Does your hospital or health system place a “hard” cap (e.g., a definitive limit) on a physician’s annual employment compensation? If so, you are not alone.
Other organizations, however, choose to have a “soft” cap, which means once a physician compensation threshold (such as the 90th percentile or a percentage of the 90th percentile of a benchmark compensation survey) is met, certain review procedures are triggered before allowing the physician to potentially earn additional compensation. And still other organizations choose not to have a physician compensation cap to ensure no physician feels like they are working for free once they hit the cap.
Compliance Considerations
Regardless of how your organization handles the issue of physician compensation caps, certain compliance questions should be asked of your most highly productive employed physicians. A non-exhaustive list of these questions includes:
- How many hours per week does the physician work, and can this workload be performed safely to the benefit of all patients?
- Does the work have any quality issues?
- Does the physician experience an abnormal amount of medical necessity denials?
- Has the physician passed a recent evaluation and management coding review?
- If a physician is compensated on a productivity [e.g., work relative value unit (wRVU)] basis:
- Are the physician’s wRVUs calculated correctly using the appropriate Current Procedure Terminology (CPT) codes, frequency, and Medicare physician fee schedule?[1]
- Have the wRVUs been modifier adjusted?
- Have the wRVUs been reduced for multiple procedure payment reduction (MPPR), where applicable?
- If a physician works with an advanced practice provider (APP) in an outpatient setting (e.g., in a “incident to” situation), how have you ensured wRVUs are accredited to the appropriate rendering (versus billable) provider?
- If a physician works with an APP in an inpatient setting (e.g., in a global billing or split shared situation), how have you ensured the wRVUs attributable to a physician are personally performed?[2]
- Does market evidence show that other physicians generate wRVU levels comparable to the physician under review?
- Have you ensured all non-clinical employment roles and responsibilities (e.g., medical director) have been successfully fulfilled?
- Is the physician’s total compensation fair market value and commercially reasonable while not considering the volume or value of referrals?
By answering the above questions in a compliant manner and considering questions that are specific to your organization’s circumstances (e.g., local market physician supply and demand for a particular specialty, the number of successful/unsuccessful recruitment attempts in a physician’s specialty), you can be in a better position to support and defend whether having a compensation cap makes sense for your organization.
If you would like additional guidance related to provider compensation design, fair market value, commercial reasonableness, or any matter related to compensation valuation, compliance, or strategy and integration, our executives are happy to assist.
[1] Current Procedural Terminology (CPT) is a registered trademark of the American Medical Association.
[2] Per 42 C.F.R. 411.251, a service is “not personally performed or provided” by the referring physician if it is performed or provided by any other person, including, but not limited to, the referring physician’s employees (even on an “incident to” basis), independent contractors, or group practice members. PYA recommends that healthcare legal counsel be consulted to ensure compliance with all applicable laws related to determining when a service is personally performed by a physician.
