Learn how Withum helped a leading health system successfully implement updated professional service agreements, achieve a 35% margin improvement, and significantly improve alignment with organizational goals.
Executive Summary
Withum was engaged by the CFO of a leading health system in the northeast (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, 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 health system based in the northeast 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 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 adjusted benchmarks to match the local market, considered expected changes in practice operations, and normalized wRVUs 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 significantly higher than the prior firm’s conclusions. With respect to the PLA, Withum developed an operating expense budget based on the Practice’s actual historical expenses. Finally, Withum analyzed practice financials and operations to find areas of opportunity for increased production and decreased costs.
The Results, ROI
With the updated FMV compensation and operational insights, Withum delivered:
- Operating budget 32% below national benchmarks (per FTE physician)
- 35% projected margin improvement
- Stronger alignment with System financial and strategic goals
- Successful renegotiation of PSA and PLA with accurate, defensible metrics
If your organization needs clarity, validation, or fresh insight into physician compensation, FMV modeling, or PSA/PLA structures, Withum can provide the rigorous analytics and industry expertise needed to renegotiate agreements confidently and improve financial performance.
Contact Us
For more information, please contact a member of our team.
