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Stacked Compensation Arrangements: What To Consider
The number of employed physicians continually increases as both hospitals and health systems navigate alignment strategies surrounding the shift to value-based care. As a result, the issue of “stacked” compensation is becoming more prevalent as physicians are continually taking on more administrative roles to support these alignment strategies. Stacked compensation refers to taking the individual components of a physician compensation arrangement and adding them up to derive the physician’s total compensation.
For example, it is not uncommon for physicians to be paid for various roles and services including: advance practice clinician oversight, academic teaching and proctoring, call coverage, clinical services, medical director/physician executive services, quality, and telemedicine, among others. However, even if each individual component is consistent with fair market value, does that guarantee that the total stacked compensation is, and do the total hours make sense? These are crucial issues that must be considered when dealing with complex compensation arrangements.
VMG Health has insight into the latest stacking trends and compensation structures based on extensive experience in analyzing stacked compensation arrangements. As a result, VMG Health can rapidly assist in confirming if a stacked compensation arrangement with a physician is consistent with fair market value, both individually and in aggregate.
Documentation illustrating that each component of a physician compensation arrangement is set at fair market value, as well as total aggregate compensation, represents best practice for compliance purposes. Based on regulatory guidance, compensation should be derived based on a sound methodology reflecting the terms of the arrangement and relevant value drivers.
Six key questions that should be considered when analyzing stacked compensation arrangements include:
- Are each of the individual components consistent with fair market value?
- Is the arrangement and each component commercially reasonable?
- Does the compensation arrangement comply with the health care laws and regulations and is not based on the volume or value of the physician’s referrals?
- Has the compensation package been tested utilizing reasonability tests and how does the compensation compare to what other physicians in the same specialty receive in the market?
- Are the overall hours reasonable and can the hours be worked without adversely affecting performance and/or other components?
- Does the physician receive multiple streams of income during the same hours worked? VMG has a keen understanding of these questions, and a myriad of other valuation drivers associated with stacked compensation arrangements.