The onset of COVID-19 forced many health systems to consider alternatives to traditional care models. One of the most popular care models considered was telemedicine in intensive care unit (ICU) settings. Even before COVID-19, utilizing telemedicine for ICU physician coverage and in the emergency department (ED) for specialists such as neurologists was becoming a more popular care model. However, unlike physician compensation data reported by multiple national surveys, information for the cost of telemedicine physician coverage is relatively limited. So, how does a health system know whether the amount it is paying for telemedicine coverage is reasonable? While each market is unique, appraisers of physician compensation arrangements normally consider a combination of the traditional market and cost approaches for telemedicine arrangements in addition to each arrangement’s unique facts and circumstances.
The market approach is a valuation methodology in which market data is analyzed to determine what is being paid in the marketplace for a given service. Put more simply, the market approach is a look at what others are currently paying for similar services. While limited in nature, there are some surveys that collect, classify, and publish data related to telemedicine physician coverage. Two such surveys are the Sullivan, Cotter and Associates, Inc. Physician On-Call Pay Survey Report (SullivanCotter) and the MD Ranger Benchmarks Report (MD Ranger). SullivanCotter’s most recent report, published in 2018, shows that 20% of participating organizations provide 100% of a specialty’s unrestricted call rate for telemedicine ED call coverage. It also reports that 47% of physicians provide telephonic call coverage, and 80% of organizations anticipate their telemedicine programs to continue to grow. MD Ranger reports data on a per-episode and a per-month basis for certain types of telemedicine coverage including ICU, psychiatry, and stroke. These data points represent a sample of the information provided by benchmark surveys that facilitate an effective use of the market approach.
An alternative to using benchmark surveys for the market approach would be to collect multiple bids from various vendors to provide telemedicine coverage services. This could be done informally, or even through a formal request for proposal process. The most informal way of collecting market data might be as simple as surveying other health systems, ED or ICU associations, or affiliates in the local market.
The cost approach is a valuation methodology that relies upon an estimation of the cost to replace the service being valued. In this approach, a health system would determine the cost of employing an appropriate number of physicians to support a telemedicine program. The costs of this program would then be allocated to the specific coverage services needed. Once offset by any potential professional collections, the cost could be compared to any proposed pricing from a telemedicine vendor. For small coverage needs, the costs to fully staff a telemedicine program may not make economic sense. However, larger healthcare systems with multiple locations may find staffing a telemedicine program internally is the most cost-effective approach.
As telemedicine becomes more popular, and more providers enter the market, the pricing for telemedicine services will become more commoditized. As a result, it will be easier to evaluate pricing for telemedicine services. However, even with commoditized pricing, it will remain important to ensure that any payment for telemedicine services is fair market value and commercially reasonable.
If you have questions related to telehealth physician coverage, fair market value and commercial reasonableness of compensation arrangements, or would like additional guidance related to COVID-19, visit our COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.