How to recognize and prevent physician compensation stacking

As hospitals and physicians continue down the path of alignment, the strategies and tactics used often result in complex arrangements between the two parties, including multiple or multifaceted compensation arrangements.

The result of these multiple or multifaceted arrangements is known in the industry as “compensation stacking.” The term compensation stacking describes the cumulative effect on fair market value and commercial reasonableness due to numerous, individual arrangements with a physician, or a single arrangement with many individual components.

The major concerns related to compensation stacking become overlap and duplication of payment for services. When preparing fair market value and commercial reasonableness opinions, it is not uncommon to encounter an employment contract containing multiple components, such as consulting and advisory assistance, medical direction, clinical services, advanced practitioner supervision, research activities, teaching, on-call coverage or any number of other clinical or administrative services.

When measuring each of these components, hospitals and health systems must be sure that they each meet standards for commercial reasonableness and fair market value. They must consider questions like: Does the overall compensation from these individual components meet standard parameters? Is this total commercially reasonable? Will expectations for physician compensation fall within the parameters of common sense? Do the number of hours that would be required to complete all the services compensated for by the agreement make sense?

For example, a physician’s contract could stipulate that they must serve ten hours each week as an urgent care director, supervise a nurse practitioner, provide after-hours care at two clinics, work five hours a week on an advisory council, as well as complete several thousand Work Relative Value Units (wRVUs) every year in order to maintain her clinical compensation. This type of workload is obviously unreasonable, as it would require the physician to work eighty-hour weeks to meet all the contractual expectations.

Not only can this issue alone attract attention from compliance officials as well as auditors, it also screams for attention when the compensation exceeds the 75th and 90th percentiles compared to healthcare industry benchmark data. There are several steps that networks can take to protect their organizations and physicians from compensation stacking:

1. Standards. Have standards in place for determining fair market value and commercial reasonableness. Having a formalized process will ensure consistency in how contracts are structured, negotiated, and approved.

2. Centralize. Centralize the contracting and physician transaction process to a governing body. Having a group of individuals dedicated to ensuring fair market value and commercial reasonableness within contracts can help to reduce confusion and make sure that the provisions are meeting compliance laws. This will also help make sure that the negotiation process is focused on the cumulative effect of compensation stacking, not just the individual pieces.

3. Salary Reductions. Have base salary reduction mechanisms in place for instances when expectations and goals are not met. This is particularly important in situations of high compensation. For example, continuing to pay a high premium to a primary care physician that is not meeting his productivity targets in a well-populated market does not make sense, but this type of compensation might make sense for a highly-skilled pediatric nephrologist in a region in desperate need of a specialist trained to care for pediatric patients with kidney disease. For the primary care physician, salary reductions can help rebalance clinical compensation.

4. Quality-Based Incentives. In terms of quality-based incentives, don’t pay for “layups” and “gimmes.” Targets that are relatively easy to accomplish, clearly do not have as much value as goals that truly require attention and effort. Placing value on “stretch” and “reach” goals that require true effort and teamwork to accomplish, can help improve the quality of patient care and have more value to the network. From a compliance perspective, dollars tied to incentives that require little effort, can be seen as a thinly veiled attempt to pass a physician more money—more money than they’ve actually earned for providing true personally performed services. Therefore, the only conclusion that a regulator can come to is that it is a payment for referrals. Don’t put your organization or physicians in that position.

5. Documentation. Document and measure carefully, and then pay accordingly. Different types of services require different units of compensation based on expectations for that service. Compensation for medical directors and administrative duties is usually based on hours of service. Call coverage is documented via call schedule or log, and clinical work is recorded by expected availability, wRVUs, and/or patient volume. Just as “if you didn’t write it down, it didn’t happen,” if you can’t measure and document it, don’t pay for it. There needs to be a “paper trail” of information so that each individual component of the compensation paid can be defended—wRVU-based compensation ties to the wRVUs produced, medical direction ties to the hours of service, call pay ties to the days on-call, and so on.

6. Overlap. Evaluate positions (job descriptions and requirements) to determine how and if they overlap. If a physician is being paid for call coverage at two different clinics at the same time, there is something wrong—this can’t happen. Paying a physician a 90th percentile call rate as well as wRVU-based bonuses for services provided while on call is another example of a potentially problematic situation. As is funding a useless medical director position for a service that no longer exists or is now covered by another physician. One of our favorite “red flags” is paying a physician a bonus for good citizenship. You cannot—bonus a physician for doing the normal day-to-day things that should be, and are, expected of every employee or of every physician when they take their Hippocratic Oath.

7. Captain Obvious. Utilize reasoning and common sense! If the hours required for completing contract components are too much, something is wrong and needs to be changed.

Implementing these steps into contract negotiation and network organization can help to ensure protection against compensation stacking, leading to reduced compliance risk, lower costs, and happier physicians.

Neal D. Barker joined HSG, a national healthcare consulting firm, in 2001 and became a partner in 2015. He has several years of managed care and physician practice experience. Today, Neal provides clients with, among other things, expertise and leadership in physician practice mergers and consolidations, physician practice operational improvement and physician network development.

The views, opinions and positions expressed within these guest posts are those of the author alone and do not represent those of Becker's Hospital Review/Becker's Healthcare. The accuracy, completeness and validity of any statements made within this article are not guaranteed. We accept no liability for any errors, omissions or representations. The copyright of this content belongs to the author and any liability with regards to infringement of intellectual property rights remains with them.

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