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TRANSCRIPT
Structuring Physician Compensation
ArrangementsEnsuring FMV and Commercial Reasonableness, Mitigating Fraud and Abuse
Risks, Lessons From Recent Enforcement
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TUESDAY, MARCH 12, 2019
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, Boca Raton, 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
6
Recent Trends & Activity:
Recent Cases and Settlements
7
Recent Cases & Settlements:
The List Keeps Growing…
Union General Hospital ($5 million) Physician compensation arrangements allegedly violated Stark
Kalispell Regional Healthcare ($20 million) CFO was the relator, claiming contribution reports improperly used to set physician bonuses
HMA settlement ($250 million) 8 separate relator actions - alleged ED admissions quotas and various physician payments outside FMV
William Beaumont Hospitals ($84.5 million) Medical directorships with cardiologists allegedly overpaid and provided low-cost or free office space
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. (Also – settled with CEO in 2016)
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
8
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 approach9
❖ Columbus Regional Healthcare (Columbus, GA)
❖ Employed Dr. Andrew Pippas – medical oncologist
❖ wRVU production compensation model
• Compensation was more than 2x his collections
• Dr. Pippas allegedly claimed he was undercompensated in
light of his referrals to the hospital
❖ FMV found that Dr. Pippas was being paid above 90th
percentile but this was reasonable based upon his
consistent historical level of production
U.S. ex rel. Barker v. Columbus
Regional Healthcare System, Inc.
6
❖ Follow Up FMV report: Questioned reasonableness of
compensation where Dr. Pippas was being paid “above
all established benchmarks”
• Lowered wRVU conversion factor moving forward
❖ Third FMV report: Compensation exceeds FMV after
additional review showed Dr. Pippas’s compensation
included credit for productivity of another physician
• Continued to receive credit for six years after problem was noted
U.S. ex rel. Barker v. Columbus
Regional Healthcare System Inc.
7
❖ Chief Compliance Officer File Notes
❖ “The base compensation is an issue for me because I believe
the ‘impossible day’ as well as ‘reasonableness test’ needs to be
considered…. “It is very difficult to support the idea that here in
Columbus Ga. We have the top producer in the entire United
States…”
❖ “[N]ow we have the top or second top wRVU producer in the
country AND he is doing so in less than 5 days a week.”
❖ “The independent third party had opined that they do not have
any other client that is currently paying a physician in this
specialty at the rate Dr. Pippas is being paid.”
U.S. ex rel. Barker v. Columbus
Regional Healthcare System Inc.
8
❖ Dr. Pippas also had two medical directorships that paid
him a stipend of $300,000 per year.
❖ Time records showed him working fewer than 5 days a week, but
medical director time logs showed 60-80 hours per month.
❖ Nearly half of employed oncologists served as medical directors.
❖ “This is significantly more than any other Medical Director and
when combined with current salary calculations makes the
issues forma total comp seem much worse.”
U.S. ex rel. Barker v. Columbus
Regional Healthcare System Inc.
9
❖ Up to $35 million settlement by hospital
❖ Plus $425,000 paid by Dr. Pippas
❖ Watch out for “double-dipping,” i.e., paying physicians for services
for which they already are receiving payment.
❖ Would a reasonable commercial entity enter into the arrangement
absent a potential for referrals?
❖ Services must actually be performed under agreements. Otherwise,
it can appear that physicians are being paid for referrals.
❖ Time logs to support work being performed
❖ Written agreements changed if relationship or arrangement is changed
U.S. ex rel. Barker v. Columbus
Regional Healthcare System Inc.
10
❖ Columbia Medical Group (CMG) – 7 IM; 1 neuro
❖ Lexington Medical Center (LMC) acquired CMG
❖ Seven-year, no-cut employment contracts
❖ Compensation
❖ Three-tiered RVU range where RVU multiplier increased at each tier
❖ Relator’s compensation increased from $250,000 to $650,000
❖ One IM received salary above $500,000
❖ Practice manager: LMC’s competitor “had their chance” to buy CMG but
they “were not even close” to what LMC was offering to purchase the
practice
U.S. ex rel. Hammett v.
Lexington Medical Center
11
❖LMC subjected CMG physicians to “greater financial scrutiny”
than CMG had done
❖RVU reports sent to physicians monthly; compared physicians’
productivity against one another
❖Bar graph reports comparing pre- and post-acquisition ancillary
referrals
❖Encouraged to order more imaging studies
U.S. ex rel. Hammett v.
Lexington Medical Center
16
❖Relator continued to send some MRIs outside LMC
system (for price reasons)
❖LMC staff met with Relator to ask why
❖LMC told him sending studies outside LMC threatened
“the jobs of practice staff”
❖Relator alleges he was terminated after refusing to
resign
U.S. ex rel. Hammett v.
Lexington Medical Center
13
❖ Potentially aggressive compensation structure and contract
+
❖ Bad statements by practice manager
+
❖ Tracking referrals by physician
+
❖ Perceived pressure to refer
=
❖ $17 million settlement
U.S. ex rel. Hammett v.
Lexington Medical Center
14
William Beaumont Hospitals
(E.D. Mich.)
❖ Detroit health system agreed to pay $84.5M to settle allegations that it
violated AKS and Stark by providing physicians with excessive pay and
low-cost or free office space.
❖ Physician contracts were “a mess.”
❖ Medical directorships duplicative of work compensated under other
contracts.
❖ Medical directorships with four cardiologists paid each $500,000 or
more despite the physicians being in full-time medical practice.
❖ After group made clear it was considering moving their practice to a
competing health system, Beaumont allegedly increased medical
director payments to between $671,304 and $734,218 per doctor, even
though the duties performed by the directors did not change.
❖ “Devastating” report from FTI Consulting was ignored.
15
William Beaumont Hospitals
(E.D. Mich.)
❖ Doctors with six-figure medical directorships referred to
as the “Royal Family.” Said one doctor: “You did not want
to tick off the RF.”
❖ “You need to learn to just go along with physicians, help
them do what they want, and not create waves or try to
be a crusader. If you keep creating waves, you will be
destroyed.”
16
Establishing and Maintaining Fair Market
Value and Commercial Reasonableness
21
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
22
❖ 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
23
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.
24
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
25
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;
• CMS and OIG requested comments – unclear of timing of any rule updates
• Will any changes CMS, OIG or 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?
26
❖ 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)
27
Practice Advice for Structuring Arrangements
28
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
29
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
30
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.
31
Hypothetical
32
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
33
Questions?
Tizgel High
LifePoint Health
Anna Grizzle
Bass Berry & Sims
Albert “Chip” Hutzler, JD, MBA, CVA
HealthCare Appraisers, Inc.
34