Health care regulations governing hospital-physician contracts are highly technical, which makes deciphering them difficult. However, knowing the details is essential to preventing your organization from getting dinged with large fines. The two most important regulations to understand are the Stark Law and the Anti-Kickback Statute.
The Anti-Kickback Statute (AKS) was enacted in 1972 to help protect the government from healthcare fraud and abuse. It states:
Receipts and sub-receipts of Federal funds are subject to the strictures of the Medicare and Medicaid anti-kickback statute (42 U.S.C. 1320a - 7b(b) and should be cognizant of the risk of criminal and administrative liability under this statute, specifically under 42 U.S.C. 1320 7b(b) ‘Illegal remunerations’ which states, in part, that whoever knowingly and willfully: (1) solicits or receives (or offers or pays) any remuneration (including kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind, in return for referring (or to induce such person to refer) an individual to a person for the furnishing or arranging for the furnishing of any item or service, OR (2) in return for purchasing, leasing, ordering, or recommending purchasing, leasing, or to purchase, lease, or order, any good, facility, services or item...for which payment may be made in whole or in part under subchapter XIII of this chapter or a State health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.
To summarize, the Anti-Kickback Statute is a criminal statute that forbids the exchange or offer to exchange anything of value in an effort to entice or reward the referral of federal health care services or business.
Examples of hospital or physician behavior that has resulted in convictions:
- “If you send us patients from your cardiology private practice, we’ll pay you $5,000 per patient or share 20% of the excess revenue.”
- “If you just add another zero to that medical directorship annual stipend, you can expect to see 25% more patients from my practice sent your way.”
- “Thanks for signing on the dotted line. It would be wonderful if we continued to see an increase in your referrals to our hospital.”
There are safe harbors to protect hospitals, health systems, and medical practitioners for certain types of transactions, such as physician ownership of an ASC in which they operate (but shareholder distribution of profits must align with ownership), payments to bona fide employees, practitioner recruitments when community need is documented, certain discounts, etc. You can read more about the safe harbors here.
Comparing AKS and Stark
AKS and the Stark Law are often discussed in tandem. While the two have some similarities, there are also some key differences.
|Anti-Kickback Statute||Stark Law|
|Prohibits soliciting or offering anything of value for referrals to any Federal program
||Prohibits a physician from referring Medicare/Medicaid patients to an entity that has a financial relationship with that physician
|Referrals from anyone (e.g. practitioner, supplier, facility)
||Referrals from a physician
|Applies to a referral for any service or item
||Only applies to referrals for Designated Health Services1
The Penalties of AKS
AKS criminal penalties can be up to $25,000 and 5 years in prison per kickback violation. Additional civil penalties are as much as $50,000 per kickback violation in addition to three times the amount of the damages sustained by the government. Furthermore, providers can be excluded from federal healthcare programs as a result of AKS violations.
How can you protect your organization from AKS violations?
Have a contract for every physician you engage, with or without a regular payment
Having a written and signed contract with terms and payment rates outlined prior to a physician initiating services ensures that the terms are understood before entering into the relationship. It is a good idea to have contracts for unpaid positions as well, just to make sure you are covered.
Be specific about the duties covered and expected for the position
Describe the services to be provided in detail in the contract. Keep in mind that if a duty is not specifically listed in the contract, it is not technically covered by that contract, and the hospital should not be paying for it as if it were. For administrative position contracts, specify the expected and maximum number of hours that will be reimbursed. Monitor the physician time records to check that the responsibilities and time spent are consistent with the contract.
Document non-monetary compensation
If you provide any non-monetary perks, make sure they are appropriately documented and objectively provided based on non-volume or revenue criteria. These might include: parking spaces, meals, EHRs, technology, infrastructure, etc.
Set rates at FMV
Ensure your negotiated contracts include FMV and commercial reasonableness documentation. If there isn’t documentation, flag the contract for immediate review. If the documentation doesn’t provide clear justification for paying the rate outlined in the contract, flag it as needing additional documentation. Have a consistent method for documenting FMV such as a set of reference benchmarks or outside opinions.
Don’t do anything that could be construed as payment or reward for referrals!
Paying for referrals or bribing physicians in any way is illegal. Make sure when you review physician contracts that no payments take into account number of patients, revenue, or anything that could be construed as a referral.
The regulations that guide physician contracting can be confusing and overwhelming, but it is imperative that you understand the rules and the consequences for violating them.
Before more stringent regulations around emergency coverage were passed in the 1980s (like EMTALA and other state laws), it was common for physicians to voluntarily take call as a requirement for hospital privileges and as a means of growing their private practices. With the growth of hospitalists and large multispecialty medical groups, the benefit of ED coverage has diminished. Additionally, physicians are acutely aware of the increasing numbers of Medicaid and uninsured patients in emergency rooms. This has contributed to fewer physicians being willing to take voluntary call, leaving hospitals no other choice but to pay physicians for coverage to meet regulatory requirements and patient needs.
Over the past decade, spending for physician expenditures as a percent of total hospital operating expenditures has grown over 40% according to OSHPD data. Costs will escalate when a hospital starts to compensate one specialty, which will create a domino effect with others.
It is not uncommon for hospitals to experience a cascade effect once they start compensating for call coverage. However, it is generally not commercially reasonable to pay for all services. Just because a physician asks to be paid, does not mean it is commercially reasonable or necessary to pay. Navigating these negotiations can be difficult if the relationships are highly political or tenuous.
Despite the increasing pressure to pay for emergency coverage across multiple specialties, it is possible to find middle ground with physicians on this issue that addresses the physicians' need to be recognized for the time and service and the hospital's need for coverage. Here are some suggestions to consider for your organization.
Ensure the Payment is Commercially Reasonable
Before you make any physician payment, whether it is a per diem or one of the alternatives below, determine whether paying for the service is commercially reasonable. A commercially reasonable agreement means that it is a common business practice for an organization to pay for that particular specialty and service. Establishing what's common generally takes market data, research, or a valuation. Despite the lack of a bright line, determining commercial reasonableness is an important first step before a payment rate is considered. If it's not reasonable to pay a per diem for a particular service but some sort of compensation is needed, you should consider alternatives.
Uncompensated Care Payments
Consider payment for uncompensated patients. Physicians are often concerned that the burden of carrying a beeper isn't worth the limited revenue associated with coverage. Emergency departments do have a disproportionate number of uninsured and Medicaid patients and in some areas, the burden is particularly high. At facilities where the payer mix is favorable, physicians are more likely to be paid for emergency patients. However, for hospitals where it is challenging to convince physicians to take call, paying for uncompensated care may be an alternative to paying a per diem rate. Hospitals who pay for uncompensated care reimburse physicians for services rendered to uninsured patients. Usually the payment rate is defined as a percentage of Medicare or Medicaid. This method assures physicians reimbursement for services rendered while taking emergency call coverage. MD Ranger subscribers have access to uncompensated care payment benchmarks that are published in our annual Call Coverage Report.
Per Episode Payments
In smaller facilities and for specialties for which physicians may not be called often, the burden of taking call is lower. In these situations, the hospital may incur lower costs by paying a 'per episode' rate when the physician is called in rather than a daily per diem rate. This payment type is most often used for services like obstetrics, but it may also make sense for low volume specialties like ENT or plastic surgery. MD Ranger collects and reports per episode payment rates for subscribers and reports benchmarks that can be used to document market rates.
Another tactic to address costs can be to pay a lower per diem plus a per episode rate or uncompensated care rate as a second method. Hospitals should consider the overall estimated payments under the combination in order to assess the reasonableness of a combination of payment methods. MD Ranger reports the percent of facilities that have a second payment rate for call coverage services.
Selecting a strong medical director to oversee a service, specialty, or program can advance the clinical agenda or provide a foundation to build clinical service lines. Key tasks may include clinical oversight, policy development, staff training, quality review, regulatory compliance, committee participation, protocol development, budgeting, and program development.
Choosing the best physician for the job is important for both the hospital and the program. When reviewing candidates, consider the physician’s training, technical expertise, experience, and relationships with physicians and community members. The roles, responsibilities and time commitment should be spelled out in a contract, as required by federal regulations.
Defining the Duties of a Medical Directorship
The job’s specific requirements must be carefully considered at the start of the agreement and with subsequent renewals. The job description should help achieve the organization’s clinical agenda, and each duty should be described as specifically as possible.
For example, if the job description states “physician will support community outreach”, consider being more specific:
Physician works with leadership to represent hospital at community events supporting heart health, including events hosted jointly with the American Heart Association and the hospital’s “Heart Healthy” program. Physician will be paid for time at event and travel time to and from the event.
Such clarifications will help avoid misunderstandings and conflicts.
When and How Much to Pay
Before compensating a physician, you must determine if payment for the service is “commercially reasonable”. MD Ranger reports the percent of subscribers paying for a position, as well as the distribution of the number of paid positions by specialty. If the percent paying is low, it is particularly important to document why payment is necessary.
It is common to have two or more medical director positions in some specialties, such as cardiology, whereas in others it is rare.
Most medical directorships pay by the hour, with the minimum and maximum number of hours per week, month, or year outlined in the contract. Some administrative or medical staff leadership positions, particularly roles like chief of staff, pay monthly or annual stipends without a defined hourly rate. It is typical to have contract language that allows for periods of high and low activity to account for vacations, holidays, JAHCO surveys, etc.
If a medical directorship is paid hourly, ensure that all components of the contract are compliant (hours, hourly rate, annual pay) and that actual payments are consistent with the signed contract. A low or reasonable hourly rate could mask an unreasonable number of hours worked, resulting in exceptionally high annual payments. If the physician’s hours vary significantly from benchmarks, review the job duties and determine if the scope is greater or less than a typical hospital. It may be reasonable to require more hours for a new program, a program undergoing review, or a center of excellence with a large referral program, significant outpatient components, or a large medical staff. In addition, if a physician has exceptional credentials such as a national recruitment for a large regional program, higher payments may be justified. Documentation of exceptional differences like these is essential to maintaining a strong compliance program.
Fair Market Value (FMV) Considerations
Most FMV experts suggest that payment rates below the 75th percentile of market rates are generally compliant, however many organizations choose to pay closer to the median, especially if they are not in an area with high cost of living or they are not a large tertiary medical center. If you must pay a rate above the 75th percentile, be sure to document the reasons why it is necessary and the steps taken to negotiate a lower rate. You may also consider obtaining a formal FMV analysis and opinion. If the hourly rate is compliant and the job duties are extensive, a higher annual rate may be justified.
Some but not all directorships require a physician of a particular specialty. While the director of the cardiac cath lab needs to be a cardiologist, the director of EHR implementation or the chief of staff could be a physician of any specialty.
Specialty may or may not influence payment. Although it may seem logical that an orthopedic surgeon should be paid more than a pediatrician serving in the same role, most market data do not support a pay differential unless the directorship or leadership position significantly reduces the physician’s practice commitment and clinical income. This is often referred to as “opportunity cost”, and it is only relevant in some situations. An independent valuation may be advisable if payment rates exceed standard benchmarks for the particular position.
Market data is an efficient and cost effective way to structure a physician contracting compliance program, and is used by hundreds of hospitals across the country. Among the perks of using market data are consistency, accessibility, and flexibility.
As long as the database used to calculate payment benchmarks is both large and diverse, benchmarks typically remain stable from year to year. However, there are several factors that may change benchmarks from year to year, like a significant increase in the sample size or changes in the market. It is always important to document FMV compliance, even if benchmarks shift.
By understanding why benchmarks may change from year to year, you can prepare for these changes within your compliance plan. Having a process in place to deal with potentially challenging conversations will help facilitate the process.
Why Benchmarks Can Change:
Benchmarks can change from year to year, significant shifts are uncommon.
Overall, we have found that the average change for any benchmark, whether that be compensation or hours worked, at the 50th or 75th percentile is 5%. This 5% change in contracts can often be accounted for by:
- General salary inflation and cost of living increases.
- Shift in responsibilities for a physician role, whether that be increased or decreased responsibilities.
- Change in hospital characteristics. For example, if a hospital adds more beds or moves from a level 3 trauma center to a level 2 trauma center, the burden of call is going to be more significant and likely will require a higher payment.
- New counterparty in a contract.
It is also important to take into account that most contracts have 2-3 year terms. This means that contract values do not increase or decrease in a linear fashion, the contract value changes in steps up or down.
In some cases, adding one contract can change the benchmarks.
Even in large sample sizes, when contract values are clustered at multiple different values, sometimes adding one new contract can shift the benchmarks considerably. This is best illustrated by an example. If we have five contracts with values of $150, $150, $150, $1,000, and $2,000, the 75th percentile is calculated as $787.50, as seen below. MD Ranger would round this benchmark to $790. If we are evaluating a contract with the value of $650, it would fall below the 75th percentile in this case.
If we add a fourth contract with the value $150, then the 75th percentile drops to $575. Now, that same $650 contract is above the 75th percentile and could be considered risky.
Even in a large sample size, if the contract values are clustered, one new contract can shift the benchmarks.
A data set which has a larger, diverse sample size will be less volatile than a data set with a small sample size. Sometimes data sets can appear larger and more diverse than they actually are. For example, if the data are collected from physicians, it is important to look not only at the number of physicians included but how many medical groups are represented. Medical groups often negotiate a single payment rate with a hospital, thus making the data set less diverse than it seems.
If the data is collected from hospitals, make sure that there are data from at least five health systems and/or independent facilities included. Typically, dozens of individual physician contracts are included in a sample from this many hospitals. Since physicians from the same medical group may get paid the same rate, or a health system may have a policy to pay physicians the same amount for call coverage or medical direction, it's important to ensure a good sample of hospital corporations or systems in the data. The larger the data set, the more safeguards you have for ensuring high quality data.
Dealing with Changing Benchmarks:
If the contract was within fair market value when signed, and documentation exists, payment rates can remain as is until the contract expires.
This is when documentation becomes crucial. If you document the benchmark data and that the value of a contract was fair market value when the contract was signed, it is compliant until the contract expires. At this time, if the contract is still below the 75th or the 90th percentile, the payment rate may still be compliant. If the rate is now too high and you cannot negotiate it lower, consider documenting the value of the contract to the organization, general inflation rates, and the changes in the benchmark data.
Be strategic while setting payment rates.
Perhaps your organization has determined that rates at or below the 75th percentile is considered compliant. That doesn't mean that every contract signed should be at the 75th percentile. Allow some wiggle room by negotiating a rate between the 50th and 75th percentile. If rates fluctuate over time, you have some cushion before the rate becomes problematic. This is especially true if the service in question comes from a smaller data set, given that these rates are more likely to fluctuate.
Document why the situation is unique.
A high rate can be justified when the situation is unique. Maybe there are a limited number of physicians in a particular specialty in the area, there is a high burden for taking call, or the payer mix is unfavorable. These can all be legitimate reasons for high rates; after all, someone has to be at the 90th percentile in all benchmarks. However, all payment rates above the 90th percentile need thorough documentation.
Demonstrate the effort to negotiate the lowest possible rate.
Documenting conversations and efforts made to set a payment rate that is fair market value is essential. If you are unable to successfully lower the rate to an amount you are comfortable calling fair market value, take special care to document conversations. Note who met with whom, and explain the attempts made to negotiate lower rates.