With the growing number of advanced practice providers (APPs) in the workforce, there has also been a corresponding increase in physician APP supervision arrangements, which many states require for APPs to practice. Although several types of health professionals can be categorized as APPs, here we are focusing on nurse practitioners and physician assistants. The scope of practice varies for these APPs and can depend on which state they practice in. Some states ascribe greater practice authority and autonomy to one type of APP than another.
The Bureau of Labor Statistics (BLS) projects a 37% job growth rate for physician assistants and a 31% job growth rate for nurse practitioners from 2016 through 2026. This is much faster than the average growth rate for physicians and surgeons at 13% and for all occupations, which is 7%. Organizations that choose to pay physicians for APP oversight do so to align practice performance with compensation and encourage physicians to use APPs.
Calculating the Value of APP Supervision
Physicians are often required to supervise APPs as part of their duties when providing clinical services. Therefore, some level of supervision is already incorporated into the available market compensation benchmarks. However, there are instances when physician-provided APP supervision exceeds the levels reflected in the benchmarks or when the time and effort required for supervision negatively impacts traditional performance measures, such as productivity and collections generated by the physician. Frequently, we are asked to suggest compensation models for physicians who supervise APPs, and the client always wants to ensure that the payment rates are within fair market value (FMV). In these instances, depending on the availability of the underlying information, we utilize one of the following three common methodologies to assess the value of the provided supervision services: time-based, leveled-productivity, and net income.
1. Time-Based Methodology
A time-based methodology approach looks at industry benchmarks to establish the expected supervision levels when APPs are part of the care team and then calculates the excess supervision burden.
a. Benchmarks
The key APP supervision benchmarks focus on the number of APPs supervised, the time associated with oversight, and the rate of compensation for that oversight.
- Average supervision per physician FTE (e.g., less than 0.5 APP FTEs per physician FTE)
- Benchmark hours of oversight supervision per week per physician FTE (e.g., 30 minutes per clinic day)
- Hourly rate for supervision (e.g., blended clinical and medical directorship compensation rates)
b. Calculating Excess Supervision Burden
Any supervision beyond the benchmark value—in this case, APP FTEs—represents an excess level of supervision burden. The excess level of supervision burden is quantified as the difference between the number of APP FTEs per physician and the previously noted benchmark.
The total excess supervision hours are then estimated by multiplying the excess APP FTEs by the number of hours of supervision per week per APP FTE and, finally, by the number of weeks worked per year. This calculation yields the total yearly supervision hours in excess of the standard level. The calculated excess supervision hours are multiplied by the hourly rate for supervision to calculate the annual supervisory payment indication.
Table 1 shows an example buildup for the time-based approach.
2. Leveled-Productivity Methodology
Some practices have a higher ratio of APPs to physicians. In these circumstances, the personally performed productivity of the APPs and the physicians may not be equalized because the physicians spend more time supervising APPs than billing for direct patient care. In these instances, it is common to consider and value the aggregate effort of the care team because the collaboration of professionals is a deliberate attempt to achieve together what the individuals could not alone.
Therefore, the value of each component is inextricably linked. Aggregate WRVUs are reallocated among the provider group so that each individual receives WRVUs at the same percentile for their cohort. Table 2 provides an example of this calculation.
Professional collections are also reallocated among the group members for analysis purposes. However, collections reassigned to the physician are kept at the rates appropriate for the generating provider (i.e., the APP reimbursement, not the physician reimbursement).
The adjusted productivity and collections, as well as the required time commitment, are then applied in assessing the total compensation value of the services provided by the physician.
3. Net Income Methodology
The purpose of the net income methodology is to understand the amount of compensation that would be available to the provider based on the income a hypothetical operator would generate and make available as compensation under like conditions and circumstances. The available income for distribution takes into account the revenue that could typically be generated by a similar business, its operating expenses, the required investment, and the required return to owners.
Under this approach, the available professional revenue generated by the care team is tabulated, and all associated operating and administrative expenses, including APP compensation and benefits, are debited. The resulting income available for distribution to physicians is evaluated as compensation for their supervisory services.
Ensuring Alignment between Valuation and Compensation
When reviewing compensation plans for APP supervision, it is important to understand the value drivers of the supervision services and the valuation approach that best incorporates these drivers’ impact. Simply assigning a flat dollar amount, as has been the practice of many valuation firms, does not reflect the evolving complexity of the APP-physician symbiosis.
The ECG Valuation team is often asked by our clients and colleagues to respond to challenging matters of healthcare valuation and physician compensation. While occasionally answers to these questions are clear and uncomplicated, frequently a nuanced and specific response is necessary. If you have any questions about the valuation process, contact the ECG Valuation team.
Published November 27, 2019