Coronavirus’ Impact on FMV of Physician Compensation and Reimbursement Trends

With the novel coronavirus upon us, many physician practices are rethinking the way they can continue to serve their patients during this uncertain time and beyond. Having to close their doors to non-emergent traffic due to stay-at-home orders, and with many state Medicaid systems lifting restrictions on telemedicine services, physicians, who may not have otherwise done so, have adopted telemedicine in rapid-fire fashion. The question is not if these changes will impact reimbursement; and fair market valuations, but how.

Due to the contagious nature of the coronavirus, the healthcare industry has canceled elective surgeries and procedures, with cosmetic services being completely off the table. While there has been an uptick in telemedicine services, especially as practices are looking 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; therefore, E/M services will not fluctuate in terms of reimbursement for Medicare patients; however not all states have the same telehealth parity laws governing their Medicaid payments. Because E/M services generate less revenue than in-office procedures or surgeries, the increase in the volume of telemedicine services will not offset the loss in revenue from procedures.

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 United States, which existed prior to coronavirus cases threatening to consume already over-worked healthcare providers and resources. Analysts may see an increase in the use of locum tenens to supplement coverage, which come 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 to be difficult if there are travel restrictions in place, further increasing locum tenens expenses.

Other physician deficit solutions could include repurposing physicians who provide primarily elective services or seeking recently retired physicians who are still capable of practicing medicine. Fair market value considerations under this scenario 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 at 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. To determine if making normalizing adjustments is reasonable, analyzing multiple years of data to see the typical productivity trend would be an advisable practice. Furthermore, depending on the longevity of the virus’ impact, it may be appropriate to rely on another year of data altogether, or not relying on production data at all. Having discussions with physicians and practice management will be imperative to understand the full impact of the virus on each practice, as services could have changed completely during times of mandated quarantine. 

The way physicians are practicing will continue to evolve in the coming months. When considering reimbursement and fair market value analyses, we know the two will be impacted by the current state of the country due to coronavirus. For analysts, we must be hyper-sensitive to the different factors such as changes in services provided and provider shortages, which will affect fair market value analyses in present and future valuations.

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Topics: Physician Compensation, Reimbursement, COVID-19

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