When assessing the fair market value (FMV) of a hospital’s professional services arrangement with an independent physician group, valuators often consider:
- What services are being provided?
- How is the group paid?
While these two questions are important to answer, it is important to consider a third, often forgotten question—what services is the hospital providing to the physician group? Services provided by the hospital may take the form of support staff and collaborators. In particular, advanced practice providers (APPs), who have become increasingly prominent with the rise of team-based care, are a value-added component of many professional services arrangements. If APPs are employed by the hospital but support an independent physician group, their services must be considered in the valuation of the payment being made by the hospital to the group.
In fact, the recognition (or lack thereof) of value-added APP services in professional service arrangements has become a pressing issue for regulatory agencies such as the US Department of Justice (DOJ) Office of Inspector General (OIG). Below are examples of impermissible and permissible APP support arrangements that organizations should consider to avoid regulatory scrutiny and intervention. Failure to do so may result in multimillion-dollar settlements, not to mention nonmonetary costs such as time to settle allegations and reputation damage.
Impermissible APP Support Arrangement: Detroit Medical Center (DMC)
The OIG alleged that between January 1, 2014, and December 31, 2017, DMC provided the services of employed APPs to 13 independent physicians at no cost or at compensation below FMV in violation of the Anti-Kickback Statute (AKS). In the OIG’s perspective, these “free" APP services were provided due to the large volume of referrals from the benefiting physicians, and the APPs’ services incentivized the physicians to refer patients to the health system.
In 2023, DMC, Vanguard Health Systems, and Tenet Healthcare Corporation agreed to pay nearly $30 million to the government to resolve allegations that they violated the False Claims Act (FCA) due to free or compensation-below-FMV APP services.
This case demonstrates how remuneration for independent physician group services can be more than cash compensation alone. Instead, organizations must consider the total scope of remuneration provided to the group, including monetary and nonmonetary units of value.
Permissible APP Support Arrangement: OIG Report
The DOJ issued an advisory opinion that directly outlines the characteristics of permissible APP support arrangements with independent physician groups:
- The group should not be compensated for services provided by hospital-employed providers.
- If the group bills for its services, the services alone should meet the requirements of billing guidelines. In other words, the group should not bill for services rendered by providers outside of their group.
- If the group collaborates with hospital-employed APPs, it must do so according to medical best practices and in a regulatory-compliant fashion. This may include factors such as thorough communication between the APP and physicians, physicians continuing to provide active care (e.g., daily rounding), and physicians maintaining accountability for patient care.
- Lucrative settings such as surgical departments are of particular risk for violation due to the increased incentive for high-value referrals.
While these guidelines are specific to the scenario submitted by a single organization, the message is clear—independent physician groups should not benefit from hospital-employed providers (financially and/or in time and resources) without paying FMV for their services.
What Healthcare Organizations Should Do
Figure 1 summarizes the key characteristics of permissible and impermissible APP support arrangements that health systems should consider when contracting with independent physician groups.
Figure 1: The Do’s and Don’ts of APP Support Arrangements
About ECG’s Valuation Team
ECG's Valuation Services practice helps health systems mitigate regulatory risk through a comprehensive suite of services, resources, and tools. We routinely assist clients in the evaluation of their financial arrangements with physicians to ensure they are consistent with FMV guidelines and commercially reasonable, as well as the establishment criteria for evaluating compensation arrangements specific to the organization and its risk tolerance. We firmly believe that integrating risk management into organizational strategy creates value and enhances protection against adverse outcomes.
Editor: Matt Maslin
Published June 5, 2024
