The 2020 AHLA Fraud and Compliance Forum provided many COVID and non-COVID related healthcare industry updates. Here we summarize the top trends and developments centered around physician compensation. Be on the lookout for our next blog post where we focus on other important industry updates from the forum.

Trend #1: COVID-19 and Physician Self-Referral Law Blanket Waivers

On March 31, 2020, to provide flexibility for physicians and providers in responding to COVID-19, the Secretary of Health and Human Services (“HHS”) issued blanket waivers to the Physician Self-Referral Law (“Stark”). Several key points to be familiar with:

  • Subject arrangements must be solely related to COVID-19 purposes (as defined in the waivers) and in good faith.[1]
  • The waivers exempt 18 types of renumeration and referrals, many of which apply to physician compensation.
  • The waivers are automatic and retroactive to March 1, 2020 through the remainder of the public health emergency (“PHE”).
  • Notably, the OIG did not issue similar waivers to the Anti-Kickback Statute (“AKS”), but instead issued a policy statement that AKS sanctions would not be imposed on arrangements complying with the waivers.[2]

Remember: Arrangements must still comply with the non-waived elements of Stark, principally that compensation cannot be based on the volume or value of referrals and must be set in advance.

It is best practice to continue to meet a Stark exception and AKS safe harbor, most of which require the arrangement be at fair market value (“FMV”) and commercially reasonable. Organizations that do utilize the waivers should maintain records documenting the waiver relied upon and the COVID-19 purpose, as well as the particular facts and circumstances for each arrangement. Additionally, organizations should identify, ideally at the start of the arrangement, what will transpire when the waivers expire.

[1] Meaning that while there are no requirements to submit documentation to HHS, Centers for Medicare and Medicaid Services (“CMS”) and the Office of the Inspector General (“OIG”) may examine each arrangement to ensure the arrangements are not made to cover fraudulent behavior.

[2] The OIG has also provided FAQs that are helpful to address the application of the AKS during the emergency period.

Trend #2: Swings in Physician wRVUs and Reimbursement

COVID-19’s impact on physician productivity and the proposed 2021 Medicare Physician Fee Schedule (MPFS) adjustments will likely affect physician compensation and compensation survey data.

  • In 2020, due to the COVID-19 related suspension of elective procedures and patients choosing to delay care, wRVU production and professional collections declined significantly for many specialties.
  • Effective January 1, 2021, the proposed MPFS includes a few notable changes:[1]
    1. wRVUs for physician services will be reweighted and the value of evaluation and management (“E/M”) encounters in particular will be increased.
    2. Proposed office/outpatient E/M[2] wRVU increases range from 7% to 13% for new patient visits and 28% to 46% for established patient visits.
    3. Office/outpatient E/M codes[3] represent “20% of allowed charges for PFS services” and E/M services are billed by all specialties.[4]
    4. The standard conversion factor applied to all services will be lowered by 10.6% to meet budget neutrality goals.

Given the significant changes in wRVU value for office/outpatient E/M services and the provision these services by all specialties, the impact of the MPFS to physician wRVUs for the same services could be significant, depending upon the specialty. Employers with physicians on a productivity model, who do not adjust the compensation per wRVU rate for their physicians, may find they will pay more in incremental compensation than earned in incremental reimbursement under the 2021 MPFS.

Additionally, utilizing compensation benchmark survey data without consideration of COVID-19 and/or the 2021 MPFS may result in compensation that is not commercially reasonable and/or consistent with FMV.

Organizations should assess the possible impact of the MPFS changes on their reimbursement and the compensation of their physicians to ascertain how the organization’s financial performance will be affected. Contractual changes may be needed to address the changes. Experts in physician compensation and valuation can provide assistance in determining the financial impact of the changes to a particular organization and the appropriate use of compensation benchmark survey data in adjusting or setting compensation.

[1] Comments to the proposed rule closed October 5, 2020. The final rule will likely be issued by December of 2020. CMS may make changes to the rule and comments regarding the proposed rule may no longer apply and/or be accurate.

[2] Currently 99201-99205 for new patients and 99210-99215 for established patients. In 2021 code 99201 will be deleted due to low utilization.

[3] Currently 99201-99205 for new patients and 99210-99215 for established patients. In 2021 code 99201 will be deleted due to low utilization.

[4] According to CMS, those most affected will be primary care practitioners and medical specialists including neurologists, endocrinologists, and rheumatologists.

Trend #3: CMS’s Proposed Stark Rule Changes

CMS representatives emphasized that proposed Stark updates will likely work toward defining the “Big Three” terms of Fair Market Value (“FMV”), Commercial Reasonableness, and Volume or Value. However, finalization of the Sprint to Coordinated Care proposed changes have been delayed until at least August 2021. A few key items which may be addressed by the rule next year include:

  • The distinction of FMV from the Volume or Value term.[1]
  • Modifications to the definitions of FMV for general application, office space and equipment. Additionally, CMS proposes modifications to the definition of general market value.[2]
  • Further guidance for defining Commercial Reasonableness. In the proposed rule CMS clarified that arrangements may be commercially reasonable even if the arrangements do not result in a profit for one or more of the parties. In the final rule CMS is expected to consider either 1. whether a “legitimate business purpose” is required to be commercially reasonable or 2. that the arrangement makes “commercial sense.”
  • A potential bright line objective test or mathematical formula approach to determine whether compensation takes into account the volume or value of referrals.[3]

Organizations should ensure they have a comprehensive understanding of the proposed changes and definitions to remain compliant. It is important to note while the rule could change before it is finalized and the publication of the final rule was extended to August 2021, now is the time to prepare in advance for the anticipated changes.

[1] That an arrangement cannot take into account the volume or value of referrals.

[2] The term general market value is within the definition of FMV. CMS proposes that FMV relates to hypothetical transactions and General Market Value relates to actual transactions, contending that the hypothetical value and the actual transaction of a transaction should be consistent. The proposed definition of General Market Value provides an allowance for specific party circumstances that is not provided under the current definition and may require consideration of data currently generally accepted by the valuation community.

[3] For example, is there a positive correlation between a physician’s referrals and the amount of compensation received such that the physician receives additional compensation as the number of value of referrals increases?

Trend #4: Recovery Trends

The OIG and the Department of Justice (“DOJ”) continue to make substantial recoveries:

  • $5 billion[1] in investigative recoveries from criminal and civil actions, which is significantly more than the $2.9 billion in recoveries the prior year.
  • $3 billion[2] from False Claims Act (“FCA”) cases, while more than the $2.8 billion in fiscal year 2018, it is less than 2017’s $3.7 billion in recoveries.
  • $2.6 billion of FCA recoveries were specifically healthcare-related cases.
  • The majority of healthcare FCA recoveries ($2.1 billion) were from qui tam cases where whistleblowers brought forth cases in which the government intervened.

To reach its strategic goals of protecting people, funds, and infrastructure while promoting effectiveness, the OIG is partnering with CMS, the DOJ, and other organizations to share data. The OIG and DOJ have access to large amounts of data and data analytics allows these agencies to track various areas of focus (including lab billing, pharmaceuticals, diagnostics codes, and telemedicine billing) and to continue to achieve record recoveries based on their use of data.

[1] For the fiscal year ending September 30, 2019.

[2] For the fiscal year ending September 30, 2019.

Trend #5: Enforcement Trends

Recent cases highlight enforcement trends related to physician referrals:

  • “Individual accountability for corporate wrongdoing” (the Yates Memo) continues to be an area of emphasis. An FCA whistleblower suit recently added non-profit Health First’s executives and highest paid physicians as defendants, alleging kickback schemes rewarding physicians for referrals.
  • Outsourcing management does not outsource responsibility. Wheeling Hospital, despite being under the direction and control of a management company, will pay $50 million to settle an FCA whistleblower suit alleging the hospital violated Stark and AKS by compensating physicians in excess of FMV to influence the physicians’ referrals.[1]
  • Multiple parties to an arrangement can be held responsible. A Tenet-affiliated hospital, its management company, a physician group, and two physicians, will pay $72.3 million to settle an FCA whistleblower suit alleging kickbacks to physicians for referrals.[2]

Enforcement activity in 2020 demonstrates the government and whistleblowers continue to look beyond the primary offender and hold other parties and individuals accountable. Every party to an arrangement between referral sources should be aware of, and recognize their responsibility for adherence to, regulatory requirements.

[1] https://www.justice.gov/opa/pr/west-virginia-hospital-agrees-pay-50-million-settle-allegations-concerning-improper

[2] https://www.justice.gov/opa/pr/oklahoma-city-hospital-management-company-and-physician-group-pay-723-million-settle-federal

Summary

Each of these trends and developments must be considered as your organization seeks to meet the  three basic regulatory requirements that compensation be at fair market value, commercially reasonable, and determined without taking into account the volume or value of referrals that one party might generate for the other. The design of compensation models, documentation regarding arrangements with referral sources, and related independent assessments of commercial reasonableness and/or FMV are important to remain compliant.

At LBMC, we assist hospitals and health systems across the nation in designing, assessing and valuing compensation under a wide variety of arrangements, including employment, call coverage, medical directorships, professional services agreements, co-management arrangements, and more. We would love to work with you in your compliance process. Contact our Healthcare Compensation Valuation team led by Katie Tarr and Josh Brummett for a more in-depth discussion of these themes or other issues impacting your organization.