Obtaining physician services for indigent and charity care patients

How to compensate physicians for these required professional services

Nonprofit hospitals and their affiliate facilities have a mission and obligation as tax-exempt entities to provide medical services meeting the needs of their patient population and surrounding communities, including the uninsured patient population.1 However, many facilities are faced with the challenge of obtaining sufficient physician services to provide charitable medical care.

While many nonprofit facilities have physician employment arrangements which stipulate the required provision of patient care without regard to the patient's ability to pay for services, most do not have a full complement of employed physicians across multiple medical and surgical specialties to provide all necessary professional services to this segment of the patient population. Several factors, including reimbursement for professional fees and liability considerations (e.g., maintaining malpractice insurance and risks associated with providing services to patients with whom the physician is not familiar and who have the potential to be non-compliant with preventive care and medication), limit the number of qualified physicians that are willing and able to provide such indigent and charity care. Accordingly, facilities are faced with subsidizing independent physicians for the time and risk incurred to provide charitable services on behalf of the facility. These charitable services may include the provision of medically necessary surgical procedures (including, in some circumstances, those performed in lower-cost outpatient settings), associated pre-operative and post-operative consultations and follow-up care, obstetrical care for unassigned patients and preventive screenings for purposes of early detection and to improve the health of a patient population, among others.

The prevailing question for facility executives is: "How should I compensate physicians for these required professional services?" This question is particularly relevant in light of regulations governing financial relationships between healthcare entities and referring physicians such as the Stark Law, False Claims Act, Anti-Kickback Statute and Internal Revenue Service's private inurement regulations. A discussion of these regulations is outside the scope of this article, but healthcare providers should consult experienced healthcare legal counsel any time they are contemplating a compensation arrangement with a physician. Consequently, facilities are challenged to consider fair and compliant mechanisms to reimburse independent physicians for necessary professional services. Four alternatives available for consideration when establishing reimbursement to physicians for their time and risk include:

1. Medicaid rates. Medicaid serves as the main publicly financed health coverage program for low income and uninsured individuals, allowing access to essential community services. States establish Medicaid provider payment rates within federal requirements and may develop these payment rates based on criteria such as the costs of providing the service, a review of what commercial payers pay in the private market and a percentage of what Medicare pays for equivalent services. Per information presented on www.medicaid.gov, "Payment rates are often updated based on specific trending factors, such as the Medicare Economic Index or a Medicaid-specific trend factor that uses a state-determined inflation adjustment rate."2

While Medicaid is one alternative to establish proxy payments for reimbursing physician services, there are some disadvantages to this method, including:

  • Medicaid reimbursement varies across state lines. A study published by the Henry J. Kaiser Family Foundation comparing aggregate Medicaid to Medicare fees for 2012, showed that states such as Rhode Island and New Jersey reimbursed services for Medicaid patients, in aggregate, at 37 percent and 45 percent of Medicare, respectively, while states such as North Dakota and Alaska reimbursed services for Medicaid patients, in aggregate, at 134 percent and 124 percent of Medicare, respectively.3 Therefore, there is little correlation between the Medicaid rates for each state as compared to rates applicable to all states (e.g., Medicare).

  • Medicaid physician fee schedules are not always readily available for all services from each respective state, which can sometimes make establishing a predetermined proxy reimbursement amount difficult.

  • Some factors on which Medicaid rates are established do not reflect current costs and/or market conditions. For example, the Georgia Medicaid program has established maximum allowable reimbursement for each procedural code at 84.645 percent of the 2000 Resource Based Relative Value Scale as specified by Medicare for Georgia Area 1 (Atlanta) locality. All procedure codes recognized and adopted after the 2000 RBRVS are subject to the same percentage of Medicare reimbursement.

  • Medicaid reimbursement, which is jointly funded by the federal government and individual states, is subject to a level of reduction at the discretion of the states based on economic parameters not directly related to the cost of medical services (e.g., budget constraints caused by lower state tax revenues, higher governmental spending, etc.), according to research performed by individuals associated with Kaiser Health News.4

2. Published market compensation rates. A second alternative is to use market compensation rates for physicians of a specialty qualified to provide the service. Market compensation rates can be based on compensation data from surveys published by the Medical Group Management Association; American Medical Group Association; and/or Sullivan, Cotter and Associates, Inc., among others. However, in determining an applicable market compensation rate, one should consider the specialty required to provide the service (i.e., there is no need to reimburse electrocardiogram interpretations at rates commensurate with cardiothoracic surgery compensation when a qualified internal medicine physician can also provide the same service at a lower cost). The analysis using market compensation rates can be performed by applying hourly clinical compensation rates for professional services or compensation based upon a commonly accepted production factor (e.g., work relative value units). One challenge with this approach is market compensation rates may contain aggregate compensation that includes payments for medical directorship, call coverage, research and other professional services. Furthermore, these market compensation rates may include independent physicians whose total reported compensation is derived from income sources in addition to personally performed professional services, such as lab or imaging services. These items contribute to rates that are likely incremental to the direct costs associated with the personally performed clinical services rendered by the physician in the provision of patient care to indigent patients.

3. Medicare rates. Use of reimbursement rates published by CMS is another alternative for proxy reimbursement to physicians for providing services to indigent and charity care patients. CMS' annual determination of Medicare rates are based on a variety of factors including:

  • The time to perform the service
  • Technical skill
  • Physical effort
  • Stress
  • The physician's judgment in ordering a procedure
  • The practice expense expressed in overhead costs (e.g., assistant's time, equipment, supplies, professional liability and other geographic adjustments to reflect cost variation)

In consideration of the aforementioned factors, the Medicare reimbursement for a particular service is intended to appropriately reimburse a physician for services performed. This is contrary to Medicaid rates, which as discussed, vary across location and are subject to reduction, based upon economic parameters, at the discretion of states. An additional consideration supporting the use of Medicare rates as a proxy for reimbursement began in 2013 under the Patient Protection and Affordable Care Act and will last through 2014. This additional consideration allows eligible physicians with primary care specialty designations to apply for Medicare rates on Medicaid claims specific to certain evaluation/management and preventative services procedures.5 While not all physicians providing indigent and charity care services are primary care physicians, this initiative is indicative of the government's goal to increase the number of providers caring for indigent and charity care patients who are otherwise unwilling to accept Medicaid rates for their services. Accordingly, one can deduce that the PPACA views Medicare rates as sound payment for services to Medicaid-eligible patients.

4. Call coverage payments. Perhaps the most frequent form of payment made by facilities to physicians to account for their time and the provision of uncompensated services is call coverage. According to the Sullivan, Cotter & Associates' "2013 Physician On-Call Pay Survey Report," 95 percent of responding organizations provide on-call pay to at least some non-employed physicians providing call coverage. Of the respondents, 44 percent indicate payments are made to non-employed physicians for providing services rendered when called in and, of those payments, subsidies for unassigned or uninsured patients are the most common form of payment. Primarily, call coverage is specific to a facility's emergency department. However, facilities have also extended this type of coverage payment to account for inpatient and surgical services. Based upon the totality of facts and circumstances of a particular call coverage arrangement, on-call pay is meant to provide reimbursement for the physician’s availability6 and to cover the risk of providing a disproportionate share of uncompensated services to the indigent and uninsured.7 Therefore, on-call pay specifications are similar to the requirements expressed by physicians to provide services to indigent and charity care patients. When considering whether use of a call coverage payment is appropriate, one should evaluate whether the services requested of the physician require a consistent physician presence at the facility (e.g., restricted call), how many consultations or procedures will need to be performed by the physician, how many providers are available to participate in the call coverage rotation and the malpractice risk associated with the provision of services, among other factors. In addition to the close correlation to the type of service being requested for indigent and charity care, an advantage of call coverage rates is the multitude of comparable market compensation rates available in national surveys for various specialties.

In summary, there are several methods to consider when evaluating physician reimbursement for professional services rendered on behalf of a non-profit hospital for care to indigent and charitable care patients. Understanding the advantages and disadvantages of each method is key to assessing which method is most appropriate for a facility's specific facts and circumstances.

Michael Ramey is a consulting manager within the valuation service line at Pershing Yoakley & Associates, PC. He provides fair market value compensation, business valuation, and related consulting services to physician practices and healthcare systems for purposes of acquiring physician services, facilitating mergers and acquisitions, and pursuing joint ventures. His primary areas of expertise are in physician compensation, valuation, financial analysis, and transaction support. For 30 years, PYA has been providing independent and objective valuation and other consulting services to a large number of hospitals, physician practices, and other healthcare organizations across the U.S.

Kathryn Culver is a certified public accountant and senior consultant within the valuation service line at Pershing Yoakley & Associates, PC. She provides fair market value compensation and business valuation services to physician practices and healthcare systems for purposes of acquiring physician services, facilitating mergers and acquisitions, and pursuing joint ventures. Her primary areas of expertise are in healthcare valuation and physician compensation.


1 Revenue Ruling 56-185, 1956-1 C.B. 202.

2 http://www.medicaid.gov/Medicaid-CHIP-Program-Information/By-Topics/Financing-and-Reimbursement/Financing-and-Reimbursement.html.

3 The Henry J. Kaiser Family Foundation Medicaid-to-Medicare Fee Index,
http://kff.org/medicaid/state-indicator/medicaid-to-medicare-fee-index/.

4 http://www.kaiserhealthnews.org/Stories/2012/July/25/medicaid-cuts.aspx.

5 American College of Physicians, “Analysis of the “Medicaid Parity” Final Rule,” (November 7, 2012).

6 U.S. Department of Health and Human Services’ Office of Inspector General Advisory Opinion No. 07-10.

7 U.S. Department of Health and Human Services’ Office of Inspector General Advisory Opinion No. 09-05.

 

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