Hot Topics in Provider Compensation

Health care provider compensation has always been a complex and evolving issue, but in today’s regulatory and economic environment, the stakes are even higher. Liz Neiberg, Director, Stout, and Alex Olesen, Associate, Hall Render Killian Heath & Lyman PC, discuss what’s hot right now in provider compensation, including medical directorship arrangements and hospital-based arrangements (with a focus on radiology and anesthesiology). They also highlight some key enforcement trends. Sponsored by Stout.

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Transcript

SPEAKER_01 0:05

This episode of AHLA Speaking of Health Law is sponsored by Stout. For more information, visit Stout.com.

SPEAKER_00 0:17

Hi everyone, my name is Liz Nijberg. I'm a director at STUT, a global advisory firm specializing in corporate finance, accounting, and transaction advisory, valuation, financial disputes, claims, and investigations. I focus my work exclusively in the healthcare valuation group, specifically on the valuation of provider compensation arrangements. I've been doing this for over 11 years now. Previously, I was with healthcare appraisers before we joined Stout a little less than two years ago.

SPEAKER_02 0:50

Hello, everyone. I am Alex Olson. I'm an attorney with Hall Render, which is a national law firm focused exclusively on matters specific to the healthcare industry. I am based in our Denver office and focus my legal practice on provider financial arrangements, physician contracting, and fraud and abuse matters. Before becoming an attorney, I spent 12 years working in provider compensation and ended that career as director of provider compensation at Banner Health, where I was responsible for hospital-based physician financial arrangements. I am excited to be here today.

SPEAKER_00 1:20

Today, we're going to explore a few hot topics in the provider compensation space, including medical directorship arrangements and hospital-based arrangements. We'll also highlight some key enforcement trends. Whether you're a healthcare executive, legal professional, or just curious about what's happening in this arena, hopefully we can provide some insights that can assist. Now, before we dive in, we want to point out that these are views of myself and Alex and are not necessarily the views of HLA, Hallrender, or Stout. All right, let's get right into it. Healthcare provider compensation has always been a complex and evolving issue, but in today's regulatory and economic environment, the stakes are higher than ever. With increasing scrutiny from enforcement agencies coupled with shifting market dynamics, health systems are often faced with a tricky balancing act in structuring their compensation arrangements to ensure that they are both competitive and compliant.

SPEAKER_02 2:21

And obviously, when we're talking about financial arrangements with physicians and other referral sources, on the top of everyone's mind are the federal anti-kickback statute and physician self-referral law or the STARK law. And to help mitigate the risk of a potential legal violation and resulting consequences, it is important to ensure financial arrangements with referral sources are structured to be defensible under these laws and other applicable federal and state laws and regulations. Violations may be detrimental to an organization, as penalties for violations are substantial and include civil and criminal liability, including fines and potential prison time. And the organization could even be required to enter into a corporate integrity integrity agreement. So I just want to provide a brief overview of these laws to set the stage for our discussion. First, the STARK law only applies to financial relationships with physicians and their immediate family members and prohibits physicians from making referrals for designated health services to any entity with which the physician has a financial relationship with, and that entity for billing for such a referral, unless an exception is met. Furthermore, STARK law is a strict liability statute, meaning that financial arrangement must be structured to meet a STARK exception. There is no intent requirement for a violation. Whereas the anti-kickback statute applies to all referral sources and is an intent-based criminal statute that prohibits the exchange of something of value for referrals of services or other items payable under federal health care programs. However, courts have found that the anti-kickback statute is violated if just one purpose of the arrangement was to induce referrals, regardless of whether there were other legitimate purposes. And while not required, compliance with an exception or safe harbor under the anti-kickback statute will prevent a hospital from being sanctioned under the statute. So organizations should structure compensation arrangements to meet a safe harbor. Also, a violation of the Stark Law or anti-kickback statute may also trigger a false claims act violation. There are numerous available exceptions and safe harbors under the Stark Law and anti-kickback statute. However, one common requirement is for the compensation arrangement to comply with the big three, which is the compensation must be fair market value, the arrangement must be commercially reasonable, and the compensation cannot be determined in a manner that takes into account the volume or value of referrals or other business generated between the parties. Now, saying that compensation has to be fair market value and commercially reasonable, terms that can feel vague but are critical for avoiding legal trouble. And as enforcement trends ramp up, the stakes for getting it wrong are higher than ever.

SPEAKER_00 5:01

Now that Alex has touched briefly on the definition of stark and anti-kickback, let's quickly set the stage for what it means to ensure that an arrangement is commercially reasonable and fair market value. When we think of commercial reasonableness and healthcare valuation, we need to consider whether entering into the arrangement in question makes sense from a business perspective, even if no referrals were involved. In other words, does the arrangement make operational sense? As set forth by the Centers for Medicare and Medicaid Services, or CMS, with respective physicians' referrals to healthcare entities that they have a financial relationship with, the term commercially reasonable means that the arrangement in question actually furthers a legitimate business purpose for the parties. Additionally, CMS specifies that the arrangement must be sensible when considering the characteristics of the parties, including their size, type, scope, and specialty. So, stated another way, one should ask: are the services actually needed? If so, are they appropriately structured? Ultimately, an organization should feel confident that the parties would still enter into the arrangement in question and compensation would be provided even if no referrals came from it. In our practice, when we think about the commercial reasonableness of an arrangement, I often ask the why question. Why is this arrangement needed? Why is compensation provided? Understanding the why can assist in establishing the commercial reasonableness of an arrangement. Now, separate and distinct from establishing commercial reasonableness, compensation must also reflect fair market value for the services provided. If compensation is not consistent with fair market value, even if unintentional, this can trigger scrutiny under the Stark Law andor anti-kickback statute. The definition of fair market value for services in healthcare provider compensation arrangements refers to the value in an arm's length transaction that would be paid at the time the parties enter into the service arrangement as the result of bona fide bargaining between well-informed parties that are not otherwise in a position to generate business for each other. I tend to think of it this way: if the referrals between the parties disappeared tomorrow, would the compensation still seem sensible? Fair market value is also very context dependent. Two physicians can be paid very differently, and both can be fair market value, depending on the actual services provided, the experience, sub-specialty, time, effort, and so on. At the end of the day, fair market value really is not a one size fits all.

SPEAKER_02 7:49

Louis provided a very helpful overview of the fair market value and commercial reasonableness. So let's unpack some of the key enforcement trends we've seen recently that involve allegations of a failure to comply with the big three, or fair market value, commercial reasonableness, and the volume and value standard. The Department of Justice, the Office of the Inspector General, and whistleblowers under the False Claims Act are all watching closely. And as mentioned before, the consequences for Stark Law, Anti-Kickback, and False Claims Act violations can be significant, and provider compensation arrangements have been a major focus for regulatory agencies for years. For example, Becker's recently summarized six cases it reported on in 2025 involving Stark Law, Anti-Kickback Statute, and the False Claims Act allegations, with settlements ranging from$615,000 to$31.5 million. Many included common allegations around medical director and other administrative services, in which payments were made to physicians for services that were not performed or lacked documentation supporting the payments in order to induce referrals. One case involved a New York-based hospital and a$6.8 million settlement. The allegations involved payments of over$4 million made to an oncology practice under three different agreements from medical director and management services that were not performed, were not performed as set forth in the agreement, or for which there is no time record documentation. Further, payments to the oncology practice continued following the expiration of these agreements without a written extension in place. The hospital allegedly paid these millions of dollars to the oncology practice in order to induce referrals. In a separate case, a different New York-based health system agreed to a$3.3 million settlement for allegations involving financial arrangements with independent physicians for administrative and other services, including director and physician advisor services. The government believes these arrangements failed to meet a stark law exception because the arrangements lacked commercial reasonableness, were not consistent with fair market value. It was alleged that the in the complaint that the payments were made without supporting documentation for actual services performed and also beyond the expiration of the contract. It was also alleged that many of these payments were put on auto pay and were made in an effort to induce referrals.

SPEAKER_00 10:08

It's clear from the cases that Alex has just highlighted that these types of administrative services or medical directorship arrangements have been the subject of government scrutiny recently. Many recent enforcement cases, like the ones Alex just touched on, involve allegations of improper payments for medical director, management, or other administrative services, which fits the trend of heightened scrutiny around financial arrangements for administrative services. There are several key takeaways from these cases. First, administrative services arrangements should always have a clear, written agreement that defines the duties, requires that the provider record and document their time and effort, and provides compensation that is tied only to actual services. When negotiating these types of arrangements, the parties should consider the following Do the services that are being compensated for make sense? Does the role meet a regulatory requirement? Are there real responsibilities like quality oversight, protocol, training development? Or is it just a title? Is there a real need for the physician leadership? Are the duties clearly defined? Is the role duplicative of other existing positions that the hospital currently has? Is the hospital paying a rate that aligns with what the market pays for that kind of work, that amount of time, and that level of experience? Is the compensation solely for actual services? If the compensation is a fixed annual amount based on a minimum number of annual hours, is there a provision in the agreement for a prorata reduction in the compensation in the event the physician does not provide the minimum annual hours? Obviously, this list is by no means exhaustive, but ultimately one must consider whether the arrangement would still be needed if the physician never referred a single patient to the hospital. And the work does not stop at implementation. Like all financial arrangements with physicians and referral sources to ensure an arrangement continues to remain defensible under applicable laws and regulations, an organization should feel confident that its processes and procedures will allow the contract to be administered in a compliant manner. Is the pay administration team ensuring that each payment complies with the compensation terms? If time records are required, which we recommend as a best practice, are they being submitted per the terms of the contract before any payment is made? And finally, administrative services agreements should be reviewed on a regular basis to determine whether the services are still needed or whether any changes to compensation or the arrangement needs to be made.

SPEAKER_02 12:51

And in addition to the heightened risk of medical director and other administrative services due to recent enforcement trends, another heightened area of risk for healthcare organizations and a hot topic in the provider compensation world are financial arrangements for hospital-based clinical services. These arrangements typically carry a little higher risk because the hospital-based clinical coverage has historically been secured through contracts with independent physician groups, and the Stark Law exceptions and anti-kickback statute safe harbors for which these arrangements generally fall into have more requirements that must be met when compared to the exceptions and safe harbors that apply to bona fide employment arrangements. Hospital-based provider arrangements are not just an area of potentially heightened compliance risk, but in recent years, these arrangements have become a dominating focus for discussions and negotiations among healthcare systems. These are arrangements that hospitals enter into with physicians or other healthcare providers to deliver services that are entirely hospital-based. In other words, specialties that by their nature do not have a private practice. Think emergency medicine, anesthesia, radiology, critical care, and hospital-ist programs, just to name a few. When we talk hospital-based arrangements, we're usually referring to specialties that operate in the high-demand environments and require continuous around-the-clock coverage that are critical for hospitals to maintain coverage and ensure patient care continuity. Liz, what are a few hospital-based specialties that you've worked on most in recent years?

SPEAKER_00 14:19

Great question, Alex. I think the two most recurring specialties that I've seen pop up, and as a firm we've seen pop up time and time again, have been radiology and anesthesiology.

SPEAKER_02 14:32

I would have to agree with you. And why do you think these have been such hot specialties for the past few years?

SPEAKER_00 14:38

Yeah, you know, I think it's a combination of factors. In the post-COVID era, we've seen a national shortage of radiologists, anesthesiologists, and CRNAs that's actually been exacerbated by an aging workforce, increasing retirements, and an insufficient number of new graduates to meet the demand. Whether as a result of that or just coincidence, this has ultimately driven higher compensation demands for these specialties in greater amounts than what we've seen in other specialties. Specifically, radiology compensation has increased an average of about 5% year over year, while anesthesiology compensation has increased an average of over 10% year over year.

SPEAKER_02 15:23

That is a pretty substantial increase. And in addition to higher compensation, these specialties are facing lower reimbursement from governmental payers. The combination of these factors leads to radiology and anesthesia groups asking for increased subsidies in order to cover their staffing and related expenses. And as mentioned before, these are necessary specialties for hospitals to continue to operate and generally require 24-7 coverage. The combination of these factors can undermine any leverage a hospital may have when they enter negotiations with groups that provide this coverage. However, it is important that organizations do not lose sight of regulatory requirements when structuring these arrangements. Radiology arrangements are often structured around a combination of stipend and/or per study fees. Some groups are incorporating bonuses for turnaround times or accuracy metrics as well. While it has been typical in the market to provide some level of financial support to radiology groups for interventional radiology, we have now started to see a shift in the market in which radiology groups are now requesting subsidies for diagnostic radiology services.

SPEAKER_00 16:27

Yeah, I would have to agree, Alex. Historically, from a valuation perspective, prior to probably 2020, we were infrequently valuing diagnostic radiology arrangements as an exclusive hospital-based financial arrangement. Obviously, we did value them often, but it was largely valuing the burden of a group's on-call availability or providing a per diem payment for being on call 24 hours. Now, what we've seen with the rising costs of radiology is that professional fees alone are rarely able to cover a group's overhead costs for diagnostic radiology. As a result, in recent years, hospitals began compensating these radiology groups a fixed annual stipend. What we've seen even more recently than that is yet another shift to compensating diagnostic radiology groups on a per-work RVU basis. When we think of diagnostic radiology, because these groups are able to provide the services remotely, they're able to cover multiple facilities concurrently, possibly across different hospitals and health systems. This makes assessing the fair market value more challenging, as a hospital may not have insight into other compensation the radiologist is receiving from other facilities while also providing services for their hospital. As a result, many health systems have begun shifting their structure as a per study or volume-based model rather than an annual fixed fee. This ensures that the health system is compensating the group only for services rendered. By shifting the compensation structure to a volume-based model, it allows the radiologist the ability to perform the services entirely remotely and only be paid by the hospital for the services actually performed. Productivity-based models, often tied to work RVUs, provides compensation to providers for the actual services delivered.

SPEAKER_02 18:27

And in general, volume-based pay isn't a problem, but context matters. What volume is the hospital paying for and why? If the compensation per work RVU is tied to the group's own personally performed professional work, like interpreting images, that's perfectly fine. You're paying for the actual services rendered. That's normal productivity compensation, and no issue. But payment based on the number of scans ordered by a hospital, especially if the group can influence that volume, raises red flags. And even if the volume-based compensation model makes sense, the rates have to make sense. The per study or per worker view rate has to be fair market value. The safest structures provide clear definitions of services, compensation tied to personally performed work, rates supported by market data and a third-party third-party fair market value opinion, and no formulas that rise or fall based on the referrals or hospital profits. Turning now to anesthesia, which for me was the specialty I worked on most in my refer my provider compensation days. How have you seen organizations address this shortage in anesthesia providers?

SPEAKER_00 19:30

Yeah, that's a great question, Alex. With the caveat, obviously, that state laws differ, one option that we've seen health systems and independent groups implement is to allow CRNAs to practice independently, providing anesthesia services on their own without requiring physician oversight. Obviously, one of the biggest benefits to allowing CRNAs to practice independently is the cost effectiveness to both the hospital and patients. As to be expected, CRNAs earn lower salaries than anesthesiologists, making them a more cost-effective option for hospitals and health systems who often are providing financial support for groups' costs. According to recent survey data, CRNAs earn an average annual salary of approximately$300,000 per year, whereas anesthesiologists can earn upwards of$650,000 or more per year. Additionally, by utilizing CRNAs, health systems are able to offer lower cost services to patients, helping to reduce the financial burden of surgical procedures.

SPEAKER_02 20:35

That's a great point. And additionally, it may be more financially viable for rural hospitals and smaller facilities that can potentially struggle to attract or recruit anesthesiologists to these areas to utilize cRNAs entirely. Rural areas present a challenge to recruiting healthcare providers. Fear providers are willing to work due to lifestyle preferences or lack of resources. As a result, urban and well-resourced hospitals are often able to attract anesthesia providers at more competitive compensation rates, thus leaving smaller or rural facilities struggling to compete for talent. By offering CRNAs the ability to practice independently, these more rural and underserved areas are able to offer the greatest possibility of obtaining sufficient anesthesia provider coverage, in turn enhancing efficiency in care delivery in rural or underserved areas. In fact, studies have shown that CRNAs often serve as the primary or sole anesthesia providers in rural hospitals, outpatient surgical centers, and ambulatory surgery centers, improving access to care for populations that may otherwise lack anesthesia services. Additionally, there are a few states that have not completely opted out of the federal requirement for physician supervision of CRNAs, but have partially opted out to make exceptions for critical access hospitals and other hospitals meeting specific requirements.

SPEAKER_00 21:56

Perhaps the elephant in the room is whether any Any evidence or research suggests that patient outcomes differ at all in models where CRNAs practice independently. To date, no studies have suggested yes to this inquiry. In fact, studies have shown that anesthesia care provided by CRNAs is as safe and effective as care provided by anesthesiologists. Specifically, for routine surgical procedures, CRNAs have demonstrated excellent patient outcomes that do not differ at all from those safe services provided by an anesthesiologist. Research published in Health Affairs and other journals supports the notion that cRNAs deliver high-quality care, whether in an independent practice setting or in a team-based model working alongside anesthesiologists. Speaking of team-based models, as a compromise, many healthcare systems have elected to take this route of offering a team-based care approach to staffing a hospital's anesthesia service line. We often see these in bigger hospitals with large anesthesia service lines. In a team-based care model, CRNAs work alongside anesthesiologists. The collaboration allows facilities to optimize costs while maintaining high standards of care. In these models, CRNAs would handle the routine cases, while anesthesiologists can focus on the more complex or high-risk patients. This model can help address concerns about safety while utilizing CRNAs more effectively.

SPEAKER_02 23:31

And while there are many benefits to including CRNAs and the staffing structure for anesthesia coverage, there has been pushback to allowing CRNAs to function independently. While CRNAs are trained to handle a wide range of procedures, many healthcare providers prefer anesthesiologists for high-risk patients or specialized anesthesia cases. Critics of replacing anesthesiologists with CRNAs argue that anesthesiologists have more extensive medical training, particularly in managing complex cases or emergencies. This can raise concerns about patient safety in certain situations. Additionally, hospitals cannot lose sight of medical staff bylaws, rules, and regulations, which may follow the federal supervision and not reflect the federal supervision requirements and not reflect if a state has chosen to opt out of this requirement. This is especially important for multifacility health systems that span across multiple states. It is important to keep in mind that in those states in which some level of physician supervision of CRNAs is still required, this will generally require more FTEs as compared to only staffing with anesthesiologists if CRNAs are used in the staffing model. This is an ever-evolving topic that no doubt is going to continue to be discussed going forward for years to come. And only time will tell if we see a big shift in how anesthesia services are offered.

SPEAKER_00 24:51

Absolutely. Now, while we could continue to talk at great lengths about what we're seeing in both the radiology and anesthesia space, let's now turn to some things that should be considered in hospital-based arrangements, regardless of the specialty. To prevent disputes and mitigate risk down the road, here are a few things to keep at the forefront of one's mind when parties are in negotiations. In new arrangements, is the hospital willing to provide any transition costs, such as startup costs, relocation expenses, travel expenses, and the like? Is the hospital willing to provide any recruitment support? What happens if the group fails to provide the contracted coverage for which the underlying compensation is based on? Is there a mechanism in the contract to address this and provide for the hospital to recoup any compensation? Is the hospital willing to assist with the cost of locum tenants if the group can't obtain the necessary staffing by the effective agreement date? If yes, is the locum tenants cost limited by duration and amount? Does the agreement provide for the possibility of additional coverage or surge coverage if needed? Obviously, these are just a few things to consider, but the more the parties are able to anticipate up front and address during negotiations, the better. This will reduce compliance risks that would arise if these issues needed to be addressed on the fly.

SPEAKER_02 26:18

And while we have focused mainly on hospital-based coverage arrangements with independent physicians, another trend we are beginning to see when it comes to hospital-based services is more hospitals are making the decision to employ these specialties. This may provide hospitals with greater control over quality and decisions around staffing and compensation, which typically translates into greater control over expenses. However, employing these specialties also comes with its own set of challenges. Hospitals are obviously not immune to the staffing shortages, and these are also specialties for which hospitals typically lack revenue cycle experience with, which could lead to lower reimbursement. And as a result, employment may not result in a cost savings. Given our discussion today, let's close out with a few best practices and takeaways that healthcare organizations can implement to address enforcement trends and other hot topics in the provider compensation world.

SPEAKER_00 27:11

First, healthcare organizations should frequently assess and evaluate their compliance programs, implement clear policies, provide regular training, and establish auditing and monitoring to address emerging risks. Specifically, it's critical to conduct regular audits of provider compensation arrangements. Organizations should conduct a thorough legal review of all compensation arrangements to ensure they comply with relevant laws and are commercially reasonable. Arrangements should also be reviewed on a regular basis to determine whether the services are still needed and whether any changes occurred that give rise to the need for an updated fair market value opinion. Healthcare organizations should also consider partnering with one, valuation experts to ensure arrangements are commercially reasonable and payments meet fair market value standards, and two, with legal counsel to ensure such arrangements are defensible under the STARK law and anti-kickback statute.

SPEAKER_02 28:10

Organizations should also monitor enforcement trends and stay informed about the latest government enforcement priorities and settlements to anticipate heightenaries of risk and learn from under the underlying allegations. Finally, healthcare organizations should conduct regular internal reviews and when available and appropriate, consider submitting a self-disclosure and cooperate with government investigations when issues are discovered. To wrap up, while we've covered some hot topics in the provider compensation world, it is continuously changing and it's imperative to stay up to date. Hospitals need to strike a careful balance between offering competitive compensation and ensuring compliance with federal and state laws and regulations. It's a challenging task, but with the right strategies and right support, it's absolutely achievable.

SPEAKER_00 28:57

This concludes our podcast. Thank you so much for listening. And if you have any questions or concerns about your organization's provider financial arrangements, please do not hesitate to reach out to either one of us. Thanks so much.

SPEAKER_01 29:14

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