A New Solution for an Old Problem By Dan Mulholland

Transcription

1 DEFERRED COMPENSATION FOR ER CALL AND COMMUNITY SERVICE A New Solution for an Old Problem By Dan Mulholland To pay or not to pay? That has been the question for many hospitals faced with requests or demands from physicians for payment for on-call coverage. While from the hospital's standpoint, the traditional voluntary call coverage system is clearly preferable, circumstances may be present that render this option untenable. Understandably, many physicians are upset with having to serve on call. Getting up in the middle of the night and not being paid for the services provided would wear thin on anyone after a while. Also, there is a tremendous amount of pressure on physicians from increasing medical malpractice premiums and declining reimbursement, among other things. This all adds up to more and more physicians requesting that hospitals compensate them for call coverage. A few quick calculations will demonstrate to any hospital considering paying for coverage that it could quickly become a financial black hole. One way for hospitals to address this dilemma is to compensate physicians who provide ER call coverage and other services to support the hospital's community service mission through deferred compensation plans, rather than on a "pay as you go" basis. Deferred compensation can prove to be a "win-win" proposition for both the physicians and hospital, and more closely align their interests Horty, Springer & Mattern, P.C. 1

2 A deferred compensation plan for ER call would look something like this. Physicians who are to be paid for call coverage would sign a personal services agreement with the hospital. The agreement would specify the call duties of the physician and the rate of pay. But instead of paying the doctor now, the amount earned would be credited to a deferred compensation plan which would only be paid to the doctor five or ten years later if he or she continues to fulfill the obligations of the agreement. All the while, the amounts credited to the physician would be invested pursuant to the physician's directions, and not be subject to tax until the future vesting date. Since a "nonqualified" deferred compensation plan can be set up by tax-exempt charitable organizations or state and local government entities under Internal Revenue Code Section 457(f), so that it is not subject to the nondiscrimination rules imposed by ERISA, a hospital can pick and choose whom to cover. Such plans can also be set up for independent contractors as well as employees. The on-call service burden does not fall equally on all physicians on the Medical Staff, so a decision could be made whether to offer the plan only to those specialists who are really impacted by on-call coverage, or to every physician who provides coverage. In addition, there are no limits on the amount that can be contributed to an account. Thus, there is room for a lot of creativity in other words, it can be designed by a hospital based on its criteria and needs. Also, it is flexible in that a hospital could change the annual limit that will be contributed to the plan on an annual basis. The advantage to physicians is that the deferred compensation account accumulates income on a tax-deferred basis. That is, tax liability for the payments and investment income does not occur until the predetermined vesting date. Physicians can tie that 2007 Horty, Springer & Mattern, P.C. 2

3 date to a family event, such as sending their children to college or their anticipated retirement. Deferred compensation plans are also attractive for physician groups and hospitals that are trying to recruit physicians to the community, since the groups can tell recruits that there is a way for the recruits to supplement their retirement savings. Finally, deferred compensation can be available at any age. So, if a physician wants to retire at age 55 or 58, deferred compensation can provide a bridge to get them to the point at which the physician can access his or her qualified retirement income. Before a hospital can make a decision about compensation for call coverage deferred or otherwise it is important to base that decision on facts, not the emotional perceptions of the parties. A task force made up of Board members, management and medical staff leaders should be assembled to perform a specialty-by-specialty analysis of the burden of on-call coverage and whether payment is appropriate. Some of the factors the task force will want to consider including are: how often physicians had to come into the Emergency Department as opposed to providing a phone consultation when on call, the level and intensity of services provided when the physicians did respond, and how often physicians were not paid for services. If, after considering the recommendations of the task force, the Board decides to offer payment for on-call coverage, it can (and should) set an annual cap on the amount the hospital is prepared to pay. Then it can determine how this amount will be distributed among the specialties, and the circumstances under which payment will be made Horty, Springer & Mattern, P.C. 3

4 The key question for the Board in determining what to pay is: how much the hospital can afford and what is reasonable. The annual cap should not be set based on a percentage of the bottom line of the hospital, since an argument could be made that the compensation then varies depending on the participating physicians' referrals to the hospital, thus raising Stark and anti-kickback issues. Moreover, the amount to be paid must reflect the fair market value of the physicians' services so as not to run afoul of the anti-kickback statute or the Stark laws. Before deciding to pay for call coverage, the hospital should also review its medical staff bylaws to determine whether there is a provision which states that call coverage without compensation is an obligation of Medical Staff appointment. If there is such a provision, physicians cannot be paid for call coverage unless there is a revision to the bylaws, since the argument could be made that the physicians are contractually bound to provide on-call services for free. Also, if a hospital with hospital-based physicians such as radiologists has an exclusive contract that calls for 24/7 ER coverage by the group, physicians in that specialty should not be compensated since they are already required to provide that coverage. Finally, physicians who have agreed to provide call coverage in return for some other contractual benefit such as a recruitment income guarantee or medical directorship should not be eligible for additional payment. After a decision has been made to pay for call coverage, the total amount that will be earmarked for this purpose, which specialties will be paid, and how much each specialist will be paid, an account is set up in the name of each participating physician. Once a physician has provided call coverage, the amount is credited to his or her deferred compensation account. The money in the account grows on a tax Horty, Springer & Mattern, P.C. 4

5 deferred basis. The physician can direct the investment of the account by picking among several menu options, similar to 401(k) plans. After a period of time, usually between five and ten years, the account is vested. Distribution and tax liability occur as of the vesting date. In addition, a personal services agreement between the hospital and each participating physician is executed. The personal services agreement outlines the services that the physician agrees to provide and the compensation that will be paid into the account. The personal services agreement also specifies that if certain events occur, the physician forfeits any money in the account. In order to gain tax-deferred treatment, there must be a substantial risk of forfeiture of the amount in the account that has not vested. The conditions of forfeiture must also be set forth in advance. Examples of forfeiture events could include a situation where a physician refuses call coverage in the future, leaves the community, has an ownership or investment interest in a competing facility, or no longer participates in Medicare or Medicaid. The total amount in the physician's account at that time is forfeited. Amounts that are forfeited are returned to the hospital and can be used to fund the account in future years. As with any financial relationship between hospitals and physicians, it is advisable to fit within an anti-kickback safe harbor. In this case the safe harbor for personal services and management contracts set forth at 42 CFR (d) would apply. It is also essential to fit the arrangement within the Stark exception for personal services arrangements set forth at 42 CFR (d). Aside from the technical requirements of those regulations, the most important features of any ER call pay arrangement (deferred or not) is that the amount paid be commercially reasonable and reflect the fair market value of the physician's services. Amounts paid must also not vary based 2007 Horty, Springer & Mattern, P.C. 5

6 on the volume or value of patients referred to or business otherwise generated for the hospital by the physician. The Medicare program has recognized that hospitals may pay reasonable amounts to physicians to guarantee coverage for their emergency departments. Such coverage is specifically mandated by the Emergency Medical Treatment and Active Labor Act. In particular, the Medicare Provider Reimbursement Manual, states: Wide variations can occur in the utilization of hospital emergency department services and hospitals cannot always schedule physician staffing at a level commensurate with the actual volume of services rendered. As a result, emergency department physicians may spend a portion of their time in an availability status awaiting the arrival of patients. Alternatively, hospitals may need to arrange for emergency department physician coverage for evenings, weekends or holidays, when staff or community physicians are not available. Since these periods frequently generate inadequate physician revenue through charges for professional services due to lower utilization, hospitals may have to offer physicians supplemental compensation or minimum compensation guarantees to secure coverage of emergency departments. When emergency department physicians are compensated on an hourly or salary basis or under a minimum guarantee arrangement ( E) providers may include a reasonable amount in allowable costs for emergency department physician availability services subject to limitation through the application of Reasonable Compensation Equivalents (RCEs). The most recent publication of the Reasonable Compensation Equivalents (RCE) amounts occurred in Fed. Register (August 1, 2003). Hourly rates for eight different specialties range between $65 and $110 per hour depending 2007 Horty, Springer & Mattern, P.C. 6

7 on the specialty and whether the hospital is in a rural or urban area. Assuming a 12 hour call shift, this would translate into a defensible range of $780 to $1320 per call shift. Another reliable benchmark would be the Stark hourly rate safe harbors described at 42 C.F.R However, these rates are somewhat difficult to calculate since they require several different sources that may or may not be readily available. Hospitals may also want to rely on surveys or other reliable third party data, or even an independent valuation opinion as to the reasonableness of proposed payment rates. Regardless of how much is paid or the methodology used, the issue of how best to provide ER call coverage will not go away. The deferred compensation model is just one more way of addressing the problem Horty, Springer & Mattern, P.C. 7