I am frequently asked regarding what I am seeing as common compensation methodologies and compensation methodologies that pose high risk under the Stark Law.
In this Article, I will focus on common compensation models when the referring physician is a W-2 employee. Under the employment exception of the Stark Law, the required elements are as follows: i) services must be specifically identified; ii) compensation must be consistent with fair market value; iii) compensation cannot be determined in a manner that takes into account the volume or value of referrals; iv) compensation terms, including amounts, must be commercially reasonable; and v) if a “productivity bonus” is paid, the productivity bonus must be based on the employed physician’s personally performed services.
Seems pretty straightforward, right?
Simple to Complex
Simple compensation methodologies, like the payment of a fixed salary or a fixed hourly rate for each hour worked by the physician, are pretty safe as long as the compensated services are commercially reasonable based upon the compensation paid. By way of example, if a neurosurgeon is paid a fixed salary of $900,000, the services performed by such employed physician should require a physician specializing in neurosurgery.
Productivity and quality compensation arrangements, although common in the industry, pose some risk under the Stark Law. The risk is both in the development of the compensation arrangement as well as the operationalization of the compensation arrangement. Common productivity compensation mechanisms include compensation per wRVU, percentage of collections, percentage of charges, and quality incentives.
Productivity compensation methodologies based on charges or collections should be tied to the employed physician’s personally performed services. Compensation related to non-physician practitioner services, or related to technical services (i.e. laboratory or radiology), should usually be excluded from such compensation methodologies.
The employees who develop the productivity data to which the compensation component (i.e. wRVU) is applied should be trained to ensure that the data does not include services not personally performed by the employed physician. Respondents to national benchmarking companies when responding to productivity indicators when tied to the calculation of physician compensation (i.e., compensation per wRVU) are instructed to exclude productivity not directly tied to the physician respondents’ personally performed services. Although the instructions to the benchmarking respondents seek documentation that excludes productivity not personally performed by the physician respondent, the benchmarking entities cannot guarantee that the respondents’ data is free of productivity not personally performed.
Quality Based Models
Quality incentive compensation is also very popular in physician employment arrangements. Quality compensation, and the alignment of such programs under the Stark Law, will be the subject of a future article. However, for the purpose of this article, suffice it to say that I am seeing a majority of physician employment arrangements where quality compensation is a component. I typically see up to 20% of a physician’s overall compensation targeted at quality indicators. It is important that the quality indicators be assessed and determine the probability of accomplishing the quality components be evaluated in order to determine whether the proposed compensation, including quality compensation, may be representative of fair market value.
By way of example, I could evaluate two quality bonus programs from two different hospital employers. Each quality bonus program could have 20 indicators. However, from a fair market value and compliance perspective, if it is probable that a physician employed by Hospital A will achieve 100% of the 20 indicators then 100% of the quality bonus must be factored into the total cash compensation for evaluation. However, if Hospital B establishes more challenging 20 quality indicators, and the probability of an employed physician achieving all quality indicators is only approximately 25%, it may be commercially reasonable to apply only 25% of the total possible quality bonus as part of a fair market value analysis of the physicians’ total cash compensation.
I am also seeing employment arrangements where physicians are compensated for supervision of non-physician practitioners. Compensation can be paid for such physician services, but both of the hospital employer and the employed physician needs to understand that any compensation paid is for the supervision services and not for the direct patient care services provided by the non-physician practitioner.
Let’s Get to the Point:
Fixed base salary and hourly compensation are structurally safe compensation methodologies in an employment arrangement assuming fair market value. Greater risk occurs when the physician is compensated based upon productivity, like compensation per wRVU or a percentage of charges or collections. Employed physicians can also be compensated for non-physician practitioner supervision as long as the compensation is fair market value only related to the supervision services and not compensation for the non-physician practitioner’s direct patient care services.
Author Information: Healthcare regulatory and Stark Law attorney Bob Wade is experienced in advising on fair market value defensibility issues related to physician compensation and representing clients in matters involving, in addition to the Stark Law, the Anti-Kickback Statute, False Claims Act, Civil Monitory Penalties Statute, and Emergency Medical Treatment and Active Labor Act. For more information – https://www.btlaw.com/Robert-A-Wade/
