Challenges with Physician Compensation Plans

While at first glance it may not seem concerning to compensate a physician with a package that matches the pay the physician was earning at a prior point in his or her career, it can potentially lead to serious penalties under both the False Claims Act and Stark Law if the compensation is not structured in compliance with the Stark Law. At the end of last month, the U.S. Department of Justice reached a settlement for $34 million in a case in Missouri around improper payment to oncologists, illustrating the importance of properly structuring compensation arrangements for physicians, and the high price that may be paid for inappropriate compensation packages that do not comply with the Stark Law.

In this case, a clinic in Missouri owned an infusion center, and distributed profits from the infusion center among physicians who practiced at the infusion center. In 2009, the infusion center was transferred from the ownership of the clinic to the ownership of a Missouri hospital. The physicians working at the infusion center were concerned about their loss of income due to the transfer of ownership of the infusion center, and thus the hospital devised a way to compensate the physicians so that they would receive the same income they had been receiving when the infusion center was operated by the clinic. However, the hospital created a new compensation model based on work relative value units (wRVUs), where the value of the wRVU was not based on physician tasks and work, but rather based on the value for the wRVUs that would provide the oncologists with the same compensation they had previously been receiving. The complaint stated that the value placed on the wRVUs was approximately 500 percent of the value per wRVUs for in-clinic work where a physician was providing patient care. Placing such a high value on the wRVUs did not meet the fair market value and commercial reasonableness exceptions under the Stark Law, making the arrangement illegal. Because Stark is a strict liability statute, there was no need to prove intent to violate the law, and thus the hospital was found to have violated the law.

The issue of compensation and the desire to maintain the same level of compensation for physicians is an issue that oncologists are all too familiar with, as more and more hospitals attempt to and do take over infusion centers, and oncologists are left with lower compensation than they previously had earned. However, hospitals that then try to devise creative solutions to pay their oncologists more often create compensation that is significantly above any fair market value range based on wRVU performance. If the arrangement is above fair market value and not commercially reasonable, the arrangement will likely violate the Stark Law and place the parties at serious risk of significant fines and lawsuits. When considering a new employment or independent contractor arrangement, oncologists especially must keep in mind the implications of such arrangements on their compensation and determine whether they are willing to take a reduction in compensation in order to begin the new proposed venture in front of them. It will not be worth the risk of Stark Law violations to enter into lucrative, but illegal, compensation arrangements. Contact Frier Levitt to speak to an attorney.