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Assessing FMV in Hospital/Physician Arrangements: What Healthcare Executives Should Know September 3, 2009.

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Presentation on theme: "Assessing FMV in Hospital/Physician Arrangements: What Healthcare Executives Should Know September 3, 2009."— Presentation transcript:

1 Assessing FMV in Hospital/Physician Arrangements: What Healthcare Executives Should Know September 3, 2009

2 1 Agenda I.Overview of Fair Market Value (FMV) Issues II.FMV Guidelines III.The FMV Process IV.FMV Call Coverage Case Study Attachment A: The Compliance Audit Process

3 2 I. Overview of FMV Issues Key Questions Addressed » Why are more hospitals seeking FMV opinions for their hospital/ physician compensation arrangements? » What are the major valuation and regulatory considerations for hospitals when designing their financial arrangements with physicians? » Does this mean that we need to get FMV opinions for all of our physician arrangements? » What can we do internally to ensure our physician arrangements represent FMV? » How should we go about choosing outside assistance to help us navigate this complex path? The purpose of this presentation is to provide hospital executives with workable guidelines for establishing when and how to assess FMV in a variety of hospital/physician arrangements.

4 3 I. Overview of FMV Issues Hospital/Physician Alignment Hospitals enter a variety of arrangements with physicians to meet strategic objectives, improve physician integration, and mitigate financial risk. Physician Advisory Council Extent of Physician Integration High Costs Lease Agreemen t Low NOTE: Size of bubble = ability to meet strategic need. Recruitmen t Assistance Foundation Model Clinical JV Professional Services Agreement Comanagemen t Arrangements ED Call Pay Medical Directo r

5 4 I. Overview of FMV Issues Applicable Laws and Regulations n Stark law. n Anti-kickback statute. n False Claims Act. n IRS private inurement regulations. The Stark law, the anti-kickback statute, False Claims Act, and IRS private inurement regulations govern hospital/physician financial relationships.

6 5 I. Overview of FMV Issues Stark Law n The Stark law is a strict liability statute. n The Stark law contains a number of exceptions that allow a physician to refer to an entity for the provision of DHS. n Penalties for Stark violations include: » Denial of payment. » Repayment of all amounts billed to the Medicare and Medicaid program that violate the Stark Law. » For a knowing violation, civil monetary penalties of up to $15,000 per service, and up to $100,000 per arrangement considered to be a circumvention scheme. » Exclusion from the Medicare and Medicaid programs. » Prosecution under the False Claims Act (i.e., criminal penalties). Stark law is a civil statute prohibiting physicians from referring Medicare patients for certain designated health services (DHS) to an entity with which the physician or a member of the physician's immediate family has a financial relationship – unless an exception applies.

7 6 I. Overview of FMV Issues Anti-Kickback Statute n Although both the anti-kickback statute and Stark law were enacted to prevent healthcare providers from inappropriately profiting from referrals, the anti-kickback statute, unlike Stark, requires a proof of intent to commit a violation. n While the Stark law only prohibits referrals, the anti-kickback statute prohibits wider forms of misconduct, e.g., arranging for and/or recommending the purchase of items or services. n The anti-kickback statute applies to all federally funded health care programs. n An offense under the anti-kickback statute is classified as a felony and is punishable by fines of up to $25,000 and imprisonment of up to five years. The anti-kickback statute is a criminal statute prohibiting any knowing or willful solicitation or acceptance of any type of remuneration to induce referrals for health services that are reimbursable by the Federal government.

8 7 I. Overview of FMV Issues Tax Exemption Considerations n A charitable organization must be organized or operated for charitable purposes and no part of the net earnings of a charitable organization may inure to the benefit of any private shareholder or individual. n Intermediate sanctions provide the IRS a remedy to impose financial penalties for an excess benefit transaction without revoking tax-exempt status of the tax-exempt organization. n If the organization engages in an excess benefit transaction with a person having substantial influence over the organization (a so-called disqualified person), an excise tax may be imposed on the person and any organization managers agreeing to the transaction. Tax exempt organizations must guard against providing excess benefits to disqualified persons.

9 8 I. Overview of FMV Issues False Claims Act n The government can and has sued individuals, in addition to the organizations that employ them, under the FCA. n An entity that furnishes DHS pursuant to a referral that is prohibited under Stark may not present or cause to be presented a claim or bill... for the DHS performed pursuant to a prohibited referral. 1 n Civil penalties under the FCA are between $5,000 and $10,000 for each act, plus three times the amount of damages which the government sustains because of the act of that person. The False Claims Act (FCA) is a civil statute that imposes liability on any person who submits a claim to the federal government that he/she knows (or should know) is false. 1 42 CFR 411.353. The Fraud Enforcement and Recovery Act of 2009 expanded the scope of the FCA.

10 9 I. Overview of FMV Issues Increased Regulatory Scrutiny n The Disclosure of Financial Relationships Report (DFRR) is a mandatory disclosure tool that CMS plans to utilize to audit hospital compliance with Stark. n CMS states that the purpose of the DFRR is twofold: » To determine if any of the arrangements are potentially not in compliance with the physician self-referral law. » To collect information that might lead to future rulemaking concerning reporting requirements and other physician self-referral provisions. At the same time that hospitals have been begun to develop more hardwired relationships with their physicians, regulatory scrutiny of these relationships has increased.

11 10 I. Overview of FMV Issues Sample Regulatory Activity and Settlements Historic Settlements n Condell Medical Center, Libertyville, IL - $36 million. n Lester E. Cox Medical Centers, Springfield, MO - $60 million. n HealthSouth Corporation, Birmingham, AL - $15 million. n Memorial Health University Medical Center, Savannah, GA - $5 million. n Alvarado Hospital, San Diego, California – $21 million. n University Hospitals Health System, Cleveland, Ohio – $14 million. Settlements with the DOJ have cost health organizations tens of millions of dollars. Restructuring Team Brought into St. Joseph Medical Center Amid Federal Investigation by Stephanie Desmon and Robert Little March 14, 2009 TOWSON, Maryland St. Joseph Medical Center, where three top executives went on leave two weeks ago amid a federal investigation, has brought in an outside restructuring team to manage the hospital and ensure that it is not violating federal health laws, according to a memo circulated among employees. Officials at the hospital, a 354-bed facility in Towson that is among the regions largest employers, did not elaborate yesterday on the restructuring teams role. But Beth OBrien, who is leading the team, said in a memo that the overarching goal is to create a compliance program at St. Joseph that parallels the same high standards as our clinical quality. According to documents from the U.S. Department of Health and Human Services, such programs are put in place primarily to avoid fraudulent payment claims to Medicare and Medicaid. Violating these laws can lead to substantial penalties, ranging from fines to exclusion from Medicare, which would effectively shut down a hospital by cutting off a major source of income. Hospitals are highly regulated environments; investigations of this nature are becoming more commonplace. The Baltimore Sun

12 11 I. Overview of FMV Issues FCA Enforcement Iowa Hospital Pays $4.5 Million in Fraud Case by Nigel Duara August 25, 2009 IOWA CITY, Iowa A Waterloo hospital paid $4.5 million to settle claims that it improperly used Medicare money to pay five doctors to refer patients to the hospital, making the physicians among the highest-paid doctors in the country. The U.S. Justice Department alleged the five doctors employed by Covenant Medical Center were paid far above market value, disqualifying them from receiving Medicare dollars. "They can do the referrals; that's not necessarily the problem," said U.S. Attorney Matt Dummermuth. "It's the combination of the referrals without being fair-market value and commercially reasonable. That's what has potential to compromise the medical judgment, when there's improper financial incentives potentially at play there." Covenant denied any wrongdoing in the settlement announced Tuesday. In a written statement, Covenant claimed prosecutors didn't find evidence of any illegal conduct, and the hospital called the physicians "highly productive." Covenant Medical Center made a business decision to settle to avoid the uncertainty of litigation... Just last week, a hospital in Iowa settled with the DOJ despite the hospitals belief that its compensation to five physicians was FMV. Key Concerns n Compensation that is commensurate with productivity may still be too much. » Capping physician income potential. » Who determines FMV? n Anyone with an issue with a hospital or physician can submit a complaint to the Department of Justice. » Competing hospitals. » Competing physicians.

13 12 II. FMV Compensation Guidelines Overview n Ultimately, fair market value is determined based on facts and circumstances. The appropriate method will depend on the nature of the transaction, its location, and other factors. 1 n Factors influencing the appropriate approach to determining FMV include: » Services provided. » Physician specialty. » Availability of physicians. » Physician productivity. » Market and competitive factors. n FMV is typically analyzed in two components: » Is the transaction commercially reasonable? » Is the remuneration exchanged FMV for the goods/services? The analysis and the data sources utilized to calculate FMV compensation vary based on the circumstances of the specific arrangement. 1 Federal Register, Vol. 72, No. 171, CMS, 42 CFR Parts 411 and 424, September 5, 2007.

14 13 II. FMV Compensation Guidelines Options to Determine FMV Industry Percentile Rankings FMV is estimated based on industry percentile rankings for compensation and productivity and assumes that physicians who produce at low levels relative to their specialty will also receive relatively low incomes and that high producers will earn high incomes. Compensation per WRVU Productivity A physicians compensation per WRVU is compared to market benchmarks to determine whether the physicians per unit compensation is comparable to that of his/her peers at similar productivity levels. Earnings Potential The amount of professional fee revenues that a similarly productive physician might expect to generate is estimated and the amount of overhead that one would expect from such a physician is deducted to arrive at an estimate of market-based compensation. Comparable Payments Especially useful for administrative services, this method applies the compensation that hospitals provide to other professionals for similar services. The appropriate methodology to use to calculate FMV compensation is affected by the business situation and financial arrangement.

15 14 II. FMV Compensation Guidelines Clinical Versus Administrative Compensation n CMS raised the question whether or not there should be a difference between administrative and clinical compensation in Phase III regulations but left the question unanswered. » Phase III: …the fair market value of administrative services may differ from the fair market value of clinical services. » No guidance provided on how to determine FMV of administrative services. n Valid options for compensation of administrative services include: » Opportunity cost – What the physician could earn for the time spent completing the administrative duties. » Typical rate – What the hospital typically pays to have the services conducted by other qualified professionals. A key distinguishing business characteristic of arrangements is whether they are for clinical or administrative services.

16 15 II. FMV Compensation Guidelines Types of Hospital/Physician Arrangements n Hospital/physician arrangements that require the determination of appropriate physician compensation include the following: » Medical Directorships. » Recruitment Arrangements. » Call Coverage Arrangements. » Professional Services Agreements. » Equipment, Space, and Staffing Leases. » Joint Ventures / Other Investment Vehicles. » Management/Administrative Services Agreements. » Information Technology Arrangements. Hospitals enter many different types of arrangements with physicians to address various strategic priorities.

17 16 II. FMV Compensation Guidelines Standard FMV Assessments n A report providing an FMV range for approximately 100 specialties and subspecialties can be utilized for many arrangements. n Annual compensation and hourly rates are calculated for each specialty based on national, regional, and state data from two surveys. » Medical Group Management Association (MGMA) Physician Compensation and Production Survey. » American Medical Group Association (AMGA) Medical Group Compensation & Financial Survey. n Compensation is provided for the 25th, 50th, and 75th percentiles from the MGMA survey and for the 20th, 50th, and 80th percentiles from the AMGA survey. Hospitals should consider an efficient and economical option that provides an FMV assessment that can be applied to many arrangements.

18 17 II. FMV Compensation Guidelines Standard FMV Report Example Many hospitals use the range of median values to estimate FMV for standard arrangements, with no further analysis required. INTERNAL MEDICINE

19 18 II. FMV Compensation Guidelines Medical Director Agreements n Medical directors tend to be leaders in their specialty and are therefore often more productive than the average physician. n The most reliable way to determine a physicians true market value is often to understand the compensation that the physician could expect to earn elsewhere. n Medical directors are typically paid an hourly rate. n Bonus payments may be included for the achievement of certain targets but many hospitals prefer to use management service agreements to define quality and service targets. (See Results of the standard FMV assessment can be applied to many medical director agreements but others may call for a different approach.

20 19 II. FMV Compensation Guidelines Recruitment Arrangements n A range of compensation based on the median compensation provided in the MGMA and AMGA surveys is useful. n Incremental and one-time costs are estimated to assess a reasonable monthly allowance for overhead costs for the recruited physicians practice. » Incremental costs typically encompass additional clinical and nonclinical office staff plus other operating expenses, including malpractice insurance. » One-time costs typically encompass relocation and start-up expenses. » Costs to start a new practice and to join an existing practice are estimated. Recruitment arrangements typically include an income guarantee and reimbursement of business expenses. Many factors could cause the FMV compensation for a recruited physician to vary significantly from survey medians.

21 20 II. FMV Compensation Guidelines Recruitment Arrangement Overhead Cost Example Incremental costs typically encompass additional clinical and nonclinical office staff plus other operating expenses.

22 21 II. FMV Compensation Guidelines Call Coverage Arrangements n National benchmarks for call coverage stipends are in short supply and the complex nature of these arrangements, which can involve many different payment mechanisms, makes true apples-to-apples comparisons difficult. n Outside assistance is often required to determine appropriate levels of call coverage payment. » Access to call coverage stipend databases. » Ability to quickly complete customized/localized surveys. » Expertise in helping hospitals to address call coverage issues. Stipends for call coverage duties have exploded as physicians increasingly utilize their market leverage to demand payment for the burden of call coverage.

23 22 II. FMV Compensation Guidelines Professional Service Agreements – Hospital Based n Analysis varies by the specific situation but typical steps in an analysis of a professional service agreement for hospital-based physicians include: » Identifying the number of clinical physician FTEs required to support the hospital given coverage and scheduling requirements. » Documenting the historical compensation levels per physician FTE. » Comparing physician compensation levels to appropriate regional and national benchmarks. » Identifying potential issues, such as payor mix or utilization, that may influence compensation levels. » Calculating an appropriate stipend level. » Developing performance-based payment criteria. An FMV opinion for a professional service agreement often requires a thorough analysis of data from the hospital and the physicians.

24 23 II. FMV Compensation Guidelines Creative Solutions Situation Resolution Convert the median annual compensation rate for all available specialties listed in the MGMA and AMGA reports into a range of hourly rates to confirm $150 is within the range. Hospital intends to pay physicians $150 per hour to assist with the design of its electronic medical record. Apply the range of compensation that the hospital provides to non-physician professionals (i.e., business consultants and attorneys) to the compensation for physicians. Hospital intends to pay physicians $139 per hour for participation on committees that provide administrative services. Evaluate the mix of medical services the physician provides to the mix provided by other family practice physicians in his state from ECG proprietary surveys to determine whether family practice or specialty compensation is appropriate. Medical director who is licensed as a family practitioner is specially trained and conducts many procedures typically performed by a specialist. Compensation arrangements often require creative solutions to achieve business objectives and provide a fair compensation package to the physician. Identify a pool of academicians and clinical leaders with comparable income and determine whether the candidate is qualified to be considered for membership in this select group. Hospital wishes to recruit a renowned clinician and researcher earning in excess of $1 million annually.

25 24 II. FMV Compensation Guidelines A Word About Benchmarks n The number of surveys has grown in recent years; hospital executives need to be careful to apply the most relevant surveys possible. n Commonly utilized national surveys include: » Medical Group Management Association (MGMA) – MGMA is generally viewed in the industry as the best national source of physician compensation, productivity, and expense data. Includes data from large and small (including many single specialty) practices. » American Medical Group Association (AMGA) – AMGA also produces a widely respected survey that encompasses data mostly from large group practices. » Others – There are many other surveys in the market, many of which are not conducted annually. Hospital administrators should be careful not to rely too heavily on ad hoc surveys that may not be available in future years; however, customized surveys may be necessary in some situations. n When using surveys, regional data should be utilized to the extent possible. However, administrators should be wary of survey cohorts with a sample size of fewer than 50 physicians. n When researching compensation for rare subspecialties such as pediatric neurosurgery, utilizing national data may be necessary due to small sample sizes. Administrators need to be careful to utilize the best benchmarking information available when developing FMV financial arrangements.

26 25 III. The FMV Process When Do You Need a Third-Party Opinion? n All hospital contracts should be maintained in files that also provide FMV justification. n However, FMV justification does not necessarily require outside assistance. n Medical directorships and employed physician arrangements represent examples of when hospitals might not seek a third-party opinion, except under unique circumstances. Clearly, all hospital/financial relationships should be well documented in terms of FMV. However, not all relationships require a third-party opinion. Developing an internal policy on when to seek FMV opinions will help hospitals decide when to most appropriately seek outside assistance.

27 26 III. The FMV Process Potential FMV Policy Hospitals should consider developing policies regarding (1) the level of consistency required among their arrangements, and (2) when they will seek FMV opinions. Type of Arrangement Proposed Consistent Payment MethodologyProposed Policy Regarding Third-Party Opinions Medical Directorships n Payment will be made using the average of the median of the most relevant market surveys. n Relevant is defined as using the regional benchmark with a sample size of 50 physicians or more. Analysis can be completed internally to determine relevant market rates; however, a third-party opinion will be sought in the event that the compensation to be provided exceeds the 75th percentile. Call Coverage n Call coverage payment rates will be set based on principles developed by administrators and medical staff members. n Payment arrangements are reviewed annually. The algorithm will be updated annually, and a third-party opinion of the key components of the plan will be required upon each update. Hospital-Based Specialty Stipends will be provided that enable physicians to earn between the median and the 75th percentile of their specialty. n Groups desiring stipends will be required to submit their collections data (including those from private business ventures such as imaging centers) for the calculation of FMV. n All arrangements will receive a third-party opinion prior to the renegotiation of each contract renewal. Physician Employment Administrators will be required to adhere to a broad set of principles regarding compensation that require productivity-based compensation plans to be utilized (measured either in terms of work RVUs or professional collections). Third-party opinions will be required on an annual basis for physicians who earn over the 90th percentile of the most relevant benchmark survey.

28 27 III. The FMV Process Choosing and Using a Firm n Choose an experienced resource. Obviously, the firm utilized to develop your opinions should have broad experience covering a variety of healthcare arrangements. n Identify a firm with local knowledge. As the market for physician compensation varies widely, market to market, the firm should understand your particular niche. n Utilize a well-balanced firm. » Although firms that work exclusively in the valuation/FMV opinion world will be knowledgeable about this issue, they may not have the breadth of experience necessary to evaluate all issues in totality. » Consider a firm with experience developing compensation plans that also has consultants who are comfortable working directly with physicians. » Consider a firm that has the expertise to provide custom analyses and does not rely exclusively on survey data for proprietary databases. n Avoid pushovers. Be wary of firms that will provide justification for any arrangement; a good firm will push back and provide creative restructuring options frequently to ensure FMV, thereby ensuring greater credibility if the arrangement is challenged. n Be sure to involve the firm early in your discussions around FMV. The firm should be able to provide you with a negotiating range to use in your discussions with physicians. In any event, never wait until after the deal is signed to get an FMV opinion. There are several key attributes to look for when choosing and using a firm to obtain a valuation opinion.

29 28 IV. FMV Call Coverage Case Study Key Questions Addressed n Why did the OIG issue this recent opinion? n What are the major implications for hospitals? n Does this mean that I will have to restructure my hospitals call coverage payment system? n Given the opinion, what is the ideal way to approach ED call payments? The purpose of this case study is to provide an overview of the OIG Advisory Opinion 1 posted in September 2007 on ED call coverage and to discuss the implications for hospitals and physicians nationwide. 1 HHS OIG, Advisory Opinion No. 07-10, posted on September 27, 2007.

30 29 IV. FMV Call Coverage Case Study OIG Call Coverage Opinion n The hospital is a not-for-profit Catholic facility with a charitable mission. n The facility has a high underinsured and uninsured patient population treated in the ED. n Due to the financial burdens of uncompensated patient care and malpractice insurance costs, many physicians became unwilling to provide ED call without compensation. n The lack of physician availability constrained the hospitals ability to meet its specialty coverage needs. n In response, an ad hoc committee was formed that developed a call coverage and uncompensated care arrangement to reduce physician burden while enabling the facility to provide the community with needed medical care. The OIGs Advisory Opinion was issued in response to a request from a large hospital regarding the appropriateness of its call coverage payment system. The OIG ruled that while the arrangement might generate prohibited remuneration under the Anti-Kickback Statute, the opinion said that the OIG would not impose administrative sanctions on the hospital.

31 30 IV. FMV Call Coverage Case Study Payment System The featured hospital chose a tiered per diem payment structure, based on specialty burden, for its call compensation system. Tier LevelKey Characteristics Level 1 – Primary Surgical General Surgery, Neurosurgery, Orthopedics More frequently receive calls; likely to treat high- acuity patients. Level 2 – Secondary Surgical Oral/Maxillofacial, Ophthalmology, Otolaryngology, Urology, OB/GYN Receive calls less frequently; must be prepared to perform surgery if called. Level 3 – Medical Subspecialties Infectious Disease, Cardiology, Neurology, Renal/Nephrology, Pulmonology, Endocrinology, Hematology/Oncology, Gastroenterology Less likely to be called; call is more likely to be for consults. Level 4 – Hospital-Based Specialties Hospital Medicine, Anesthesiology Guaranteed level of service; treat unassigned patients. High Per Diem Payment Low Per Diem Payment The payment system provides systematically larger payments for physicians taking weekend call relative to weekday call. Further, all physicians are obligated to provide 1.5 days per month of uncompensated call coverage.

32 31 IV. FMV Call Coverage Case Study OIG Implications In commenting on the payment arrangement described, the OIG provides a great deal of guidance for other hospitals and their call coverage arrangements. FMV Compensation The opinion did not address payment amounts, but implied that the following elements of the program helped its case: n The payment amounts resulted from a balanced process that utilized (1) an ad hoc committee of stakeholders to study the program, and (2) payments that are indexed to physician call burden and the likelihood that physicians will be required to respond to ED calls. n An outside expert opinion was obtained to certify that the payments represent FMV. Preference for Per Diem Payments Payments should be properly structured to avoid the appearance of unlawful remuneration. In general, the OIG implies that it prefers per diem payments for call over other methods. Potential for Kickbacks Compensation structures that might disguise kickback payments include: n Payment structures that compensate physicians when no identifiable services are provided. n Aggregate on-call payments that are disproportionately high compared to the physicians regular medical practice income. n Payment structures that compensate the on-call physician for professional services for which he/she receives separate reimbursement from insurers or patients, resulting in double pay.

33 32 Trauma Status Call Panel Size On-Site Frequency Payor Mix Telephone Calls Follow-Up Referrals Burden Formula Approach Burden Factors Analyzing the FMV of call coverage payments often involves considering multiple factors and deploying several approaches. Hourly Clinical Compensation Rate × 24 Hours Daily Stipend Amount × = Survey #1 Survey # 2 Survey #3 Survey Approach Survey Results Average Daily Stipend FMV Payment (or range of values) IV. FMV Call Coverage Case Study Potential FMV Approach Call Burden Factor (stated as a %)

34 33 IV. FMV Call Coverage Case Study Conclusions Internal Qualitative Factors Internal Qualitative Factors Internal Quantitative Factors Internal Quantitative Factors External Quantitative Factors External Quantitative Factors Call Coverage Environment Prior to identifying options for improvement, hospitals should convene a committee of key stakeholders to examine the problem and develop potential solutions. External Qualitative Factors External Qualitative Factors Assessing call coverage can be a daunting task because the desired information is often not available or unreliable. n Regional and national trends in pay for call. n Hospital/physician relationships. n Support from hospitalists or residency programs. n Call burden at other area hospitals. n Local trends in addressing call. n Regional and national legislation impacting call. n Call frequency. n Call volume. n Payor mix.

35 34 To submit a question for John or Jill type it into the Question and Answer pane at any time. ECG Trends Webinar Series Mr. John N. Fink 858-436-3220 Ms. Jill H. Gordon 213-633-6875

36 35 ATTACHMENT A The Compliance Audit Process

37 36 Attachment A: The Compliance Audit Process Methodology Hospitals wishing to tackle issues related to FMV may benefit from a contract review process whereby all hospital/physician arrangements are identified, documented, categorized, and justified. Gather Organize Analyze Payments Contracts Documentation Contract and Payment Tracking Database Contract and Payment Tracking Database n Compare payments to contracts. n Verify that required documentation and oversight are provided. n Identify contracts requiring updates. n Determine validity and necessity of contracts. n Research payments without corresponding contracts or documentation. Working Papers

38 37 Attachment A: The Compliance Audit Process Organizing Contracts and Documentation Contracts should be organized by type of arrangement: n Physician recruitment. n Call coverage. n Medical directorship. n Professional services agreement. n Management services agreement. n Lease agreement. n Other (i.e., any other financial relationship between a hospital and a physician, family member of a physician, or physician organization). Every contract resulting in one or more payments to a physician, physician group, or company owned by a practicing physician should be reviewed with documentation for the contract. Working papers should be created for each agreement to hold the contract, provide supporting documentation, and create a history of all related payments.

39 38 Attachment A: The Compliance Audit Process Developing and Completing Checklists #Recruitment or Retention Agreement ChecklistTrueFalseInstructions/Comments 1The agreement is signed by all parties.List the parties to the agreement. 2The agreement specifies the benefits to be provided by the hospital, the terms under which benefits are to be provided, and the obligations of the parties. List the services to be performed. 3The agreement contains a statement that the parties' arrangement was negotiated at arms length. List the intervals, length, and charge per interval. 4The agreement indicates that the hospital's service area is a federally designated health profession shortage area or that a community need assessment indicates a documented need for the physician's specialty. 5The agreement indicates that the recruited physician has been practicing medicine for less than 1 year and is opening a practice in the hospital's service area. 6The agreement indicates that the recruited physician is relocating his/her practice by at least 25 miles or that the physician's new practice will derive at least 75% of its revenues from professional services to patients not seen or treated by the physician in the prior 3 years. 7The agreement indicates that the physician was not on the medical staff of the hospital prior to recruitment, including temporary staff privileges or other seemingly inactive privileges. Indicate the term of the agreement, including the effective date. 8The agreement indicates that a fair market value (FMV) analysis was performed by an independent third party. 9The recruitment benefits provided under the agreement do not exceed the range identified in the FMV assessment. Briefly describe the termination provisions. Checklists should be prepared for every type of arrangement and completed consistently for every contract.

40 39 Attachment A: The Compliance Audit Process Developing and Populating Databases Fields within each database are expanded to include additional contract terms, such as service obligations, payment calculations, and repayment provisions. Elements of legal guidelines and requirements are also included in the databases and checklists as directed by legal counsel. Sample Contract Review Database A database is used to organize the key terms of each contract. A separate worksheet is used for each type of physician arrangement. PhysicianGroup Name Term Beginning Term EndingCompensation Unit of Time Monthly Max.NotesPmt. 1 Smith, John, M.D. Internists, Ltd.2/2/075/1/08$100Hour$5,000$5,000 per month cap; at risk: $15,000 annual. N/A Malone, Molly, M.D. Caring Cardiology 4/1/0710/31/0 9 $9,250Month$9,250 Cole, Tim, M.D.APM Anesthesia 10/1/079/30/08$1,20024-Hour Shift After fifth delivery, reduces to $220. $24,000 Rao, Anila, M.D.Valley CT Surgery 1/1/0812/31/0 8 $8,000Month$8,000$150 per month for adm. up to $3,000 per month. N/A

41 40 Attachment A: The Compliance Audit Process Matching Payments to Contracts Payments that do not cross-reference with contracts are researched manually. General Ledger Accounts Payable and Check Registry Output Medical Director Database Physician Recruitment Database Every payment is matched to a contract and its required documentation. Payments without a corresponding contract or documentation are flagged for additional investigation.

42 41 Opinions about arrangements should be reported separately. Attachment A: The Compliance Audit Process Reporting Facts Facts about arrangements and payments should be complemented by relevant opinions reported separately. Facts About ArrangementsFacts About Payments n Contract is expired or not signed. n New agreement was entered into beyond the Stark 6-month holdover time period. n No evidence of legal counsel or board approval. n No community need assessment. n No FMV materials. n FMV materials are inappropriate for the contract. n Time sheet or invoicing documentation is missing. n Payment made with no contract. n Payments do not match the contract terms. n Payment does not match time sheet or invoice. n Payment exceeds monthly maximum. n Compensation exceeds benchmark.

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