Published June 15, 2020

Your Physician Arrangements May Require Modification – COVID-19 Considerations

While hospitals and health systems struggled to meet the demands arising from the COVID-19 pandemic, some emergency rooms and intensive care units were filled to capacity. Others were nearly empty or less-than-normal capacity. Certain hospital and clinical services, such as elective surgery, were shut down.  Some physician specialties were highly utilized, others were not. All this considered, a hospital’s contracts with physicians may contain compensation structures that do not adequately address these conditions and subsequently require future reconciliation and/or amendment.

Three common types of physician arrangements that may require reconciliation and/or amendment subsequent to, or during the COVID-19 pandemic, are employment agreements, financial assistance agreements, and professional services agreements (PSAs). PYA has summarized important considerations (not all-inclusive) for the administration of each type of arrangement in the wake of the COVID-19 pandemic.

  1. Physician Employment Agreements. As patient volumes for many physician specialties dwindled, administrators and physicians have struggled to assess the impact on individual physician compensation. If a physician is paid on a productivity-based model, the COVID-19 pandemic may have significant implications to one or more elements of the compensation structure, potentially reducing the totality of expected annual physician compensation. Alternatively, if a physician is paid on a capacity or non-productivity based model, there may be concern that physician compensation in the current year exceeds fair market value because of a physician’s lack of service provided or other personally performed productivity. In order to stabilize physician compensation (for providers paid on a productivity or non-productivity-based model) due to these concerns, certain compensation adjustments may be considered.
    • Total compensation adjustment. A total compensation adjustment should not be intended to “make physicians whole”at their maximum, or even their historical, earning capacity, but rather stabilize physicians by setting compensation at a reasonable level. What is a reasonable level? For some arrangements, reasonable may mean an adjustment resulting in total compensation near the base compensation or an amount approximating the median (if a physician’s base or total compensation historically was above the median). A determination of compensation should be carefully considered, perhaps referencing multiple published benchmark compensation surveys or internal compensation plan details (i.e., some organizations may have a set methodology for benchmarking via multiple surveys). Another option would be to consider how much guaranteed compensation a physician would earn under a new hire agreement and adjust accordingly to this amount.
    • Productivity and quality performance bonuses. Before reaching contract renewal periods, consider the reconciliation of a physician’s productivity and quality performance during and after the COVID-19 pandemic. Potential methodologies for reconciling productivity and quality performance bonuses are outlined below. Any reconciliation should also consider the aforementioned compensation adjustment, if any.
        • Eliminate consideration of wRVUs or quality performance during the applicable COVID-19 period (which may be different for each provider based on location and other facts and circumstances), review productivity and quality performance prior and subsequent to the COVID-19 period, and adjust targets as necessary by the number of months in the COVID-19 period.
        • Evaluate productivity and quality performance by including in the reconciliation a portion of the prior calendar year and current calendar year leading up to the COVID-19 period productivity and quality performance. For example, a hospital or health system would evaluate a physician’s productivity or quality performance from March 2019 through February 2020.
        • Forgo payment of productivity and/or quality performance bonuses until 2021, and consider modification of the compensation structure of employed surgical and procedural specialists to a fixed annual salary. Changing the compensation structure of employed surgical and procedural specialists to a fixed salary offers the potential to stabilize a physician’s income level.
    • Stark blanket waivers. In response to the COVID-19 national emergency, CMS has instituted Stark Law blanket waivers to give healthcare organizations greater flexibility in crafting financial arrangements with referring physicians. Providers evaluating potential strategies to maintain physician stability should consider these waivers as well as the recommended documentation of such use. Specifically, CMS indicates that, “Parties utilizing the blanket waivers must make records relating to the use of the blanket waivers available to the Secretary upon request. . . . We [CMS] encourage parties to develop and maintain records in a timely manner as a best practice.”[1]
  1. Financial Assistance Agreements. Under a financial assistance agreement, which contains a provision for reconciliation, a practice may not have been able to provide services and, therefore, bill and collect for them. As such, a reconciliation may illustrate a deficit in excess of the amount required to be paid under the agreement. Several considerations for financial assistance agreements follow:
    • Review the maximum payment clauses in the financial assistance agreement to ensure reductions to the maximum payment do not need to be made. As services rendered may have decreased and, therefore the professional collections and associated operating expenses (i.e., provider compensation, benefits, overhead, etc.) as well, the maximum payment amount may no longer be operationally feasible or make sense.
    • Negotiate limits to subsidy payments, reductions to subsidy payments during a to-be-defined COVID-19 period, or removal of reconciliation provisions entirely or for a defined time period. If there has been a decrease in physician services and collections, subsidy payments made to contracted providers may be too high. Additionally, the volatility of the healthcare environment may lead to challenging reconciliations.
    • If a reconciliation under the financial assistance agreement will continue, additional considerations include the following:
        • The COVID-19 time period and the length of time of the professional collections delay should be evaluated over the course of the agreement. The potential reduction in professional collections generated (as a result of a decrease in the amount of services provided) may not be fully realized by the parties to the agreement until several months following the COVID-19 period. As such, consideration should be given as to the most appropriate reconciliation time period.
        • Medicare relief payments and forgivable amounts the practice received under the Paycheck Protection Program should be included in the reconciliation under the agreement. As these payments represent a source of income for the practice and will be used to offset certain expenses, the amount of the payments should be summed with professional collections generated by the practice for services rendered.
  1. Under a PSA where a hospital bills and collects for physician professional services rendered, a practice might request reimbursement of amounts received by the hospital under Medicare relief programs. While the PSA may call for payment to the practice on either a compensation per wRVU or a professional collections per wRVU basis, the Medicare payment the hospital receives under relief payment programs is predicated via physician services provided under the PSA to Medicare patients. As such, it may be reasoned that the hospital may have received an amount from a Medicare relief program, a portion of which could be paid to the practice. The payment received under the Medicare relief program would proxy or estimate the amounts received by the practice for Medicare patients if the practice were not in the PSA with the hospital. Consider the following items for adjustments related to PSAs:
    • The hospital may estimate the payment amount to the practice using the total annual PSA payment data, Medicare payer mix, and the 6.2% factor used by CMS in its calculation of Medicare relief payments. Notably, the Medicare payer mix is important to this estimate, as Medicare relief payments represent 6.2% of Medicare payments originating from the Medicare Administrative Contractor to that TIN during 2019. Therefore, Medicare Advantage payments should not be included in this calculation.
    • The hospital should also consider any additional obligations that may be attached to Medicare relief funds paid to the practice. The hospital may want to incorporate certain requirements or provisions for the amount to be passed through to the practice. Notably, hospitals and health systems should work alongside their legal counsel with respect to the calculation of shared Medicare relief payments and any established requirements or provisions related to amounts passed through to the practice.

In evaluating these considerations for physician employment agreements, financial assistance agreements, and PSAs, it is important to prioritize financial feasibility. Execution of changes to compensation plans will require executive leadership to evaluate the stability of the provider staff and financial implications, but also account for regulatory risk. Implementing an approach without regard to fair market value and commercial reasonableness could result in potential exposure to regulatory scrutiny.

Executive leadership should pay strict and careful attention to the application of the Stark blanket waivers.  The Stark blanket waivers do not eliminate all Stark Law requirements, as some have purported. Further, the OIG has not echoed all of the Stark blanket waivers.  These blanket waivers are another way CMS is giving providers more freedom and flexibility as the COVID-19 pandemic continues. Similar to other Section 1135 waivers issued in response to the COVID-19 public health emergency, the Stark blanket waivers will terminate at the end of the public health emergency.  As such, executive leadership making use of Stark blanket waivers for specific arrangements should prepare policies and procedures for unwinding these arrangements once the public health emergency ends.  The current market conditions brought on by COVID-19 are unprecedented in scope, which makes a fair market value comparison difficult. Selection of an approach for your medical staff will require careful financial, operational, and legal analysis.

If you have additional questions related to physician compensation, or need clarity on the latest COVID-19 guidance, visit our COVID-19 hub, or contact one of our PYA executives below at (800) 270-9629.

[1] https://www.cms.gov/files/document/covid-19-blanket-waivers-section-1877g.pdf.

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