Withum relied on benchmark data specific to the northeast, considered the number of subspecialty respondents and incorporated a regression-based time adjustment to bridge the gap between the most recent date of each survey metric and the valuation date. Withum also consulted with the client and developed a normalized level of work RVUs to account for a recent departure as well as a recent part-time addition.
Based on this analysis, Withum determined a fair market rate per work RVU that was 11% higher than the prior firm’s conclusions. Concerning the PLA, Withum developed an operating expense budget based on the Practice’s actual historical expenses. After the inclusion of the updated fair market value compensation, the operating budget turned out to be 32% lower than industry benchmarks on a per FTE physician basis. The combined efforts made by Withum enabled the System to accurately update and successfully renegotiate the PSA and PLA.
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