November 21, 2019

QUESTION:        We need to employ physicians in order to provide the care needed by our patients.  The main reasons that private practice is no longer a viable option for many physicians are the ever increasing costs of operating a practice (especially malpractice insurance and EHR costs) while professional reimbursement keeps decreasing.  However for the same reasons, we rarely break even on a physician practice.  Does anyone in the government understand this or do they assume that we overpay physicians to get their referrals?

ANSWER:          Unfortunately, many courts do not understand your dilemma.  Some courts seem to take the position that a hospital paying a physician more than the physician generates in professional fees is evidence of unreasonable compensation that violates the Stark Law.

However, help is on the way.  In the October 19, 2019, proposed Stark Regulations, CMS has provided an excellent description of the analysis that should be followed when assessing whether the compensation paid to a physician violates the Stark Law.

For the first time, CMS has included a definition of the term “commercially reasonable” that specifically states that an arrangement may be commercially reasonable even if “it does not result in a profit for one or more of the parties.”  CMS has also substantially revised the definition of “fair market value” and has made it clear that in order to violate the “volume or value” standard there must be a direct correlation between the physician referrals and the amount to be paid to the physician.

CMS also stated that salary surveys are to be treated as benchmarks, not the last word on physician compensation and even provided easy to understand examples such as the following in order to make this point crystal clear:

By way of example, assume a hospital is engaged in negotiations to employ an orthopedic surgeon.  Independent salary surveys indicate that compensation of $450,000 per year would be appropriate for an orthopedic surgeon in the geographic location of the hospital.  However, the orthopedic surgeon with whom the hospital is negotiating is one of the top orthopedic surgeons in the entire country and is highly sought after by professional athletes with knee injuries due to his specialized techniques and success rate.  Thus, although the employee compensation of a hypothetical orthopedic surgeon may be $450,000 per year, this particular physician commands a significantly higher salary and the general market value (or market value) of the transaction may, therefore, be well above $450,000.  The statute requires that the compensation is the value in an arm’s length transaction, but that value must also be consistent with the general market value (or market value) of the subject transaction.  In this example, compensation substantially above $450,000 per year may be fair market value.

The proposed rules also provide much needed guidance on value-based arrangements.

The comment period will end on December 31, 2019.  We hope that CMS will finalize these proposed regulations as soon as possible after that date and that the federal courts begin to adopt CMS’s analysis.

February 15, 2018

QUESTION:        Our hospital is employing a lot more physicians than in the past.  When we receive a complaint about the behavior of one of these employed Medical Staff members, we’re not sure if we should review it through the Medical Staff process or through the employment process (i.e., HR policies or the employment agreement).  Or should we use both?

ANSWER:            We recommend that the Medical Staff Professionalism Policy (or Code of Conduct Policy) have a “triage” process.  If a behavioral concern is raised about a Hospital-employed physician, a Medical Staff leader (such as the Chief of Staff) will discuss the concern with a representative of the employer.  The Medical Staff leader and the employer representative then decide which process will be used to review the complaint.

If a decision is made to use the employment process, the Medical Staff process would be held in abeyance.  Critically, though, the employer would keep Medical Staff leaders continually informed of the status and outcome of the review.  If the Medical Staff leaders are unhappy with how the review is being conducted, they can commence their own review under the Professionalism Policy at any time.  On the other hand, if the Medical Staff leaders are satisfied with what the employer is doing, the Medical Staff leaders would essentially adopt that action as their own.  Thus, the Medical Staff is not “punting” or abdicating its responsibilities.  It’s evaluating the actions of the employer, then deciding to either adopt that action as its own or conduct a separate review.

There are several goals to this process.  The first is to avoid a duplication of effort by both the physician under review and those conducting the review.  The second is to use the most effective process to address the concern.  In some cases, the employer will have better tools for dealing with the issue, while in other cases the Medical Staff process will be more effective.  Finally, a triage process can help to avoid inconsistent results that send mixed messages to physicians and create legal risk.

For a more detailed discussion of peer review of hospital-employed physicians, join us in sunny Austin, Texas for The Peer Review Clinic on March 1-3, 2018.

December 10, 2015

QUESTION:        We employ physicians through a corporation affiliated with the hospital. One of our employed physicians recently submitted a request to the Chief of Staff, his friend, requesting that he be excepted from taking nighttime and weekend call due to “seniority” and years of service. The request was approved at the last MEC meeting. The physician now claims that he is exempt from covering the medical practice too, since an exception was granted. Is he right?

ANSWER:            The question you raise is not uncommon. The answer is that the physician is not right, but it is best to be clear in your employment contracts about the difference between ED call and practice call so there is no confusion or dispute.

The obligation to serve on the Emergency Department’s on-call roster arises from the Medical Staff Bylaws, Credentials Policy, and related documents (for example, the hospital’s on-call policy or EMTALA policy). Accordingly, any physician who wishes to be a member of the medical staff or exercise clinical privileges must agree to serve on the ED call roster that is developed in accordance with hospital policy (often by the department chairs, subject to approval of the MEC and Board). In your case, the physician in question has made arrangements through the medical staff leadership to obtain an exemption from the requirement in the Bylaws.

The obligation to “take call” for the practice is separate and aside from any obligations that a physician may have to the hospital or its ED. All physicians have to cover their practice, whether they are affiliated with the hospital or not. It is through this coverage that the practice’s patients are able to obtain after-hours consultation and advice regarding emergencies. The obligation to be on call for the practice does not arise through the hospital’s Medical Staff Bylaws or related documents. Rather, it is an obligation associated with employment. In turn, the medical staff leadership has no authority over whether your employed physician takes call for the practice and cannot grant the physician an exemption from such duties.

So there is no confusion or dispute, we recommend that your employment contract language state that the physician will be required to be on call for the practice, along with other practice physicians, according to the schedules established by the employer. The language should go on to state that, in addition, the physician must fulfill any obligations of medical staff membership or clinical privileges at all hospitals with which he or she is affiliated, including service on the hospitals’ ED call rosters.

September 3, 2015

QUESTION:        As Chief of Staff, I have been involved in several collegial interventions with an employed physician who is an outlier in clinical care and behavior. HR has been addressing the behavior and our Multispecialty Peer Review Committee has been reviewing his quality concerns. He is now claiming that this is double jeopardy – does he have an argument?

ANSWER:           As more physicians become employed by hospitals and their affiliates, physician leaders often collaborate with the management team (typically led by the Chief Medical Officer in these situations) to “triage” an issue and determine whether it makes sense to proceed through the medical staff process, the HR process, or a hybrid of the two. Regardless of what route is chosen, it is not “double jeopardy” (a term used in criminal law and thus not applicable). Rather, leaders assess which route makes most sense under the circumstances. There are a number of factors that may cause leaders to use one or the other – or even both – options. Information-sharing policies are increasingly being adopted to facilitate keeping both physician leaders and the management team in the loop, while maximizing peer review protection. Professionalism policies can guide leaders to use progressive steps to address behavior issues. Peer review policies (often called “Professional Practice Evaluation” policies in Joint Commission and HFAP accredited hospitals) can similarly provide steps for collegial intervention, Focused Professional Practice Evaluation and performance improvement plans.   There is no absolute right or wrong approach – if the physician is cooperative, leaders can seek to engage the physician in committing to performance improvement on both fronts based on their assessment of all the factors. The HR process may be better suited to address behavior issues and the medical staff peer review process to address clinical concerns. Both processes should develop documentation of the progressive steps. This will support the reasonableness of the steps taken.

For a discussion of these and related issues, tune into our “Employed Physician Peer Review: Maximizing Performance and Protection” audio conference on October 6, 2015 – 1:00 p.m. to 2:00 p.m. (ET). Join Phil Zarone and Charlie Chulack as they discuss the various concerns regarding hospital-employed physicians and how best to move forward so that the hospital is protected and performance is maximized.

And join Charlie Chulack, Rachel Remaley and Henry Casale for the Physician Employment Institute in Las Vegas on October 15-17 where all of our other seminars will be offered – please join us – and bring a team!