Recently, Adventist Health System agreed to pay the United States $115 million to settle allegations that the system violated the False Claims Act as a result of allegedly maintaining improper compensation arrangements with physicians. This settlement is significant for numerous reasons in addition to the fact that the settlement reached $100 million dollars. Specifically, this settlement represents a change in the ways in which hospitals have become accustomed to compensating physicians. Having an in-depth understanding of the allegations surrounding the settlement is necessary to understand why this settlement is so significant.
Nature of the Complaint
As noted above, this settlement involved Adventist Health System. Adventist Health System is a health system operating in Florida and in numerous other states. For example, hospitals listed as a part of the complaint included hospitals located in Florida, Georgia, Illinois, Tennessee, Colorado, Texas, Kentucky, Kansas, and Wisconsin. In addition, Adventist Health System is one of the largest nonprofit health care systems in the United States. Clearly, in order to reach a settlement of over $100 million, it would be necessary to have significant operations and allegations surrounding those operations.
The relator in this case is the chief operating officer of the Adventist physician enterprise division. It is not clear from the complaint what specifically this division is responsible for other than the fact that the division regularly had interactions with the member hospitals around the country that were under the umbrella of Adventist Health System in relation to those local hospital relationships with physicians. In addition, the complaint discusses several instances in which the COO alleged that meetings took place in various hospitals within Adventist Health System in which discussions of physician compensation were the primary focus.
As noted in the settlement, the allegations relate to alleged violations of the False Claims Act. The violations stemmed from services that were provided due to prohibited financial relationships with physicians. The complaint specifies various types of illegal relationships with physicians which allegedly resulted in the false claims. These alleged illegal relationships include illegal profit sharing schemes, excessive compensation, illegal kickbacks, unlawful compensation incentives based on hospital revenue from referrals, and payments of illegal compensation to group practices in which the definition of a group practice under the circle had not been met.
The primary complaint related to the violations of the Stark Law. Specifically, it was alleged that Adventist Health System paid incentive compensation to physicians that took into account and varied with the value of referrals by the physicians to Adventist Health System hospitals for designated health services. The relator alleged that Adventist Health System paid at least 167 physicians compensation that was based upon or took into account the value of designated health service.
In several examples throughout the complaint, the relator provides concrete examples of various physician compensation methodologies. Many of the methodologies are the same in that the physicians’ compensation provided by Adventist Health System allowed the health system to break even on all physicians as it relates to their professional fees. In particular, it was alleged that the physicians would receive a base salary and quarterly bonuses that were based upon professional charges and collections. The quarterly revenue would then be subtracted by the physicians’ wages, benefits, office expenses, and any losses. In essence, it was alleged that the compensation paid to the physician allowed the hospital little if any margin based solely upon the professional services.
However, in various examples provided in the complaint, it was alleged that designated health service revenue had factored into those quarterly bonuses. In the example throughout the complaint, it was alleged that Adventist Health was regularly paying more than the contract allowed for. Although these alleged arrangements with physicians are significant, what is more significant is that the complaint alludes to a topic that is not discussed much within health systems: the ways in which physicians receive productivity compensation where the actual services were provided by non-physicians such as nurse practitioners and physician assistants.
Compensation Includes Non-Physician Productivity
Although it is customary in private practice for physicians to receive the revenue generated by non-physician practitioners such as nurse practitioners or physicians assistants, because of the Stark Law such is not the case in hospital settings (See Page 14). For example, under the employment exception a physician is able to receive productivity bonuses solely related to the personally performed services of that physician. What does this mean? This means that a physician who is employed by the hospital can only receive compensation based upon his or her professional services.
There is only one exception to this general rule. If a physician practice, that is owned by a hospital, is considered a group practice then the group practice rules for compensation would kick in. In the event a hospital owned physician practice meets the group practice definition, those physicians may receive productivity compensation based upon services performed “incident to” the physician’s professional services. We have discussed the complexities of incident to billing and the Adventist Health System complaint alleged that there may have been issues in this area. Even independent contractor physicians that fit within the personal services exception can only receive compensation based upon their personally performed services. Therefore, if the group practice definition is not met, physicians cannot receive productivity compensation based upon services of nurse practitioners or physician assistants.
Why Does This Change Everything?
This may have a large impact on the ways in which hospitals pay physicians for multiple reasons. First, hospitals have historically not employed physicians but the number of hospital employed physicians has increased significantly over the past decade. Second, the utilization of Advanced Practice Providers such as nurse practitioners and physician assistants has increased at large rates. Finally, there is often a lack of ability to formally track incident to and shared services. This combination creates a complex issue for physicians who have become accustomed to receiving compensation based upon revenues generated by other providers such as nurse practitioners and physician assistants. Above all, the Adventist Health System is significant but it is significant for reasons that might be rarely addressed as a part of physician compensation.