From Pro Forma to Proactive

As hospitals buy physician practices, board compensation oversight must shift into high gear

By Chris Terranova Asselta and Timothy C. Reed

As health care organizations evolve and compensation models shift, board review of physician compensation increasingly is under scrutiny. In some cases, organizations can be penalized. For example, a health system in the Midwest paid a $4.5 million settlement pertaining to five physicians who allegedly were paid two to three times market value. Another system faced a $30 million settlement for alleged improper lease and independent contractor arrangements.

In addition to actions brought by the Department of Justice, whistleblowers can make claims, some of which are spurious. On top of the cost of addressing such claims, the organization’s reputation can be damaged. Fortunately, there are best practices for boards to use in evaluating physician compensation, exercising due diligence and ensuring high standards of fiduciary oversight.

Changing Models

More physicians are accepting employment or merging their practices with health care organizations. In addition to provisions for base salaries, agreements commonly involve signing bonuses, incentive bonuses, nonqualified deferred compensation, severance, retention provisions and forgivable loans, all of which should be subject to fair market value evaluation, both as stand-alone arrangements and cumulatively in terms of their impact on total compensation (value of all cash and benefits arrangements). These acquisitions are taking place in the context of evolving care delivery and reimbursement models.

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