In reflecting on the AHLA Physicians and Hospitals Law Institute held earlier this week, it is evident that the compensation paid to physicians by hospitals and health systems continues to be an important issue for healthcare providers and their advisors. A few of the related themes discussed at the conference include:

  • Physician compensation arrangements continue to evolve from volume-based to value-based models. Challenges are involved in the quantification of quality-based compensation. Measureable outcomes are important in structuring value-based compensation components.
  • Stakeholders are more aware of the limitations in using published compensation studies and the need for a comprehensive fair market value assessment. Specifically, recent enforcement actions in this area challenge the concept of a “safe” survey percentile. In other words, the concepts that not every physician compensation arrangement should be set at the survey median value and that not every arrangement set at the 75th percentile or less is “safe” are gaining acceptance. After all, by definition, half of all physicians in the survey make more than the median, and half make less. Professionals with training and experience in this area benchmark a subject physician’s information to the study as part of determining a fair market value range specific to that physician,
  • The increasing need for physician on-call coverage and telemedicine consultations is driving related compensation arrangements for those services, which are difficult to value.
  • Compensation stacking remains a key concern. Instead of or in addition to obtaining a fair market value assessment for each component (i.e. clinical services, on-call coverage, medical directorships, etc.), it’s important to assess compensation in totality: an FMV opinion considering all components is called a “stacking opinion.” In other words, total compensation should be considered in relation to total time required to fulfill all contracted duties, and the potential overlap (i.e. paying for the same duty twice) of duties considering all arrangements with a particular physician. For employed physicians, the government typically considers total compensation as the amount reported on IRS Form W-2.
  • The importance of proper procedure coding and its direct impact on compensation paid on a wRVU basis is gaining recognition, as is the responsibility of the physician to repay compensation received due to “upcoding.” Potential pitfalls in use of wRVU data also include proper (or improper) use of coding modifiers.
  • Use of non-physician providers such as nurse practitioners and physician assistants is expected to increase as the physician shortage tightens; related billing practices and wRVU reporting can impact productivity compensation measures. Compensation for physicians supervising and overseeing advance practice provider will likely increase. In determining compensation under volume-based models, it’s important to understand how advance practice providers are being utilized and how their efforts are reflected in the production data of the subject physician or practice.
  • The employed physicians’ practice losses typically experienced by hospitals continue to be a topic of discussion, as are situations where certain physicians’ compensation exceed his or her professional fee collections. Although these situations do not necessarily indicate a compliance issue, it is important to document the facts and circumstances surrounding the arrangement. A contemporaneous fair market value and commercial reasonableness assessment can help “tell the story” or document the business case of the arrangement apart from any actual or potential referrals between the parties.

Underlying each of these themes – and the related government enforcement actions and settlements – are the three basic regulatory requirements that compensation to 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. To paraphrase the advice to hospitals of one presenter at the conference: when structuring and negotiating compensation with physicians, separate the thinking of what the physician could do for the hospital with the thinking on reasonable compensation for the agreed-upon services. The existence of a contemporaneous fair market value assessment is a key piece of remaining compliant with these regulations.

This article is a high-level summary of themes impacting fair market value assessment of physician compensation arrangements. 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 physician compensation compliance process. Contact our physician compensation experts led by Josh Brummett for a more in-depth discussion of these themes or other issues impacting your arrangements.