Compensation paid to physicians is under constant scrutiny as the number of healthcare settlements
continues to rise both in number and in settlement awards. There has also been a shift by
qui tam relators and the government to include
both physicians and medical practices in
enforcement action cases. Recent settlements
have demonstrated the severe financial implications of improper financial relationships as
shown in the Table 1 on page 36.
Staying within the law
But what does all this mean? The answer is
that any compensation paid to a physician
must meet several requirements. It
must be commercially reasonable.
In the preamble to the Stark Phase
II interim final rule, CMS defined
commercially reasonable as:
[A]n arrangement will be considered commercially reasonable in the
absence of referrals if the arrangement would make commercial
sense if entered into by a reasonable
entity of similar type and size and
a reasonable physician (or family
member or group practice) of similar scope and specialty, even if there
were no potential designated health
services referrals. 3
Physician compensation must also be
consistent with fair market value (FMV).
by Bartt B. Warner, CVA and Thomas A. Warrington, Jr., CVA
Keys to compliance
» Compensation paid to physicians is under constant scrutiny as the number of healthcare settlements continues to rise both
in number and in settlement awards.
» Compensation paid to a physician must be commercially reasonable, consistent with fair market value (FMV), and not
in violation of other laws and regulations designed to prevent fraud and abuse.
» Stacked compensation refers to taking the individual components of a physician compensation arrangement and adding
them up to derive total compensation.
» If each individual component is consistent with FMV, that does not automatically mean the total stacked compensation is
» By thinking through each component of a physician’s agreement and asking the appropriate questions, hospitals and health
systems can reduce the risk of enforcement actions for their physician arrangements.
Bartt B. Warner (Bartt. Warner@vmghealth.com) is a Director and
Thomas A. Warrington, Jr. (Thomas. Warrington@vmghealth.com) is a
Managing Director with VMG Health and both are based in VMG Health’s