Have you structured your hospital-based physician contracts to address all aspects of compliance? Hospitalist agreements involve unique compliance and financial issues, particularly when global payments and advanced practice providers are involved. Risks include indirect compensation, billing and other compliance issues. This presentation will discuss compliance risks and provide guidance on how to structure compliant contracts and business arrangements.

1. COMPLIANCE AND
LEGAL RISKS IN LABORIST,
SURGICALIST, AND
HOSPITALIST
ARRANGEMENTS
December 12, 2019

2. Penny Stroud
• CEO and Co-Founder, MD Ranger.
• Founder and health care consultant with Cattaneo & Stroud,
Inc. since 1978 – expertise includes business planning,
market analysis, contract analysis and compliance
programs, physician development plans and market
strategies.
• Trusted advisor to health systems, boards, and physician
leaders as they position for the future and identify market
opportunities.
• Member of Medical Advisory Board of California Transplant
Donor Network and Northern California Chapter of the
Cystic Fibrosis Foundation.
2

3. Joe Aguilar
• Partner, HMS Valuation Partners.
• Over 25 years of extensive clinical and healthcare
management experience.
• Specializes in providing FMV opinions and complex
compensation transactions to ensure Stark, Anti-
Kickback, and/or IRS compliance for various clients
including healthcare systems, hospitals, law firms and
private equity firms.
• Technical expertise and clinical insight, three master’s
degrees and hands-on experience as a Board-Certified
nurse practitioner specializing in women’s health.
3

4. Heather Deixler
• Corporate Associate, Latham & Watkins LLP. Certified
Information Privacy Professional (CIPP/US and
CIPP/E).
• Counsels public and private companies operating in the
healthcare and life science industries on transactional
and regulatory matters.
• Advises hospitals, physician organizations on privacy,
physician self-referral, and fraud and abuse.
• Chair of the ABA Health Law Section eHealth, Privacy
and Security Interest Group, and Vice-Chair of the
AHLA Health Information and Technology Practice
Group’s Educational Programs.
4

5. Today’s agenda
• Introductions
• Overview of hospitalist contracts
• Legal and compliance issues
• Structuring compliant contracts
• Case Studies
• Q&A Session
5

6. OVERVIEW
6

7. Background
• Hospitalist programs have become increasingly
common over the past ten years. In 2015 only
37% of MD Ranger hospitals reported a general
hospitalist program compared to 63% in 2019.
• Payments for hospital-based physician services
are now the largest component of hospital
payments for non-salary physician contracts,
reaching an average of $4.4 million annually.
• Specialty-specific hospitalist programs have
become increasingly common, in response to
industry standards, the increasing cost of call
coverage and the growing division between
inpatient and outpatient medical practices.
Hospital
Expenditures by
Type of Physician
Contract (Non-
Salary)
Percent of Hospitals
Paying by Contract Type
Source: MD Ranger 2019 Benchmark Report
Source: MD Ranger 2019 Benchmark Report
Call
Coverage
37%
Direction
9%Leadership/
Other 1%
Hospital
Based
53%
0% 20% 40% 60%
General
All Non-General
Laborists
Pediatric
Psychiatry
Orthopedic
Any Type Stipend Direction Coverage
7

8. High payments for on-call panels can lead to hospitalist
programs that address more than ED coverage
• Call pay rates have increased 34% since
2009, with many hospital-based service rates
among the highest
• Total payments vary widely across specialties
depending on factors such as:
• Onsite hours
• Scope of service
• Size of program
• Payer mix
• Most hospitals wrap ED call into the
hospitalist program and do not have a
separate ED call panel. Emerging hospitalists
specialties include neurology/neurosurgery
and orthopedics, particularly at trauma
centers and comprehensive stroke centers.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
25 Median 75 90
2016 2017 2018 2019
Median 75th
First Call $800 $1,200
2nd Call $500 $800
Total $1,300 $2,000
Annual $474,500 $730,000
Source: MD Ranger 2019 Benchmark Report
Source: MD Ranger 2019 Benchmark Report
OB Hospitalist
Benchmarks:
Total Annual
Payments
Excluding
Medical
Direction
Per Diem OB
First and
Second Call
Emergency
Coverage
Benchmarks
8

9. Multiple factors contribute to initiating
hospitalists programs
• Regulatory requirements
• Coverage challenges
• Accreditation standards
• Clinical outcomes and protocols
• For example:
“An OB/GYN hospitalist program may afford office-based
physicians greater autonomy over their personal lives by
responding to obstetric emergencies and urgent needs as
well as providing coverage for the physician’s laboring
patients if they are unavailable, cannot get to the hospital,
are in the middle of busy office hours, or have scheduled
operative cases.”
ACOG Committee Opinion #657, February 2016
https://www.acog.org/Clinical-Guidance-and-Publications/Committee-Opinions/Committee-on-Patient-Safety-and-
Quality-Improvement/The-Obstetric-and-Gynecologic-Hospitalist
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10. LEGAL AND COMPLIANCE ISSUES
10

11. Legal factors to consider
• Undue Benefit to Community Physicians
• Advanced Practice Providers (NPs, PAs, CMNs)
used by community MDs
• Scope of services provided by MD v APP
• Who employs and bills
• Fair market value and commercial reasonableness
of all payments associated with the contract AND
the service
• Stipends
• Salaries
• Call Coverage
• Medical Director Agreements
• Testing, etc.
11

12. Fraud and abuse laws
Stark Law
• Prohibits referrals for the provision of “designated health services” from physicians
to health care providers with which they have financial relationships unless an
exception applies
• Physician may not refer
• Provider may not bill
• Strict liability – no intent required
• Penalties include fines + exclusion from participation in Federal health care
programs
Anti-Kickback Statute (AKS)
• Prohibits remuneration in exchange for referrals or other business
• Intent is required, but “One Purpose” test
• Violation is a felony (potential civil and criminal fines, exclusion and/or
imprisonment)
False Claims Act (FCA)
• Prohibits submission of false or fraudulent claims to the government
• Liability attaches to those who present, or cause another to present
• Government uses FCA to enforce violations of the AKS and Stark Law
• Many actions are brought by individuals (i.e., whistleblowers)
• Treble damages + mandatory minimum penalty provisions
State Fraud and Abuse Laws
• May be broader in scope; apply to government programs, commercial insurance
and self-pay
12

13. Billing and collecting challenges
• Global payments / Fee For Service
• Commercial payors / billing guidelines
• Medicare / Medicaid reimbursement
models / payment initiatives:
• E/M visit – split/shared with Hospital-
employed APP?
• Who bills for the service? Has physician
performed enough of the E/M visit to earn
the full payment?
13

14. Enforcement highlights:
2018 settlement with UPMC/Medicor
• UPMC Hamot (Hamot), a hospital based in Erie, Pennsylvania
and Medicor Associates Inc. (Medicor), a regional physician
cardiology practice, paid the government $20,750,000 to settle a
FCA lawsuit alleging that they knowingly submitted claims to the
Medicare and Medicaid programs that violated Stark and AKS
• Lawsuit alleged UPMC Hamot paid Medicor up to $2 million per
year for nearly a decade under shod services arrangements
created to secure patient referrals. In some cases the services
were either unneeded, duplicative, or never performed.
• Lawsuit filed by whistleblower Dr. Tullio Emanuele, who worked
for Medicor from 2001 to 2005, under the qui tam provisions of
the False Claims Act.
• Dr. Emanuele was compensated $6 million under the settlement.
Source: https://www.justice.gov/opa/pr/pennsylvania-hospital-and-cardiology-group-agree-pay-2075-million-settle-allegations
14

15. Enforcement highlights:
2019 settlement with Sutter Health/Sacramento Cardiovascular
Surgeons Medical Group
• On Nov. 15, 2019, DOJ announced that Sutter Health (Sutter)
and Sacramento Cardiovascular Surgeons Medical Group (Sac
Cardio) will pay a combined $46 million to resolve allegations
arising from claims they submitted to Medicare
• As part of the settlement, Sutter Memorial Center Sacramento
(SMCS) will pay $30.5 million to settle allegations that they
violated the Stark Law from 2012-14 by billing Medicare for
services referred by Sac Cardio physicians whom SMCS
compensated in excess of FMV, allegedly stacking Physician
Assistants Agreement, Medical Director Agreements and Call
Coverage Agreements
• Sac Cardio will pay approx. $500,000 for allegedly submitting
duplicative bills to Medicare for services performed by PAs that it
was leasing to SMCS
• Former compliance officer of Sutter Medical Center, Laurie
Hanvey, filed lawsuit and will receive nearly $6 million under the
settlement.
Source: https://www.justice.gov/opa/pr/california-health-system-and-surgical-group-agree-settle-claims-arising-improper-compensation15

16. STRUCTURING COMPLIANT CONTRACTS
1616

17. Key considerations for
all agreements
What specific service is being performed by whom?
• Involving multiple providers in the delivery of pre/post care under a Global Package
Service
Who is the service for under the agreement?
• Coverage for Unassigned Patients vs Assigned Patients of Community Physicians
and/or Employed Physicians
Who is required to perform the service?
• Use of appropriate benchmark data in the analysis (i.e. choice of specialty,
compensation, productivity)
• PA/NP use by service
How are the parties compensated? Who bills for what?
• Billing and Collection for Services Performed and/or Cooperative Payment Methods
• Per Delivery Fees paid by Community Physicians
• Laborist Participation Fees based on volume of deliveries
Are all payments associated with the service commercially reasonable and
at fair market value for the services provided?
• Medical Directorship Compensation
• GME Services
• Payor of Last Resort Terms
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18. CASE STUDIES
18

19. OB Laborist agreement:
Case Study
What is the specific service?
• Laborist Program for Hospital that delivers approximately 1,800 births
• OB delivery services and/or postpartum hospital care
Who is the service for under the agreement?
• 15% are unassigned patients (i.e. pre-term deliveries, trauma, etc.)
• Patients of community and employed (non-laborist) physicians when
they are unable to attend the delivery
Who is performing the service?
• Community OB/GYNs
• Hospital Employed OB/GYNs (non-laborists)
• Certified nurse midwives
• Laborists through Professional Services Agreement
How are the parties compensated? Who bills for what?
• Global delivery package is billed by either community or employed
non-laborist physician at time of delivery (exception is Medicaid,
FQHC/RHC)
• Who pays CNMs/APPs?
19

20. Services and value under the
global obstetrical package
Delivery Services are a part of the Global Obstetrical Package:
• Prenatal Care, eelivery, and postpartum care
• Each component of the global package contributes to
the total reimbursement and wRVUs, but service is
billed and paid once as a single payment
• Providers may not unbundle the global delivery code
when a recipient receives OB services from more than
one provider in the same group and delivery is
performed by a provider in the same group.
In other words, both the community OB/GYNs and the
hospital-employed non-laborist OB/GYNs are billing a global
service for their commercial patients, regardless of who
attends the actual delivery
20
20

21. Delivery services 40% of global obstetrical package
Vaginal Delivery C-Section Delivery
Description of Service WRVU1 Medicare
Allowable1
WRVU1 Medicare
Allowable1
Delivery Services
Admit History & Physical Exam (99222) 2.61 $141.17 2.61 $141.17
Management of Uncomplicated Labor
3
4.10 $247.40 5.79 $348.97
Delivery
3
6.05 $364.39 6.12 $369.28
Delivery of Placenta (59414) 1.61 $95.89 1.61 $95.89
Total Delivery Services 14.37 $848.85 16.13 $955.30
Postpartum Care
Inpatient Follow-Up (99232) 1.39 $75.18 2.15 $115.67
Discharge Visit (99238) 1.28 $75.54 1.28 $75.54
Post Discharge Follow-Up (99213) 0.97 $84.62 1.91 $169.84
Total Postpartum Care 3.64 $235.34 5.34 $361.05
Delivery and Postpartum Care 18.01 $1,084.18 21.47 $1,316.34
Prenatal Care Services 14.15 $1,087.21 14.17 $1,090.57
Global Delivery Package 32.16 $2,171.40 35.64 $2,406.91
40% of
total
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22. OB Laborist Service:
Compliance risk shared by all
Hospital Risk
• FMV compliance risk of overpaying laborist group if compensation does not take into account
cooperative payment methods (for community MD patients) or uses incorrect survey specialty to value
compensation (laborists are generally paid less than private practice OBs)
• FMV compliance risk of overpaying employed non-laborist physicians for services they did not perform
• Billing compliance risk if hospital employs a CNM or NP to help provide obstetrical services
• Compliance risk associated with providing undue benefit to community/employed physicians if they do
not pay enough for deliveries performed by the laborist or hospital-employed CNM
Community Physician Practice Risk
• Compliance risk of submitting False Claims for services not performed by the billing entity
• Compliance risk of receiving undue benefit from the hospital
Employed Physician Risk
• FMV compliance risk of being overcompensated associated with being paid on services that they did not
perform for deliveries by laborists
22

23. OB Laborists:
Two perspectives
Hidden value of delivery services
• FMV subsidy payment under a hospital-based
Professional Services Agreement (PSA) and
value to the community physicians
Potential overpayment: paying for
services not performed
• FMV compensation of employed non-laborist
physicians when deliveries are provided
through a laborist service
23

24. The Hidden Value of Delivery Services
Units
Collections
per Unit
Laborist Collections =
Services Performed
Laborist Collections =
Less Deliveries
Gyn Cases 24 $1,000 $24,000 $24,000
L&D Visits 1500 $70 $105,000 $105,000
OB Delivery Only 360 $885 $318,600 $0
Total Revenues: $447,600 $129,000
Expenses:
Physician Costs $1,200,000 $1,200,000
Professional Liability $60,000 $60,000
Operating Expenses $126,000 $126,000
Total Expenses: $1,386,000 $1,386,000
Implied Subsidy $938,400 $1,257,000
DELIVERY VALUE EMBEDDED IN SUBSIDY = $318,600 (FMV $885 per Delivery)
(A
)
LESS (B
)
24

25. Potential overpayment to employed hospital physician:
Paying for services not performed
MD Keeps Credit
for Global Services,
Including Delivery
MD Keeps Credit
for Global Services,
Less Delivery
# of wRVUs Performed by Employed
Physician 5,000 5,000
# of wRVUs for Deliveries Performed
by Laborist 2,000 0
Total wRVUs for Compensation
Calculation 7,000 5,000
FMV wRVU Conversion Rate: $40 $40
Total Employed Physician
Compensation $280,000 $200,000
POTENTIAL OVERPAYMENT ASSOCIATED
WITH DELIVERIES NOT PERFORMED =
$80,000
25

26. Surgicalist PSA using
hospital employed NP/PAs: Case Study
What is the specific service?
• Trauma/Surgicalist program for hospital that pays a per diem rate
• Emergent Acute Care General Surgery, Trauma ICU Coverage
through discharge, follow-up
Who is the service for under the agreement?
• Patients needing emergent non-elective surgery and/or surgical
evaluation
Who is performing the service?
• Three (3) physicians under one entity through a Professional
Services Agreement
• Hospital decided recently to employ a PA to assist the service with
pre-operative care, interim care management, and discharge
planning
How are the parties compensated? Who bills for what?
• Surgeries are billed by the contractor under the PSA
• Many surgeries have a global period of a specified number of days
pre and post surgery
26

27. PA services as an undue benefit
PA VALUE EMBEDDED IN SUBSIDY = $240,000
(A
)
LESS (B
)
Surgicalist Service -
PA Employed by Contractor
Surgicalist Service -
PA Employed by Hospital
Total Revenues: $1,000,000 $1,000,000
Expenses:
Physician Costs $1,200,000 $1,200,000
APP Costs - Employed by Hospital $240,000 -
Professional Liability $60,000 $60,000
Operating Expenses $126,000 $126,000
Total Expenses: $1,626,000 $1,386,000
Implied Subsidy $626,000 $386,000
27

28. Identifying FMV compliance risks:
Both sides of the equation
Hospital risk
• The value of the PA must be considered when
determining the per diem FMV rate
• Excluded in cases where hospital employs
PA
• Hospital receives FMV lease payment from
Surgicalist group for PA services
Surgicalist group risk
• Compliance risk associated with the non-
monetary compensation provided to the
Surgicalist group through the PA services
Advanced Practice Providers (e.g. NPs,
PAs, Midwives, CRNAs) have a
material impact on the transactional
value of a service largely derived from
their ability to bill for professional
services and/or procedures
28

29. Identifying billing compliance risk:
Both sides of the equation
Hospital risk
• Hospital may be in violation of the Stark Law by
exceeding the non-monetary compensation limit of
approximately $400 per year.
Surgicalist group risk
• Claims for services must be billed by the rendering
provider. Potential concern arises from hospital-
employed PA providing pre-operative or post-
operative care within the global period.
• Split or shared visits within the global period can only
be shared amongst providers employed by the same
entity
29

30. 5 takeaways to ensure compliance
Define the specific services to be provided
 Unassigned OB patients vs assigned OB patients
 Understand global package and/or global period associated with services
Define who is performing the service
 Community providers
 Contractor providers
 Hospital employed non-laborist providers
Define compensation terms for PSAs based on services performed:
 Community practices should avoid billing compliance risks associated with services
performed by providers outside of their group
 Include cooperative payment methods with professional collections in determining the FMV
subsidy
 Set appropriate rates for delivery of private/employed physicians’ patients
Define compensation terms for employed physicians based on services
performed:
 Pay for services performed
 Adjust collections and/or wRVUs for services performed by other providers
Understand the role any APPs
 Who employs them?
 What services do they provide?
 Who bills for their services?
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31. Q&A SESSION
31

32. Let’s talk
⁃ pstroud@mdranger.com or 650-692-8873
⁃ joe.aguilar@hmsvalue.com or 678.984.6435
⁃ heather.deixler@lw.com or 415-745-5757
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