Becker's Hospital Review

12 Sign up for the COMPLIMENTARY Becker's Hospital Review CEO Report & CFO Report E-Weeklies at www.BeckersHospitalReview.com or call (800) 417-2035 Mr. Haupert sees PCMHs and primary care as wise investments, but in light of the narrow financial margins typically shared by safety-nets, Grady is also trying to increase patient access and capacity through internal improvements. It identified improvements to its physician training model, for example, that would create opportunity for more than 100,000 additional appointments per year at its neighborhood clinics with existing resources. Still, despite these new clinical offerings and sites of care, Grady and other safety-nets may be faced with some hard decisions in the years ahead about cutting clinical programs. Depending on the market, this may not be the worst outcome, according to Mr. Belokrinitsky. Some safety-nets, as well as many community hospitals, were founded to be "one-stop shops" where patients could go for all types of care, particularly in communities with no other healthcare providers. "For most communities, this is no longer the case," says Mr. Belokrinitsky. "Now other hospitals have popped up that specialize in cardiology, oncology and other specialties, taking the most profitable business and providing care in better facilities." Safety-nets may have to decide whether they should continue offering everything to everybody, or instead focus its portfolio of service lines and double down on those. It's a matter of how the system will reallocate its resources. Will safety-nets begin to pose a threat? In most markets, safety-net hospitals have not posed much of a threat to their competitors. This is particularly true for urban areas with large, aca- Physician Compensation: 10 Core Legal and Regulatory Concepts (continued from page 1) of lab services for patients whose referring physicians had a financial interest in the laboratories. Today, the Stark Law generally prohibits a physician or immediate family member who has a financial relationship with an entity, such as a hospital, from making referrals to that entity for "designated health services" covered by Medicare, unless a specific exception applies. The Stark Act, like the Anti-Kickback Statute, has an exception for bona fide employment arrangements. The Stark Law is a strict liability statute and civil penalties may be imposed for violations.  b. The Anti-Kickback Statute, known as the Fraud and Abuse Statute, makes it a crime to pay, offer, solicit or receive remuneration, directly or indirectly, to induce referrals or services of Medicare or Medicaid business, unless a safe harbor applies. If an arrangement does not meet a safe harbor, the arrangement is not presumptively illegal, rather because the statute is intentbased the payment or receipt of payment must also be made "knowingly and willfully." However, the statute is worded broadly, and in order to constitute a violation, only one purpose of the payment must be to influence referrals. A violation of the Anti-Kickback Statute is a felony. c. The Internal Revenue Code provides for certain nonprofit entities, such as hospitals, to qualify as a 501(c)(3) organization exempt from federal income taxation. This exemption provides demic medical centers. But this may change within the next few years. Mr. Haupert says he's already seeing more health systems in the Atlanta area vie for the newly insured — a patient population not traditionally targeted in hospitals' marketing and communication efforts. "Our reputation has always been that we're here for everybody," he says. "There are patients that — because they've always been welcomed here and felt safe — won't go anywhere else regardless. We're beginning to see some of the other health systems' marketing campaigns [say things like], 'We're here for everybody.' [They're realizing they] better be open to fact that there are more insured patients in the market." Shifting public perception takes a lot in terms of strategic planning and capital investment, but also in the demands placed on physicians and staff. It's a new mission, essentially, that may require more competitive attitudes from safety-net providers. "It's a big change in mindset," says Mr. Belokrinitsky with Booz & Company. "Physicians and staff go to work every day not just with the mission of, 'I have to close the breach,' but with the mission of, 'I have to be excellent and competitive with other entities in my market.'" Mr. Haupert says he's already heard that a couple of competing systems in Atlanta aren't too comfortable with the role Grady is taking on in the community, especially as it reinforces a few select service lines. "That means they're saying, 'We're not used to Grady competing. Grady is just here to take all the underinsured patients,'" says Mr. Haupert. "It's not an outcry, but there's definitely a conversation and undertone of that nature." n numerous benefits in addition to tax exemption, such as the ability to apply for certain grants and use of tax-exempt bond financing. The exemption also carries many obligations, such as the requirement that organization must serve a public, rather than a private, interest. The IRS regulations create special rules regarding compensation structures for employed physicians. Specifically, a tax-exempt hospital cannot pay more than reasonable compensation for services rendered to the organization. Violations of the IRS guidelines may cause a hospital to lose its tax-exempt status and may result in the imposition of civil sanctions. 2. Bona fide employment arrangements. Both the Stark Law and the Anti-Kickback Statute contemplate employment of physicians by hospitals, and accordingly, both include an exception to accommodate the compensation paid by a hospital employer to a physician employee. The Bona Fide Employment Relationship exception to the Stark Law provides that physicians are permitted to be compensated as employees of hospitals as long as the amount paid to the physician is (i) for identifiable services, (ii) is consistent with the fair market value for services performed, and (iii) is not determined in a manner that takes into account the volume or value of referrals by the referring physician to the hospital. Further, the remuneration provided under the employment agreement between the hospital and physician must be commercially reasonable even if no referrals were made by the physician to the hospital. The Anti-Kickback Statute safe harbor for employment relation- ships is not as narrow as the Stark Law exception and provides that "remuneration" does not include any compensation paid by an employer to an employee, who has a bona fide employment relationship with the employer.   3. Fair market value requirement. To comply with the laws described above, compensation paid to physicians by hospitals must be generally consistent with fair market value and not take into consideration the value or volume of referrals an employed physician may bring to the hospital or the hospital's affiliates. Specifically, a hospital may not base any part of a physician's compensation on the expected value of business the physician will refer to the hospital.  Rather, the compensation must be consistent with fair market value for the actual services provided by the physician on behalf of the hospital.  It is generally permissible to pay a physician fair market value for his or her own personal productivity. Fair market value is defined by the Stark Law as the "value in arm's length transactions, consistent with the general market value…" The federal regulations have interpreted "general market value" to refer to the compensation that would be included in a service agreement as the result of a bona fide bargaining arrangement 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. The safest approach for determining fair market value is to seek an independent valuation firm to perform a compensation review.

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