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Recent Settlements Reveal Stark Law Implications of Improper worked Relative Value Unit Based Physician Compensation

Many health care providers rely on a worked relative value unit (“wRVU”) based compensation model when structuring financial relationships with physicians. While wRVUs are considered an objective and fair method to compensate physicians, payments made on a wRVU basis do not always offer a blanket protection from liability under the Federal Stark Law.  As recent settlements demonstrate, wRVU based compensation arrangements that are poorly structured or improperly implemented can result in significant liability.

The wRVU physician compensation model is particularly favored for its low level of risk under the Stark Law, which prohibits physicians from making certain financially motivated referrals. While the Stark Law prohibits physician compensation based on referrals, it does permit physicians to earn certain productivity bonuses for personally performed services.  wRVUs are an accepted method in calculating performance or productivity bonuses for services personally performed by the physician.[1]

How wRVU based compensation can become problematic is illustrated by a recent $34 million settlement between the Department of Justice (“DOJ”) and defendants Mercy Hospital Springfield (the “Hospital”) and Mercy Clinic Springfield (the “Clinic”), an oncology infusion center. After the infusion center was transferred from the Clinic to the Hospital in order to take advantage of inpatient hospital reimbursement and 340B drug pricing, the physicians allegedly wanted to be “made whole” for the compensation they previously earned at the Clinic. The resulting contractual arrangements with the physicians contemplated the provision of a productivity bonus tied to the physicians’ drug administration wRVUs.

However, according to the complaint, “the new work RVU for drug administration in the hospital department” was not calculated based on physician work, clinical expense, or malpractice overhead, but rather was “solved for” by working backwards from a desired level of overall compensation.” Moreover, according to the complaint, the compensation amount for the physician supervision work at the infusion center was approximately 500 percent of the wRVU for in-clinic work where the physician was actively involved in patient care. The DOJ contended that this was a violation of the Stark Law, as the compensation was not fair market value, nor was it commercially reasonable. Additionally, the complaint included allegations of both Stark and Anti-kickback Statute violations for the funds transferred as “management fees” from the Hospital to the Clinic to fund the higher physician compensation amounts, as the fees also allegedly were not fair market value nor commercially reasonable.

The Mercy settlement is only the most recent example of a health system incurring liability for improper wRVU-based compensation arrangements. In an analogous settlement made in 2015, Broward Health in Florida agreed to pay $70 million to resolve a whistleblower lawsuit that alleged Stark Law violations.  In part, it was alleged that Broward Hospital permitted high-volume referring physicians to artificially inflate their wRVUs and, in turn, their compensation.[2]  Allegedly, this was accomplished through unbundling procedures, not considering modifiers that would reduce the compensation for multiple procedures performed, and giving wRVU credits for unsupervised PAs and NPs.  These tactics allegedly resulted in so-called “implausible” wRVU numbers for certain physicians.

These settlements are not an expression of the government’s disapproval of wRVU based compensation arrangements. Rather, these are examples of alleged arrangements that artificially increased a physician’s compensation for referrals, in a manner that is not consistent with fair market value and commercial reasonableness.  Thus, it is important to ensure that wRVU based compensation arrangements are properly structured as well as properly implemented.


Endnotes:

[1] See 42 C.F.R. § 411.352(i)(3)(i) (permitting group practice productivity bonuses based on a per-wRVU basis).

[2] See Relator’s Compl., United States ex rel. Reilly v. N. Broward Hosp. et al., No. 10-60590, ¶ 11 (S.D. Fla. Sept. 16, 2015), ECF No. 75.

©2017 Epstein Becker & Green, P.C. All rights reserved.

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Gary Herschman, Epstein Becker Law Firm, Healthcare Attorney
Member

GARY W. HERSCHMAN is a Member of the Firm in the Health Care and Life Sciences practice, in the Newark and New York offices of Epstein Becker Green. He also serves on Epstein Becker Green’s National Health Care and Life Sciences Steering Committee, and prior to joining the firm, Mr. Herschman was Co-Chair of the Health Care Practice Group of a large regional law firm. He is also a member of the firm's Board of Directors.

Mr. Herschman represents a diverse group of health care clients, including health systems, hospitals, nursing...

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Carrie Valian, Epstein Becker Law Firm, Health Care Law Attorney
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Carrie Valiant is a Member of the Firm in the Health Care and Life Sciences practice in the Washington, DC office and co-chairs the firm's health care fraud group. She is also Chair of the firm's Diversity and Professional Development Committee.

202-861-1857
Yulian Shtern, Epstein Becker Law Firm, Healthcare Law Attorney
Associate

Yulian Shtern is an Associate in the Health Care and Life Sciences practice, in the Newark office of Epstein Becker Green. Mr. Shtern’s practice focuses on representing clients in health care transactional, corporate, and regulatory matters. His clients include a broad range of health care providers, such as adult care facilities, ambulatory surgery centers, ambulette and ambulance service providers, dialysis facilities, health systems, home health agencies, hospitals, long-term care facilities, and private equity and other health care investors.

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