Recent Settlement Highlights Importance of FMV Physician Compensation

This article discusses the recent settlement of National Spine and Pain Center signed with the U.S. Department of Justice and provides the basis to discuss the importance of obtaining an opinion regarding the FMV physician compensation.

On August 6, 2021, the U.S. Department of Justice announced that it had reached a settlement with National Spine and Pain Center, LLC (NSPC), a Maryland physician management services organization (MSO). As part of the settlement agreement, NSPC signed a non-prosecution agreement and agreed to pay $5.1 million to resolve criminal Medicare Anti-Kickback Statute violations.[1]

An affiliate of NSPC, Physical Medicine Associates, Ltd. (PMA) entered into a professional services agreement with Proove Biosciences, now-defunct genetics testing company, in which Proove unlawfully compensated physicians under the guise of a clinical research program. Specifically, certain NSPC and PMA physicians were allegedly paid clinical research payments by Proove on a per test/per patient basis, and physicians completed timesheets used by Proove to pay the physicians, which timesheets overstated the amount of time that the physicians spent conducting related clinical research.[2] According to the government, “[i]n some cases, the timesheets indicated that the physicians had performed certain tasks, which had, in fact, been performed by Proove’s own employees, resulting in payments from Proove to the physicians for tasks that they did not perform.”[3]

This settlement is one of the first involving compensation related to clinical research services and underscores the importance that all compensation paid to a physician does not exceed Fair Market Value. Physician services may be divided into two general categories, i.e., clinical related and nonclinical related, with nonclinical-related activities further divided into three generalized subcategories: administrative, management, and/or executive. These categories may be defined by the specific tasks, duties, responsibilities, and accountabilities (TDRAs) involved in each.[4] The challenge for valuation professionals is identifying and separating the various TDRAs for clinical services from those to be provided for administrative, management, and/or executive functions, in order to ensure that compensation for each service complies with the legal requirements of the Stark Law, the Anti-Kickback Statute, and, for non-profit entities, excess benefit/inurement of benefit regulations promulgated by the Internal Revenue Service (IRS).[5] 

In developing the valuation analysis related to a physician compensation arrangement, the valuation analyst will need to obtain certain documents and information related to the proposed compensation arrangement(s), which is utilized in identifying and classifying the types and number of tasks and duties, along with the level of responsibility and accountability held by the provider, associated with the subject arrangement for physician services. Once the requisite documentation is collected, a detailed examination of the attributes of the subject position should be undertaken, with each element of the attributes of the role first identified as to their existence and then classified as to the specific factors and traits (i.e., the TDRAs) related to each attribute. This classification would exhibit the means by which the subject services could reasonably be expected to provide utility, i.e., usefulness, to the employer contracting for the services to be performed going forward.[6] After the TDRAs for the physician’s services to be provided are established, the proposed compensation arrangement should be compared to applicable, external benchmarking survey sources reflecting similar TDRAs in order to assess whether the compensation arrangement is consistent with Fair Market Value.

If a compensation plan proposes paying more than the indicated, industry benchmark survey data (even after the homogenous badges of economic contribution composing the subject services have been identified and separated from one another), an appropriate justification for the excess payment should be documented, supported, and explained.[7] “Special circumstances” that could warrant paying in excess of the industry indicated benchmark data for a particular service may include:

1. The unique and, accordingly, scarce skill set of the particular provider;
2. Additional TDRAs required of the subject provider, above those of the typical providers in comparable positions, reported in the benchmark survey data;
3. The quality of the wRVU generated by a particular provider is higher in relation to the wRVUs generated by the providers included in the benchmark survey data; or,
4. The production a similar quality wRVU but at a lower cost per unit.[8]

While normative benchmark industry survey data may be sufficient to establish Fair Market Value compensation rates, further analysis should be performed to determine whether the arrangement meets the related threshold of commercial reasonableness.[9] Significantly, even though a proposed compensation amount for physician services may be deemed to be within the range of Fair Market Value, the related TDRAs should be analyzed to determine whether they are reduplicate or redundant. TDRAs for a position (particularly a non-clinical position) that exactly mirror the TDRAs already being provided to the organization by an alternative position, i.e., reduplicative, may not meet the threshold of commercial reasonableness. Further, TDRAs that are similar to TDRAs already being provided to the organization by an alternative position also may not meet the threshold of commercial reasonableness. However, similar to the “special circumstances” detailed above, these reduplicative and redundant services may be justified in those circumstances where the size and scope of the organization necessitate a greater level of service than could be provided by a single individual.[10]

The recent settlement with a physician MSO highlights the importance that all compensation paid to a physician—not just for clinical services, but also for non-clinical, administrative services—not exceed Fair Market Value and be commercially reasonable, to maintain compliance with fraud and abuse laws. A certified opinion as to whether the proposed physician compensation agreement is both within the range of Fair Market Value and commercially reasonable, prepared by an independent, certified valuation professional, working with competent healthcare legal counsel as to the pertinent regulatory thresholds, and supported by adequate due diligence and documentation, will significantly enhance the efforts of healthcare providers to establish a defensible position that the proposed compensation arrangement is in compliance.[11] This is particularly important in the heightened and ever-changing regulatory environment in which healthcare providers operate, with the potential severity of penalties, as well as related business consequences of entering into transactions and arrangements that may subsequently be found to be legally impermissible.[12]

 

 

[1]        “Pain Management Organization Pays $5.1 Million to Settle Criminal Medicare Kickback Violations” The Unite States Attorney’s Office, Southern District of California, August 6, 2021, https://www.justice.gov/usao-sdca/pr/pain-management-organization-pays-51-million-settle-criminal-medicare-kickback (Accessed 8/16/21).

[2]        Ibid.

[3]        Ibid.

[4]        “Healthcare Valuation: Financial Appraisal of Enterprises, Assets, and Services” By Robert James Cimasi, MHA, ASA, FRICS, MCBA, CVA, CM&AA, Volume 2, Hoboken, NJ: John Wiley and Sons, 2014, p. 863.

[5]        Ibid, p. 866.

[6]        Ibid, p. 923.

[7]        Ibid, p. 897.

[8]        Ibid, p. 897–898.

[9]        “Healthcare Valuation: The Financial Appraisal of Enterprises, Assets, and Services” By Robert James Cimasi, MHA, ASA, FRICS, MCBA, AVA, CM&AA, Hoboken, NJ: John Wiley and SonsIbid, p. 924.

[10]      Ibid.

[11]      Ibid, p. 927.

[12]      Ibid.

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Todd A. Zigrang, MBA, MHA, ASA, CVA, FACHE, is president of Health Capital Consultants, where he focuses on the areas of valuation and financial analysis for hospitals and other healthcare enterprises. Mr. Zigrang has significant physician-integration and financial analysis experience and has participated in the development of a physician-owned, multispecialty management service organization and networks involving a wide range of specialties, physician owned hospitals as well as several limited liability companies for acquiring acute care and specialty hospitals, ASCs, and other ancillary facilities.

Mr. Zigrang can be contacted at (800) 394-8258 or by e-mail to tzigrang@healthcapital.com.

Jessica Bailey-Wheaton, Esq., is vice president and general counsel for Heath Capital Consultants, where she conducts project management and consulting services related to the impact of both federal and state regulations on healthcare exempt organization transactions, and provides research services necessary to support certified opinions of value related to the fair market value and commercial reasonableness of transactions related to healthcare enterprises, assets, and services.

Ms. Bailey-Wheaton can be contacted at (800) 394-8258 or by e-mail to jbailey@healthcapital.com.