This article is more than 5 years old. Information may no longer be current.
Hospital may choose a cautious approach to physician compensation
Click Here to Manage Email Alerts
A qui tam lawsuit, often called a whistleblower case, in Florida involves a hospital’s compensation to some employed neurosurgeons, psychiatrists and oncologists.
The relator (the person bringing the lawsuit) has made a number of allegations against the hospital, including claims that the physicians were paid above fair market rates, and received credit in their compensation based on the hospital’s operating margin and ancillary services in a way that violated the Stark Law. This case is likely to cause hospitals to try to lower compensation to physicians.
Cautionary tale
Rather than analyze the legal claims in that case and their merit, I will focus on the psychological impact the case is likely to have – it will terrify most hospitals. The government has elected to intervene in the case, and the health care press is tossing around damage figures in the $600 million range.
Whether or not Halifax did anything improper, it is highly likely that hospitals will view the case as a cautionary tale and carefully scrutinize physician compensation. There are already many hospitals that are reluctant to pay above a certain percentile. I have seen hospitals insist that any compensation above the 50th percentile is risky, despite the fact that, by definition, half of all physicians make more than that. It is poor analysis to focus purely on what percentile level the compensation is at, without taking into account all of the relevant circumstances, including the physician’s productivity, the difficulty of recruiting physicians to the area, and the like.
I should add that I am far from certain that many of the salary surveys completely capture physician compensation. While it is possible that my clients are skewed toward the higher end of the compensation scale, but I know that the figures I see for my clients in physician clinics frequently exceed the 90th percentile compensation in salary surveys, sometime by a considerable sum.
Penalties
The penalties for violating the Stark Law are draconian. Stark is a civil law, so you can’t go to jail for a violation, but financial penalties can include refund of all money the hospital has received for services ordered by a physician with whom the hospital had an improper relationship.
Imagine that a surgeon has done 300 surgeries at a hospital, each with $40,000 in reimbursement. If a court were to determine that the physician was overpaid by $10,000 by the hospital, then it is theoretically possible that the Stark penalty would be $12 million. That doesn’t even include potential False Claims Act penalties of $5,500 to $11,000 per claim, which could add another $1.65 million to $3.2 million. While there are constitutional arguments that the penalty there is disproportionate to the improper act, it is easy to see why a hospital may choose a cautious approach to physician compensation.
The bottom line is that many hospitals are going to point to the Halifax Hospital case as justification for lowering compensation to employed physicians. When you combine that case with the likelihood that hospital reimbursement is likely to fall, physicians should be cautious before concluding that hospital employment is likely to result in a more appealing financial situation than private practice.