While we are waiting for final disposition of the AKS Safe Harbors and Stark Exceptions proposed in October of 2019, since the comment period expired December 31, 2019 and final rules have not been issued, I thought we should reflect on the comments made and proposed regulations regarding physician compensation.

Physicians have become accustomed to hospitals trying to hold down compensation with arguments that it’s illegal to pay physicians more than the revenue they generate, or we can’t exceed the 75th percentile or the 90th percentile of MGMA or other standards.  The latter portion of that comment is obviously untrue; somebody is in the top quartile and decile and they are not in jail.  It is important to recognize that, although it is prohibited to pay physicians based entirely upon the revenue they generate, except for certain productivity exceptions for bonafide compensation, that does not mean the reverse is true.  Physicians may be paid based upon fair market value even if their compensation would otherwise exceed the revenue generated by their services.

I have attached a PDF of comments from CMS/ OIG, i.e. pp. 55790-55791 regarding “Commercially Reasonable” and pp. 55796-55799 regarding “Fair Market Value”, wherein they recognize that commercially reasonable/fair market value can encompass situations in which the compensation exceeds the potential revenue or national standards. Click the links to read the comments: pp. 55790-55791  and  pp. 55796-55799.

CMS acknowledged compelling concerns of commenters when they explain that, even knowing when the compensation arrangement may result in losses, it may not only be reasonable but necessary in situations governed by community need, timely access, fulfillment of license or obligations, and talent, improvement of quality health outcomes.  I am sure there are many circumstances when specialists and even primary care physicians are serving hospitals in areas with insufficient volume to pay what would otherwise be the average going rate, but that physician is absolutely necessary in that community.  Nobody questions that.

On page 134, CMS acknowledges that it could be possible to pay an orthopedic surgeon more than the going rate because of his or her national stature and expertise.

Obviously none of this justifies routinely disregarding the national fair market value data or the revenue sources, but it does indicate that those arrangements are not per se illegal, just subject to the rule of reason.