Published October 28, 2010

Is it time to renew…

Is it time for your hospital to renew an agreement with a physician who provides administrative services?

Do most of your physician-hospital arrangements which involve administrative activities, such as medical directorships, include “automatic” renewals over a multi-year contract? If so, do you re-evaluate the fair market value of this arrangement every year? Regardless of whether the answer to this question is currently “yes” or “no”, you need to know about a key change in the Center for Medicare & Medicaid Services’ (“CMS”) commentary regarding the definition of fair market value related to “administrative” work. Specifically, in the Stark II, Phase III regulations which became effective December 4, 2007, “a fair market value hourly rate may be used to compensate physicians for both administrative and clinical work, provided that the rate paid for clinical work is fair market value for the clinical work performed and the rate paid for administrative work is fair market value for the administrative work performed. We note that the fair market value of administrative services may differ from the fair market value of clinical services.” 1

Prior to Stark II, Phase III, two of the methods that could have been utilized to determine a “Safe Harbor” fair market value were 1) “the hourly rate is less than or equal to the average hourly rate for the emergency room physician services in the relevant physician market or 2) the hourly rate is determined by averaging the 50th percentile national compensation level for physician with the same physician specialty (or if the specialty is not identified in the survey, for general practice) in at least four of the following surveys and dividing by 2,000 hours:

  • Sullivan, Cotter, & Associates, Inc. – Physician Compensation and Productivity Survey
  • Hay Group – Physicians Compensation Survey
  • Hospital and Healthcare Compensation Services – Physician Salary Survey Report
  • Medical Group Management Association – Physician Compensation and Productivity Survey
  • ECS Watson Wyatt – Hospital and Health Care Management Compensation Report
  • William M Mercer – Integrated Health Networks Compensation Survey” 2

However, if you previously utilized one of these two methodologies described above to determine fair market value in a contract signed prior to December 4, 2007, it is important to recognize a couple of important points when these contracts come up for renewal. First, in Stark II, Phase III, the two methodologies described above have been eliminated as determinants of a “Safe Harbor”; however, they may still be indicative of fair market value since a “reference to multiple, objective, independently published salary surveys remains a prudent practice for evaluating fair market value.”3 Second, it is also important to consider CMS’ new commentary on “administrative” versus “clinical” activities. To assist you with your next fair market value determination on administrative time, utilize and/or consider one or more of the following:

  • National administrative survey data (e.g. the Medical Group Management Association’s Medical Director/Managing Partner Duties and Compensation Models);
  • Market comparable administrative data (e.g. specific for the position you are contracting for);
  • Whether the physician activities are truly “administrative” or “clinical” in nature, or perhaps a blend of both; and,
  • The number of hours required to perform the contracted activities, and whether these activities interfere with a physician’s regular practice hours.

For additional information regarding the determination of fair market value compensation, please do not hesitate to contact the experts listed below at (800) 270-9629.

1 Federal Register/ Vol. 72, No. 171/ Wednesday, September 5, 2007 Rules and Regulations Section §411.351.

2 Federal Register/ Vol. 69, No 59/ Friday, March 26, 2004/ Rules and Regulations Section §411.351.

3 Federal Register/ Vol. 72, No. 171/ Wednesday, September 5, 2007 Rules and Regulations Section §411.351.

 

 

The information provided via PYA Alert, Tax Planning Alert, or Audit and Accounting Alert should not be construed as accounting, auditing, consulting, or legal advice on any specific facts or circumstances. The contents are intended for general information purposes only.  Please contact us at (800) 270-9629 to discuss your specific situation or to discuss any specific questions you may have.

Interested in Learning More?

Sign Up for Our Latest Thought Leadership!



    Select Your Subscriptions