awyers and doctors are both in the professional service industry. Setting lawyer pay is pretty easy, particularly at the partner level. Just estimate the amount of business (i.e., revenue) they’ll bring in and determine how to split it up. There’s two basic models: eat what you kill or a profit sharing model. The splits might change, but the fundamental concept is the same. Step 1: figure out how much money the partner will bring in. Step 2: Split it up (or not). Step 2 is optional; Step 1, not so much.
So, the same for doctors right?
In healthcare, a hospital cannot start with Step 1:
Healthcare is fundamentally different because the individual receiving the services is usually not the person paying for the services. In many cases, Medicare and Medicaid are paying for the services. When it’s footing the bill, the federal government gets to decide how it’s going to pay.
One policy decision it has made is to eliminate Step 1–basing compensation on revenue that a doctor brings in. The Stark Law does not allow a hospital, for instance, to take into account how much other business a doctor might bring to the hospital in setting compensation.
Another example of Big Brother messing with the market? Maybe. But there’s a certain logic to it–at least that way, patients can have some comfort knowing that their care is driven by a healthcare agenda rather than a financial one:
“The Stark Law was enacted to ensure that the clinical judgment of physicians is not corrupted by improper financial incentives,” said Principal Deputy Assistant Attorney General Brian M. Boynton, head of the Justice Department’s Civil Division.
If you can’t start with Step 1, where do you start? A recent case offers some insights. the Indiana Health Network just agreed to pay $345 million in civil penalties for violating the Stark Law.
The Do’s and Don’t’s of setting physician compensation:
DO assess what the fair market value is for the doctor, considering the locality and specialty.
DON’T calculate calculate the referral value of each doctor and then pay incentives based on how much business they refer to the hospital.
DO hire a compensation consultant to help you determine fair market value.
DON’T hire three different compensation consultants when the first two don’t give you the answer you’re looking for. Corollary to the “Fraud is … two sets of invoices” rule.
- Relatedly, DON’T knowingly provide your compensation consultant (any of them) with false information. That’s a big red flag.
DON’T admit that you’re “too far down the road to stop” violating federal law when a consultant tells you that you’re pay is not in line with fair market value.
DO respect the Stark Law’s requirements. It is not, as the federal prosecutors went out of their way to state, “minor or insubstantial.”
I mean, sure, it feels like a technicality! All the hospital did was calculate how much revenue the doctors would be responsible for and then compensate them accordingly. Is that so bad? Yes, it is:
The whistleblower gets up to $86.25 million
The hospital’s former Chief Financial and Chief Operating Officer, Thomas Fischer, exposed this scheme. He stands to make up to $86.25 million for his efforts. Enjoy your island.