The Risks and Rewards of Setting Physician Compensation Internally

Published by Healthcare Financial Management Association A rapid growth in physician alignment strategies has created a surge in physician service agreements. To maintain compliance with regulatory guidance from the Centers for Medicare & Medicaid Services (CMS), the Office of Inspector General (OIG), and other authorities, hospital leaders should set physician compensation at fair market value (FMV). FMV is defined in the professional literature as “the price, expressed in terms of cash equivalents, at which a property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm’s-length in an open and unrestricted market, when neither is under compulsion to buy nor to sell, and when both have reasonable knowledge of the relevant facts.”a Although some hospitals might consider hiring a third-party firm to determine whether each physician arrangement is at FMV, this approach can be time-consuming and expensive. Fortunately, healthcare executives also have a choice of various other strategies that can streamline this process and, if implemented properly, solidify compliance efforts within the health system.

Compliance Essentials

Health systems should consider taking clear steps to demonstrate a commitment to compliance. The mere existence of a compliance program that outlines how to set physician compensation, for example, can demonstrate the health system’s good-faith intent to comply with the FMV standard. This program should promulgate written protocols and best practices, and it should be effectively communicated throughout the organization, with staff assigned to monitor and, most important, enforce the program. When physician compensation is set through an inconsistent process throughout a health system, such as via business development initiatives, the arrangement is more likely to be subject to regulatory scrutiny. Click to continue to the full article.