PHYSICIAN COMPENSATION SURVEY DATA ASSUMES MORE IMPORTANT ROLE IN LATEST ROUND OF STARK II GUIDANCE
Hay Group Physicians Compensation Group Survey is One of Six Surveys Listed By Name in Phase II of Stark II Regulations.
PHILADELPHIA, PA 05/04/2004 -- Health care organizations have been using physician compensation survey data for some time to demonstrate compliance with certain federal laws, including the provision of the Medicare law barring physician self-referrals, which is often referred to as Stark II, and the intermediate sanctions provision of the Internal Revenue Code, commonly referred to as the Taxpayer Bill of Rights 2 or TBOR2. Phase II of the Stark II regulations, which was issued as an interim final rule by the Center for Medicare and Medicaid Services (CMS) on March 26, 2004, ratchets up the importance of physician survey compensation data.
The latest round of CMS guidance specifically names six physician compensation surveys -- including the Hay Group - Physicians Compensation Survey -- that health care organizations can rely on to demonstrate that a payment to a physician falls within one of the exceptions to the Stark II prohibition against physicians referring patients to certain entities for medical services. Under the new rules, an hourly payment for a physician's personal services automatically satisfies the fair market value pay requirement in some of the exceptions, if it is determined by averaging the 50th percentile national compensation level for physicians in the same specialty (or in general practice) in at least four of the six named surveys and dividing by 2,000 hours.
What Stark II Is and Why These New Rules Matter
Stark II prohibits physicians from referring Medicare and Medicaid patients for 11 designated health services ("DHS") to entities in which they (or their family members) have a "financial relationship," unless one of approximately 20 exceptions for non-abusive referrals apply. A financial relationship is any direct or indirect ownership or investment interest in or compensation arrangement with an entity that provides DHS. Under the law most DHS referrals to entities in which the referring physician has an ownership interest are prohibited. In most cases, physicians may not be paid more than fair market value for performing a designated health service. Medicare and Medicaid may not be billed for prohibited referrals.
The following health services are DHS subject to Stark II: clinical laboratory services; physical therapy services, including speech-language pathology services; occupational therapy services; radiology and certain other imaging services; radiation therapy services and supplies; durable medical equipment and supplies; parenteral and enteral nutrients, equipment and supplies; prosthetics, orthotics and prosthetic devices and supplies; home health services; outpatient prescription drugs; and inpatient and outpatient hospital services.
Stark II, together with its predecessor, Stark I, has been on the books for 15 years, but rarely enforced. Many people anticipate that once the interim final rules take effect on July 24, 2004, enforcement will be stepped up. The penalties for violating Stark II can be severe. They include returning reimbursements for any DHS performed based on an illegal referral, fines of up to $15,000 for each illegal claim filed, and being barred from participating in Medicare and Medicaid in the future.
Compensation Arrangement Exceptions and "Fair Market Value"
Stark II includes a lengthy list of exceptions for compensation arrangements involving physicians, that includes arrangements involving services personally performed by a physician or member of his or her family or pursuant to a bona fide employment relationship, and a general exception for arrangements involving fair market value compensation. To fit within any of the compensation exceptions a variety of requirements must be met. These particular compensation exceptions, as well as some of the others, require that physician compensation be paid at fair market value.
The concept of fair market value compensation is not new in the Phase II regulations. Indeed the term fair market value is generally defined in the Medicare law as the "value in arms length transactions, consistent with general market value " Proposed rules issued in 1988 slightly expanded on that definition, with respect to compensation arrangements, by clarifying that fair market value compensation is compensation that would result from bona fide bargaining between well-informed parties to a service agreement.
When the Phase I regulations were issued in 2001, in responding to comments requesting additional guidance on what type of documentation would be required to establish fair market value, CMS indicated it would accept any method that is commercially reasonable and provides evidence that compensation paid is comparable to what would ordinarily be paid based on arm's length bargaining in the location at issue. CMS agreed that an independent valuation consultant could provide useful documentation, but noted that other appropriate valuation methods would be acceptable.
Phase II Safe Harbor for Hourly Payments
An important addition to the regulations made by Phase II is a "safe harbor" that may be used to determine fair market value compensation. The safe harbor identifies two alternative methods for determining the fair market value of hourly payments to physicians for their personal services:
1. The hourly rate is less than or equal to the average hourly rate for emergency room physician services in the relevant physician market, provided there are at least three hospitals providing emergency room services in the market.
2. The hourly rate is determined by averaging the 50th percentile national compensation level for physicians within the same physician specialty in at least four of six national surveys, and then dividing that compensation level by 2,000 hours. If the physician's specialty is not identified in the survey, the compensation level for physicians in general practice may be used.
Use of the safe harbors is entirely voluntary. DHS entities may continue to establish fair market value through other reasonable methods. The benefit of using a safe harbor, of course, is assurance that CMS will consider the payment to meet fair market value requirements. Technically, the safe harbor only applies to physicians who are paid on an hourly basis; payments to salaried physicians will not fall within its strict terms. Also, the safe harbor is limited to payments for services provided personally by a physician. However, given that CMS has automatically approved use of either safe harbor method in determining fair market value for hourly pay, presumably it would look favorably on physician pay that would meet the criteria if converted to an hourly pay equivalent.
About Hay Group
Hay Group is a global organizational and human resources consulting firm. We help our clients-Boards, CEO's, Executives, and HR Managers-on virtually all aspects of their people-related business issues.
Our breadth of expertise is unmatched, and includes:
Design and evaluation of organizations and jobs
Assessment, selection and development of executives, managers, and teams
Compensation, benefits, and performance management
Executive remuneration and corporate governance
Employee and customer attitude research
We work with nearly three-quarters of Fortune's "Most Admired Companies", as well as many mid-sized and non-profit corporations, public institutions, and governments. We have over 2,200 employees working from 73 offices on 38 countries. (www.haygroup.com)
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