Eight common mistakes when determining FMV for physician clinical services compensation

As physician compensation reform and regulatory scrutiny continue to be a focus of attention, parties are putting forth a more concentrated effort to ensure physician compensation arrangements are considered fair market value (FMV).

The regulatory environment surrounding physician compensation can often be difficult to navigate, while also trying to balance making competitive offers and attracting and maintaining top talent. The most significant laws guiding physician compensation arrangements are the federal Anti-Kickback Statute (AKS) and the Physician Self-Referral Law (Stark Law). To be compliant with these regulations, physician compensation must be set at FMV or risk potential for qui tam lawsuits, high dollar fines or even criminal charges. This article covers common mistakes that could potentially lead to violations of AKS or the Stark Law.

Eight Common Mistakes
The following list includes eight common mistakes that could lead to physician clinical services compensation that is inconsistent with FMV. While the following is not a comprehensive list, the mistakes discussed are important to avoid when establishing compensation for clinical services:

1. Not considering the inverse relationship between compensation and compensation per work relative value unit (WRVU) rates
• It may seem logical to assume that if a physician is producing WRVUs at the 90th percentile, they should be paid the 90th percentile compensation per WRVU rate. However, when compensating physicians based on production, compensation per unit of production often decreases as production increases. This mistake is potentially one of the most common ways leaders structure compensation models that inadvertently leads to overpaying physicians.

2. Using limited survey data
• Relying on a single market survey may not be representative of the market as a whole. In addition, it is not advised to rely on market surveys with limited respondents. The more data points utilized, the more likely the compensation indication is representative of the market.

3. Not considering sign-on, student loan and relocation bonuses when analyzing the entire compensation package
• In most circumstances, any amortized bonuses, loan repayments, relocation allowance or other W-2 compensation should be considered when determining the clinical services salary compared to market compensation.

4. Double Dipping
• Typically, physicians being compensated for providing clinical services cannot also be compensated for administrative services provided at the same time. The physician’s availability and services for that time period have already been accounted for with the clinical services compensation. Paying an administrative rate during the same hour would be considered “double dipping”.

5. Setting Artificial WRVU Thresholds Too Low
• The simplest way to set a WRVU threshold is divide the base salary compensation by the compensation per WRVU indication. When an employer sets a threshold lower than this, it could result in a physician bonusing too quickly and clinical compensation that is higher than FMV.

6. Consideration of full-time equivalent (FTE) status
• Market survey data must be adjusted to reflect the accurate FTE status of the subject physician if the base salary is not supported by production metrics. For example, if a physician is working just days per week, relying on surveys reporting a 40-hour work week would overstate compensation.

7. Assuming what another hospital/employer pays is FMV
• Knowing what other hospitals/employers pay for similar services is a good consideration when determining physician compensation. However, it is important to note that without knowing the specific facts and circumstances of other hospitals/employers, there is no way to guarantee that payment is within FMV.

8. Including incident to production with no consideration to mid-level salaries
"Incident to" billing allows nonphysician providers to bill certain services under the supervising physician's identification number. Under "incident to" billing, Medicare reimburses nonphysician providers at 100 percent of the Medicare fee schedule rather than the standard 85 percent.[1] Thus, when determining physician compensation, it is important to ensure that production considered is for personally performed services and has been properly modifier adjusted or an adjustment should be made for the additional nonphysician productivity credited to the physician. 

[1] Medicare Payment Advisory Commission June 2019 Report to the Congress: Medicare and the Health Care Delivery System

Caroline Dean (caroline.dean@vmghealth.com) is an Analyst at the Nashville, TN, office of VMG Health.

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