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How to Compensate Physicians in a Healthcare Crisis

May 15, 2020

When the Secretary of the Department of Health and Human Services issued blanket waivers of Section 1877 of the Social Security Act (also known as the physician self-referral or Stark Law), it relaxed fair market value (FMV) payment requirements in regard to provider compensation for “COVID-19 purposes.” Even if provider services and the related payments are thought to be compliant with the waivers, organizations should still maintain a sound structure and rationale for determining physician payment levels, and they should also develop a reliable process for administering the payments. One of the biggest concerns hospitals have is how to appropriately compensate their employed providers in light of the COVID-19 pandemic, whether they are providing additional services, being re-allocated to another department, or experiencing a large decline in production due to elective surgery restrictions. Here are a few recommended steps to take for each situation.

How do we compensate employed physicians or advanced practice clinicians (APCs) who provide extra services?

  • Determine how to most easily and efficiently assess what constitutes extra services and how these services can be documented. This could be through additional formally scheduled hours/shifts, provider-documented simple timesheets (e.g., sign-in/sign-out), etc.

Documentation of time and services serves two primary purposes: It allows the organization to appropriately compensate providers for their work, and it provides justification and background to explain variation in year-over-year compensation. This will be particularly helpful in performing any assessments that take historical compensation into account, such as projecting compensation for renewed employment agreements, performing FMV reviews that are retrospective, and submitting relevant and accurate data to compensation and production surveys.

  • Assess whether or not it is appropriate to provide a differential or premium for extra services provided. What are the current and foreseeable supply and demand dynamics, and how much associated stress will be put on different provider complements in order to provide adequate clinical services during this time?
  • Determine the current market competitiveness of cash compensation and assess the impact of contemplated premium pay adjustments. For example, a group of physicians paid at a median per-shift rate may reasonably be paid a 25% premium while a group of physicians paid at higher per-shift rate may more reasonably be paid a 15% premium. These premiums may be more closely correlated to one another in regard to dollar amount increases.

Pay equity should be considered, and in most instances similar/equal compensation should be provided for similar/equal basic services by provider level, regardless of training and sub-specialization.

  • Determine if it is more reasonable and appropriate, for both providers and the organization, to provide compensation for extra services as they are provided, or at specific points in time in lump sums (e.g., additional service bonuses calculated and paid monthly).
  • Determine how providing extra services will affect providers who have production bonuses included in their compensation models. Will the production bonus component effectively compensate the provider for their additional services at a reasonable “premium,” and will it be at an adequate level or fall short? Is the organization able to effectively track and bill for the provider’s additional production at this time if services are not consistent with their primary role?
  • Assess any other facts and circumstances that may impact different arrangements.
  • Document both the additional provider work performed and additional compensation paid in order to perform annual compensation reviews.

How do we compensate employed physicians or APCs who are redeployed to provide services outside of their typical practices and/or to other practice settings?

  • Determine – and document – the effective clinical specialty where the employed physician is providing services (e.g., internal medicine physician now providing emergency department services). If a compensation adjustment is appropriate, and it may be in many cases, an organization should utilize market compensation levels based on the services provided and not based on the training and sub-specialization of the provider.
  • Determine the nature of the services provided and if they will be fluid and ad hoc or if they will fall into separate, distinct categories (e.g., emergency response and triage vs. inpatient rounding only).

Based on this distinction, organizations will need to determine whether to pay different rates based on distinct roles or if one across-the-board rate is more appropriate. In many instances, we would recommend using one rate to reduce confusion, unintentional inequity/tension, and administrative burden.

  • Evaluate how any additional compensation could impact the provider’s current compensation model. For example, it may not be reasonable to pay full market hourly rates for each hour worked if the provider is continuing to receive a salary.
  • Assess any other facts and circumstances that may impact different arrangements.
  • Document additional provider work performed and the associated additional compensation paid in order to provide appropriate compensation for services, provide background for compensation fluctuations in 2020, etc.

How do we address situations where providers on a production-based compensation model face an involuntary decline in production, such as surgical specialties that cannot perform elective surgeries?

  • Determine if providers should be guaranteed compensation based on historical levels of production. Organizations should consider not only the current situation but also what will happen as physicians work through a backlog of cases and are highly productive. How do organizations ensure that they do not effectively compensate physicians for this increased production twice?
  • If an organization decides to guarantee compensation based on historical levels, it should determine a reasonable timeline for the guarantee. For example, an organization might guarantee compensation for 90-180 days starting March 15, 2020, allowing for re-evaluation as more information becomes available.
  • If providers are not guaranteed historical compensation, an organization should determine if there is a minimum level of compensation that they should be guaranteed and what the amount is based on. For example, is it based on their level of compensation draw (not including bonus compensation), or is it a market level of compensation (e.g., median total cash compensation)?

Provider arrangements, practice environments, and organizational policies will be different, so there is not a one-size-fits-all answer when addressing these issues. If your organization needs assistance answering these questions or developing strategic approaches to these issues, please reach out to your KSM advisor or complete this form.

Visit the KSM COVID-19 Resource Center

Brad Reay Director, Healthcare Consulting

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