Why Hospital Board Involvement in Physician Compensation is Critical

More and more physicians are aligning with hospitals due to decreasing reimbursement, increase costs of managing a physician practice, limited access to capital, increasing regulatory challenges and shifts in lifestyle. A study by Accenture projects independent physicians will account for only 33 percent of all physicians by 2013. This trend towards hospital-physician integration means hospitals may have to develop new or strengthen existing compensation models. Physician compensation issues should not be the sole domain of hospital executives, however. The involvement of hospital boards is critical to compensating physicians in a way that benefits both physicians and the hospital. Kim Mobley, principal at SullivanCotter and Associates, explains the necessity and means of hospital board oversight of physician compensation.

1. Financial impact. Physician compensation can have a significant impact on the finances of a hospital and therefore should have oversight by the board. "Physician compensation dollars very often represent a significant amount of the operation of the hospital system," Ms. Mobley says.  

2. Risk. There is risk in physician compensation regardless of the payment model. Hospital boards should be aware of risks such as the Stark Law, the Anti-Kickback Law, Civil Monetary Penalties Law and IRS rebuttable presumption — intermediate sanctions — to ensure compliance. "Especially in today's regulatory environment, it's very important that the board understands the organization's physician compensation arrangements are and where the potential risks might be. It's important that they understand how to make sure that the compensation arrangements are designed in such a way to have the least amount of risk for the organization," she says.

Being unaware of the risks subjects hospitals to possible fines and other penalties if they violate any regulations. In July 2010, for example, Tuomey Hospital in Sumter, S.C., was fined more than $49.5 million for allegedly violating the Stark Law through certain physician employment arrangements at the hospital's outpatient surgery center.

In addition, the Office of Inspector General has signaled that it may use the Responsible Corporate Officer Doctrine to hold healthcare executives and officers accountable for misconduct by personally excluding them from participation in federal healthcare programs. Under this doctrine, ignorance of the wrongdoing may not release the officers of liability, Ms. Mobley says.

3. Physician integration.
Board members should be involved in physician compensation because it plays a large role in integration, a growing practice that is supported by many federal initiatives, including the demonstration projects and the establishment of accountable care organizations. "With this trend of [physician] employment and integration, there is a strategic imperative for the board to understand how physicians are compensated and what the strategic objectives are as they relate to integration and performance" Ms. Mobley says.

Hospital board members need to be educated on physician compensation to provide proper oversight. While hospital boards are typically educated on executive compensation matters, they often do not have the same level of understanding of physician compensation, Ms. Mobley says. However, "There is a fast-moving trend of boards becoming much more sophisticated in understanding [physician compensation]," she says.

Physician compensation differs from executive compensation in that physicians' pay varies by specialty and is often based on productivity and meeting certain performance criteria. Physician pay also involves different terminology that board members should be familiar with, according to Ms. Mobley. Hospital board members can learn about physician compensation through literature, webinars and consultants, among other resources. "The best interaction is customized board education developed to address issues your board is dealing with as well as the most current compensation trends and issues, because the market is moving rapidly both from a regulatory perspective as well as a market [perspective]," Ms. Mobley says. She suggests boards update their physician compensation knowledge annually and throughout the year as necessary to ensure they have accurate information.

Learn more about SullivanCotter and Associates.

Related Articles on Healthcare Compensation:

Hospital and Health System Executive Compensation: Statistics to Know

Mass Court Rules Cambridge Health Can't Cut Nurse Retiree Benefits

Some Executives' Pay Stalls or Drops at Michigan's Allegiance Health

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