Let’s Talk Compliance: Physician Compensation Plans and Recent Trends in Physician Compensation 2024

As part of our work with clients and preparing for Let’s Talk Compliance events, we often notice trends through the questions we receive. The following physician compensation compliance topics are currently trending.

At the start, we would note that developing a physician compensation compliance plan for your physician group or entity is key to complying with the Federal physician self-referral law (commonly known as the “Stark Law”) and the Federal Anti-Kickback Statute as well as their state corollaries. Such compensation plans are ideally written in a policy or standard operating procedure (SOP) and address: (1) how agreements are requested including the reason for entering the agreement, (2) who drafts and reviews the agreement to ensure legal and operational compliance, (3) how fair market value (FMV) is determined, (4) who executes the agreement and (5) how agreements are tracked including term and termination as well as continuing FMV requirements.

1. Should hospital-employed physicians be paid call coverage on “day one”?

Compensating community physicians for call coverage is a way for hospitals to ensure they can provide specialty services and appropriate responses to the emergency department related to Emergency Medical Treatment and Labor Act requirements. Compensating employed physicians for call services has become more common, but there are notable commercial reasonableness and FMV considerations.

Medical staff bylaws address call coverage requirements as part of a hospital’s medical staff privileges. Some medical staff bylaws leave the decision about the amount of call coverage to the medical specialties and a vote by the Medical Executive Committee. Hospitals paying for Day One call pay is not unusual for community physicians who provide a needed specialty to the hospital. However, hospitals frequently expect employed physicians to provide some call coverage as part of their base compensation.

As a starting place for determining FMV compensation for employed physicians, many organizations rely on benchmark survey data. While many surveys are available, the surveys most often used include the Medical Group Management Association (MGMA) Provider Compensation Survey, the SullivanCotter, Inc. Physician Compensation and Productivity Survey Report, and the American Medical Group Association Medical Group Compensation and Productivity Survey. The survey data definitions are meaningful to determine what is “in” and what is “out” of reported metrics. These definitions may change over time. Currently, these surveys define total cash compensation (TCC) as being inclusive of call pay compensation. In other words, call coverage compensation is not an addition to TCC in the survey data as it is already “in” the data.

If an employer compares a physician’s TCC to the TCC reported by the surveys, it is important to remember call pay is an included component. Further, if the organization’s compensation structure uses TCC benchmark survey data or another metric such as compensation per work relative value unit (wRVU) to determine a physician’s base compensation, it is important to not double count call coverage compensation. As such, paying call pay on Day One without appropriate adjustment or modification to the employed physician’s compensation could cause a TCC overpayment by the hospital employer. We discuss an example below.

If your organization chooses to pay for call coverage on Day One, an appropriate compensation stacking analysis should occur to ensure TCC is not overstated. As an example, assume a hospital employer aligns physician base compensation with a TCC median benchmark value and compensates for call on Day One. One approach in this scenario is to reduce the survey TCC median benchmark data by the amount of call pay assumed in the survey data to determine the base compensation without call pay for the physician. Determining the reduction to the survey TCC median relies upon an estimate of the value of call pay. The estimation of the value of call pay is complex and dependent upon numerous factors including, but not limited to:

• The physician specialty;
• The likelihood survey data includes call pay compensation (i.e., a surgical specialty is more likely to be paid for call coverage);
• The number of call days typically required by the physician and the number of physicians in the call coverage panel; and
• Whether residents or advanced practice providers assist with the call coverage.

The following table provides a sample calculation. This analysis demonstrates how quickly a compensation structure may go awry and challenge FMV ranges if Day One call pay is stacked on top of an annual base compensation referenced to benchmark survey data with call pay already “in” the data. In this example, US$72,000 is “at-risk” for being double counted.

Understandably, adjusting benchmark survey data is not ideal. After all, as survey consumers, we do not understand all the underlying data in depth and any such calculation would be an estimate. A second approach is to value call pay based upon the individual facts and assumptions of the presenting call coverage scenario, add it to the other elements of compensation, and value each element of compensation individually to determine FMV in part and in total.

Regardless of the approach ultimately taken to determine TCC, the key takeaway is to know what is “in” and “out” of the benchmark survey data.

2. When should a proxy wRVU be used?

Many physicians are compensated under a personally performed wRVU structure. Because this structure relies on the accumulation of wRVUs to determine physician compensation, the potential exists for a physician to provide services not described or identified by an established CPT[1] code. Services without a CPT code are not assigned wRVU values under the Medicare National Physician Fee Schedule Relative Value File. Further, the Medicare Physician Fee Schedule does not maintain physician reimbursement rates for such services.

In some cases, the determination of a proxy wRVU value may be appropriate to help determine the compensation for the services in a wRVU productivity-based structure.

In creating proxy wRVUs, we recommend understanding and documenting the following elements:

• The nature of the services and level of skill required;
• The frequency of providing the services;
• Who is providing the services and ensuring they are personally performed;
• Ensuring the services do not already have an assigned CPT code. A proxy wRVU should not be used as a way to increase the value of a wRVU where a CPT code currently exists;
• Understanding if temporary CPT codes exist. CPT Category III codes represent emerging technologies, services, and procedures and generally do not have published Medicare wRVUs or reimbursement.
• Ensuring the services are billable to third-party payers;
• If services are billable to third-party payers, documenting what the reimbursement is across payer types;
• How much is being paid to the physician per wRVU;
• How much time is required to provide the services; and
• The wRVU value for services of similar scope, nature, and skill level required.

A wRVU measures the physician’s work effort related to a clinical service measured by a CPT code. wRVU values are determined annually by CMS, with recommendations from the American Medical Association’s Specialty Society Relative Value Scale Update Committee. To that end, proxy wRVUs are best aligned for clinical services. While other proxy wRVU strategies exist — administrative, academic, etc. — such values are more challenging to define.

The authors have experience with proxy wRVUs for a variety of services, including certain breast reconstruction, orthopedic, stoma revision, cosmetic and aesthetic procedures, and laparoscopic procedures, among others. Each of these analyses presented challenges to valuing the related physician work effort. Where the analysis did not adequately capture the physician work effort, a professional collections-based or time-based structure was ultimately used as an alternative.

3. Should all our employed physicians be paid using a wRVU productivity-based structure?

The wRVU productivity compensation structure is the most popular for employed physicians. Its popularity is logical because —

• wRVU values are transparently published by CMS.
• wRVU values are updated regularly by CMS through a rigorous process using known subject matter expertise.
• wRVUs are a consistent and convenient way to estimate clinical work effort of a provider. wRVU values do not change for who is providing the service, but rather for the service provided based upon the assigned CPT code. New CPT codes are regularly adopted by CMS for new services as care models and medical methodologies advance.
• Benchmark survey data metrics are abundant for wRVU productivity, compensation per wRVU, and professional collections per wRVU.
• wRVU compensation structures are easy to explain and administer.

Despite its popularity, a wRVU compensation structure has some disadvantages for certain specialties and circumstances. Aligning the services provided by the physician with the compensation structure is best practice. A wRVU productivity compensation structure may not adequately align where the specialty and service provide coverage, especially for hospital-based services such as hospital medicine and emergency medicine. In coverage scenarios, the physician’s expertise is required to provide a service for the hospital regardless of patient volume. These physicians do not perform emergent surgeries, provide elective procedures, or build a patient panel. It is not wrong to pay a hospitalist or emergency medicine physician (or other hospital-based specialty) on a wRVU productivity-based structure; however, the specific circumstances surrounding these physicians and the services they provide may be better aligned with an alternative compensation structure.

Alternative compensation structures include —

• Annual fixed salary with or without individual quality and engagement incentives and consideration for additional shifts.
• Annual fixed salary with or without group quality and engagement incentives and consideration for additional shifts.
• Hourly rates with or without individual quality and engagement incentives.
• Hourly rates with or without group quality and engagement incentives.
• Percentage of professional collections.

Each of these structures will have positives and negatives and require a thoughtful analysis to ensure alignment of services provided. In any scenario, ensuring the compensation structure is compliant with Stark Law and Anti-Kickback Statute is paramount.

The purpose of this blog is to ensure awareness of the trending topics and provide high-level guidance and best practices. The authors will cover these topics more deeply in a future Let’s Talk Compliance event.

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Special thanks to Angie Caldwell from PYA, who was a contributing author on this post.

[1] Current Procedural Terminology (CPT) is a registered trademark of the American Medical Association.