Tag: Compensation

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Health Law Highlights

Insights into Healthcare Provider Compensation Trends for 2024

From VMG Health, by Ben Minnis, Tyler Navarro, Anthony Domanico:

Innovative Recruitment Strategies: Healthcare organizations are adopting creative methods to attract and retain physicians due to significant changes in the Medicare Physician Fee Schedule and an aging physician population. These methods include enhanced benefits, leadership development programs, broader loan forgiveness, adjustments to hard-to-recruit models, and investment in technology and infrastructure.

Tailored Compensation Models: The one-size-fits-all approach to compensation is becoming obsolete as healthcare delivery settings evolve. Organizations are now tailoring compensation models to suit specific circumstances, with a focus on balancing innovation and standardization.

Emphasis on Work-Life Balance: Physicians are increasingly prioritizing a healthier work-life balance. This is prompting healthcare organizations to adapt their compensation packages to include flexible scheduling options, telemedicine opportunities, and expanded paid time off allowances.

Alignment with At-Risk Incentives and Regulatory Constraints: Modern compensation structures often include a substantial portion of compensation tied to high-quality metrics. However, while innovating compensation models and incentives, it’s essential for organizations to operate within regulatory boundaries to avoid violations of laws governing healthcare practices.

Migration to Advanced Practice Providers (APPs): To address the challenges of physician shortages, health systems are increasingly turning to APPs. The rise of nurse practitioners and physician assistants is seen as a pragmatic response to the growing demand for healthcare services, offering a cost-effective solution and a multifaceted approach to patient care.

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Health Law Highlights

How Hospitals Are Fighting to Keep Their Former Doctors From Seeing Patients

From NBC News, by Shannon Pettypiece:

Noncompete agreements, which prevent doctors from seeing patients for one to two years within a geographic region if they leave their job, have become increasingly common in the healthcare industry.

Critics, including the American Medical Association and the American College of Physicians, argue that noncompete agreements contribute to physician shortages, sever doctor-patient relationships, and deter doctors from speaking out for fear of being fired and unable to work elsewhere in the community.

The American Hospital Association opposes the proposed ban on noncompete agreements by the Biden administration, arguing that they are necessary to protect the financial investment hospitals make in recruiting, relocating, marketing, and training their doctors.

Some doctors have successfully challenged noncompete agreements in court, but it remains a relatively rare occurrence due to the potential financial and reputational consequences. Instead, many doctors choose to move to a new city if they want to leave their job or are fired, avoiding the risk of a lawsuit but uprooting their families and leaving their patients behind.

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Health Law Highlights

How Post-Transaction Physician Compensation Structure Affects Fair Market Value of Physician Practices

From VMG Health, by Dylan Alexander, CVA and Gerrit Elzinga, CVA:

As of January 2024, there are over 338,000 physician group practices in the U.S. The compensation structure for shareholder physicians, which often changes during business transactions, plays a significant role in the valuation of a practice. Higher post-transaction physician compensation typically results in a lower valuation for the practice due to less available earnings. 

Physician compensation can take multiple forms, including salaries, benefits and payroll taxes, discretionary expenses, and other forms of compensation such as profit sharing and distributions. The compensation levels vary from practice to practice and are a vital factor in determining the earnings available for transactions.

The profitability of a practice, which influences the available compensation, is determined by factors such as physician productivity, reimbursement rates, ancillary service offerings, and effective use of mid-level providers. Expense management is also critical, as practices with high operating expenses are less profitable.

Three main valuation methods are used for physician practices: income approach, market approach, and cost approach. Both the income and market approaches are sensitive to the level and structure of physician compensation. Lower compensation levels can increase projected free cash flows and the earnings multiple, thus increasing the practice’s valuation. However, compensation should align with market levels to avoid sustainability risks.

Physician practices have the autonomy to determine their service offerings, providers, and compensation structures. Understanding the relationship between post-transaction physician compensation and the fair market value of a practice is crucial for both buyers and sellers, as it significantly impacts the practice’s valuation.

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Health Law Highlights

Recent $345 Million Settlement Underscores Critical Importance of Appropriate Physician Compensation

From Baker Donelson, by Alissa Fleming and Joseph Keillor:

  • An Indianapolis-based health system recently settled with the Department of Justice for $345 million due to allegations of Stark Law and False Claims Act violations related to its physician compensation arrangements, highlighting the importance of appropriately structuring physician compensation to avoid fraud and abuse enforcement.
  • The health system was accused of providing false information to appraisers, inflating physician salaries, and ignoring warnings about the large discrepancies between high physician compensation and moderate productivity. Additionally, it was alleged that physician compensation was dependent on the volume or value of referrals, which violates Stark Law’s restrictions.
  • The actual compensation for many specialties was either fixed guaranteed compensation or wRVU-based compensation for personally-performed services, which under the December 2020 rulemaking, should not violate the Volume/Value element.
  • The government argued that exceeding fair market value does not necessarily implicate the “indirect compensation arrangement” definition in place at the time, and that fair market value is only relevant where the parties have implicated a threshold volume/value standard.
  • The settlement emphasizes the importance of structuring physician compensation appropriately, with the health system now under a five-year corporate integrity agreement with an independent review organization and a compliance expert. Unsettled claims from the relator are still pending, and attorney’s fees relating to the settled claims may be added to the $345 million settlement.
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Health Law Highlights

Overlooking Executive Comp Packages Puts M&A Deals at Risk

From Bloomberg Law, by Ian Sherwin (Reed Smith):

  • Compensation and Motivation: Understanding the compensation structures and philosophies of a target company is crucial in M&A transactions. This includes executive compensation, which can be a significant cost, involving base salary, bonuses, severance entitlements, and health and welfare programs. It’s also subject to various tax, securities, corporate, and employment-related rules and regulations.
  • Transaction Structures: The nature of the transaction, whether it’s an acquisition or a merger, impacts compensation-related decisions. For private companies, disclosure concerns are minimal, but public companies have significant disclosure obligations. For carve-outs, considerations include potential employment termination and re-hiring by the acquirer, who bears the cost of severance, and the form of consideration for equity awards.
  • Severance and Bonuses: Severance protections can help maintain employee performance during a transaction. The value and duration of severance can vary based on seniority and job level. Transaction and retention bonuses can also be used to motivate and retain key employees. The former encourages employees to complete the transaction, while the latter incentivizes them to stay through certain milestones.
  • Covenants: Buyers often set restrictions on what the target can do between the signing and closing of a transaction. These include changes to benefit plans, compensation, hiring or termination of employees, and equity awards. Targets often seek post-closing employment-related covenants, such as guaranteed compensation and benefit levels, and continued participation in severance programs.
  • Sections 280G and 4999: Golden parachute rules (Sections 280G and 4999 of the Internal Revenue Code) are a major focus in most transactions. If triggered, a 20% excise tax could apply to certain service providers, and the target may lose a compensatory tax deduction. Mitigation strategies can include reasonable compensation analyses, valuing non-competition agreements, and shifting compensation to the current tax year. Private companies may opt for a shareholder cleansing vote to avoid these issues.
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Alert

Revisions to Stark Law Rules Covering Physician Profit Sharing and Bonuses

The new provision allows a member of a group practice to receive profits from DHS directly attributable to the physician’s participation in a value-based enterprise.

CMS clearly has made the determination that participation in such enterprises is so essential that it is allowing a direct tie between a physician’s participation and the profits derived from DHS.

CMS also clarified that if a group has five or fewer physicians, overall profits means the profits from DHS from the entire group; but if a group has more than five physicians, the group may designate a component of at least five physicians to aggregate the profits for the purpose of distribution.

Although other portions of the Final Rule go into effect January 1, 2021, the profit sharing and productivity bonus provisions do not go into effect until January 1, 2022.

Source: Revisions to Stark Law Rules Covering Physician Profit Sharing and Bonuses