Coronavirus’ Impact on FMV of Physician Compensation and Reimbursement Trends

UPDATED August 11, 2020

With the novel coronavirus lingering across the U.S., many physician practices have retooled the way they serve patients. Practices closed their doors to non-emergent traffic early on in the pandemic due to stay-at-home orders and, as Medicaid systems lifted restrictions on telemedicine services, physicians quickly adopted telemedicine as a standard of care. The question is not if these changes will impact reimbursement and fair market valuation, but how.

Due to the highly contagious nature of the coronavirus, the healthcare industry has experienced canceled elective surgeries and procedures, with cosmetic procedures being completely off the table early on. While there has been a marked uptick in telemedicine services, especially as practices looked for ways to create business continuity, these are predominantly evaluation and management (E/M) services. It is important to note that telemedicine services are reimbursed at the same rate as in-office services by CMS. While E/M services will not fluctuate in terms of reimbursement for Medicare patients, not all states have the same telehealth parity laws governing their Medicaid payments. In general, E/M services generate less revenue than in-office procedures or surgeries, so the increase in the volume of telemedicine services will not offset the loss in revenue from cancelled procedures early on in the pandemic. Additionally, as practices opened back up after stay-at-home orders lifted, some experienced an influx of patients who may have unwittingly contracted the virus, increasing the risk of further spread.

Current implications of the virus on fair market value analyses for physician compensation could cause analysts to take into consideration the current supply and demand of physicians and other non-physician providers. In this circumstance, valuation analysts may consider the increased burden physicians are facing due to the shortage of providers in the U.S., which existed prior to coronavirus cases and threatens to consume already over-worked healthcare providers and resources. Analysts may see an increase in the use of locum tenens, or temporary physician and non-physician providers, to supplement coverage, which comes at a higher rate than an employed provider. Analysts may consider these costs as a cost-to-replace method as part of their analysis for the current situation, although the use of locum tenens in this particular situation may prove difficult if travel restrictions or other realities of the virus further increase locum tenens expenses.

Other physician deficit solutions could include repurposing physicians who provide primarily elective services or seeking out recently retired physicians still capable of practicing medicine. Fair market value considerations under these scenarios would include reviewing physician qualifications as well as the new services they will be performing in the emergent situation. No matter what the story is underlying the fair market value analysis, it is crucial during these uncertain times for analysts to be able to articulate the current state of the healthcare environment at the time of the valuation, and it is reasonable to consider that fair market value may be impacted by the current events surrounding coronavirus.    

When looking into the future of providing fair market value analyses for physician compensation, 2020 data will have to be reviewed with scrutiny by valuation analysts. While the significance and duration of the pandemic’s financial impact at this time is indeterminable, there will be an impact that will need to be considered. As a result, it may be prudent to normalize the months affected by the virus from productivity and historical financial information. Analyzing multiple years of data to see the typical productivity trend would be an advisable practice in determining whether making normalizing adjustments is reasonable. Furthermore, depending on the longevity of the virus’ impact, it may be appropriate to rely on another year of data altogether, or not rely on production data at all. Discussions with physicians and practice management will be imperative to understanding the full impact of the virus on each practice, as services could have changed completely during times of mandated quarantine. 

The way physicians practice medicine will continue to evolve in the coming months. Analysts must be hyper-sensitive to a variety of factors such as changes in services provided and provider shortages, which will affect fair market value analyses in present and future valuations. With so much in flux, one thing is certain: reimbursement and fair market value analyses of physician practices will be impacted by coronavirus. Only time will tell how much and to what extent.

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Topics: Physician Compensation, Reimbursement, COVID-19

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