Maintaining fair market value (“FMV”) of physician compensation is a crucial aspect of healthcare compliance, reducing the risk that improper payments are not used to induce the referral of Medicare or Medicaid patients.
As more physicians become employed and integrated into health systems, financial relationships (and FMV concerns) between physicians have risen. As a result, maintaining a thorough and comprehensive FMV compliance program is more crucial than ever. Furthermore, the structuring of a compensation package can help align incentives so that a compensation arrangement will not just be compliant, but effective in achieving performance goals.
Consequences of Non-Compliance
The most prominent relevant federal laws include the following:
- Physician Self-Referral Law (“PSL”): commonly referred to as “Stark Law”. A violation of the PSL can result in civil penalties for referrals made when a financial relationship is present between a physician and another entity. Unlike the AKS (below), the PSL is a strict liability statute, meaning no proof of intent is required.
- Anti-Kickback Statute (“AKS”): This criminal statute prevents remuneration in exchange for referrals.
Noncompliance with Stark Law and the Anti-Kickback Statute (AKS) can lead to severe financial and legal repercussions for healthcare organizations. Over the years, numerous cases have demonstrated the costly consequences of failing to adhere to these regulations, with penalties reaching hundreds of millions of dollars. Notable examples include Tuomey Healthcare System ($237 million in penalties), Christ Hospital ($108 million in penalties), and St. Joseph Medical Center ($22 million in penalties), among others.
Beyond financial penalties, violations of Stark Law and AKS can result in exclusion from federal healthcare programs, posing a significant threat to an organization’s operations and reputation.
Provider Performance
In addition to compliance, maintaining FMV in arrangements can also help with achieving organizational performance goals. Often, reviewing arrangements for FMV leads to finding overcomplexities, poor financial structures, illogical compensation amounts, or other issues that lead to disincentivizing provider performance. Issues like these have massive implications for provider recruitment, retention, production and quality performance, and negative financial impacts on an employer’s bottom line. Ensuring compensation is compliant, fair, and effective can ensure that front-line physicians and advanced practice providers (APPs) are best equipped to succeed.
Steps to Take
FMV compensation is an essential part of healthcare compliance and provider performance. Thus, entities should:
- Maintain written compensation procedures that comprehensively address all types of financial arrangements with physicians and APPs
- Ensure that each component of compensation is evaluated, not just total cash compensation
- Due to changes in the healthcare landscape, regulations, reimbursement, and local market factors, compensation should be regularly tested for FMV
- Consider all factors that indirectly impact FMV, such as ensuring compliant coding, ensuring hourly services are appropriately documented, and addressing APP split/share services appropriately
How Withum Can Help?
Withum’s Healthcare Services Team can help your organization assess physician compensation individually, as well as assisting in maintaining appropriate and effective financial arrangements for all providers over the long term. Our experts emphasize comprehensive, efficient solutions that place emphasis on both compliance and provider performance. Our overarching goal is to help healthcare leaders make decisions that best equip their front-line workers to provide high-quality, economically sustainable care to patients.
Contact Us
Interested in learning more about fair market value compensation? Please contact a member of Withum’s Healthcare Valuation Services Team.
