Addressing Physician Compensation within Rural Healthcare

Fatema ZanziAttorney

Drinker Biddle & Reath LLP

Speaker Panel

Jennifer JunisChief Nursing

Officer OSF Saint Luke Medical Center

Karen KoleManager

Huron Consulting Group

Kevin MarxChief Practice

OfficerKatherine Shaw Bethea Hospital

Agenda

1. Introductions2. Physician Alignment Options3. Legal Framework4. Fair Market Value Considerations 5. Examples of Physician Compensation Models

• OSF Saint Luke Medical Center: Medical Directorship and Mid-Level recruitment

• Katherine Shaw Bethea Hospital: Physician Employment and Residency recruitment

3

Physician Alignment Options

4

LessIntegration

On-Call CoverageAgreement

MSOServices

JointVenture

ProfessionalServices

Agreement“PSA”

HospitalEmployment

FullIntegration

SpaceLeases

Medical Admin.Services

Agreement (Medical

Directorship)Physician

RecruitmentMedical StaffMembership

Captive PC orSubsidiary

Employment Model

Foundation/Clinic Model

Co-Management Agreement

Legal Framework

• The “Rule” Book• Federal laws

• Stark Law• Anti-Kickback Law• IRS Tax Exemption

• State laws• Illinois Medical Practice Act has a fee-splitting

prohibition• Illinois anti-kickback and self-referral prohibitions

5

Legal Framework: Common Themes

• Is the compensation consistent with the fair market value (FMV)?

• Value in arm’s length transactions, consistent with the general market value:

– General market value: The compensation that would be included in a service agreement as the result of bona fide bargaining between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, at the time of the service agreement.

– Fair market price: Generally based on bona fide comparable services agreements, where the compensation has not taken into account the volume or value of anticipated or actual referrals.

(42 C.F.R. 411.351)

6

Legal Framework:Common Themes (II)• Is the arrangement commercially

reasonable?• Assessing commercial reasonableness is separate

from the analysis of FMV:– While FMV applies to the level of compensation for the physician’s

services, commercial reasonableness applies to broader business issues related to the arrangement.

– Commercial reasonableness is especially important in arrangements that include compensation for administrative and other non-clinical services.

• The services covered by the arrangement should be essential to the operation of the hospital/system and/or to addressing specific community needs

• Services provided are fully described.• Hospital demonstrates sound business reason/need for the services.• Physician must actually provide the services as evidenced by

records/reviews.7

Valuation Considerations• Document and define the need• Review various methods of compensation:

• Determine financial pro forma with new compensation arrangement

• Determining fair market value• Reviewing multiple market surveys.• Considering unique factors, including availability of such physician

services in the rural market.

8

Medical Directorships Co-Management Agreements On-Call Pay

Base Salary Productivity-Based Quality Bonus

Sign-on Bonus Relocation Bonus Performance Incentive

Drive Time Loan Forgiveness Benefits

Risks to Watch Out For

• Guaranteed Compensation• Long-term Contracts• Stacking payments• Not including all aspects of compensation in

fair market value calculations• No compensation cap• Proposed compensation and purchase price• Inconsistency

9

OSF Saint Luke Medical Center• Critical Access Hospital with 25 licensed

beds• Not-for-profit and tax-exempt• Has a Rural Health Clinic onsite

• Located in Kewanee, Illinois (Henry County)• Serving Kewanee and surrounding towns

and rural areas since 1919• Built replacement hospital that opened on

May 31, 2008• Recently merged with OSF Healthcare

System on April 1, 201410

Medical Director Model

• Dyad structure with aligned goals• Medical Director compensation based on

goal achievement• OSF Saint Luke Medical Center Emergency

Department Case Study

11

12

30 - Overall, would you rate the quality of care provided as:

13

Advanced Practice Nurse Model

• Inability to recruit Primary Care Physicians• Hospitalist Program started to allow

outpatient practice in clinic• Family Practice APNs as a foundation versus

extension• Rural Health Clinic Case Study

• Certified Diabetic Educator• Behavior Health Certified• Registered Dietician

14

Katherine Shaw Bethea Hospital

• Independent, Not-for-Profit Hospital Located in Dixon, IL

• 80 Licensed Beds

• $126M Net Revenue

• 65 Employed Physicians

15

Recruiting Journey

• Started in 1990

• Established “Center for Health Services”

• Leveraged Geography for Scholarship Recipients

• Networked with Illinois RMED

• Dixon Rural Training Track

• Developed Niche for International Medical Graduates

16

Fair Day’s Work for a Fair Day’s Pay

• Employed Physicians are Salaried

• Work/Life Balance, Community Citizenship

• CPI and Occasional Adjustments

• All “One Off” Deals

17

Burning Platform

• Growing Number of PCP’s

• Maturing Specialty Practices

• Varying Practice Styles

• Expected Cost Pressures

• Physician Engagement

18

Transition to Value

• Tiered Salary with Bonus Potential

• 10% Tied to Quality

• PCP’s First, Then Specialists

• Larger Specialty Groups for Hospital-Based Services

• Expect Fall-Out

19

QUESTIONS?

20

21

Karen KoleHuron Consulting Group550 W. Van Buren Street Chicago, Illinois 60607(312) 880-3457kkole@huronconsultinggroup.com

Kevin MarxKatherine Shaw Bethea Hospital403 E. 1st St. Dixon, IL 61021(815) 285-8510KMarx@ksbhospital.com

Fatema ZanziDrinker Biddle & Reath LLP191 N. Wacker Dr., Ste. 3700Chicago, IL 60606-1698(312) 569-1285Fatema.Zanzi@dbr.com

Jennifer JunisOSF Saint Luke Medical Center1051 W. South St. P.O. Box 747 Kewanee, IL 61443(309) 852-7524 Jennifer.A.Junis@osfhealthcare.org