Given the trend in the industry toward greater collaboration between hospitals and physicians, hospital executive teams are increasingly finding themselves in the position of needing greater involvement from physicians in the day-to-day operations of their hospitals and service lines. As a result, physicians are frequently being employed or engaged as independent contractors to serve in executive roles or positions that are primarily administrative in nature (e.g., medical directorships, chief medical officer positions, service line directorships, etc.). As these administrative and executive roles involve a financial relationship between a hospital and a physician, any compensation from the hospital to the physician must be at fair market value and commercially reasonable to avoid regulatory penalties.
If your organization remunerates physicians for these types of services, the following is a list of some of the questions that should be considered when determining fair market value and commercial reasonableness:
- Does the required position have the physician performing administrative or clinical duties? According to guidance contained in the Stark regulations, hourly rates may be used to compensate physicians for both clinical and administrative work as long as the rates used for clinical work are fair market value for the clinical work performed and the rates used for administrative work are fair market value for the administrative work performed – understanding that fair market value compensation for the two types of services may differ. Thus, compensation paid to a physician should involve an assessment of whether the duties performed are clinical or administrative in nature.
- Does the position necessitate a physician to adequately perform the required duties? Many times, executive or administrative positions require the professional training, knowledge, or experience that only a physician is likely to have. Conversely, it may not be commercially reasonable to pay a physician to perform tasks which could otherwise be successfully completed by a non-physician (at a lesser compensation rate).
- What are the hospital s goals associated with the position, and does the successful achievement of such goals justify a corresponding level of compensation? For instance, some administrative agreements place a portion of the compensation at risk for the successful completion of certain goals such as higher quality scores, improved patient satisfaction ratings, and better financial performance. It is important to evaluate and measure the difficulty of successfully achieving these goals when determining fair market value compensation for such arrangements.
- Is your organization paying a level of compensation which matches the required skill set to the specific goals and objectives of the administrative position? For example, when attempting to fill a chief-of-staff position, it might not make sense to pay neurosurgery-level compensation when the position could be successfully performed by a primary care physician.
In summary, the determination of fair market value and commercial reasonableness for executive roles and administrative positions is contingent on a variety of elements that should be evaluated thoroughly. PYA recommends that the above factors, as well as others, be considered when assessing regulatory compliance for these transactions.
To continue discussing physician executive and administrative agreements or other fair market value/commercial reasonableness matters, contact the expert listed below at PYA, (800) 270-9629.
