5 Common Provider Compensation Myths

When it comes to provider compensation, there are certain beliefs that continue to come up in contracting negotiations and in fair market value (FMV) discussions. These beliefs can seem quite rational, but digging a little deeper will expose their flaws. Here are five of the most common provider compensation myths.

1. “If a provider produces at or above the 90^th percentile, that provider can be paid, or should be paid, at or above the 90^th percentile compensation-per-wRVU rate.” Paying high rates for high production can quickly lead to compensation that falls outside of a reasonable range of fair market value (FMV), and that may be commercially unreasonable. In reality, the more a provider produces, the lower their effective rate per wRVU tends to be. This inverse relationship between clinical production and compensation-per-wRVU rate has long been proven. In a production-based compensation model, the contractual compensation-per-wRVU rate is a means to an end to affect a reasonable correlation between compensation and production. Published survey data needs to be applied in an appropriate manner to ensure that compensation is legally defensible and compliant. Here’s an example to illustrate this:

90th percentile compensation per FTE	$1,125,000

90th percentile wRVUs per FTE	16,500
x median compensation-per-wRVU rate	$75.00
Calculated compensation	$1,237,500 (110% of 90th percentile)

90th percentile wRVUs per FTE	16,500
x 90th percentile compensation-per-wRVU rate	$104.00
Calculated compensation	$1,716,000 (153% of 90th percentile)

In our experience, the published 90^th percentile compensation-per-wRVU rate survey data is typically viewed as those low-producing providers on salary guarantees who are likely new to a practice or a market and still ramping up their clinical practice or those compensated for non-wRVU-producing services such as medical directorships.

Median compensation per FTE	$660,000
/ 25th percentile wRVUs per FTE	$6,800
Calculated compensation-per-wRVU rate	$97.06

It’s not unreasonable to believe that organizations might be paying median compensation for wRVU production at or below the 25^th percentile in certain clinical practice settings. In the preceding illustration, wRVU production below the 25^th percentile would cause the effective compensation-per-wRVU rate to increase. This challenges the notion that published 90^th percentile compensation-per-wRVU rates have any direct relationship to setting compensation for high-producing providers.

2. “This provider is irreplaceable.” By some accounts, there are currently over one million professionally active physicians in the United States, with several hundred thousand non-physician providers practicing as well. Ultimately, any provider can be replaced over time. This is not said to diminish the qualifications, expertise, and excellence of any single provider. Yes, there are challenges to recruiting and retaining qualified providers, which may require patience and recruiting incentives. Yes, there are financial and oftentimes political costs to losing a provider. However, no organization can justify paying outside of a reasonable range of FMV simply on the basis that the individual provider is irreplaceable.

3. “A survey said it, so it must be true.” It’s commonplace to use published market surveys (e.g., Medical Group Management Association, American Medical Group Association, SullivanCotter, Gallagher) to support a commercial reasonableness and FMV analysis, but don’t take them on blind faith. Be sure to analyze the data that supports these analyses, taking into account factors such as survey respondent size, survey data trending, and unique clinical subspecialization.

Call pay survey data is a good example of this myth. While wRVUs may be more black-and-white for purposes of comparing provider clinical effort, provider call coverage is largely a matter of underlying call burden. How certain can you be that a general surgeon providing call coverage at a hospital in Manhattan has the same burden as a general surgeon providing call coverage at a hospital in Fort Wayne, Indiana? What if you learned that one of those general surgeons provided call in a 1:3 physician rotation at a Level I trauma facility in a hub-and-spoke model that included 12 outlying facilities with transfer capabilities and a centralized call center for telephone consults? Would those factors influence how you view the call pay survey data in determining an FMV range of compensation?

From a clinical perspective, imagine you are contracting with a gastroenterologist who spent an additional year in fellowship training for advanced endoscopy. This physician is skilled and trained to perform endoscopic ultrasound and/or endoscopic retrograde cholangiopancreatography procedures. How do the surveys account for these types of clinical subspecialists? Do you know how the wRVUs and clinical volume might impact compensation?

Also, be wary of solely looking to regional datasets in the surveys as a proxy for the local market. Today, maybe more than ever, provider recruitment plays out on a national platform. More importantly, the national data will provide a much larger respondent pool and cast a wider net of practice settings and localities for a broader market comparison. Considering only a small subset of survey data means looking at a lower respondent rate. That means there’s a greater likelihood of year-over-year volatility and influence from certain geographical markets or responding groups within that subset of data.

4. “The hospital down the street is offering more.” Each institution needs to perform its own assessment of FMV and accurately compensate contracted providers for services based on facts and circumstances specific to that arrangement. Recruits routinely throw around anecdotal numbers when negotiating contracts. The best response is to challenge that figure, ask for a copy of the competing offer, and ask what that provider would be required to do for the compensation. For example, consider the following:

• • • How much is at risk for quality and care management (or other value-based measures)?
    • What is the base salary set at, and is it guaranteed?
    • What is the productivity threshold and incentive rate?
    • How is call coverage valued?
    • What is the definition of “full time”?
    • How do the recruiting incentives compare?
    • How does the noncompete provision compare?
    • What is the culture like?
    • How do the fringe benefits compare?
    • What is the work-life balance like?
    • Is there opportunity for growth in the practice?
    • Is there opportunity for a leadership role in the practice?

Ultimately what another organization is supposedly paying for provider services, while somewhat indicative of the local market, cannot and should not be relied solely upon for compliance purposes.

Providers can quickly become laser focused on one or two contract terms as a point of comparison across offers. That’s like comparing only the size of the kitchen when looking to purchase a new home. Focus on the total compensation package and how the provider will fit into the practice and overall organization. Ensuring the provider is a cultural fit with your organization is imperative to long-term success.

5. “The government has enough to worry about without challenging my provider compensation arrangements.” Healthcare fraud remains the top category of False Claims Act recoveries. Chances are that the government will eventually catch up to provider compensation packages that violate the rules. The government often doesn’t have to catch violators on its own – whistleblowers have significant financial incentives to report fraud and abuse in these kinds of relationships. Qui tam provisions of the False Claims Act enable private citizens to file lawsuits on behalf of the United States government if they know of an individual or organization defrauding the government. Consequently, such whistleblowers are eligible to receive 15-30% of the government’s recovery. Such cases can take years to resolve and often result in material settlement and negative press. There are no shortcuts when it comes to compliance efforts related to provider compensation arrangements. There is simply too much at stake.

Contracting with providers is anything but simple. Strict liability regulations cast a shadow over the simplest of contract negotiations. Don’t fall into the trap of these and other myths; partner with a reputable expert in the field of provider compensation valuation to minimize risk and ensure compliance with federal regulations. If your organization would like help navigating the FMV and commercial reasonableness of these relationships, please contact your KSM advisor or complete this form.