7 physician compensation trends to consider when establishing FMV

Nearly 70 percent of physicians now work in hospital-based settings, according to Jim Carr, a partner at HealthCare Appraisers. Reimbursement cuts, lifestyle changes, alignment initiatives and fear were all principal factors that drove the hospital-based employment trend over the last seven or eight years, he said at the Becker's Hospital Review 7th Annual Meeting in Chicago.

As administrators work and begin to rework compensation contracts, keeping a pulse on the market is essential to assessing fair market value. The trouble is physician employment data is hard to quantify because so many small transactions don't get reported, according to Mr. Carr. To help get a snapshot of what's happening in the market, appraisers look at various employment survey data and compare changes in survey respondent data to get a fuller picture, he said.

Based on his analysis and market data, Mr. Carr offered the following seven trends to consider while assessing fair market value for physician compensation agreements.

1. Across some specialties, survey data appears to show an increase in independent physician compensation. Critical care intensivists represent one such example. In 2009 there was a marked differential of about $30,000 more in median annual salary for hospital-employed physicians over those in independent practices, Mr. Carr said. However, over the last few years, data appears to show a significant increase in independent physician compensation. While he said they cannot be certain of a specific cause, in theory those cowboy physicians — the holdouts who are still in private practice, are most likely those who were more highly compensated in that setting to begin with. "Your more highly compensated folks are less enticed to move," Mr. Carr said. "It is interesting they have been able to maintain that compensation since reimbursement has declined."

2. Physicians are starting to resist production-based models like work RVUs. Now that physicians are working through their first or second term of their compensation agreements with employers, Mr. Carr noted more physicians are requesting a higher base salary guarantee, longer guarantee periods or both. "Folks say, 'I really don't want the risk of having to produce, particularly when there are factors outside of my control that affect my production, so I want you to guarantee my base salary for two years or three years.'" Initially it was common to have a one-year base salary guarantee before moving onto production based models, Mr. Carr said. However, wRVU models are still the most dominant compensation model we see today, he noted.

3. There is increased demand for employers to compensate for any activities that interfere with RVUs. This might include attending committee meetings, supervising a midlevel or resident or driving to get to an outreach clinic — basically anything physicians might see as cutting into their production time. "A lot of activities that a handful of years ago weren't really compensated frequently are now almost commonplace in employment agreements," Mr. Carr said.

4. Quality incentives are a growing portion of compensation. A typical employment agreement has anywhere from 5 percent to 20 percent of total compensation at risk based on some measure of quality, according to Mr. Carr. "The definition of what a quality bonus is has significantly diverged from what a lot of us talk about as clinical outcomes, but it's more of a value index that contains things like patient satisfaction, how the doctor interacts with other physicians and staff at the hospital, etc., as well as some measure of outcomes," Mr. Carr said. "There still is a lot of uncertainty about how folks should be measured and how quality can be quantified," he added. Currently core measures or HEDIS measures are used as benchmarks, but Mr. Carr predicts the way quality is defined will be subject to further evolution based on what works best for various specialties and settings.

5. As the demand for physician employees increases, there has been a significant uptick in one-time payments. Those one-time payments include signing bonuses, commencement bonuses, retention bonuses, relocation stipends or even student loan repayments. "The amount of money we're seeing dedicated to student loan repayments has gone up significantly in the past few years," Mr. Carr said.

6. Models based on collections or practice income revenue have almost gone by the wayside, but tiered wRVU models are still common. Under a tiered model, physicians start out at a low level of compensation per wRVU and as compensation increases so does the compensation per wRVU rate, according to Mr. Carr. For high producing physicians, this is a lucrative model, but can create some issues from a valuation standpoint, he said.

7. Regulation enforcement activity has increased along with employment. There has been a significant uptick in qui tam cases related to employed physicians in recent years, Mr. Carr noted. For example, in 2015, Columbus Regional System settled a case involving its employed medical oncologists for $35 million, North Broward settled a case for almost $70 million involving a number of employed practices, and Adventist Health System settled one for $115 million.

In each of these cases, allegations related to improper relationships with employed physicians. One of the issues brought up repeatedly throughout these cases was if the practice of a hospital-employed physician was losing money, this demonstrated that compensation was not fair market value or that the agreement was not commercially reasonable, Mr. Carr said.

In the context of today's market, "That's a pretty big problem," Mr. Carr said. "If the implication is having a practice that produces financial loss somehow violates Stark or Anti-Kickback laws, we have a whole market of practices that don't comply." However, he said he doesn't see that as a valid explanation for why a practice might sustain losses.

Nevertheless, if the Department of Justice is advocating that view and courts are upholding it, hospitals need to understand the economy of practice relationships and carefully document the reasons why circumstances exist that make losses reasonable or unavoidable. "Having that homework done at the front end is going prevent a situation where this type of complaint derails you," he said.


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