In a past BVWire, we reported on a hospital that got into serious regulatory trouble over the fair market value of physician compensation. While federal and state regulations require that physician compensation be commercially reasonable and at fair market value, there is very little regulatory guidance for meeting these valuation standards. Nevertheless, regulators are cracking down on healthcare providers that pay physicians amounts that exceed fair market value thresholds.
A new white paper from the Advisory Board Co. discusses how to structure physician compensation packages that are compliant. One step is to deconstruct total compensation. Physician employment agreements are multidimensional, so the definition of “total compensation” is the key factor in determining fair market value. It includes not only base salary, but also additional financial incentives, such as signing bonuses, retention bonuses, and educational loan repayment. Plus, physicians are often paid separately for responsibilities beyond traditional clinical duties. Payments for these extra responsibilities must be evaluated for fair market value separately, based on the nature, frequency, and scope of services provided.
The white paper says that surveys with compensation data are a good starting point to benchmark an acceptable pay range. Also, you need to prepare extensive documentation of compensation methodology and decisions. Also, it advises that healthcare providers use outside valuation experts early in the process. One reason for this is that regulators feel that valuation methods developed internally are susceptible to manipulation, so they will receive more intensive scrutiny.
Speaking of the use of surveys, there’s a webinar coming up: The Use and Misuse of MGMA Data in Healthcare Valuations (December 17). You’ll learn how to properly and effectively utilize the wealth of data provided by the Medical Group Management Association (MGMA) in such areas as physician compensation, practice performance, and reimbursements. The webinar features Timothy Smith (American Appraisal) and Meghan Wong (MGMA) and is Part 12 of BVR’s 2013 Online Symposium on Healthcare Valuation.