Healthcare

In earlier days of hospital-based physician coverage, specialties were mostly limited to radiology, pathology, anesthesiology, and emergency medicine. As the hospitalist specialty developed, more hospitals began contracting for inpatient coverage to provide a broader continuum of care. Later, additional specialties, including pediatric hospitalists, intensivists, nocturnists, laborists, surgicalists, and neonatologists, grew in popularity.

Coverage by hospital-based physicians can be based on shifts or hourly or daily coverage, and can extend to multiple facilities and hospital departments. Coverage can include restricted and unrestricted on-call coverage as part of the arrangement. In addition, administrative responsibilities, quality improvement, and program development are often required.

In the continuing evolution of hospital/physician relations, new and more complicated pay arrangements find their way into the market each year. However, overpayment of physicians can run afoul of regulatory requirements for fair market value and commercial reasonableness. Having more than one paid service or compensation arrangement between parties increases the risk that aggregate compensation is more than FMV. While the compensation terms outlined in each agreement may represent FMV, when taken together, total compensation in some cases can exceed FMV. The following scenarios show some of the ways that pay arrangements can be “stacked,” placing the parties at higher risk:

While non-physician providers already play a large role in providing health care in the U.S., it is expected that in the near future NPPs will begin to take on a larger role because more individuals will have access to health insurance and there is an existing shortage of physicians. Most state laws require some level of physician supervision over the services of NPPs—specifically physician assistants and nurse practitioners which are the two types of NPPs that are commonly employed in the physician practice setting and are more generally associated with broad patient care services.

Compensating physicians for supervising NPPs normally involves two types of supervision and two compensation structures, however each case must be analyzed as the amount of supervision varies and the resulting compensation must conform to the fair market value of the services performed. 

Hospitals are investing more in creating outpatient service departments to meet rising patient demand while simultaneously reducing inpatient surgical procedures and generating new sources of revenue. In many cases, the creation of these departments involves the acquisition of private physician practices’ ancillary service lines. Often, the hospital enters into an employment arrangement with the physicians of the once physician-owned private medical practice.

As discussed in a previous post, Practice "Bifurcation" Can be Risky Business, the Stark law is implicated in these post-acquisition employment arrangements because physician compensation is required to be consistent with fair market value.

As hospitals continue to ramp up efforts to acquire and contract with physician practices, they must do so in a way that reflects not only good market strategy, but also protects future financial stability and regulatory compliance. Hospitals that are in an aggressive acquisition mode often point to the looming changes in reimbursement models that shift payments from fee-for-service to an outcomes-based model focused on episodes of care. Many hospitals feel that in order to stay competitive in this changing market , they need to align with physician practices, and do it expeditiously before competitors beat them to the punch. But at what cost?