Physician compensation is complex. When determining compensation for an individual physician or even a group of physicians, many factors can impact what rate should be paid. Robust benchmarks and analytics are essential tools to develop and administer an equitable and market-competitive compensation structure; however, a compensation program is only as good as its design.
Factors such as payer mix, subspecialty credentials, program leadership positions or an individual’s national reputation may be relevant to consider as you create your physician compensation program. As new physicians are recruited, it is important to know how compensation of the recruited physician compares to others in the group. You need to ensure that her income is sustainable after getting off a guarantee, as well as make sure others in the group don’t become dissatisfied if pay rates vary significantly as a result of non-productivity-based factors. Lastly, choosing the market range where you want to target the majority of your agreements needs careful thought and judgement. Just because payments under the 75th percentile benchmarks, from a compliance perspective, are generally deemed “okay” doesn’t mean that your organization should pay at that level. Ultimately, thinking critically and using judgement is key when designing compensation plans and when applying benchmarks.
In December, the Department of Justice announced that Sutter Health agreed to pay $46.1 Million to resolve allegations arising claims around improper compensation agreements. The DOJ alleges that from 2012 to 2014, Sutter Health violated the Stark Law by billing Medicare for services referred by Sacramento Cardiovascular Surgeons Medical Group Inc. (Sac Cardio) physicians that exceeded the FMV range.
“Improper financial arrangements between hospitals and physicians can influence the type and amount of health care that is provided,” said Assistant Attorney General Jody Hunt of the Department of Justice’s Civil Division. “The Department is committed to taking action to eliminate improper inducements that can impact physician decision-making.”
While there are many takeaways from the historical settlement, here are 5 key lessons to for healthcare professionals to take to heart going forward:
1. The government can and will investigate whistleblower allegations.
The initial allegations were brought forth by Laurie Hanvey, an experienced Compliance Officer with over 25 years of experience that noticed payments and time sheets from Sac Cardio that didn’t add up. Hanvey noticed that they billed Sutter for more than 40 hours a week for five weeks a month and that they had falsely recorded non-work items such as vacations as time spent at work. She then halted payments to Sac Cardio before Sutter Health gave in after demands from the Sac Cardio team who had threatened to shut down the operating rooms.
Safe to say, when presented with this information from Hanvey, the DOJ immediately took notice and began looking into the serious allegations. Simply put, if you allow bad behavior, it’s only a matter of time until you are caught.
2. If you aren’t being proactive in creating a culture of compliance, the costs of being reactive are significant.
Once under investigation from the initial allegations, Sutter had to dedicate more resources to seeing if there were any other compliance issues that the DOJ would inevitably discover. As a result, Sutter had to self-report anti-kickback and overbilling for Medicare patients at some of their surgery centers. The result? An additional $15 million settlement. Unless you are OK with potentially spending millions of dollars after the fact, creating a culture of compliance saves a significant amount of money, time, and peace of mind.
3. It’s critical to document commercial reasonableness for medical directorships.
If you cannot justify a medical directorship and prove commercial reasonableness, you run a major compliance risk that could cost your organization millions of dollars. In the case of Sac Cardio, the DOJ found them to have duplicative medical directorships from Sutter Health on top of $900,000 for call coverage agreements and free physician assistants in exchange for the Sac Cardio surgeons referring patients to Sutter hospitals.
4. Just because Sutter got caught doesn’t mean it isn’t happening at other health systems.
Let’s face a hard truth: the only thing separating Sutter Health from other health systems with poor compliance practices is the fact they got reported on by a whistleblower which opened the floodgates. It would be naive at best and irresponsible at worst to assume Sutter is the only health system that has potential bad actors running afoul of Stark, AKS, and False Claims. While Sutter is paying the price right now, they are far from the only organization facing compliance issues and this should be a wakeup call to others to ensure they have their ducks in a row.
5. More health systems will be investigated by the DOJ in 2020 - will you be on the list?
Let’s face another hard truth: whistleblowers can be potentially awarded millions of dollars for reporting bad behavior to the government. If it can happen to Sutter, it can happen to you. And if the same situation happens at your health system, if you are directly responsible for creating a culture of compliance, you could very well lose your job if you aren’t ensuring everyone within your organization is aware of the rules, regulations, and penalties associated with Stark, AKS and False Claims.
In case you missed it, last month we announced a strategic partnership incorporate A.J. Gallagher’s Human Resource & Compensation Consulting Practice's Salary and Production Benchmarks (formerly Integrated Healthcare Strategies) into MD Ranger's web-based product. The addition results in the first comprehensive online solution to address the full spectrum of physician compensation arrangements.
Aurora Young, Managing Director of Gallagher’s Human Resource & Compensation Consulting Practice said “For over a decade MD Ranger has made using physician market data easier and more intuitive. Given our firm’s expertise in physician compensation benchmarking and compensation planning, we are thrilled that our survey is available to MD Ranger subscribers.” Gallagher’s survey is in its fifth year of publication and includes benchmarks for 145 specialties across 56,000+ physicians nationwide.
Penny Stroud, Founder and CEO of MD Ranger said, “We are eager to introduce new resources and tools that make the complex task of physician compensation as simple as possible. Adding these benchmarks creates a one-stop shop for health care providers seeking market data on physician compensation. We are delighted to be partnering with Gallagher, who like us, meticulously audits their data and adheres to the most rigorous statistical standards.”
Welcome to the final installment in MD Ranger’s blog series on risk management! We hope that this series has been an interesting and informative resource for you and your organization. We’ve spent a lot of time talking about the potential consequences of Stark, Anti-Kickback, and False Claims Act violations.
Compliance matters. A dynamic compliance program can both minimize risk and allow for innovation. Involving compliance officers in the early stages of major decisions reduces risk and saves time. Top healthcare organizations have begun to include compliance officers in their C-Suite.
No one wants to be blindsided by compliance violations. Under the False Claims Act, the government could be auditing your organization without your knowledge. The biggest threat to a healthcare organization is ignorance. Think about your organization’s compliance program. Are the administrators and compliance officers in charge of your physician contracts aware of the penalties for these violations?
Ask yourself the following questions:
1. Does your organization have contracts for all paid services and positions?
It is essential that you document all financial arrangements with physicians. Work with your administrators and C-Suite to ensure that all contracted positions have signed agreements including payment rate, defined services, and time requirements. Paying a physician for service without a contract in place is illegal.
2. Do you track or automate your contract expiration dates?
The law requires that physician contracts be set in advance. Identify all expired contracts and prioritize them for renewal. If your organization doesn’t have a contract management system, consider either building or purchasing one.
3. Do you know how many physician contracts your organization currently has?
MD Ranger has found that community hospitals have an average of 50-60 physician contracts. Larger organizations and health systems have numbers skyrocketing into the thousands. Understanding the scope of market positions of your contracts and payment rates will help you identify high-risk contracts before they become a problem.
4. Do you know which of your contracts are high-risk?
Contract review is not rocket science. Annual review of your contracts against published benchmarks is a simple way to identify potential areas of concern. If your organization has risky or high-profile contracts, they may require extra documentation. Familiarize yourself with payment rate benchmarks and how they apply to your facility or system.
5. Does your organization have a system for handling exceptions to market data?
When your organization compensates a physician above or below fair market value, do you have a process for documenting exceptions? There are no explicit prohibitions to paying physicians above a certain threshold, but you need to justify your actions.