Establishing FMV for call coverage compensation is becoming increasingly difficult as arrangements are evolving and survey data is unreliable. The following will discuss recent trends in paying for call coverage, market statistics and the valuation considerations surrounding certain payment structures.
Although the majority of call coverage arrangements are based on a daily or hourly stipend, payment structures are evolving and are more often including additional payments for the uninsured patient population.
Call coverage payments: How industry-wide is it?
The Sullivan, Cotter and Associates' 2009 Physician On-Call Pay Survey Report states that 82 percent of the survey respondents currently provide compensation to non-employed physicians for call coverage. In addition, more than one-half of those surveyed reported their on-call expenditures have increased in the past 12 months and 20 percent of the respondents indicate they plan on implementing on-call pay within the next six months for physicians currently not receiving pay.
In addition to these recent trends, Sullivan Cotter statistics show overall expenditure for call payments have been increasing exponentially since 2006. From 2006-2009, the median expenditures increased by 546 percent for non-trauma centers and 141 percent for trauma centers.
Regulatory guidelines to consider when determining on-call payments
Since many healthcare organizations are currently considering on-call payments for the first time, a basic understanding of the regulations and payment models for on-call coverage are essential. Currently, there are two OIG opinions related to call coverage.
The OIG's opinions related to on-call payments have warned of a substantial risk that improperly structured payments for on-call coverage could be considered unlawful remuneration if the payments exceed fair market value. Therefore, when implementing an on-call arrangement, healthcare executives should start by understanding what the OIG has stipulated as factors to be considered low risk arrangements for fraud and abuse.
In determining if payments are at FMV, one should account for the burden of call. Factors affecting the burden of call include volume of call, payor mix and patient acuity. The OIG has stated that obtaining an independent third-party analysis to determine if the compensation reflects FMV for the services furnished is an important safeguard.
In addition, to ensure the arrangement does not appear to reward certain physicians for referrals, there are two important factors a hospital should consider. First, understand the history of call coverage and whether or not there is a legitimate, unmet need for on-call coverage. Second, offer compensation to all eligible physicians and make certain that physicians of similar specialties receive the same per diem payment.
On-call payment market data
Although on-call payment structures vary, the daily or hourly stipend is the most prominent model in the marketplace. There are currently two on-call industry surveys providing data for these stipends: MGMA Medical Directorship and On-Call Compensation Survey (2009 Report Based on 2008 Data) and Sullivan, Cotter & Associates' 2009 Physician On-Call Pay Survey. However, essential valuation data is unavailable in these studies. Specifically, the following are important valuation factors relevant to call coverage payment data which are unknown in the surveys:
Therefore, relying on market survey data alone will not provide a comprehensive valuation to determine fair market value. In addition, there is tremendous variance in reported on-call payment data and a low number of reported respondents in both surveys. However, the following lists the specialties for which survey data from both studies report similar median daily stipends:
The above observed consistency in reported fees assists in determining a supportable valuation for these specialties. However, it is extremely important to note that factors such as volume, payor mix, acuity and specific terms of the arrangement are essential to determine if these rates are consistent with FMV. It is recommended that all of these factors be considered, as well as additional valuation methodologies.
Providing further challenges to the valuation of these arrangements is the fact that recently, more agreements are including an additional payment for the uninsured patient population.
Valuation challenges with the two payment on-call agreements
Industry observations indicate that on-call arrangements have increasingly been including an additional payment for the uninsured, or indigent patient population. This trend is expected to continue as the uninsured population is on the rise and physicians are less willing to take call.
It is important to note that when a hospital makes an additional payment to a physician for this patient population, it should be considered when determining the daily stipend. This type of arrangement guarantees the physician on-call will be compensated for his or her services when called in. From a compliance perspective, when the hospital obtains the risk of covering the uninsured for the physician on-call, the daily stipend should be less. Adjustments to the daily stipend for these additional payments should be based on the reimbursement guaranteed by the hospital and market reimbursement for professional services.
Working towards on-call compliance
If healthcare organizations are not careful in structuring call coverage arrangements, they risk non-compliance with healthcare regulations. In order to best document due diligence in ensuring the organization considered regulatory guidance in determining the on-call payment and structure, healthcare organizations should:
1. Understand FMV guidelines for determining call coverage payments.
2. Understand the OIG opinions related to on-call.
3. Document factors to show the burden of call.
4. Consider the compensation components of the arrangement.
If an on-call agreement between a physician and healthcare organization is audited by federal or state healthcare authorities, the analytical process and documentation to justify the payment is FMV will be essential in defending the compensation level.
This article is not to be construed as legal advice; it is to provide insight to valuation guidelines related to FMV.
Jen Johnson oversees the valuation of professional service arrangements at VMG Health, a national health care transaction and advisory firm in Dallas. Prior to that she was a finance professor at the University of North Texas and worked in KPMG's forensic and litigation department. She may be reached by e-mail at jenj@vmghealth.com or at (214) 369-4888.
Growing expenses, industry trends driving call coverage payment growth
In the past, ED call coverage was typically provided by physicians in exchange for admitting privileges. Now, more physicians are demanding payments for call coverage due to:
- Rising costs associated with covering the ED
- Growth in the uninsured patient population.
- Fear of malpractice lawsuits.
- Higher premiums associated with emergency departments.
- Fundamental industry changes
- Work-life balance has become more important to today's physicians.
- There is a decreasing physician supply.
- Physicians are less reliant on hospitals to build practice with other options for office-based procedures and outpatient facilities.
- Physicians are seeking equity with other physicians who are being paid for call coverage.
Although the majority of call coverage arrangements are based on a daily or hourly stipend, payment structures are evolving and are more often including additional payments for the uninsured patient population.
Call coverage payments: How industry-wide is it?
The Sullivan, Cotter and Associates' 2009 Physician On-Call Pay Survey Report states that 82 percent of the survey respondents currently provide compensation to non-employed physicians for call coverage. In addition, more than one-half of those surveyed reported their on-call expenditures have increased in the past 12 months and 20 percent of the respondents indicate they plan on implementing on-call pay within the next six months for physicians currently not receiving pay.
In addition to these recent trends, Sullivan Cotter statistics show overall expenditure for call payments have been increasing exponentially since 2006. From 2006-2009, the median expenditures increased by 546 percent for non-trauma centers and 141 percent for trauma centers.
Regulatory guidelines to consider when determining on-call payments
Since many healthcare organizations are currently considering on-call payments for the first time, a basic understanding of the regulations and payment models for on-call coverage are essential. Currently, there are two OIG opinions related to call coverage.
The OIG's opinions related to on-call payments have warned of a substantial risk that improperly structured payments for on-call coverage could be considered unlawful remuneration if the payments exceed fair market value. Therefore, when implementing an on-call arrangement, healthcare executives should start by understanding what the OIG has stipulated as factors to be considered low risk arrangements for fraud and abuse.
In determining if payments are at FMV, one should account for the burden of call. Factors affecting the burden of call include volume of call, payor mix and patient acuity. The OIG has stated that obtaining an independent third-party analysis to determine if the compensation reflects FMV for the services furnished is an important safeguard.
In addition, to ensure the arrangement does not appear to reward certain physicians for referrals, there are two important factors a hospital should consider. First, understand the history of call coverage and whether or not there is a legitimate, unmet need for on-call coverage. Second, offer compensation to all eligible physicians and make certain that physicians of similar specialties receive the same per diem payment.
On-call payment market data
Although on-call payment structures vary, the daily or hourly stipend is the most prominent model in the marketplace. There are currently two on-call industry surveys providing data for these stipends: MGMA Medical Directorship and On-Call Compensation Survey (2009 Report Based on 2008 Data) and Sullivan, Cotter & Associates' 2009 Physician On-Call Pay Survey. However, essential valuation data is unavailable in these studies. Specifically, the following are important valuation factors relevant to call coverage payment data which are unknown in the surveys:
- Volume of call: in-person and via phone
- Payor mix associated with the patient population
- Physician's ability to bill and collect when seeing a patient
- Hospital's commitment to pay for the uninsured
Therefore, relying on market survey data alone will not provide a comprehensive valuation to determine fair market value. In addition, there is tremendous variance in reported on-call payment data and a low number of reported respondents in both surveys. However, the following lists the specialties for which survey data from both studies report similar median daily stipends:
- Orthopedic surgery median: $1,000 and $1,100
- Anesthesiology median: $750 and $800
- Invasive-interventional cardiology median: $775 and $800
- Ophthalmology median: $286 and $300
The above observed consistency in reported fees assists in determining a supportable valuation for these specialties. However, it is extremely important to note that factors such as volume, payor mix, acuity and specific terms of the arrangement are essential to determine if these rates are consistent with FMV. It is recommended that all of these factors be considered, as well as additional valuation methodologies.
Providing further challenges to the valuation of these arrangements is the fact that recently, more agreements are including an additional payment for the uninsured patient population.
Valuation challenges with the two payment on-call agreements
Industry observations indicate that on-call arrangements have increasingly been including an additional payment for the uninsured, or indigent patient population. This trend is expected to continue as the uninsured population is on the rise and physicians are less willing to take call.
It is important to note that when a hospital makes an additional payment to a physician for this patient population, it should be considered when determining the daily stipend. This type of arrangement guarantees the physician on-call will be compensated for his or her services when called in. From a compliance perspective, when the hospital obtains the risk of covering the uninsured for the physician on-call, the daily stipend should be less. Adjustments to the daily stipend for these additional payments should be based on the reimbursement guaranteed by the hospital and market reimbursement for professional services.
Working towards on-call compliance
If healthcare organizations are not careful in structuring call coverage arrangements, they risk non-compliance with healthcare regulations. In order to best document due diligence in ensuring the organization considered regulatory guidance in determining the on-call payment and structure, healthcare organizations should:
1. Understand FMV guidelines for determining call coverage payments.
2. Understand the OIG opinions related to on-call.
3. Document factors to show the burden of call.
4. Consider the compensation components of the arrangement.
If an on-call agreement between a physician and healthcare organization is audited by federal or state healthcare authorities, the analytical process and documentation to justify the payment is FMV will be essential in defending the compensation level.
This article is not to be construed as legal advice; it is to provide insight to valuation guidelines related to FMV.
Jen Johnson oversees the valuation of professional service arrangements at VMG Health, a national health care transaction and advisory firm in Dallas. Prior to that she was a finance professor at the University of North Texas and worked in KPMG's forensic and litigation department. She may be reached by e-mail at jenj@vmghealth.com or at (214) 369-4888.