Becker's Hospital Review

Executive Briefing: Employee Leasing Agreements 44 Sponsored by: 7 Key Components of Employee Leasing Arrangements www.HealthCareAppraisers.com | info@hcfmv.com | (561) 330-3488 DELRAY BEACH | DENVER | DALLAS | CHICAGO | PHILADELPHIA By Ellie Rizzo L easing technical and administrative staff from a physician-owned entity can be a practical and economical alternative to employment for many hospitals and health systems. The resources and obligations associated with these arrangements can vary widely, as can the rationale supporting a hospital's decision to enter such arrangements. According to Fred Lara, partner at HealthCare Appraisers, some common scenarios where employee leases are used by hospitals include: ll things are created equally. • n connection with a broader management arrangement of an outpaI tient service-line (e.g., wound care, sleep center, ambulatory surgery center), a physician-owned management company provides the full and part-time staff required; • n connection with enhancing care to hospital's inpatients, an orthoI pedics practice provides full-time physician extenders to the hospital; • n connection with providing its patients with access to a specialized I medical procedure, a physician-owned company provides a technologist to the hospital on an as-needed basis in connection with the provision of lithotripsy services; • n connection with improving community access to specialist servicI es, a hospital provides part-time practice staff as part of a time-share lease of local medical office space to an out-of-town vascular surgeon who provides services for one half-day per week; • n connection with aligning with a cardiology practice through a series I of transactions designed to provide "turn-key" access to practice's resources, a physician-owned company provides all non-physician staff to a hospital-owned physician practice entity. 1. Recruitment responsibilities. Explicitly assign the responsibility of finding staff for positions, especially if the contracting relationship is a longterm one. Will the contractor replenish staff as necessary, or will the hospital facilitate this process? When the lease arrangement involves nurses or other clinical personnel, the hospital is often well equipped to facilitate this process. This is a key factor worth memorializing in the lease agreement. 2. Who will take the reins for credentialing and training? Those providers who assume more responsibility and deliver certified and trained staff resources will earn higher markups than their counterparts who shift such responsibility to the hospital. 3. Short term or long term? Is the arrangement filling a temporary need, or will it extend over years? Because of the underlying costs, temporary arrangements involving specialized staff that has been recruited by an employee lease company are eligible for higher markups than longer term arrangements. If the arrangement has the potential to be long-term, the parties are best served structuring as such from the outset. 4. Full-time, part-time, as needed? Generally, it is easier for a contractor to provide full-time staff rather than part-time staff. Staff provided on a scheduled basis is easier for a contactor to provide than staff provided on an as needed basis. Therefore, markups associated with part-time as needed staff should not also be assigned to full-time scheduled staff. 5. Paid time off? This applies for both short-term and long-term arrangements. Whether it's as long as maternity leave or a brief as an unscheduled sick day, both circumstances may present under an employee lease. It's vital to provide for all eventualities; however, finding replacements for scheduled paid-time-off is much different from finding replacements for a sick day. Organizations should present their expectations for the process up front and know under which circumstances a replacement will be provided. The desired structure is typically driven by the operational need and the type of staff required (e.g., clinical staffing of a sleep lab may be more vital than administrative support to a practice) HealthCare Appraisers has spent some time understanding how employee leasing arrangements are delivered by a variety market providers including staff leasing companies, employee leasing companies and professional employer organizations. Through their research, "we started to formulate a way we could look at these varied arrangements on a consistent basis. In doing so, we identified various factors that influence a fair market value markup applicable to the underlying staff costs associated with these ar6. Volume discount. Markups applicable to lease arrangements involvrangements," says Mr. Lara. The FMV markup, as might be expected by ing one full-time equivalent may not be appropriately applied to an arrangethose familiar with basic valuation principles, is largely dependent on the ment involving 30 FTEs. Certain economies of scale are achievable with the business and thousands by the employee lease provider. resources and associated risk assumed of fair market value opinionsgreater number of FTEs, thereby compressing the associated markup. a We are not your average althcare Valuation Firm. ars in thCare While the underlying concept of an employee lease may be sound, Mr. Lara Appraisers has assembled a diverse, highly experienced 7. Underlying compensation. It's not necessarily appropriate to use and Healthcare Appraisers have also noticed that "certain of the operau navigate through a myriad of valuation needs and dilemmas. same markup percentage for an employee receiving $30,000 of comthe tional considerations that should influence value are not always thoroughly considered and memorialized in these arrangements," he says. Appraisers - Redeeningconsider in both structuring and valuing employSome critical factors to Healthcare Valuation Since 2000 ee lease arrangements made with physician-owned entities, according to Healthcare Appraisers, are: pensation and an employee receiving $200,000 of compensation, even if the level of organizational support services is similar for the two employees. HealthCare Appraisers' research has determined that market providers typically acknowledge such variance in their markups. n HealthCare Appraisers, a nationally recognized valuation and consulting firm, provides services exclusively to the healthcare industry, including: business valuation (e.g., ASCs, hospitals, physician practices, dialysis centers, home health, diagnostic/treatment facilities, and intangible assets); fixed asset appraisals for furnishings, machinery and equipment; fair market value opinions for compensation and service agreements (e.g., employment, ED call coverage, medical directorships, collection guarantees, equipment lease/use arrangements, and service/co-management arrangements); consulting and advisory services (including valuation for financial reporting); and litigation support. www.HealthCareAppraisers.com | info@hcfmv.com | (561) 330-3488

• Cover