structuring physician compensation...
TRANSCRIPT
Structuring Physician
Compensation Arrangements Meeting Legal Requirements, Ensuring FMV and Commercial Reasonableness,
Lessons from Recent Enforcement, Mitigating Fraud and Abuse Risks
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TUESDAY, MAY 9, 2017
Presenting a live 90-minute webinar with interactive Q&A
Anna M. Grizzle, Member, Bass Berry & Sims, Nashville, Tenn.
Tizgel K.S. High, Vice President, Associate General Counsel, Legal,
LifePoint Health, Brentwood, Tenn.
Albert D. (Chip) Hutzler, Partner, HealthCare Appraisers, Delray Beach, Fla.
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Structuring Compliant
Physician Compensation
Arrangements in the Current
Enforcement Environment
Tizgel High | Vice President & Associate General Counsel
LifePoint Health
Anna Grizzle | Member
Bass Berry & Sims
Albert “Chip” Hutzler, JD, MBA, CVA | Partner
HealthCare Appraisers, Inc.
Presentation Overview
1. Analysis of recent cases and settlements highlighting the risks
associated with physician compensation arrangements
2. Discussion of the regulatory framework and trends for
structuring physician compensation arrangements, including
applicable Stark and AKS requirements
3. Practical advice related to establishing and maintaining fair
market value and commercial reasonableness
4. Suggestions for structuring and managing physician
compensation arrangements to ensure ongoing compliance
5. Q&A
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Recent Trends & Activity:
Recent Cases and Settlements
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Recent Cases & Settlements:
The List Keeps Growing… Lexington Medical Center ($17 million settlement) allegations that up to 28 physicians were overpaid based on an inherently flawed compensation structure.
Columbus Regional Health Healthcare System (up to $35 million settlement) and Dr. Andrew Pippas ($425k settlement) Clinical and medical director compensation arrangements with a referring medical oncologist challenged
Adventist Health – ($115 million settlement) allegations of payments in excess of FMV.
Broward Health – ($69 million settlement) allegations of intentional payments for referrals tracked with secret books, absent which, transactions resulted in substantial losses
Tuomey Case – ($237.5 million verdict upheld, then settled for $70 million) Hospital’s part-time employment of 19 physicians for outpatient surgeries challenged.
New in 2016 - Recent settlement with former CEO
Halifax Hospital – ($85 million settlement) Multiple compensation arrangements with employed oncologists and neurosurgeons challenged
Citizens Medical Center – ($21.75 million settlement) Compensation arrangements with cardiology and emergency department physicians challenged
Westchester Medical Center – ($18.8 million settlement) Consulting and fellowship arrangements with referring cardiologists challenged
King’s Daughters Medical Center – ($40.9 million settlement) FMV of compensation arrangements with referring cardiologists challenged
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Recent Cases & Settlements:
The List Keeps Growing… New York Heart Center
► ($1.33 million settlement) Internal compensation formula challenged (nuclear and CT scans)
All Children’s Health System ► ($7 million settlement) - clarified Stark’s relationship to Medicaid; FMV of compensation challenged
Infirmary Health System ► ($24.5 million settlement) - compliance with in-office ancillary services definition challenged
Bradford Case – November 2010 Opinion ► Hospital paid independent physicians for use of a nuclear camera and a non-compete
United Shockwave Settlement – July 2010 ► Urologists use referral threats to win lithotripsy contract at hospital
Covenant Settlement – August 2009 ► Iowa doctors on a PCE deal allegedly overpaid – expenses questioned
Kosenske Case – Appellate Opinion - January 2009 ► FMV is hypothetical, not what actual parties can negotiate
Villafane Case – April 2008 ► FMV unsuccessfully challenged in academic medical center case in Kentucky
Derby Case – IRS case from 2008 ► IRS intangible assets case from 2008
OIG Advisory Opinions with Valuation Implications: ► 12-22 – Favorable opinion on co-management transaction
► 12-15 – Favorable opinion on call coverage arrangements
► 12-06 – Negative opinion on two ASC-Anesthesia transactions
► 10-16 – OIG questions requestor's survey method for determining FMV
► 09-09 – Footnote questions the viability of the income approach
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Tuomey Settlement in 2015 - $72MM, after a long, winding road…
Two Long Trials
1st Trial (March 2010) found that Tuomey had violated Stark but not FCA
2nd Trial (May 2013) resulted in large verdict ($237MM) against Tuomey
1st Appellate opinion (March 2012) – two key rulings:
Facility component of personally performed services are referrals.
Fixed compensation that considers anticipated referrals “by necessity takes into
account the volume or value of such referrals” under Stark.
2nd Appellate opinion (July 2015)
Advice of Counsel defense rejected by the Court
Base vs. Bonus language in employment exception questioned
Court said Congress deemed services rendered in violation of Stark to be “worthless”
Concurring opinion:
► “This case is troubling. It seems as if, even for well-intentioned health care
providers, the Stark Law has become a booby trap rigged with strict liability and
potentially ruinous exposure -- especially when coupled with the False Claims Act.”
Activity Since Settlement
Settlement with former CEO – Impact of Yates Memo
Malpractice lawsuit against law firm that advised hospital about the transactions 9
Citizens Medical Center
Settlement in 2015 - $22MM
But before settlement, Court ruled on motion to dismiss:
Key court statement: ► “Even if the cardiologists were making less than the national median salary
for their profession, the allegations that they began making substantially more money once they were employed by Citizens is sufficient to allow an inference that they were receiving improper remuneration. This inference is particularly strong given that it would make little apparent economic sense for Citizens to employ the cardiologists at a loss unless it were doing so for some ulterior motive – a motive Relators identify as a desire to induce referrals.”
The Court did not rule that the compensation was inconsistent with FMV or commercially unreasonable.
► But Court denied the motion to dismiss, ruling sufficient questions of fact existed for a jury to decide
► Settlement of the case left those questions ultimately undecided
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Lexington County Health
Services District Hospital agreed to pay $17 million to settle allegations that it
violated the Stark Law based on improper financial
arrangements with 28 physicians
Allegations that the employment agreements were not
commercially reasonable and compensation was above FMV
Relator’s proposed employment agreement included the
following terms
► 7-year “no cut” employment agreement
► Base compensation of $318,758 (above the 75th percentile for
neurologists) when historical production was at the 60th percentile
► Productivity bonus that would revalue every wRVU one productivity
crossed established threshold
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Lexington County Health
Services District ► Physician’s productivity incentive include wRVUs produced by
midlevel practitioners under the physician’s supervision
► Productivity incentive was contractually based on wRUV values
established in 2010 Medicare PFS, rather than allowing for
revised wRVU values as established by CMS from time to time.
Complaint alleges that the physician earned $650,000
during first year of employment, inclusive of $40,000
signing bonus, which is more than 150% of the 90th
percentile compensation for 75th percentile wRVU
productivity (based on MGMA data)
Complaint alleges that the physician’s compensation in
private practice was $250,000
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Columbus Regional Healthcare
System Inc.
$35 million settlement to resolve former executive’s
False Claims Act suits accusing the Georgia Hospital
chain of overpaying referring oncologist
Oncologist paid at 90th percentile under production-
based formula
► Compensation originally supported by outside FMV report based
upon high production that was later determined to include
another physician’s production
Medical directorship payments also not supported based
upon review of time records showing physician working
fewer than 5 days per week despite medical director time
logs showing 60-80 hours per month
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Establishing and Maintaining Fair Market Value
and Commercial Reasonableness
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FMV Regulatory Guidance
Stark Statute: Value in arm’s length transactions,
consistent with general market value… (1877 (h)(3) of
the Social Security Act)
Narrower regulatory definition (42 CFR §411.351)
• Value in arm’s-length transactions, consistent with general
market value
• General market value means compensation as result of bona
fide bargaining between well informed parties not otherwise
in position to generate business for other party
• Compensation does not take into account volume or value of
anticipated or actual DHS referrals
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Special Fraud Alert – Clinical Laboratory Services
(October 1994)
• Presumption: Compensation outside of FMV is in
exchange for referrals
OIG Compliance Guidance for Individual and Small
Group Practices (October 2000)
• “The OIG’s definition of ‘fair market value’ excludes any
value attributable to referrals of Federal program business
or the ability to influence the flow of business.”
FMV Regulatory Guidance
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Focus on Fair Market Value
OIG Supplemental Guidance for Hospitals (January
2005)
• Need appropriate processes for making and
documenting reasonable, consistent, and objective
determinations of FMV
• Is the determination of FMV based upon a reasonable
methodology that is uniformly applied and
documented?
• If FMV based on comparables, ensure market rate for
comparable services is not distorted.
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Commercial Reasonableness
Regulatory Guidance
Stark Commentary:
• Subjective Concept (Phase I): Sensible, prudent
business agreement from the perspective of the
parties
• Objective Concept (Phase II): Would make
commercial sense if entered into by a reasonable
entity of similar type and size and a reasonable
physician of similar scope and specialty, even if there
were no potential for DHS referrals
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Summary of Current Situation
and Trends To Consider Regulatory Uncertainty
► Substantial uncertainty still exists as to the exact meaning of FMV, commercial reasonableness and the “volume or value” standard under Stark and Anti-Kickback;
► Uncertain whether the new Congress will change Stark definitions of FMV, commercial reasonableness, or the volume/value standard;
► Will any changes Congress makes really eliminate the climate of uncertainty? Will courts have any easier time understanding revised laws?
Enforcement Climate is Risky ► Qui tam actions are inexpensive to file, potentially lucrative to the relator,
and as a result, the volume of new actions remains plentiful
► Government (DOJ and OIG) continue to make sometimes conflicting arguments to Courts about the meaning of health law to advance their recovery efforts.
► Courts continue to add to uncertainty with relative lack of understanding of the complex health laws.
► Yates Memo impact uncertain – will it lead to more cooperation or less?
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Valuation Uncertainty and Risks ► Reliance in good faith on a reputable independent valuation is clearly
preferred, but provides no legal presumption or official protection (under Stark or Anti-Kickback)
► Regulatory guidance clearly indicates that traditional valuation approaches may not always be available or appropriate in valuing healthcare transactions, due to the risk of improperly considering referrals.
► Inexperienced experts (or the parties acting on their own) may use risky or disfavored valuation methods, for example:
- Opportunity cost (what doctor could otherwise do with the same time)
- Strategic or Investment Value (what the particular parties negotiate at arms-length)
► Substantial disagreement and confusion among reputable healthcare valuators still exists on various valuation topics:
- Practice losses, intangible assets, etc.
► Physician salary survey data is likely the best market data available, but has key drawbacks
- Productivity data can be misleading
- Surveys lag behind as the market shifts (e.g., shift toward value-based compensation)
Summary of Current Situation and
Trends To Consider (continued)
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Practice Advice for Structuring Arrangements
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Arrangement Review Process
Use contract management tool to manage agreements.
Establish centralized contracting process for consistent review and approval of all arrangements.
Develop template agreements meeting legal requirements.
Confirm fair market value of arrangement.
• Consider when outside valuations will be required.
• DON’T forum shop opinions
• Choose experienced, reputable valuator.
Document appropriate business justification for arrangement.
• DON’T pay for referrals.
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Compensation Structure
Development
Simple – easily administered and physicians understand
it
Consistent – minimal variation driven only by sound and
appropriate principles
Auditable – can be regularly reviewed
Compliant – Link to production, collections, need or other
measure to support amount
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Arrangement Tracking
Require periodic reevaluation of FMV and commercial reasonableness
Update arrangements if change in relationship
• Compensation changes must follow centralized process.
Enforce detailed payment tracking
• NO payment without documentation.
• If the arrangement involves services, track service and activity logs.
• If the arrangement involves space or equipment, monitor use of leased space or equipment.
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Hypothetical
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Hypothetical
Hospital affiliated practice seeks to acquire in-market primary care practice
• Community shortage of primary care physicians
Compensation based on wRVU production model • Supported by FMV
• Represents increase from historic compensation
Projected revenues show likely practice loss • Compensation considerations
• Other considerations
• Loss mitigation strategies
Noncompete buyout required to leave current employer • Consideration of loans to physicians
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Questions?
Tizgel High
LifePoint Health
Anna Grizzle
Bass Berry & Sims
Albert “Chip” Hutzler, JD, MBA, CVA
HealthCare Appraisers, Inc.
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