Transcript
Intro 0:06 Welcome to the Healthcare Download with VMG Health. We are the leaders in strategy and transaction advisory dedicated to finding solutions for the healthcare industry. In each episode, we will leverage our expertise to provide trends and timely updates about what is happening on the business side of healthcare so you can move your strategy forward.
Jen Johnson 0:32 In this episode, “Physician Compensation Compliance: Lessons From Recent Settlements,” I’ll be speaking with James Tekippe, who is a director in VMG Health’s Compensation Arrangements division. James specializes in physician compensation matters, such as fair market value and commercially reasonable, and is a member of the American Bar Association’s Physician Issues Interest Group. So, James and I have been working together for 10 years, and I’m super happy to have him here. Welcome, James.
James Tekippe 0:58 Thank you, Jen. I’m really excited to be here. There’s been a lot of activity in the compensation enforcement space recently. So, I’m looking forward to sharing some highlights and tips for how organizations can focus on compliance in 2024.
Jen Johnson 1:10 Perfect, yes. I’d like to set the stage for this podcast by getting a snapshot of the enforcement environment out in the physician compensation space. So James, can you tell listeners a little bit about the recent enforcement activity?
James Tekippe 1:20 Well, like I mentioned, the enforcement space has been very active. Over the last five years, there have been somewhere between 600 and 700 qui tam lawsuits filed per year, with civil fraud recoveries ranging from 2 billion to over 5 billion per year during that same period. What’s really astonishing is that out of all the civil fraud recoveries in the last few years, the healthcare industry has averaged approximately 80% of the total haul. If you take that statistic, and consider the fact that from 2020 to 2022, the government was returned almost $3 for every $1 spent on enforcement, it’s pretty clear why the healthcare industry is such a target for enforcement, because it makes a lot of economic sense for the government to keep pursuing this fraudulent activity. A final fact for listeners to consider is that from October 2022, to October 2023, some of the top violations centered around medical billing fraud, billing for unnecessary services, and kickbacks, which I think is very enlightening that some of the more basic no-nos are what organizations are still getting in trouble for.
Jen Johnson 2:24 Yep, I agree. And we’re going to cover that here. And I will say that is a ton of incentive for enforcement activity. So what I’d like to do is get right into some of the recent settlement takeaways. I know everyone is wondering about the Community Health Network case, which just settled in December of 2023 after about a decade of litigation. Obviously, fair market value and commercially reasonable are big compliance themes in many settlements, and specifically, physicians getting a big increase in compensation post-employment continues to be a red flag. Could you provide insight on how this topic popped up for the Community Health Network case?
James Tekippe 3:00 I think the Community settlement is the perfect example for this, given the allegations stem from actions that go against some of the basics health systems should be following when contracting with and compensating physicians. The complaint alleges that starting in 2008, Community embarked on an illegal scheme focused on recruiting physicians in order to capture their downstream referrals. Specialists included cardiovascular surgeons, neurosurgeons, and breast surgeons, among others. So pretty wide reach in the organization, and many of these providers received substantial compensation increases, sometimes as much as double what they were receiving in private practice, which is something that is going to waive a red flag to the government that something inappropriate may be going on. Interestingly enough, Community did seek outside expertise from a valuation firm. But unfortunately, they knowingly fed inaccurate information to the firm to reach a favorable opinion. Additionally, Community ignored warnings from the valuation firm of the legal perils of compensating physicians in excess of fair market value. All of this resulted in an eye popping settlement of $345 million for Community, which really reiterates the impact inappropriate compensation arrangements can have on an organization.
Jen Johnson 4:13 Well, you can see why those facts would raise a red flag from a fair market value perspective, those are big increases, and something everyone should keep an eye on. Now, this also prompts the question, is that deal commercially reasonable, meaning does it make business sense, absent referrals? So this is another big piece of compliance, not only fair market value, but commercially reasonable. And we’ve done a lot of work in this space, and it continues to get a bunch of attention. One thing is, I find it very interesting that there’s still some finger pointing as it relates to who is responsible for determining if something is commercially reasonable. Now we’ve got some people think it’s finance and some people think it’s legal. Is it strategy? Is it the physician alignment team? Is it the valuation firm? What I believe and I think most people agree is it really does kind of take a village here, everyone needs to make the case and look at the entire fact pattern as to whether a deal makes sense absent referrals, and document it. Now, as it relates to commercially reasonable, I will say one of the trickiest areas that we look at, especially as a valuation firm through that lens, is the idea of physician losses. So we do know a lot of physicians have losses, when is it okay, when is it not? So James, can you talk us through an example where this may have been pointed out and potentially problematic?
James Tekippe 5:36 Well, Jen, to touch upon what you first brought up, I think you’re absolutely right that a team based approach to documenting CR is so vital. What we’re starting to see more and more is that people see legal as really the spearhead for leading and documenting CR, but the background information and data to validate CR will need to come from various departments in an organization. Additionally, your point around documentation is a very important one. Robust documentation around facts, like the business case and community impact associated with an arrangement are integral to establishing the commercially reasonable standard. That being said, to answer your question around practice losses within a case context, I think a great example comes from the third circuit with a case in 2019, involving neurosurgeons at the University of Pittsburgh Medical Center. As part of that opinion, the court’s majority focused on some of the neurosurgeons in question having compensation that exceeded their professional collections. What’s interesting is that a concurring judge in the opinion did feel that some of the ruling could create a wave of litigation in the future, particularly with the focus on compensation exceeding collections, given the compensation rate per work RVU to the neurosurgeons in this case was below the national average for the specialty. So there isn’t consensus that practice losses in themselves immediately establish a fair market value or commercially reasonable issue. I think it’s important to highlight because the survey data for neurosurgery does show that the vast majority of neurosurgeons in the data have a compensation to collections ratio above one, meaning they receive more in compensation than they generate in collections. And note that this is present in many specialties. So I think what this shows us is that although the payments may align with survey data, and we’ll say for argument’s sake, that they are consistent with fair market value, documenting the reasons to move forward with an arrangement, when arrangements might not make obvious financial sense is so important to provide a complete picture of why a health system would want to move forward with an arrangement and why it is commercially reasonable.
Jen Johnson 7:39 Yep, I completely agree. There’s no black and white, you really have to explain how you got where you got, as far as documenting it. I mean, how much if you do have a physician you’re engaging, and there’s losses? How much documentation would you suggest?
James Tekippe 7:56 Great question, Jen. And it’s not a one size fits all answer. I think generally, you could say more documentation is better than less. But I think a helpful exercise is for people to imagine sitting in court trying to explain the reasons for an arrangement and asking yourself the question, how much documentation would I want in that setting? If you can aggregate enough documentation to satisfy that question for yourself, I feel you are certainly doing yourself some favors should any scrutiny arise on that arrangement. Another important thing to note is that it is a much better idea to be proactive around documentation as an arrangement is being formed. Trying to go back months or even years later will result in an inferior chain of documentation than if it’s done at the time.
Jen Johnson 8:37 Excellent advice. And it’s really hard to rebuild a case and to go back and try to, because a lot of these cases are happening five or 10 years after the fact. So I mean, even just from if the OIG is going to look at your compliance policy, just having it on paper is not enough. Having you and your team trained to be implementing it and documenting things in real time is a very important part of the policy. So let’s go ahead and stay on point with documentation and pivot to how healthcare organizations can document fair market value. Now, obviously, survey data is a huge tool out in the market for supporting compensation levels. However, we have had recent guidance that even median compensation doesn’t necessarily justify fair market value. At the same time, we have heard of some consultants saying anything under the 75th percentile is acceptable. So James, what is your take on this topic?
James Tekippe 9:27 Well, I think with any tool it is so important to know the strengths and weaknesses of that tool to use it appropriately. Regarding survey data, it’s a powerful tool that gives us a great overview of compensation in the market. But there’s no detail on any specific respondent or the context on how the respondents’ compensation reached those levels. And because of that context, I think that just picking a percentile and calling it fair market value is never going to work as a irrefutable determination of fair market value. However, using a percentile like the median or the 75th, it’s not a bad place to start when trying to establish fair market value for compensation. What I would advise my clients from there is to gather the quantitative and qualitative detail on why this percentile is the most appropriate to establish compensation. This may be because the compensation percentile aligns with productivity levels being generated by the physician, or maybe the compensation aligns with the expertise and skill level of the physician and they’re expected services under the arrangement. But what’s important is that these reasonings get flushed out to bolster the conclusion of fair market value I feel the more you can document why a decision for a specific comp level was chosen, the more weight it will hold under future scrutiny. Again, use my example from earlier of what level of documentation would you want if you had to support this in a courtroom, because I think that will help you build a habit of creating a trail of robust documentation on all arrangements.
Jen Johnson 10:56 Totally agree. And I love the courtroom example. And I’ve used it since I got here. If you can explain it in court, even if you’re just at the very beginning of a deal, and you don’t foresee any issues, just always have that in the back of your head. I can explain this in court, documented today. So in 10 years, whatever pops up, I’ve got this, that is the best advice you could give. So excellent insight. Now, let’s just kind of go on to just on the same vein of documentation in the OIG, they have noted time and time again, that just having a policy in place is not enough. You need to adhere to your policy, you need to monitor it. And you need to have documentation of both of these things. So I know we’re going overboard with documentation. But there’s no two ways about it. It will save you on many, many levels. So just to kind of close this thing out. I want to stay on point with the OIG because I understand there’s been some recent guidance they’ve provided out there. Could you give listeners a little update on what that is?
James Tekippe 11:55 Yeah, exactly. There’s been some really great recent guidance from the OIG here, as they released a new set of voluntary compliance guidance documents at the end of 2023, which were directed at various segments of the healthcare industry, including hospitals, nursing homes, and third party billers. This document is very robust with almost 100 pages of helpful tips for organizations to consider within their compliance programs. And whether you feel you have a strong compliance program now or starting from scratch, there are great takeaways for any organization to consider. Something else that is helpful here is that the OIG has specific sections outlining some practical adaptations for small and large entities, which I think is so important because implementing a compliance program for a small organization can be very daunting. And I’m sure there are organizations out there that think it’s too costly to even consider. Of course, we have highlighted the high dollar Community case today, but the government is not only going after the big fish and settlements of a few 100,000, or even a few million dollars could be devastating for a smaller health system. So it’s important for all organizations to create a culture of compliance to avoid future headaches and impactful settlements.
Jen Johnson 13:02 Yep. James, I totally agree. This has been super helpful. I hear the theme of documentation is critical. If you do that, as you go, it’s gonna make your life so much easier. So really to sum up, whether it be your compliance program, your commercially reasonable support, or fair market value compensation, those in charge of physician alignment should make documentation a priority for compliance. So James, I really do appreciate your insight and I want to make sure listeners know they can reach out to you anytime with questions. And that wraps us up. To learn more about how we can help with valuation strategy and compliance matters around physician alignment, please go to vmghealth.com. Everybody, take care.
Outro 13:44 Thank you for listening to the Healthcare Download with VMG Health. Make sure you subscribe to the show wherever you listen to podcasts to receive new episodes when they release the first Wednesday of each month. You can also go to vmghealth.com or visit the episode notes to follow VMG Health’s monthly newsletter and to learn more about this conversation.
