What compliance professionals should know about auditing physician compensation arrangements

In an environment of increasing integration and financial relationships with physicians; a rigid and technical regulatory framework; aggressive government enforcement; and disproportionate penalties and enterprise risk under the Stark Law (42 U.S.C §1395nn), it is incumbent for health care organizations to have an audit plan and process for physician compensation arrangements to ensure such arrangements comply with Stark law requirements. In a webinar presented by the Health Care Compliance Association (HCCA), Curtis H. Bernstein, Principal, Pinnacle Healthcare Consulting and Joseph N. Wolfe (Hall, Render, Killian, Heath & Lyman, P.C.) provided insight into considerations for managing risks, an overview of the Stark Law and its exceptions, and tips for planning an audit and the audit process.

Managing the risk

Wolfe stressed the importance of ensuring that compensation arrangements with referring physicians are defensible. When it comes to compensation arrangements, organizations should ask, “How will the organization defend itself?” Wolfe recommended that the organization focus on the Stark Law’s technical requirements, which were updated in 2016, and the three tenets of defensibility: (1) fair market value, (2) commercial reasonableness, and (3) not taking into account the value or volume of referrals. Wolfe emphasized the need for health care providers that enter into physician arrangements to ensure that individuals involved in the process have an in depth understanding the Stark regulations and the exceptions

The plan and the process

Bernstein explained that the scope of the audit depends on the size and complexity of the company, prior experience with the process under audit, recent changes in the company or company’s operations, and previously recognized deficiencies, as well as circumstances that may arise during the audit. The audit process involves several steps.

  • A list of currently executed physician contracts must be compiled.
  • Compliance personnel must interview individuals commonly involved in physician relationships. The individuals conducting the audit should understand interview processes, including strategy, documentation, approval, and selection of interviewees.
  • The interviews must be reconciled to currently executed physician contracts. Common issues arising in reconciliation include the use of space, office equipment, and other items by physicians for professional or personal use, and payment for services not provided.
  • Time sheets or other attestation forms must be reviewed for completeness and accuracy.
  • Fair market value and commercial reasonableness must be documented for each agreement. Consider:
    • Who is providing the service?
    • Why are the services required?
    • When are the services performed?
    • How are the services provided?
  • All other terms of agreement and necessary steps must be performed in executing agreements and verified.

Bernstein noted that other items to consider during the process include the compensation structure, the length of a fair market value opinion versus the length of the contract, whether the compensation was set in advance, if the agreements were executed, and whether the agreements expired.

The compliance component

While the basic elements of an effective compliance program apply to physician arrangements, Wolfe explained that as compliance applies specifically to physician arrangements, it should be compensation focused and documentation and governance should support defensibility. He recommended that organizations adopt a compensation philosophy, have a written compensation plan, establish parameters for monitoring compensation, and form a compensation committee. In addition, organizations should (1) ensure that policies align with the new Stark technical requirements; (2) establish a consistent process for obtaining third party valuation opinions; and (3) periodically audit physician compensation arrangements. Finally, organizations should continue to monitor the enforcement climate.