In this episode, Jana Kolarik, a partner in Ā鶹ֱ²„ā€™s Health Care Practice Group, and Angie Caldwell, principal and CFO of PYA, continue their discussion on the importance of work relative value units (wRVUs) and fair market value (FMV) under the Stark Law and what this can mean for how health care organizations pay their physicians.

For more information regarding the ā€œLetā€™s Talk Complianceā€ podcast series, please click here.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Angie Caldwell

Hello and welcome to the Let’s Talk Compliance podcast series of Health Care Law Today, presented by Ā鶹ֱ²„ & Lardner and PYA. I’m your co-host, Angie Caldwell, principal with PYA.

Jana Kolarik

Hi, and I’m your other co-host, Jana Kolarik, a partner in Ā鶹ֱ²„’s health care practice group. We’re excited to have you join us today. Before we begin our show, we want to remind you to subscribe to Health Care Law Today on your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com. For today’s show, Angie and I are continuing our discussion on the importance of Work Relative Value Units, or wRVUs and fair market value, which we’ll refer to as FMV under the Stark Law and what this can mean for how health care organizations pay their physicians and we’re going to focus on best practices.

Great to see you, Angie, and thanks for doing this follow-up discussion of our favorite topics.

Angie Caldwell

Always great to be here with you. Thank you.

Jana Kolarik

So in our last, this is a two-parter, so in our last discussion, we talked a lot about productivity modeling in wRVU with some recommendations related to it. We had also, just to kind of orient the audience as well, we had talked about planning issues and transparency and some of this stuff we’re going to talk about related to best practices in one of our prior podcasts, I think podcast episode 35, which was in November of 2024, time flies. So I recommend our audience, if they’re interested in a deeper dive into some of those issues, they listen back at that. But today we’re going to be talking about that best practices and some of this modeling stuff related to that.

I just want to remind folks about the Stark Law. Not that anybody really forgets that’s probably listening to this, but that is a driver of a bunch of these concerns related to FMV and the compensation modeling that we get into. So really quickly, and you know I love to wax poetic on this, Angie, but I’ll try to be quick. The Stark Law provides that a physician who has a direct or indirect financial relationship with a designated health service entity or DHS entity or who as an immediate family member with that type of relationship may not make a referral for the furnishing of that DHS for which payment otherwise may be made under Medicare unless an exception applies. Further, an entity that furnishes that DHS pursuant to that prohibited referral may not present or cause to be presented a claim or bill to Medicare or any other individual third party payer or other entity for the DHS performed pursuant to the prohibited referral again, unless an exception applies.

So this means really at its base that when a financial relationship falls under the Stark Law and a physician’s referral of the patient can’t satisfy the regulatory exception, the submission of a claim to Medicare for the service would trigger a violation of the Stark Law.

Okay. The Stark Law only applies to Medicare claims, but that’s a huge federal health care program for most of our listeners. It covers only relationships with physicians, but intent is irrelevant. So it is a strict liability statute. It’s a civil statute. There are penalties. It obviously prohibits payments based on its terms, and it also provides for civil monetary penalties, and it can lead to False Claims Act (FCA) exposure. So again, regulatory exceptions are required.

The big ā€œtwoā€ [exceptions] that you and I talk about a lot are the bona fide employment exception and the personal services arrangement exception. So the employment exception is obviously for employed relationships and the other one is for independent contract arrangements.

Well, we’re going to focus on FMV, which is applicable to both exceptions, as is commercial reasonableness. But that FMV issue can be and is tricky for folks and maintaining or keeping track of FMV is essential throughout the entire relationship. Again, as we have said many, many times, it’s not a set it and forget it. So we don’t just talk to you, set the compensation plan and then move on with our lives. We have to ensure that it is continuing to be FMV. Some of the things that we’ve talked in the past, and we’ll talk in more detail here and I’m very interested in information from you on that, .

But let’s talk about best practices for compensation reviews. Essentially the contract is important, right? So ensuring that at its base you have a contract that on its terms is FMV at the beginning and can maintain FMV throughout the entire term of the agreement. Transparency about the terms of the agreement is important as you’re planning with physicians and as you’re planning internally and checks of FMV throughout the term of the agreement is also important. And so we’ll talk a little bit about some of that stuff.

And then the catching problematic arrangements early is important because as we’ve discussed, reconciliation or known in other terms, ā€œclawbacksā€ are uncomfortable, but necessary. I mean, it should be built into contracts, the ability to do [reconciliations] to maintain FMV. But let’s talk about with all that intro, what are some best practices for annual compensation reviews?

Angie Caldwell

That was so comprehensive in a very short period of time. So kudos to you for boiling it down. So giving and feeding off of my Gen Z children, I’m going to say it’s giving FMV vibes, right? Every year is giving FMV vibes. So let’s talk about a great policy for helping an organization determine and maintain FMV for their arrangements.

First and foremost, we need to start with a well-defined policy or process. So even that at times, because within that well-defined policy and process, we have to think about the organization’s philosophy, compensation philosophy. We have to understand the organization’s risk tolerance. We have to think about volume of arrangements and the administrative burden of maintaining this policy or process. So all of that thought goes into the calculus of determining that policy.

Then within the policy and the question that PYA often gets asked, and I’m sure that you get asked this as well, Jana, is what should the thresholds be? So we have a process for reviewing, but what are my guardrails? When do I know? How do I set guardrails or thresholds for deciding if I have a problem?

And so the policy and the process should define those thresholds. And so let’s talk about those thresholds a little bit and what they should be. So sometimes we talk about them in terms of slices or perhaps we talk about this in terms of tiers. And before I go down this path, I want to caution our listeners that one test in any tier within the determination of what you do with an arrangement and whether it requires additional review or not, probably more than one test is appropriate. So you and I on prior podcasts and likely the one that you referred to from 2024, we likely talked about bright lines around the 75th percentile or perhaps the notion that everything that’s paid at median is automatically FMV. So not to say that the 75th and the 50th aren’t great thresholds for starting a review, but adding a second element to that review is likely very important.

So let’s talk about that just in a little bit more detail. So within those tiers, what a best practice would be would be to create a mechanism such that you are looking at all of your physicians either annually or in some kind of cadence, annually best practice. I have seen some every other year when the risk tolerance within the organization or perhaps comp philosophy allowed for it, but probably an annual review. And you really want to catch, and this is something you had in your opening comments, Jana, you really want to catch the horse before it’s out of the barn. And that’s why then you’re doing these reviews on an annual basis, even if the contract doesn’t have a renewal clause or an update for two or more years. So you’re looking at this every year and making sure that everything is still good, that it’s still within FMV.

So first tier maybe is you compare the compensation, work RVUs, comp per work RVU, the differential between productivity and compensation, perhaps you use the median as a starting point and if a physician meets all of those tests within tier one, nothing is required. They’ve passed the test. If they fall out of that, they don’t hit those tests, they fail one of those tests. Then perhaps the second slice is more of an internal review and documentation. And so with that then you’re looking at, well, why did they fail the test? Is it because of location? Perhaps a physician is in a rural location. Perhaps they failed the test because within the compensation plan, there’s an experience clause that puts additional compensation because of experience. Perhaps they have unique training. Perhaps there’s a need, perhaps there’s a desperate need for the physician.

Then a third tier, going down, so you hit the second tier and you’ve decided that the second tier means that you have an internal review process or perhaps after the internal review process, it still doesn’t make sense. You’re still as an organization concerned about FMV, so then you document a third and enhanced review, which perhaps increases the benchmark thresholds from the 50th to the 75th. Again, not just one, not just one 75th percentile total compensation, total cash compensation, but perhaps you’re looking at a compensation per work RVU threshold with that. You’re looking at a productivity threshold with that and you’re looking at the differential between productivity and compensation with that in addition to what you’ve already gathered in tier one and tier two.

Your slice three or your tier three, if you still are failing, the arrangement is still failing all of those tests, then they fall into that outlier category, which would at that point probably require an external review and help from someone, an external evaluator.

So with all of that in mind, just to recap, best practices, document a policy and procedure, make sure that you have the ability to follow the policy and procedure and measure on a timely basis, annual being best practice, but then also let’s think about transparency and how much then gets disclosed to the physician as it relates to these tests on an annual basis. So again, just thinking about how uncomfortable perhaps a clawback is if this is part of the process and if the process has been communicated to a physician as part of their annual education process, it’s a much easier conversation. It’s not a surprise to the physician. So Jana, helping me think about that then as a best practice related to physician education, what are some of the key takeaways or key learning objectives that should be part of a physician education?

Jana Kolarik

Yeah. And thanks Angie, that’s super helpful background and understanding really the layers that can go into this analysis for organizations I think is super important to understand. So from an education perspective and from a transparency perspective, the discussion about the Stark Law, the discussion about kickback, the foundational legal reasons for why the organization is concerned about these issues should be part of the discussion and the need for FMV should be part of it. There should be contract provisions that obviously maintain FMV as I’ve mentioned. I think they should be at the sole discretion of the employer. So that’s because there can be some debates around the edges of these issues, but foundationally as the employer, there is a responsibility and a seen responsibility by that employer to maintain compliance with FMV. So in the end, it’s got to be at the discretion of the employer as to whether something is FMV.

But those processes that you mentioned, like what are the different steps that are gone through to analyze FMV is completely appropriate to talk about and to talk and to have that transparency, for example, and we’ll get into some of this and we’ve gotten into it in the past, but if you have a component of the compensation that deals with productivity and you’re dealing with wRVUs, having those wRVUs be transparent to the physician so they understand where they stand and understand too how they are calculated. So we’ve talked in the past about modifier adjusting and so forth and so on. So all of that and that education as to how physicians are compensated is very important so that it doesn’t end up being a surprise when they get their check or surprise at the end of the year if there is an issue with FMV, it should be a dialoguing issue.

The other piece of this that I think is important is that if it is necessary to maintain FMV, that the contract allows those reconciliations. And we can talk a little bit about what this looks like from your perspective, but from my perspective, reconciling as frequently as you can is fantastic if you can do it quarterly makes sense because then you have a sense as you go through the year, annually can be challenging just because folks don’t know where they stand at various points during the year. So those are frankly things that pop immediately to mind as I’m thinking about transparency and education.

Angie Caldwell

I think too with that communication, physicians need to understand why the organization does things the way that they do. And with that understanding, and again, not to the minutia, not to the point where specific confidential matters are disclosed across arrangement types or anything like that, but the physician having a general sense as to why the organization approaches things the way that they do and that general compensation philosophy I think is really important because the physicians, as we hope that they do, have colleagues all over the country and are likely receiving information about other organizations and the way other organizations do things. And without the context of how their organization is doing things, then I think it just becomes maybe a burr in the saddle, if you will, because they just don’t understand their organization’s philosophy and approach, which is likely very much to pay the physician for their personally performed services at FMV. It is a recruiting and retention problem if the physician is not paid at FMV . And so again, it’s really to the benefit of everyone to maintain this and communicate transparently around it.

Jana Kolarik

Agreed. And I think to the point that you just made, it plays into trust. So the transparency plays into the trust that the physicians have related to what’s happening. But I also think that there’s a lot of information that floats around amongst physicians that are in different contexts and so are compensated differently because of their context. So we’ve talked in the past about the group practice and the group practice exception and compensation through the group practice. Look, if you can meet those standards under Stark and the In-Office Ancillary Services Exception, you from a group practice perspective are not concerned about FMV because you are meeting the other nine factors that go into the group practice and the other factors that go into In-Office Ancillary Services Exception. But that world is very different than the world of the employment exception and the hospital situation where we’re living with the employment exception, which must be FMV and that has some rigor around it.

Can you talk to me a little bit, because you and I have talked about people’s understanding FMV as a number. Can you talk to me about what FMV is from a valuation perspective? What does that mean in your world?

Angie Caldwell

Yes. FMV is not algorithmic. It is not a formula, it’s not a plus, minus, divide, multiply, equals one number. FMV is a range and the range is determined by a valuator, an appraiser who is taking into account all of the individual facts and circumstances that they can gather, that they can muster around the arrangement in determining that range. So benchmark data, wonderful, and we’ve probably said this on a prior podcast, benchmark data is wonderful, but it is a starting place and in and of itself does not determine FMV. It’s a starting place for those individual facts and circumstances. And within each individual element, there is a range of compensation that within an individual market makes sense. And so when an appraiser is looking at compensation, again, it is a range and then the upper end of the range is typically where individuals focus. What is the range at which if I stick a toe over, then it becomes a problem?

And the upper end of a range, I’ve got to tell you, as an appraiser, that upper end of the range is very important because it’s the range at which we buckle down and then it’s not a dollar or more unless there is a change in fact or circumstance that would drive a new analysis or perhaps an update to that analysis. In all of your appraiser opinions that you’ve probably seen, Jana, and I’ve seen a few other appraiser opinions other than PYA, we will say, you might get a different answer if you ask someone else, and that’s because FMV is in a range, it’s not algorithmic, it’s not a formula, and someone may look at something a little different. But at the end of the day, even the high end should be within a range in and of itself to match the market dynamics and the personally performed services of the physician.

Jana Kolarik

And I think a lot of this … I think we talk about complex arrangements. So we talk about highly compensated physicians and a lot of these issues with compensation and with FMV come into play with very complicated arrangements that are at play and with physicians that are highly compensated where that art that is valuation becomes important to understand or have somebody on your speed dial. So talk to me about what happens if the annual review reveals a problem from your perspective.

Angie Caldwell

Yes. And then absolutely I want to hear your perspective too because there are a lot of tentacles to this. When you find yourself in a hole, your first step is to stop digging. So when you find a problem, stop digging and make a plan. The first thing is to check your data, make sure that what you are seeing is perhaps a problem or a test failure if we refer back to the tiering and the test within the tiering. If you get to that point, first and foremost, double check your data, make sure that what you’re looking at is accurate and that you can reperform the math in a way that still reveals an issue. That’s first and foremost.

Then it’s a matter of deciding again, do you need internal or external support related to this? Part of this is {keeping} confidentiality within your committee and within your group once a problem is identified. Again, if you have the level of transparency that we are speaking about earlier with respect to physician education, when that problem is revealed, if you have that level of transparency and education, it’s an opportunity to double down and to get really serious about the data, the information, all of the facts and assumptions determining if you need external support either from someone like me, Jana, or someone like you or perhaps both when the problem takes it to that level and we’ll come back to that in just a minute.

Then too, after you get your support gathered and you determine what you need, there is an analysis {around the} need to fix the problem that caused the arrangement to be at issue so that it doesn’t repeat itself. And so that then comes back to communication, trust, contractual arrangements, and then determining if the problem is systemic. The problem could very well be isolated to one arrangement and one physician, but if there is an underlying system issue, the way work RVUs are calculated, the way the systems are looking at those, maybe there’s something else systemic that’s happening, you want to not only fix the arrangement, but you want to fix the system around the arrangement to make sure that it doesn’t happen again.

So Jana, talk to me about your perspective on this and when there is a problem, what steps should be taken? And even in the worst of scenarios, what happens when you have the worst situation and you even might have to have a disclosure, talk to me a little bit about that.

Jana Kolarik

I think it’s the internal processes, like you had mentioned, the plan that’s in place, the process that’s in place, that should save you most of the time. So if you’re midstream with a contract and you have the ability to clawback or adjust, then you can solve for FMV issues without necessitating a repayment or a self-disclosure. So I think it’s important those provisions in the contract are not intended to be punitive to anybody. They’re really intended to be safety valves for a process that is intended to keep this [arrangement] within FMV and keep everybody compliant. So I think that is the immediate sort of reaction to we might have an issue. And if you find it early enough, that can be a saving grace.

With regard to if you find it well into the process, which happens after time has passed, again, if it’s an employee there is frequently the ability or there is the ability if that person continues to be an employee to reconcile the payments that have been overpaid and get those repaid to the entity such that it isn’t an issue and there isn’t a need for a self-disclosure. So that’s the other piece of it. Even if time is passed, you’re not midstream. If there is a relationship there and an understanding of the process and the transparency that goes along with it, some of those discussions can be had and that problem can be rectified.

In the situation where the physician has left – is no longer employed – or the physician is frankly unwilling to repay the amount of money that’s been overpaid, then you’re in a situation of thinking through the self-disclosure options with regard to Centers for Medicare & Medicaid Services (CMS).

And that process is I’ve dealt with it frequently CMS is actually a good regulatory agency to deal with. The process is relatively straightforward and the settlement is typically not for the full amount of the Medicare payments, but rather a percentage, but that process in writing up the self-disclosure and making that happen and fixing the problem, as you’ve mentioned, is important because when you do file that self-disclosure, you want to make sure and you have to attest to the fact that the problem has been fixed. So if it’s the systemic issues that you’re mentioning, if it’s the calculation of the wRVUs that’s been problematic, fix that. If it’s the contract provisions that have just become problematic, fix that. So I think no matter what it is, the fixing of it is super important.

So I think from my perspective, those are the things that I would highlight. As far as bringing you in, I love to see processes that with the more straightforward compensation arrangements allow the use of surveys and the ability for organizations to handle this internally. So that there are these safety valves that you and I help them put in place, that they’re able to pull levers and ensure compliance throughout the year for most of their arrangements. It’s for those ones that are more complicated that I frequently become involved with more closely and then we’ll bring in you, someone like you as a valuation consultant to help navigate next steps with regard to compensation planning and FMV and explaining what happened if it is unclear to the organization at that point. So that from just a resources perspective is typically how it would be ideal to handle. So what are your thoughts on that?

Angie Caldwell

I couldn’t agree more. My preference is also an internal process to know, understand, find and resolve. And then really only when there is a matter that has some stickiness to it that an external evaluator or legal then gets involved because the teams, the internal teams are talented and they often have great resources and sometimes it’s just a matter of bandwidth. And so that’s another area where you and I can help, Jana. It’s just a matter of there aren’t enough hours in the day and so they need someone else just to help from a bandwidth or possibly even from a project management perspective. But really overall, I couldn’t agree with you more as to the process and how those problems need to be resolved within the arrangement. And it all comes back to, and I know we’ve said this before in other podcasts, it all comes back to the planning. If you can start out on that right foot contractually and from a communication perspective ā€“ with education that the compensation within the original contract is designed in a way to result in FMV compensation, that’s the best starting place really for all of it.

Jana Kolarik

Yeah, amen. I wonder if we want to segue a little bit into different compensation arrangements and how they fit in with the different specialties. Do we want to talk a little bit about that, about potentially problematic provider compensation elements that should just be flagged for folks to keep in mind? I know we’ve talked in the past quite a bit about hospital-based physicians and what ended up being the best practices, I guess, as compensation planning for them. And I know we had put a slide in the annual conference that we had related to that compensation structure alignment examples. Can we talk about what are things that would be maybe aligned structures and then things that may be considerations for maybe potentially not aligned structures that if possible should be avoided? Can we talk about that a little bit?

Angie Caldwell

Absolutely. So the best designed compensation plans are those that align the way the physician works and with the way they are incentivized through their compensation. So if you think about your hospital-based specialties … And I said that like it was an absolute, so let me say there’s not a one-size-fits-all, there are circumstances where different models do work, but generally speaking, for hospital-based coverage type specialties, a productivity-based work RVU model is likely misaligned in that the physician, the provider is not … They are a catcher. They are not the ones out in the market with a clinic, having the visits and the encounters outside, they are catching what comes to the facility. So they don’t have control over the volume of patients that are coming in. Now they do have control to some extent to how many patients they perhaps see in a day or perhaps throughput within an emergency room or for perhaps, or even the number of patients that they see in a hospitalist scenario.

So generally speaking, in a hospital-based specialty, a more coverage type or shift-based model is better aligned with perhaps some incentives where it makes sense. {A shift based model} doesn’t always make sense for throughput – for surge, high surge – high volume times when you know that your provider has to go above and beyond to be able to see what has come to the facility or is on the floor or is in the emergency department on that day.

On the other end of that, thinking about a proceduralist, it makes more sense for a proceduralist or a surgeon to be on a work RVU model. It is very much as you think about those different types of physicians and how each individual patient comes in, comes out, they’re in the clinic, it is very much a measure of the personal work effort of the physician and it’s less of a coverage.

Rural-based providers, I’m just going to put them in a separate category because so much of a rural provider, so much of that compensation is based upon need in the market and you might not have the volume to be able to support what is necessary from an FMV perspective for that provider, but that is just the reality at times for rural medicine. So I’ll put them in a separate category because each individual situation needs to be looked at.

In the middle are our primary care physicians. So think about family medicine, think about rheumatology, think about endocrinology, perhaps even nephrology, where you are managing a patient panel. And so in those situations, it’s almost a hybrid model that works the best. So we’re seeing a lot of movement in primary care specialties today moving to a panel-based tiered-based model with an incentive for productivity, but {productivity} is not the main calculus for the compensation.

In all of these models, Jana, I highly recommend a quality and engagement incentive simply because there are missions and needs of the employer. Especially in a hospital employed scenario, there are needs of the employer that the employer needs the physician to help drive the mission, the clinical quality, the center of excellence and all the care management and all of the things that make that facility and that system great. And so in those scenarios, that’s how you can engage with the physician to really push those mission critical elements for the hospital and health system. Have you seen anything different?

Jana Kolarik

No, but I have seen, and I think you and I have had discussions about this, I’ve seen just a push by all physicians to be paid on some type of productivity measure by wRVU, even if hospital-based. And I think the misalignment is there, but I think from a compensation perspective, I’m not sure that it benefits them. I mean, that’s the thing that I think in the end you want, as you said, the compensation that best fits the services that are being provided by that physician and frequently that model doesn’t make sense for them, even though they believe in some part of their brain that they will be paid more from a productivity perspective.

Also, I’m interested in your comments about that, but I also really want to talk a little bit, because I know we’ve talked about this in the past too, and I just want to mention it here because it is like burning a hole in my brain right now, which is quality of the data. So we talked about systems issues. And so I think you and I have had discussions over and over about we cannot emphasize enough the importance of the data that’s driving any of these factors. So just even picking up again on the wRVU calculation. So we mentioned briefly the modifier adjusting, which is part of the billing system. And I’d love for you to address that in some comments about what does that mean and how does that affect things?

I think the other thing from my perspective as a regulatory and compliance lawyer, it’s the claims accuracy. It’s the coding accuracy that plays into the accuracy of the data and therefore the accuracy of the wRVUs that are coming out of it. So ensuring that your compliance and your audit folks and everything is aligned with regard to how things are coded, my preference is if physicians want to code their work, I think it’s fine, but I do believe that a second eye on the coding and documentation is important for claims accuracy and the coding frequency that you have, again, CMS has been very clear about proactive audits being important to them and frankly important when you look at the Overpayment Rule and other things that play into that and the need to refund amounts that have been incorrectly billed, but really getting that data accurate from the get go and again, ensuring some of those levers are in place to ensure the accuracy of the claims data because it then affects the compensation data for these physicians.

But talk to me a little bit frankly about any of that. But the modifier adjustment thing I think seems to be confusing to folks. So talk to me about that a little bit.

Angie Caldwell

The data is so important, Jana, and it goes back to we are weaving a wonderful tapestry here today because we’re linking things back to the top of the podcast, but it goes back to trust, right?

Jana Kolarik

Yes.

Angie Caldwell

So if your data is not believable, then you fall back on that trust issue. And so from a valuator perspective, and I know this is not unusual to internal valuation and assessment teams as well, but you’re really looking at the data with a level of professional skepticism always when you’re reviewing it, and you can’t assume that everything is always working perfectly.

So when we were talking earlier, so weaving back to our talking about the tiers and the thresholds, another potential test, or perhaps maybe not part of the tiers, but part of the overall policy is that there should be a process to review the coding and the wRVU calculation for certain providers that fall into, maybe it’s a thing that has to be done for all of your tier three or tier two providers. That becomes part of the rotation for your internal coding and auditing team to ensure, again, that that data is as crisp as it possibly can be coming into the determination of compensation.

Because by the time that it gets to compensation, then the likelihood of there being a problem, it just gets greater. You’re more at the end of the process at that point, but if you have frequent reviews quarterly, semi-annually, if they fall into a tier, they automatically go into a bucket for one of those reviews, I really think it’s critical and part of a really good compensation planning process and compliance program. There are things from a coding perspective that can be done easily. You can look at bell curves for the physician specialty, looking at how they fall. Are they an outlier compared to their peers and then finding out why they are an outlier compared to their peers then is important.

But all of that is just absolutely critical because things can happen as system updates, as we know, as we deal with our internal systems every day, system updates and things can happen that just turn things slightly one side or another, then that makes a calculation that was reliable six months ago, perhaps not as reliable. And so it’s just always very, very, very important to make sure that all of that is clean, both from a claims perspective as well as from all of the other parts along the way where a modifier could fall off.

I had a scenario, a situation where the medical record data was transferred into a separate system and then the separate system was computing the compensation on a productivity basis. So as that happened, the modifiers were included in the first system, but then when the transfer happened over into the compensation system, the modifiers were dropped. It was a process that worked for a very long time, but then all of a sudden something changed just ever so slightly in the underlying schematics of how that data was transferred, and then all of a sudden compensation was being computed without any modifiers. And it took a minute for the organization to find it, but they found it through a process where they were looking at their data where before they were paying bonuses on a semi-annual or quarterly basis, they were looking at the data, viewed their data with professional skepticism and said, “What is happening? This trend is unbelievable. Why is it unbelievable?” So just emphasis on that matter that the data is so very important.

Jana Kolarik

Yeah, and I think to that point, looking at not having such a this point in time view of data as well, but looking holistically as you look at things and making sure that you are looking at trends and so forth, or that one of the people on your team is tracking those things because gosh knows I get into minutiae and I think you do as well, but having somebody that has that macro view of where things are going and if it doesn’t make sense, why would this have happened and digging into those details, I think always from a compliance perspective, no matter what area you’re dealing with is important. That’s so helpful. Thank you.

We have covered the things that I wanted to cover in our podcast today and the things that I wanted to make sure that we shared that we were unable to share during the annual conference. So thank you for this time and thanks for digging into some of this again with me. You know I always enjoy it. Are there any kind of final things that you just want to mention to our listeners before we say goodbye?

Angie Caldwell

I think we have also covered everything that I wanted to cover today. Jana, it is always a pleasure to be here with you and to be able to dialogue about these issues just back and forth for a podcast and even in real time in our daily work. So I really appreciate you. Thank you.

Jana Kolarik

Likewise, likewise. Thanks so much, Angie. We want to thank our listeners for joining our Let’s Talk Compliance podcast series with Health Care Law Today, your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast and check out our part one of this two-part series. Visit Ā鶹ֱ²„’s Health Care Law Today blog at healthcarelawtoday.com and pyapc.com. If you like the show, don’t forget to subscribe and be sure to rate us five stars. Until next time, I’m Jana Kolarik of Ā鶹ֱ²„ & Lardner.

Angie Caldwell

And I’m Angie Caldwell with PYA. Thank you.

In this episode, Jana Kolarik, a partner in Ā鶹ֱ²„ā€™s Health Care Practice Group and Angie Caldwell, Principal and CFO of PYA, discuss the importance of work relative value units (WRVUs) and fair market value (FMV) under the Stark Law and what this can mean for how health care organizations pay their physicians.

For more information regarding the ā€œLetā€™s Talk Complianceā€ podcast series, please click here.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Jana Kolarik

Hello and welcome to the Let’s Talk Compliance podcast series of Health Care Law Today, presented by Ā鶹ֱ²„ & Lardner and PYA. I’m your co-host, Jana Kolarik, a partner in Ā鶹ֱ²„’s health care practice group.

Angie Caldwell

And I’m your other co-host, Angie Caldwell, principal with PYA. We are excited to have you join us today. Before we begin our show, we want to remind you to subscribe to Health Care Law Today on your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com. For today’s show, Jana and I will be discussing some potentially problematic provider compensation topics.

I am excited to be podcasting with you today, Jana.

Jana Kolarik

Me too, Angie. So I think our first topic today is we’re going to talk through maybe work relative value units (wRVU) and productivity models. I think this has been a topic that you and I have spent a lot of time discussing. And I think just as a beginning structure issue, thinking through this particular issue with the lens from my perspective as a lawyer, thinking through personally performed services under the Federal Physicians Self-Referral Law, commonly known as Stark Law, and also sort of thinking through fair market value (FMV), which we’ll talk about as FMV under Stark as well. But also thinking through that personally performed aspect of WRVUs will kind of be peppered through this and is affected not only from a Stark perspective, but a kickback perspective. I mean, you and I have spoken about this in multiple different ways.

The concept as we were talking through this before the podcast of not all [w]RVUs are created equally was something that just struck me, frankly, people’s understanding and, frankly, physicians’ understanding of what work RVUs are, I think is important because it’s a component of how they are being paid by payers. And it’s again, also this component of how they’re being paid through their practices or through health systems.

But let’s talk a little bit about what we’ve seen as far as issues with inaccurate or inconsistent determinations of wRVUs. Do you want to kick us off on some things that you found and then let’s just talk through them?

Angie Caldwell

Absolutely. So if you think about the prevalence of the productivity model as a compensation model type, probably 70% of hospital employed physicians are on a productivity-based compensation model. So it is very important then to ensure that the input to the compensation model surrounding work RVUs is correct and accurate. So what most often happens when measuring the work RVUs is around ensuring that the work RVUs are modifier-adjusted and personally performed.

Systems have limitations. No system is entirely perfect, but what we’ve seen happen in several instances is a system might not be able to compute or handle modifiers. A system between the billing system and the provider compensation system, the modifiers might be dropped out of the calculus. There are many, many things that can happen related to computing those work RVUs. So it is incredibly important to ensure that they are correct.

Jana Kolarik

Right. And I think some of this is, so when we talk about modifier adjustment, those modifiers are present in the billing itself. So they’re there in how it’s billed with the Current Procedural Terminology (CPT) code. And sometimes there’s, I don’t know, a misunderstanding about whether or not to keep them or leave them off when it comes to the physician compensation. So obviously the modifier adjustments are reducing, in many cases, the wRVUs that are then attributed (or the work RVUs that are being attributed) not only from a billing context, but also from a compensation context. So by leaving them off, essentially you’re attributing more WRVUs, which is then attributing more compensation from a productivity perspective to that physician.

So thinking through the modifier adjustment issue and the systems issue that you’ve encountered, systems are obviously the best situation. So if it’s calculated through a system, through an electronic health record (EHR), through something that is not touched by human hands, it could be more accurate. But how do you verify or touch up against when you come into it, a new client, whether or not their wRVU calculations are accurate? How do you figure that out?

Angie Caldwell

Sure. And I know you and I have talked about effective compliance programs and compliance audits, and this is one of those areas that the compliance team or even the internal audit team can help an organization ensure that the work RVU computations are accurate and that the modifiers are included within that calculation. To the extent that they are not, and it does happen, then on the other end, accommodations/mitigations need to be made within the compensation plan design to ensure that the overstatement of work RVUs in one part of the mathematical formula is offset by a reduction in the compensation per work RVU in the other side of the formula so that the overall compensation then doesn’t run afoul of FMV and the applicable regulations.

One of the things here that I think often gets misunderstood/overlooked or even perhaps becomes a complication is that the multiple payment procedure reduction, of course, that is a modifier, but many payers, because of the sophistication of the billing systems and the way that the information transmits between the hospital and payer, that modifier is often not even required to be billed compliantly. And so the payer knows that a multiple procedure has been done, but perhaps the modifier has been left off internally for compensation purposes. And that’s one that frankly can have a significant impact on a work RVU determination.

But it is important, again, within the compensation design to ensure that what we are measuring from a work RVU perspective is as accurate as possible and includes all modifiers, including the multiple procedure payment reduction modifier.

Jana Kolarik

Yeah, that makes a lot of sense. To me, there’s two buckets here. There’s the systems accuracy, and then there’s the compliance overlay related to the accuracy of the data. So is your system spitting out data that is accurate with regard to the modifier inclusion, as you’ve just mentioned? And then is the base CPT or coding that’s present for that particular physician accurate based on compliance audits? So let’s touch on that really quickly, just because it can affect it. And I think sometimes is overlooked and thought of separately when it should be thought of as a combined issue.

So if you have a healthy compliance program and a healthy auditing function within that compliance program that is testing the billing and coding of claims, we’ve talked about individuals coding their own claims, belief that the work provided was very high and that the medical decision making was very complex and coding things at higher levels – level fives – which can spin off higher wRVUs. But if you have a coding and documentation expert come into that information and looking strictly at what the documentation can support, it’s possible that the coder can say, “Look, it’s not a level five, it’s a lower level code.”

So ensuring that that documentation is correct, which then documentation is reflective of what has been coded and billed is important because it then affects not only sort of accurate billing and coding, which is important from a payer perspective and from a overpayment rule perspective and False Claims Act (FCA) perspective, but is then important from a compensation perspective. And I think frequently, if you have an issue with your coding documentation, your error rates, that disconnect sometimes will happen without realizing how it is affecting physician compensation until somebody like you comes along, Angie, and those questions are asked and really pushed on to make sure that if there is a productivity model that takes into account wRVUs, are those true and accurate wRVUs?

Angie Caldwell

The old adage garbage in, garbage out.

And it really does start with the documentation in the record from which that bill is then coded and that CPT and modifier is then attached. Not every service is going to be a level five service. And that’s where effective compliance programs can help. An easy test is to compare the physician coding frequency to a normal frequency from Centers for Medicare & Medicaid Services (CMS). So CMS will show you the frequency of the CPT code by physician specialty. Comparing that frequency, comparing that bell curve from a standard bell curve to the physician in question is a really easy way to see if that billing is perhaps off. And if it is, if the bell curve is completely to the right showing all level fives and very few {level} ones, then it’s an opportunity to ask more questions and find out exactly what’s going on. But that is the first step in ensuring that the compensation model then doesn’t get awry as a result of that incorrect billing or perhaps coding irregularities that may happen.

Jana Kolarik

Absolutely. And so let’s talk a little bit about other things that may affect what is being attributed to a physician as a wRVU. So we’ve had, there’s a distinct difference between billing and what’s being attributed to a physician under their national provider identifier (NPI) from a billing context and what is considered to have been personally performed by that physician. So what comes into play there is something that you want, which is collaboration between physicians and advanced practice practitioners (APPs), including physician assistants and nurse practitioners. So in the incident to context, in the global surgery package context, in the split shared situation, you have things that may have been billed under the physician’s NPI that may have been worked by an APP.

So as you’re looking at a particular physician, and I think you and I have talked quite a bit about surgical specialties and the use of APPs and when they’re used and how they’re used, how do you take that into account when you’re trying to discern whether or not the wRVUs that are being attributed to a particular physician or physician’s NPI are truly worked or performed by that? Does that make a difference in kind of your assessment?

Angie Caldwell

It sure does. And what we’re trying to get to from evaluation perspective, of course, is measuring the physician’s personally performed work effort. The work RVUs and the way that the billing is designed may not always capture only personally performed work effort. For example, in the split shared billing that you spoke of, or perhaps in a global surgical package situation.

So first, it’s always important when collecting the population of work RVUs to apply to the compensation model is to start with work RVUs that are rendered by the physician. So most billing systems will show you the codes by a rendering provider or billing provider. First capture it by rendering provider which will strip out all of the incident-to services that are not personally performed by the physician. Then it’s a matter of assessing the use of the APP and frankly, how the physician uses the advanced practice provider. Are they using them as an extender to do those post-surgical examinations? How are they using them? Or does the APP have a separate and complete patient panel from the physician? It’s important to know how the physician is using the APP.

In those instances where the physician is using the APP as an extender, it’s then important to understand that the way the billing system works is different from how the personally performed service is being determined because the APP is part of some of those codes. And those global surgical packages, the APP’s work is part of that CPT code. So understanding that-

Jana Kolarik

Pre and post.

Angie Caldwell

Yes. And understanding that and understanding how that impacts physician compensation is important. And most often from a valuation perspective, some consideration is made either in assessing and valuing the compensation per work RVU (the conversion factor), or within looking at the total value of the work RVUs attributed to the physician themselves. So in other words, some discount is likely applied to one or the other to ensure that the compensation ultimately results in FMV and to really assess what the physician is personally performing.

Jana Kolarik

Yeah, makes a ton of sense. Talk to me about, because we’ve talked about this from time to time, a wRVU for everything. So I’m sure that that statement sends a thrill of just pain through you. But the belief that under a wRVU model or a component that if you’re performing a service, there should be some type of wRVU for that service that I’m performing, even if it’s not something that’s a true wRVU that’s been calculated, that’s been set up through the CPT and through WRVUs through CMS. So talk to me about what that looks like and some of the questions that have come up about that and what is maybe a more effective way to deal with that situation than really creating a wRVU for everything.

Angie Caldwell

Yeah. And you and I have had some conversations about this, about how work RVUs as part of the total value of the CPT code, it’s truly a reimbursement methodology and initially was not intended to be how physicians were paid and compensated. Because the work RVU, again, it’s easy to measure, it’s consistently measured, it’s agnostic as to payer, and so it has become a great measure of physician work effort. {However we} know that it was not intended to be the one and only way to compensate a physician, there is a desire by the industry to make everything a work RVU because it is consistently measured, consistently applied, agnostic into payer, all of those wonderful things, but it doesn’t always work.

So translating administrative services into work RVUs, for example, within a compensation model, in my opinion, I’ve seen that be a very dangerous approach simply because the risk and the value of that clinical and administrative time is so different. Proxy work RVUs for clinical services where perhaps CMS has not provided a work RVU value, those are other areas where I can get behind a proxy work RVU in some instances for clinical services, but there are others where it just simply does not make sense and perhaps a collections-based or a per-encounter-based compensation methodology would make more sense and frankly be easier administratively.

Jana Kolarik

Yeah, 100%. And you and I have sort of fixed modeling that dealt with that latter issue, so a 100%. So let’s talk a little bit, I want to talk a little bit about specialties and wRVU compensation models. And I’d like to talk a little bit also after that about the mismatch of compensation and productivity. So in looking at wRVU compensation models, you and I have had multiple discussions over the years related to why is that specialty or why are we trying to shoehorn a hospital-based specialty into wRVU compensation model?

So let’s talk a little bit about where that makes sense to say no, to say, let’s try this a different way because it doesn’t make sense in this particular context. So context of hospital-based physicians, can you talk to me a little bit about compensation modeling that makes more sense just based on kind of flow of patients and control of schedule, those types of things and sort of in that context?

Angie Caldwell

So if we think about hospital-based physicians, they are ā€œcatchers.ā€ The universe is in control of who arrives in the emergency room that day, how many patients are on the floor, and how many patients are in the intensive care unit (ICU) unit. They are catchers and not immediately responsible, if you will, for driving the procedures, the visits, and the encounters. There’s so many other things at play for that hospital-based physician. So a productivity model then makes a lot of sense when the patient is in … Or I’m sorry, when the physician is in – control of that schedule, the number of procedures, the number – by reputation -the number of patients that are coming to them, all of those things, it makes a lot of sense.

In a hospital-based setting, it starts to make a little bit less sense simply because we talked a minute ago about not everything is a level five. So a physician in a more of a coverage type role, coverage, meaning coverage of the floor, coverage of the emergency department (ED), coverage of the ICU, again, if their compensation model is based upon productivity, then they are incentivized, just because of the way their compensation model is designed, to drive work RVUs. And that perhaps puts the incentive to making more level fives when there aren’t level fives. So it makes more sense in those hospital-based settings to have more of a coverage type, a shift-based model, and then perhaps consider some productivity incentive for surge times or other high volume times.

Jana Kolarik

Yeah, makes sense. And to that point, and to underline the point that you’re making as well, if you do have those types of productivity components for those particular types of specialties, then again, not the billing compliance is ever unimportant, but it makes it all the more important if you have, especially if you have physicians in some way coding their own work, to have that double check and that audit over it, just to make sure that that billing is tight and accurate.

Angie Caldwell

Absolutely. And a word on, I know you and I have talked frequently about when is a productivity incentive appropriate for a hospital-based specialty. And there are times. It’s a compensation design – it does get tricky – it’s a compensation design skill that needs to be carefully and thoughtfully applied. But the base for the physicians working in these hospital-based specialties should be the normal, the value of that base compensation should be based upon the normal environment, the normal flow, the normal census, the normal number of visits, and then understanding that that’s going to fluctuate up or down, but rewarding the physician. No one intends to create a compensation model that doesn’t reward the physician for their skill and hard work. So recognizing when perhaps a surge incentive or a productivity incentive is warranted is a good thing to add to a compensation plan.

And that could be, again, carefully designed so that you know when that surge is actually occurring within a unit. And it doesn’t even have to be based upon work RVUs and a traditional work RVUs times conversion factor kind of methodology. It could be based upon some kind of another incentive, an engagement incentive, or another incentive that’s valued a different way. So there are ways to accomplish it without the productivity being the main calculus of the compensation plan.

Jana Kolarik

Yeah, that makes total sense. And I do believe, and you and I have talked about this as well, there is kind of, I don’t know, this general pressure or belief among physicians that the productivity method of compensation is in some ways better than other ways. And I just want to say on this podcast that is not accurate, and I welcome your thoughts on that as well, because I do think there’s the pressure, internal pressure from physicians who should be paid the value of their work, and as you said, for their expertise, et cetera. But that pressure to believe that the WRVU methodology is in some way better than the others is something that just needs to be debunked. Thoughts on that?

Angie Caldwell

Absolutely. I’m with you. It’s not always the best model. I think it gets back to – it’s easy. It’s something to understand this times this equals that. And I think there’s a notion that the shift value or the salary value will be somehow be deflated because it’s not represented by the physician’s ({work RVU} work effort, but showing them and demonstrating to them that the compensation is fair, it’s FMV, it’s based upon the services provided, is important to help debunk that.

Jana Kolarik

Yeah. Fair. Thank you. So let’s talk a little bit about the mismatch of compensation and productivity and the belief and again, we’ve talked about this before, but there still is this clinging to the 75th percentile, this belief that that is really the amount that physicians in some way should be paid. And what does that look like though, this is the issue, when the productivity is not at the 75th percentile? And how do you deal with situations or how do you, as a valuation expert, deal with situations where you’re trying to educate your clients as to why the 75th percentile may not work with somebody who may is at the 25th percentile, they’re at the end of their career or they are just slower or less productive than others? How do you deal with those conversations? How do you explain that?

Angie Caldwell

Yes. And so it gets back to, number one, the myth that anything at lower than the 75th percentile is FMV. So number one, that’s just simply not true. But there are instances where the methodologies for determining FMV within an organization are based upon that threshold, that 75th percentile threshold, and nothing else.

Effective thresholds have more than one level of test, whether that be compensation per work RVU, whether it be a difference in the productivity level and the compensation level. Normally it’s a combination of those to determine if a physician’s compensation is within the range of FMV. In that testing and in determining the differential between productivity and compensation for a physician, there could be very good reasons as to why someone is compensated at the 75th, but producing at the 25th.

And I’ll give you a few of those reasons. So one is someone in a rural setting. So if you think about someone, a provider in a rural setting who may not have the volume simply because the population does not support volume for that physician, but that physician is needed desperately in a community. So to get the physician to that community to provide the service, sometimes 75th percentile compensation or more is required to provide them to the community to provide that service, but they will not have, likely, the productivity to support that level of compensation.

So again, understanding the facts and circumstances around that difference between productivity level and compensation level is extremely important.

Jana Kolarik

Yeah. So then it comes to the … And I think about this and the thing that strikes me as you’re going through the example, I think having folks internally at your practice, at your health system, at your hospital to evaluate compensation and then go out to valuation experts circumstantially. So let us rely on several different resources from a survey perspective. And then being able to know the point in time when it makes sense to then go to somebody like you to say, do we have enough behind this? We’re paying at the 75th, but their wRVUs or their productivity is much lower than that. Is there support for paying them at this level?

I mean, when you talk to clients about having those triggers in place for evaluation of compensation for their physicians, how do you talk to them about making sure that they’re careful in that analysis and when that trigger is frankly sprung for you to be brought in? How do you talk to folks about that? Because what you don’t want to obviously have happen is to not have a rule situation or not have an exception to this rule and have physicians paid at the 75th percentile, but producing at the 25th and not have the rationale around how that is still FMV for that particular physician. Talk to me about triggers.

Angie Caldwell

It is a very important conversation right now and one that PYA has advised on a lot lately because I think in the past, historically, the thought was is that every FMV opinion had to be generated by a third party valuator. And that’s simply not true. So much valuation work can be done internally by the organization created by, and that valuation work can be done through work of a compensation committee through an effective compliance program, and together then creating those thresholds that the organization can use to assess and determine a compensation valuation before sending something outside.

And so setting those parameters again, it’s organization-dependent, it’s going to be dependent upon an organization’s risk tolerance as to what they’re able to handle as an organization. And it’s going to be based upon, again, their location, their geography, their population. So we work with several organizations that have small urban facilities, but then they have very rural facilities in their system. And navigating the dynamics from an internal valuation threshold perspective of the two becomes complex. Having that active compliance program, having that active physician compensation governance committee is really important. And having more than one threshold, I think is also very important because just because it’s over the 75th doesn’t mean it’s not FMV, but being under the 75th doesn’t mean that it is. And so having multiple thresholds allows you to internally to better assess where your physicians are.

Jana Kolarik

Yeah, that makes total sense. I think that this has been a fantastic conversation just to key people into these issues with regard to these wRVU or productivity models and things that people should be thinking about. We’ll talk in another podcast about things that we can do and that we would recommend that folks do to add on to what you just said at the end of this conversation. What structures can you put in place? What are best practices with regard to compliance in this space? And I think that’ll be a nice second podcast in this series.

But I welcome final thoughts from you, Angie, on this. I mean, I think wRVU methodology, as you had mentioned, from my perspective, is something that is all over and that has come into spaces and specialties where it may not fit ideally, so has created issues from that. And from my perspective as well, the billing and coding and documentation issues can impact the compensation as can the use of physician extenders/APPs. So there’s a bunch of things in there from my perspective as a health care lawyer and from a compliance perspective that we can look at and be thoughtful about and work compliance around.

But from your perspective, what are the takeaways that you want to leave people with with regard to this particular topic?

Angie Caldwell

Absolutely. If your primary method of paying physicians is on a work RVU productivity basis, it’s imperative that the calculation process surrounding those work RVUs is excellent. It must be excellent. Notice I didn’t say perfect. I don’t know that any calculation process is going to be perfect, but it does need to be excellent to ensure that the overall compensation plan doesn’t run afoul of FMV.

Jana Kolarik

Yeah. Thank you. This has been a great conversation. Really always appreciate your thoughts and the discussion on these topics and hope that our listeners find it equally as instructive and helpful. Thank you.

Angie Caldwell

Thank you. Thank you, Jana.

Jana Kolarik

We want to thank our listeners for joining our Let’s Talk Compliance podcast series with Health Care Law Today, your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast and be sure to be on the lookout for part two of this series. Visit Ā鶹ֱ²„’s Health Care Law Today blog at healthcarelawtoday.com and pyapc.com. If you like the show, don’t forget to subscribe and be sure to rate us five stars. Until next time, I’m Jana Kolarik of Ā鶹ֱ²„ & Lardner.

Angie Caldwell

And I’m Angie Caldwell at PYA. Thanks for listening.

PYA and Ā鶹ֱ²„ & Lardner hosted the 8^th Annual ā€œLetā€™s Talk Complianceā€ conference on January 22, 2026. Panelists included Ā鶹ֱ²„ attorneys and PYA subject matter experts. The event was hosted by Ā鶹ֱ²„ partner, Jana Kolarik, and PYA consulting principal, . Below are key takeaways from session 1. The recorded session and presentation can be accessed here. 

The compliance story for 2026 is not a ā€œreturn to normal.ā€ Itā€™s an acceleration. Across civil and criminal enforcement priorities, program integrity audits, and provider compensation scrutiny, the throughline is clear: regulators are prioritizing fraud prevention, expecting stronger internal controls from providers, and deploying more coordinated and sophisticated tools to detect outliers and pursue recoveries. At this recent webinar, experts from Ā鶹ֱ²„ & Lardner and PYA outlined where government focus is directed and what health care organizations can do to stay ahead. 

False claims enforcement will remain a key priority. 

The Department of Justice (DOJ) reported that False Claims Act (FCA) settlements and adjustments reached the highest single-year total in the statuteā€™s history in 2025, with no signs of slowing in 2026. Whistleblower activity remains pervasive and government resourcing translates into higher enforcement volume, meaning that organizations should plan for sustained scrutiny. 

The DOJ-HHS FCA Working Groupā€™s focus areas are a roadmap for enforcement risk. 

The DOJ-Department of Health and Human Services (HHS) FCA Working Group has called out focus areas including Medicare Advantage (MA), kickbacks, pricing issues, barriers to patient access, materially defective medical devices impacting patient safety, and manipulation of Electronic Health Records (EHR) systems to drive inappropriate utilization. Providers, payors, and life sciences companies should update their compliance risk assessments to explicitly map controls to these categories.

OIG funding signals stronger enforcement and rising program integrity pressures. 

Federal enforcement priorities are backed by substantial resources, with HHS-Office of Inspector General (OIG) requesting more than $450 million for Fiscal Year 2026 and identifying $50 billion in potential savings through payment recovery and program improvements. OIG is amplifying its focus on cost savings through audits and evaluations that identify large-scale payment vulnerabilities and improvements to the program. For organizations, especially those heavily reliant on Federal health care program reimbursement (e.g., Medicare, Medicaid, MA, Medicaid managed care, Tricare), OIG work plans can foreshadow where audits and extrapolated overpayment demands may land next. 

Corporate Integrity Agreements (CIAs) will continue to expand in scope and influence compliance expectations. 

CIAs are becoming more structured and expansive with broader review requirements that now commonly include focused arrangements (i.e., certain types of arrangements that present high risk, such as those with referral sources), claims analyses, and health information technology (HIT) components. This scope reflects OIGā€™s expectations for robust auditing, monitoring, documentation, and escalation protocols. Even if organizations are not under a CIA, the ā€œCIA standardā€ is likely to become the community standard for what robust compliance looks like, raising the bar for what regulators view as adequate oversight and internal controls ā€“ and a potentially mitigating factor for the provider when something goes awry. 

UPIC audit activity remains high, underscoring the need for strong response plans. 

Unified Program Integrity Contractor (UPIC) audits remain active, targeting areas like high-level Evaluation & Management (E/M) codes, remote monitoring services including remote physiologic monitoring (RPM) and remote therapeutic monitoring (RTM), and care management services such as chronic care management (CCM) and principle care management (PCM), extended institutional stays that may not be medically necessary, and urine drug screens. Because UPIC actions can lead to payment suspensions and assessed overpayments, organizations must maintain strong documentation and a clear appeals strategy. Audit readiness should include technical coding accuracy, disciplined documentation, informed governance and oversight, and a playbook for escalation and appeals. 

Stark Law Group Practice Standards continue to pose provider compensation compliance risks.

Physician organizations will continue to face compliance risk under the strict liability framework of the Federal Physician Self-referral Law (commonly known as the Stark Law) and its Group Practice Standards with regard to the In-Office Ancillary Services Exception (IOASE). Entities need to ensure that they are structured to comply with all nine (9) standards of the Group Practice Standards at inception and on a continuing basis. Entities may consider the Stark employment exception if compliance with Group Practice Standards/IOASE is not viable. 

Compensation oversight will be critical to mitigate Stark Law and AKS risk.

Strong compensation oversight requires consistent annual reviews, clear thresholds tied to organizational risk tolerance, and transparent processes that reinforce Stark Law and Federal Anti-Kickback Statute (AKS) compliance. When thresholds signal potential issues, organizations need a structured response plan that accounts for investigations, communication, potential disclosure, as well as contract terms that allow fair market value (FMV) corrections. Without disciplined oversight, even small operational gaps, such as miscalculated wRVUs, unclear contracts, or misaligned pay structures, can escalate into significant regulatory and financial risk exposure.

In an environment where enforcement activity continues to accelerate, the most effective compliance strategy remains straightforward: prevention. A well-structured compliance program, scaled appropriately, supported by routine risk assessments, adequately staffed, and reinforced through ongoing auditing, monitoring, and governance, continues to be the strongest defense against financial, operational, and reputational risk. By investing in strong foundations now, providers can reduce exposure, respond more confidently when issues arise, and build the resilience needed to navigate the regulatory pressures ahead. 

FAQ

What are the biggest health care compliance trends to watch in 2026?

Regulators are accelerating enforcement across the FCA, program integrity audits, and provider compensation arrangements. Agencies are prioritizing fraud prevention, demonstrating an expectation for stronger internal controls, and relying upon data-driven tools that allow the enforcers to identify outliers more efficiently.

Why is FCA enforcement expected to remain strong?

The DOJ reported record FCA settlements and judgments in 2025, and staffing and resources remain high going into 2026. With ongoing whistleblower activity and expanded government capabilities, providers should expect continued scrutiny and sustained enforcement volume.

What is the DOJ-HHS FCA Working Group focusing on in 2026?

Key focus areas include Medicare Advantage, kickbacks, pricing practices, patient access barriers, defective medical devices, and manipulation of EHR systems. Organizations should align internal controls and risk assessments to these priorities.

How does OIGā€™s increased funding impact compliance risk?

HHS-OIGā€™s requested budget for FY 2026 exceeds $450 million, paired with a publicly stated goal of driving $50 billion in savings through recovery and program improvements. This means more audits, more data analysis, and greater likelihood of extrapolated overpayment demands.

How are CIAs changing?

CIAs now include broader review requirementsā€”such as focused arrangements reviews for high risk arrangements (such as those with referral relationships), claims analyses, and HIT-related oversight. Even for organizations not under a CIA, these standards increasingly define what regulators view as a robust compliance program.

What areas are UPIC audits targeting in 2026?

UPICs continue to focus on high-level E/M coding, RPM/RTM, CCM/PCM, extended hospital stays, and urine drug screens. Because UPIC findings can lead to payment suspensions and overpayments, strong documentation and a clear appeals strategy are essential.

Why do the Stark Lawā€™s Group Practice Standards continue to present compliance risk?

Stark Lawā€™s strict liability structure and the complexity of the Group Practice Standards (in connection with the In-Office Ancillary Services Exception) make compliance challenging. Organizations may need to evaluate alternative Stark Law exceptions (e.g., the employment exception) if consistent adherence is not feasible.

What are best practices for compensation governance in 2026?

Effective governance includes (at least) annual compensation reviews for physician and other referral source arrangements, clearly defined thresholds, transparent processes, and contract terms that permit FMV adjustments. Proactive oversight helps prevent issues tied to miscalculated wRVUs, unclear contract terms, or misaligned pay structures.

How can organizations strengthen their overall compliance posture?

A strong compliance foundation remains the most effective risk-mitigation and avoidance tool. Key elements include routine risk assessments, adequate staffing, disciplined auditing and monitoring, timely investigations, and governance structures that show compliance is fully integrated into operations.

What should compliance leaders prioritize to stay ahead of enforcement trends?

Compliance leaders should focus on prevention: validating compensation practices, preparing for audits, mapping controls to DOJ-HHS focus areas, and monitoring OIG work plans for early indicators of enforcement direction.

Stay Connected

For more information on our ā€œLetā€™s Talk Complianceā€ insights, subscribe to our ā€œLetā€™s Talk Complianceā€  and  series. Please reach out to one of the presenters and authors if you have any questions and be on the lookout for our upcoming podcast episode that dives deeper into this topic. 

In this episode, Letā€™s Talk Compliance Hosts Jana Kolarik a partner of Ā鶹ֱ²„ā€™s Health Care Practice Group and PYA principal Angie Caldwell, discuss physician compensation plans and the latest trends in physician compensation of 2024.

For more information regarding the ā€œLetā€™s Talk Complianceā€ podcast series, please click here.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Angie Caldwell

Hello and welcome to the Let’s Talk Compliance podcast series of Health Care Law Today presented by Ā鶹ֱ²„ & Lardner and PYA. I’m your co-host, Angie Caldwell, managing principal of the Tampa office for PYA.

Before we begin our show, we want to remind you to subscribe to Health Care Law Today, either on iTunes or your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com. For today’s show, my co-host, Jana Kolarik, partner in Ā鶹ֱ²„’s Health Care Practice Group, and I will explore physician compensation plans and the latest recent trends in physician compensation of 2024.

Jana, I’m so excited to do this. With Let’s Talk Compliance, we work together of course, to bring other topics throughout the year to our listeners. And then in doing so, you and I often have sidebar conversations about recent trends and other things that we’re seeing in the industry. And so today, we are going to be talking about those trends with our audience and more broadly.

And specifically, most recently, you and I have both experienced many questions around compensation planning, and how do organizations really get off to the right start and set the right foundation around their compensation plans, their compensation documents, as well as their contracts. So, from your perspective, what are the key things that organizations should be doing to set the right foundation for their compensation plans?

Jana Kolarik

Thanks, Angie. I think this is something that you and I have been discussing a lot. We just did a recent blog that mentioned the physician compensation compliance planning, just as a highlight –  here are things to pay attention to. And then we did highlight some current trends that we’ve been dealing with. I’m happy to be doing this podcast here today to sort of round out some of that stuff.

So, as we were talking about this, in my mind there’s certain things, highlights that I am going to mention here at the beginning and then we can flesh these things out. Number one is guardrails. So, as you’re thinking about your compensation plan document and planning for compliance, you need to be thinking about guardrails.

Number two, you need to be thinking about communication, and that’s internally with the physicians related to these compensation plans and how you’re communicating things internally.

Number three, how do you operationalize it [the plan]? And that can be, there we’ll talk about contracts. There, we’ll talk about communication that’s happening on an ongoing basis with your physicians to make sure they understand what’s happening not only at the beginning, which is super important, and that transparency be there, but also throughout the process. So, there are no surprises. People get very agitated (as you and I both know) when compensation is not expected or changes in a compensation are not expected.

And then as a fourth point, we talked about clawbacks. I think the more politically correct (PC) term for that is reconciliations, and how are you dealing with that reconciliation process such that the things that we’ve talked about, the guardrails, the communication, the operationalization, all of those things come down to a potential reconciliation. And you don’t want those things to be a surprise to anybody who is going to be subject to reconciliation. So, all those things build up into that process.

From a guardrail perspective, we talked about creating a policy internally from a compliance perspective, so that it’s part of the framework, it’s part of the fabric of your compliance program. And as part of that, so you talk about one, how agreements are requested just as a very beginning. Who’s requesting them? That goes to and how they’re requesting them and papering that. That goes to the commercial reasonableness piece that we talk about frequently.

Number two, who is drafting and reviewing those agreements to ensure legal and operational compliance? Three, and this, we’re going to blow this out in this discussion, how fair market value is determined? Four, who’s executing the agreement? Are you having different levels of authority make different decisions based on how much money is at play? And five, how are the agreements being tracked with regard to term and termination provisions, which becomes important. A lot of organizations have software that does that for them, which is super helpful.

So, in just talking about fair market value (FMV), I want to talk to you and get your thoughts on the use of surveys versus people like you, valuation consultants, and when do you get that assistance. So, we’ve talked in the past about, but I want your initial thoughts about what does that look like in that policy. And I think getting your input on how to bake that into your plan, into your policy is important.

Angie Caldwell

Yes, [we have talked about] that policy and determining when to go outside for a fair market value opinion. And as you and I have discussed, not every single arrangement needs an outside fair market value opinion. There’s so much that can be done internally within the organization provided that the guardrails are set appropriately, and that the organization then follows those guardrails and documents the outcome of following those guardrails around fair market value. Really, it becomes a part of the policy. And then that policy is based upon the risk tolerance of the organization.

We work with some organizations where the risk tolerance is not very high for their reasons and they understand those reasons. And so, they might send everything out for a fair market value opinion where the total stacked compensation, and I know we’re going to come back to that word here in a minute, is maybe greater than the 60th percentile total, or the 75th percentile, or even perhaps the 90th percentile. Again, it’s all based upon the organization’s risk tolerance, and also what their internal policy and the guardrails that they’ve set include.

I do think it’s important from an FMV perspective, because there are many good reasons why a physician is compensated in excess of the 75th. I know Jana that you and I have commented on this many times in articles and in perhaps even another podcast and at other times that the 75th percentile is not a bright line. It’s not a yes or a no. And so, because of the notion that it is a bright line, it often ends up in a policy or procedure as the ā€œend all.ā€

I want to say that that [the 75^th percentile] probably shouldn’t necessarily be the cause or the direction of the policy. While 75th percentile is one measure, there should also be other measures that include perhaps compensation per work relative value unit (wRVU), or productivity, or hours worked, or some other guardrails or combinations of guardrails, thresholds within the policy to determine when something goes out for an FMV opinion.

With that, thinking about the stacking then, we are talking about just how you’re determining that threshold and what that total cash compensation is – to really think about that total stack of compensation. Jana, I know you and I have had discussions about this, and I want your thoughts on that – what is your definition of stack? What should the definition of stack be? Because we’ve also talked about using the same terms and the same definitions when describing compensation and the guardrails is very important. What is your definition of stack?

Jana Kolarik

So my definition of stack, and that’s super helpful background. I think my definition of stack is when you’re dealing with a physician who obviously has a clinical life, but also on top of that has a medical directorship, has call pay, has a variety [of compensation]. So you look at the stacking of the compensation.

I think one of the things that’s important to remember with physician compensation, when you’re dealing with the Federal physician self-referral law and you’re dealing with the Anti-kickback Statute, and you’re talking about fair market value, it is a continuing obligation.

When you look at fair market value, you look at the total, as you said, the total compensation that’s going to that physician, and is the total compensation for the physician fair market value for services rendered?

One of the things that we’ve dealt with is: If you have a physician who has a clinical life and then they have a medical directorship, some of this is taken care of if in that medical directorship, for example, you have an hourly component and the physician is turning in time sheets, and so you can track that. You know that hourly piece is fair market value on an hourly basis, and then you understand the clinical life of the physician. And at the beginning, that’s sort of set and they stay at the same production level. So you’re monitoring it. You’re not having to adjust it because they’re staying fairly busy and the same busy as they have been.

But I think as you add more things to that, as you add the call pay, and that was one of the things that we discussed in our blog, and we should probably just mention as a side note here, because it can become important. Call pay is something from a health system perspective, a hospital perspective, it’s frequently expected that if you are an employee, that you will do a certain amount of call pay. That’s generally reflected in your medical [staff] bylaws that have a certain expectation of a certain amount of call. Sometimes that’s deferred to the specialties to make decisions on a more granular basis about what their call will be from an employed physician perspective. But frequently it’s left loose.

So how tight that is, and what the expectations are, and the fact that they be communicated effectively to the physicians and that it be across the board, it’s important that that be generated and understood at the beginning. We’ve dealt recently, and you and I have had many discussions about ā€œday oneā€ call pay.

So paying call to community physicians for specialties is common, so they’re not employed by the health system. And there’s not otherwise maybe an employment agreement that has baked into base compensation, a certain amount of call frankly, from that perspective as well. So you’re paying outside people for call. That’s expected.

For some reason, I get the sense that that expectation of call has bled into some of the other specialties, even if they’re employed physicians. And I want you to talk to us a little bit about how that may affect the compensation if you’re not attuned to the fact that some of this [call] may be included in what you’re already paying. So can you suss that out a little bit for us?

Angie Caldwell

Absolutely. And I’m going to tie it back to what you were saying at the beginning of our discussion today about ensuring that guardrails are set, that definitions are set. That again, from a compliance perspective, all of this needs to be really tied up tight in the contract and within the compensation plan. What we mean by call pay, and what are the terms surrounding call pay.

And then this also ties back into the notion and the definition of stacked compensation, because we want to include call pay on day one, or we’re thinking about call pay on day one rather.

So if you think about survey data, and again, something from a transparency perspective, which was one of your key elements at the top of our discussion. You think about transparency, we also need to think about what surveys an organization is using to determine compensation, analyze compensation, compare compensation for the physician so they know where they are performing against their peers. Within that survey data, call pay is an included element.

So even the surveys are considering total cash compensation (TCC) stacked. It is in there. So when you’re looking at a TCC total cash compensation metric from any of the surveys, it is all-inclusive. So then if as a hospital employer of physicians, you are then adding day one call pay, you have potentially double counted call pay.

So from a stacking perspective then, [if you add in call pay to the survey TCC,] you’ve double counted call. So your stack just got bigger than when comparing and analyzing that physician compensation against your guardrails, and also then determining fair market value compensation.

It’s really important from a definitions perspective, and from a terms perspective, and from a transparency perspective to know what’s in the survey data. And to make sure that the physician understands that when you analyze compensation for FMV, you’re analyzing total compensation for FMV, as well as the individual parts. The individual parts sum up to the total, but we’re also looking at total compensation for that stacked amount.

Jana Kolarik

So what does that look like? If you as a hospital system is using, and best practice is to use more than one survey, so you’re using a couple of surveys. You’re looking at a surgeon, you’re looking at one of the surgical specialties, and you’re pulling [data]. And that particular physician is at the 75th percentile with regard to his or her productivity. So as you’re sort of approaching something and somebody says, “Look, they’re at the 75th percentile.” To me, the questions then that are asked are, what are you looking at when you look at productivity?

Okay, so are you looking at does that physician use advanced practice providers (APPs)? You and I have talked about this multiple times. And then what type of [work relative value unit](wRVUs) are you using to figure out that data?

Because the surprise to me recently was a client who had been using wRVU data and communicating it with physicians, but it wasn’t quite the most accurate wRVU data. Why don’t you take it from there? Those two issues just teed up from a productivity perspective as your approach with this sort of, okay, well the 75th, it should be this. And then we’re going to put on top of that some call pay. And look, it’s market here locally to pay day one call pay. What is your initial reaction to just that out of the gate?

Angie Caldwell

Right. And there’s a lot to that. And my first reaction is, okay, we need to understand what the physician is actually doing. The surveys measure 75th percentile productivity, and that’s measured in wRVUs. But we all know that physicians do more than things that are just measured by wRVUs, including providing call, including all of the things that come into that compensation stacking analysis. So really, it gets down to understanding what the physician is doing, what the minimum work standard is for the physician, and then really adding all of those things together.

And you mentioned APPs. There’s also a supervision of APP element. We know that in many cases a physician is supervising an APP. And so then how does that interplay into the productivity of a physician? So how that interplays is that many times the APP is acting as an extender for the physician’s clinical services. And I know that we’ve written about this and we’ve spoken about this before. Just that from a wRVU productivity perspective, not talking about the other elements of productivity that a physician has, but thinking about that APP and how those extended services show up in the physician’s productivity.

Jana Kolarik

And show up in the billing data to be very clear.

Angie Caldwell

Exactly, show up in the billing data. And then as a result, show up in the physician productivity data. So it’s very important related to your compensation plan as well as your contractual agreement to ensure that wRVU is defined as personally performed, modifier adjusted. And I’m going to let you comment on that specifically, and that everybody understands what that means. Because then that becomes very important then in determining that physician compensation. So Jana, if you could comment a little on terms, and defining wRVU, and what best practices are.

Jana Kolarik

That’s right. You can have things that are billed under your national provider identifier (NPI). And frankly, global surgical packages that include the services, clinical services before, the clinical services after, as well as the surgery itself. You can have situations where you’re billing under the physician NPI in situations of incident-to or split shared. And figuring out or having a sense of who’s actually performing those services. And if you’re using multiple APPs, figuring out the clinical piece of it that is actually being performed by somebody else. And understanding that going into a compensation [plan] for a physician is important.

So if you have a surgeon who’s using four APPs, then you’ll just understand out of the gate that there may be some inflation of the wRVUs at issue because that physician uses [APPs] appropriately, right? Appropriately uses those APPs as extenders for that practice, and it’s showing up under the billing data for that particular physician.

And you mentioned, so that needs to be, when you’re compensating somebody, what’s being billed under that NPI is not necessarily what you compensate that physician for. And that’s one of the things that the Centers for Medicare and Medicaid Services (CMS) made clear in one of the more recent Federal Register issuances where they said, Look, we think that this is being conflated, these concepts of billing versus compensation, and you need to make sure that you’re paying people for the services that they’re performing.

As part of that, when you get your wRVU data, if it’s stripped of the modifiers, then it’s stripped of the things that actually impact wRVUs and will decrease the amount of wRVUs attributable for that particular service. I’ll just give the example of a multiple procedure situation in a surgery. You’re not going to pay the… Well, nobody pays that particular surgeon for doing each one of those procedures for the full [reimbursement] amount during that surgery. There is a modifier adjustment to it. And so the wRVUs are adjusted accordingly.

They should also be adjusted in transparency with the physician so they [the physicians] understand that the true wRVUs being attributed to them are not only adjusted for the APP issue, but also adjusted by modifier. So that’s one of the things that came up recently when we realized that some of the data that had been provided to the physicians at issue had not been modifier adjusted, and so had been frankly inflated and they thought that they were more productive than they really were.

Angie Caldwell

So at the top of our discussion, you mentioned transparency, and it’s a word that I think you and I have both used since then a couple of times. From your perspective, thinking about transparency, what can an organization do to ensure transparency? And I’ll comment upon this as well. But from your perspective, what are some of the best practices you’ve seen?

Jana Kolarik

That’s a great, great, great question. So I think fundamentally, the communication from the beginning of the compensation planning. Look, we’re reviewing the compensation. Who’s at the table, right? So lawyers, I’m a lawyer. I like lawyers. I think lawyers have a seat at the table. Counsel has a seat at the table. And is it inside [or] outside counsel? I think it depends on the complexity of the issue sometimes.

Valuation folks should be at the table, the physician compensation folks should be at the table. Whether you bring in valuation consultant, I think again, depends on the complexity. The outside resources are a complexity-driven issue.

But with regard to the transparency, it should be, physician leadership needs to understand it at the executive level, but also the physician leader of the specialty to understand the nuances and the communication that may be fomenting, being stirred up, related to the physicians [and the compensation plan/planning]. So those things can be addressed and the communication can be effective from the very beginning.

So number one, transparency from the beginning as you’re looking at compensation plans. And then I think transparency with regard to, I mean these issues that we’ve talked about – the continuing fair market value obligation and clearly defining terms. And I want you to comment on all this stuff too, or the things that you find the biggest issues from your perspective. Touch bases – when are the check-ins with the physicians with regard to that compensation that they have during the year? And then that whole issue of reconciliation and being very transparent from the very beginning.

And the last pieces that I’ve mentioned are all things that need to be in the contract. So when you’re baking in concepts into your agreement, whether or not it’s in the agreement itself or it’s in a plan that’s referred to in that agreement, some of these issues need to be very clearly defined and in front of the physicians.

Again, surprises are bad, so no surprises. And that physicians are following along, they’re following the trail of what’s happening with them so that they, again, no surprises from the very beginning. So being at the table, who do you see when you’ve dealt with effective planning? Who’s at the table during that discussion?

Angie Caldwell

Yes, absolutely. And you hit so many good points there, Jana. Again, just from a transparency perspective. But really at the table, you have to have the physician contract or the provider contract administrator and their team. The recruiter needs to also understand the elements of the arrangement. They need to be at the table. Your data analyst needs to be at the table, again, because they are the ones pulling the data or pulling information out of the system for the administrators and for the leaders. They need to understand that, again, the definitions and the terms from a consistency perspective, and counsel. And then like you said, to the extent external consultants are needed, then they’re also at the table.

And so I rattled off five or six folks. And your real goal is that if they are asked about how compensation is determined, if you asked any one of those five or six people for your organization, would they answer the same way and use the same words [terms]? That’s really what you’re trying to get to. Because so many times, organizations will come together and they’ll use different words to describe the same thing, which then actually ends up creating confusion.

And then when that team goes to discuss the agreement, discuss the plan with the physician, if you’re still using different terms, then that leaves the definition of those terms and the use of those terms open to the interpretation of the physician. And as we all know, I would do it – we would all do it – we see the contract or the plan document once, we put it down. And we’re not going to pick it up again until we’re angry and there’s a problem.

So you want to make sure that everyone is using the same language, and then that language is matching what is in the plan document and what is in the contract. So that if (heaven forbid) that does happen [a problem], they’re able to go look at those definitions within those documents. They are hearing the same thing. They’ve heard it across all five or six people within the organization. And it just lessens the confusion, and frankly, opportunity for frustration and opportunity for error within those discussions.

Because as we know, physicians are scientists, and they are looking for anomalies. They are looking for things that don’t meet the pattern/that fall out. And so again, if there’s a rogue term, or a rogue definition, or rogue data in the process, they’re going to find it and they’re going to question it as you would hope that they do.

So Jana, when we’re talking about that, you and I aligned exactly as far as who should be at the table from a best practice perspective, and really focusing on those terms from a consistency perspective.

And along with that, it’s the cadence of the communication as well. I mean, you and I have talked about, gosh, not everybody has the luxury of being able to have a system that reports out monthly, or quarterly, or semi-annually. And so if that luxury is not yours, then the compensation plan document and the contract become your cornerstone for everything.

And then with that, best practice of course would be to communicate with a physician from a transparency perspective more often, which leads me to another point of you have to make sure that the systems that are supporting your reporting for that transparency are doing the right thing, which then ties back to the wRVU.

Jana Kolarik

Correct.

Angie Caldwell

[Tying back to] the discussion we had a moment ago because it seems simple ā€“ the organizations that we work with have been computing wRVUs for a decade or more at this point. But it does happen when systems break down, when payer requirements change, when systems don’t interface correctly, that whole wRVU determination process sometimes breaks down. And that’s not caught until very late in the process.

Which gets us to one of the very last topics that you brought up at the beginning of our discussion about clawbacks. So what do you see as best practices from a contractual perspective related to clawbacks?

Jana Kolarik

It’s a good question and excellent points. I think the contract needs to emphasize the continuing fair market value obligation. And that if it falls outside of fair market value for any reason, then a reconciliation will need to occur. So that, it needs to be just stated in the agreement.

And as you said, one of the pieces that I just want to make a note of, and you and I are on the same page with regard to this as well, is who’s at the table is important, because you need to make sure that these plans of a compensation for a particular specialty, in the grand scheme is doable from an operational perspective. Can you operationalize it? And if you don’t have all the staff that you need in order to operationalize it, that needs to be a consideration from the get-go. And those people who are in charge of monitoring this [compensation/wRVUs] need to be able to operationalize it.

So when you talk about what should be in the contract. –  ideally that reconciliation as I said, continuing fair market value obligation. From a process perspective, I don’t know that it needs to be in the contract, but it should be in the plan that you’re doing it however frequently you can do it. We’ve talked monthly. Monthly is great. If you can do monthly, and you can keep people at least understanding what’s happening. And then you can have the reconciliation happen, for example, quarterly, so that they understand, “Look, we’ve paid you, but you’ve not tracked,” and that ā€œyou [physician have] seen this in the monthly statements or you’ve seen this now in the quarterly statement.” And so we will be keeping compensation from you, or you [physician] will be paying back compensation at that point in time.

And look, reconciliation can happen for a number of reasons, and you and I have experienced it. It can be a downturn in productivity. Or for whatever reason, it can be somebody who needs to take an extended vacation – e.g., because of family. It can be somebody who just has decided that they’re in the latter part of their career, and so they’ve decided to step off the gas a little bit.

But whatever that looks like, it’s important that there be, as you said, mechanisms in place in the contract. And it needs to be very clearly stated because people, again, we’ve said no surprises. And people do get sued. Physicians will sue you sometimes, unfortunately, if it isn’t clear and they believe that the contract is to their benefit and not reflecting the reconciliation that you’ve done at the end of a contract or that they haven’t been paid.

So making sure that all that is very clear what they will be paid, when the reconciliation will happen, and getting that information in front of them is important.

Tell me what you’ve seen or what you’ve seen be effective with regard to those reconciliations or those check ins that are happening. Because ideally, if there’s software – that’s beautiful – it can update them on a monthly basis.

If there isn’t, it’s this whole, can you meet, can you check in with them on the quarterly basis face-to-face or at least send an email and have open hours for them to come talk to you? What have you seen be effective there? Talk to me about effectiveness with regard to planning.

Angie Caldwell

To your point, software is wonderful provided that it is working as intended.

Jana Kolarik

Yes, agreed.

Angie Caldwell

And reflects reality, right? And things happen. Things happen with data input. Things happen with schedules, because I know QGenda is a very popular software out there that folks use for scheduling, especially in hospital-based specialties as well as with call coverage.

And so it’s great if it’s keeping up with the last minute changes that occur because a physician’s child is sick, and they need to stay home, and all of those things. So again, thinking about the process, we’ve got to make sure that we’re reconciling with that.

So really [we need to be sure] systems [are] working correctly. Making sure that the check-ins, as you said, are regular. It’s transparent when they’re going to happen, so that the physician knows when to expect the data for the reconciliation so that it just doesn’t show up out of the blue, and they’re expecting it at the sixth month, they’re expecting it at the eighth month, whatever your procedure is. So they know when to expect that.

And it’s really important. Again, we talked about guardrails at the top of our discussion. Ensuring that from a compliance perspective, you have a plan before the horse is too far out of the barn, that you’re able to corral the problem before it becomes a bigger problem.

All of that’s really important. They need to know when it’s coming. They need to know why it’s coming. They need to understand how the information and the data is pulled together, so that they can have a meaningful discussion around that reconciliation. And if the contractual agreement and compensation plan has been documented thoroughly, they will then understand what’s going to happen if their reconciliation is out of whack.

And frankly, it provides the administrators a great opportunity to check their data. If wRVUs are popping out for half of the year, and the physician has 30,000 wRVUs, then likely you know something is wrong in your wRVU computation determination process. So it [the reconciliation] also provides you an opportunity to do a bit of a self audit, if you will, as part of that mechanism and that check-in with the physician throughout the year.

So Jana, just thinking about all of the topics that we’ve discussed, what have we missed that you thought that we should discuss today, or should we wrap for our listeners and talk about some key takeaways?

Jana Kolarik

I think we should talk about key takeaways. One of the things that I want to mention just as a footnote to what we’ve discussed about the reconciliation process is when I say we mentioned Stark, we mentioned Kickback, and fair market value being a continuing obligation, especially if you’re an employee (looking at Stark primarily). If you’re outside of fair market value, that is an obligation for your employed physicians. So, you’ve got to fix that.

So the reconciliation is just part of the compliance process. And if you aren’t, then there are Stark implications for being outside of fair market value, which affect the claims at issue, which can be astronomical [numbers] if you’re dealing with some of these specialties.

So keeping ahead of that and keeping on top of it is important not only for relationships with your physicians, which is hugely important, but also from a compliance perspective to keep things tight and to keep you from having to do self-disclosures, having to explain things a couple of years in when you’ve been outside of fair market value for a number of years, and now you’re having to have those much more difficult discussions with physicians about paying back money. Or you risk losing those physicians because they’re not willing to? So I just wanted to put that as a footnote that the implications of this are relationships, right? But they’re also hugely impactful from a compliance perspective.

Angie Caldwell

Yes. And if I could footnote to your footnote related to… you made such a good point about relationships and about, again, we’ve talked a lot about making sure that everything is documented, and transparent and consistent, and everyone knows what’s going on. If you are in an organization and you find that your physicians are coming to you frustrated constantly about the cadence of communication, about the transparency, about the process – notice I didn’t say about the amount of compensation – that’s a different issue.

But if they’re coming to you with those concerns and expressing frustration, then as an organization, it is time to sit down and think about the compensation plan, the process, the design, and what could be improved.

Because like you said, those relationships are so important. And from a time perspective, it becomes time intensive [issue] to deal with the frustration of the physician. So it’s better to have that plan in place from a consistency and a communication perspective. So key takeaways for our listeners, Jana?

Jana Kolarik

I think I mentioned them at the beginning, but I do think one of the key takeaways is that you have a written policy and plan in place. I mean verbally, us talking through this, you talking through it internally is important. But documenting it and documenting these key things that we’ve mentioned here today, you need to have it in writing, and you need to follow it, and it needs to be available for others to see what the process is. And for others to understand, again, from a relationship perspective and from a compliance perspective. So that would be to me, the big key takeaway. But I mentioned those four things at the beginning of the discussion, and those are fundamentally my key takeaways.

Angie Caldwell

Absolutely. And I would add too that making sure that the process is working as intended. So once you have that document in place, what’s in the document becomes your roadmap for check ins, communication, and process. So making sure that the process is aligning with that document then becomes critical to the organizations that are administering physician compensation.

Jana Kolarik

Agreed. Totally agree. And I just want to do a quick reminder too of our Let’s Talk Compliance annual event, which is happening January 23rd and 24th. So for our listeners, please stay tuned and definitely sign up to get our updates. But we’re going to do two days and we’re going to have CLE, CPE, and CEUs, for the compliance professionals as well. So lawyers can attend, compliance professionals can attend. And we’ll be doing a neat variety of topics this year. So I always look forward to it, so I just want folks to keep that in the back of their mind. It’s coming up!

Angie Caldwell

Absolutely. Our seventh annual. So exciting.

Jana Kolarik

That’s right. It is. It is. So thank you, Angie. You know I always enjoy these discussions and I hope others enjoy as well. It’s always good to get together and thank you. Thank you for this.

Angie Caldwell

You’re very welcome. Thank you.

Jana Kolarik

We want to thank our listeners for joining our Let’s Talk Compliance podcast series with Health Care Law Today ā€“ your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast. Visit Ā鶹ֱ²„’s Health Care Law Today, blog at healthcarelawtoday.com and pyapc.com. If you like this show, don’t forget to subscribe and be sure to rate us five stars. Until next time, I’m Jana Kolarik of Ā鶹ֱ²„ & Lardner.

Angie Caldwell

And I’m Angie Caldwell at PYA. Thanks for listening.

In this episode, Benjamin Dryden, vice chair of Ā鶹ֱ²„ā€™s Antitrust & Competition Practice Group and David McMillan, managing principal of consulting and chief financial officer at PYA, discuss the recent July 3^rd ruling on the U.S. Federal Trade Commissionā€™s (FTC) Non-compete Ban and how this will affect the health care & life sciences industry.

For more information regarding the ā€œLetā€™s Talk Complianceā€ podcast series, please click here.

Please note that theĀ interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Jana Kolarik

Hello, and welcome to the Letā€™s Talk Compliance podcast series on Health Care Law Today, presented by Ā鶹ֱ²„ & Lardner and PYA. Iā€™m your co-host, Jana Kolarik, a partner in Ā鶹ֱ²„ā€™s Health Care Practice Group.

Angie Caldwell

And Iā€™m your other co-host, Angie Caldwell, consulting principal with PYA. Weā€™re excited to have you join us today. Before we begin our show, we want to remind you to subscribe to Health Care Law Today, either on iTunes or your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com.

For todayā€™s show, Ben Dryden, the vice chair of Ā鶹ֱ²„ā€™s Antitrust and Competition Practice Group and David McMillan, PYAā€™s managing principal of consulting and chief financial officer, are discussing the July 3^rd ruling on the FTCā€™s Non-compete Ban and how this will affect the health care industry. Iā€™m going to turn it over now to Ben and David to introduce themselves.

Ben Dryden

Thank you Angie and Jana. I am Ben Dryden. I’m a partner in the Antitrust & Competition practice group of Ā鶹ֱ²„ & Lardner LLP. I’m based in Washington D.C. My practice focuses on the antitrust issues that arise in mergers and acquisitions, as well as providing day-to-day and event-driven antitrust counseling for clients in the health care sector with a particular focus on antitrust issues involving labor and employment.

David McMillan

Thank you Ben. And I’m David McMillan, a principal with PYA located in Knoxville, Tennessee. Ben and I are happy to be with you here today to continue our previous conversation where we were talking in advance of the July 3rd ruling regarding the FTC’s Non-compete Ban. And so now we want to sort of unpack where we are on the other side of a recent court decision. So Ben, can you begin by telling us who made the ruling, what did we hear? And maybe unpack a little bit for us a summary of what we heard from the courts.

Ben Dryden

Happy to. So just to contextualize what the July 3rd ruling was, it was a preliminary ruling, and the idea is if you are challenging a regulation like the FTC’s Non-compete Ban, you can go into court and say, ā€œI need emergency preliminary relief to be granted before the court reaches the ultimate merits of the case. In other words, before the court rules on every last issue that resolves the case in its finality, I need the court to issue emergency preliminary relief.ā€ And that’s a fairly extraordinary remedy and it is a high barrier to make that showing to establish that you’re entitled to preliminary relief.

That’s what the plaintiffs did. They said this Non-compete Rule is going to impose irreparable injury on the business community by forcing businesses to expend money and compromise their ability to enforce or enter into non-compete agreements. So court, we need you to issue a preliminary injunction barring the enforcement or implementation of the Non-compete Rule before the court reaches the ultimate merits and issues a final decision that resolves every last issue in the case. So that’s what the July 3rd ruling was.

The ruling went before US District Judge Brown out of the Northern District of Texas in Dallas, and Judge Brown ruled that preliminarily, based on her review of the record so far, she believes it is likely that the plaintiffs who are challenging the Non-compete Rule are going to establish that the Non-compete Rule is unlawful. And the judge found two separate grounds for reaching that determination.

One, the judge said that just looking at the language of the FTC Act, the law that gives the FTC the power to take any action, she said the FTC Act does give the FTC some ability to make rules with respect to unfair methods of competition. But examining the history and the structure of the Act, she said, they can’t make substantive rules. They can’t define certain sets of business practices as substantively constituting unfair methods of competition. Rather, the FTC’s power to make rules of procedure are truly just procedural rulesā€”ā€œhousekeeping rules,ā€ she called them, rules of practice and rules of procedureā€”not actual rules defining what is or is not an unfair method of competition.

So in the first instance, the judge said, the FTC just does not have substantive rulemaking authority, which really is what the plaintiffs who are challenging this rule are trying to establish. They care about the Non-compete Rule, but they care more broadly that the FTC is not a legislature. The FTC should not be in the business of making substantive rules; rather, they’re a law enforcer. So on the big issue that the plaintiffs are trying to prevail on, it was a favorable ruling for the plaintiffs.

The judge also said, even looking specifically at the Non-compete Ban, that ban is likely to be arbitrary and capricious, meaning the agency didn’t properly consider other alternatives and it didn’t engage in a sufficiently reasoned decisionmaking to support a broad categorical ban on non-competes from coast to coast.

So based on those two preliminary findings, the judge said the plaintiffs are likely to succeed on the merits in this case. ā€œI find preliminarily that the plaintiffs are probably going to win this case.ā€ But having reached that preliminary determination, that’s just one part of the puzzle. The court then has to pivot to, okay, so what’s the remedy for that? What can the court in a preliminary order do to prevent further implementation of this rule? And the court said that the plaintiffs had not made a sufficient showing at this preliminary stage to justify broadly invalidating the Non-compete Ban for every single business in the country. Rather, the judge said, ā€œI find that the plaintiffs are likely to prevail, so I’m going to prevent the FTC from enforcing the non-compete Rule or implementing the Non-compete Rule with respect to the plaintiffs.ā€

So what that means in practice is, one of the plaintiffs is the US Chamber of Commerce. The court’s order prevents the FTC from suing the US Chamber of Commerce in the US Chamber of Commerce’s capacity as an employer of employees, some of whom are presumably bound by non-competes. So if, say, some employee of the US Chamber of Commerce has a non-compete agreement and the Chamber of Commerce tries to enforce that, the FTC is enjoined from going after the Chamber of Commerce for enforcing a non-compete against the Chamber of Commerce employee. But for any run-of-the-mill business in the country that may or may not even be a member of the US Chamber of Commerce, the court’s order does not apply to that company. The court’s order only applies to the plaintiffs in this case.

Now that could certainly change, and in fact we’re recording this on Thursday, July 11th, just yesterday, Wednesday, July 10th, the plaintiffs moved the court for reconsideration to say no, this was not the proper remedy. The proper preliminary remedy needs to be more broad. It needs to be universal. It’s got to be a preliminary remedy staying the implementation of the Non-compete Ban with respect to every business in the country because otherwise what are we achieving here? But as it stands right now, the court’s order only applies to the named plaintiffs in that case. It’s a pretty surprising turn of events.

David McMillan

That is interesting, Ben. So if I could quickly summarize, and you keep me honest here in my summary, that number one, this was a temporary ruling. Is that a correct statement?

Ben Dryden

It’s temporary. It’s pending a final decision on the merits, which the court has said will come on or before August 30th.

David McMillan

Okay. Secondly, the judge ruled that the FTC can’t make substantive rules, right?

Ben Dryden

Correct.

David McMillan

And as a result, the plaintiffs are likely to prevail on the merits of their case and therefore they enjoined the FTC from suing the US Chamber of Commerce from pursuing any non-competes it may have with its employees until such time that the ruling is final. So if you’re not the US Chamber of Commerce, you’re still sitting with an FTC ban that has not been struck down yet by the courts. But if you were in Vegas laying odds, this temporary ruling tends to suggest that it will be struck down when the court gets around to issuing its final ruling. We don’t know that for certain, but it seems that’s the way the compass is pointing. I know I’m not going to put you on the spot to make that prediction, but can you just give the listeners any thoughts from your perspective about whether you believe the court will respond to this latest, latest motion filed by the plaintiffs and or where we go from here?

Ben Dryden

Yeah, so a couple of reactions. One is I agree that the compass is pointing in the direction of the court ultimately issuing a broader ruling than the narrow ruling that issued on July 3rd. It’s still unclear whether a broader ruling would apply truly universally, and if it would be a categorical order that the Non-compete Rule is no longer in effect and the remedy would be vacating the Non-compete Rule in its entirety with respect to any business or any employee in the entire country. That’s certainly what the plaintiffs want to get. But there’s some footnotes and discussions and just reading between the lines in the court’s opinion, they stake out the possibility of a slightly narrower middle ground whereby the court might just order that the Non-compete Rule is vacated with respect to companies that are bona fide members of the plaintiffs.

So the plaintiffs are, there’s one individual business, it’s a tax preparation firm in Texas. That tax preparation firm is going to be able to enforce its non-competes. Other than that one specific business, the plaintiffs are the US Chamber of Commerce, the Business Roundtable, the Texas Association of Business, and the Longview, Texas Chamber of Commerce. It is possible that the court might order that the Non-compete Ban is only vacated with respect to companies that are bona fide members of those four trade organizations. And I will abstain from handicapping what the likelihood is of that outcome. But there is a possibility that businesses, to take advantage of an ultimate decision, will need to, if they’re not currently members of, say, the US Chamber of Commerce, they might have to join and become dues-paying, bona fide members of the US Chamber of Commerce to take advantage of a broader ruling. But we’ll know more at the latest by August 30th. Between then and now, the court, as I’ve mentioned, has been asked to, on an expedited basis, reconsider its ruling and the plaintiffs have asked for a decision by Wednesday, July 17th on whether to amend the scope of the preliminary order.

It’s also possible that the Fifth Circuit gets involved and this case gets appealed, because a preliminary injunction can be appealed even while there’s still litigation going on at the trial court. So this can still go in several different directions.

The other piece to this is there’s another lawsuit pending in Pennsylvania where there was a hearing just yesterday before Judge Hodge. And Judge Hodge is a Biden appointee, whereas Judge Brown in Texas was a Trump appointee. Judge Hodge at the hearing seemed fairly skeptical of the plaintiff in that case’s arguments challenging the Non-compete Rule. So there is a distinct possibility that we have one federal court, in Texas, that issues a relatively broad ruling, invalidating or enjoining the enforcement of the Non-compete Rule. But then we have the conflicting decision from another federal court, in Pennsylvania, saying that the Non-compete Rule is valid. And this is a chaos scenario that creates a lot of uncertainty for a lot of businesses.

David McMillan

Wow, that’s really interesting. Thanks for sharing that additional context, Ben. At the risk of definitely getting outside of my lane, not being an attorney, I wanted to go back for just a moment to the statement in the ruling about the FTC not having the authority to make substantive rules.

Ben Dryden

Sure.

David McMillan

You mentioned in your comments the FTC canā€™t create legislation. Many of us have been reading about some of the decisions being handed down in various courts across the country since we last spoke. One, of particular import was the Supreme Court’s decision recently as they contemplated the impact of the Chevron decision from 1984. So, is there any linkage between that statement made by Judge Brown that the FTC can’t make substantive rules, in essence can’t put itself in the position of creating legislation, and what we’re trying to process in light of the Supreme Court’s decision, which happened after our last podcast as well, with respect to that 1984 Chevron precedent?

Ben Dryden

There’s absolutely a connection there. In fact, the Supreme Court’s decision reversing the Chevron framework, that decision was Loper Bright Enterprises vs. Raimondo. The judge in Texas cited that decision even though the ink was barely dry on the decision, the judge cited that as authority to help support her conclusion that the FTC does not have substantive rulemaking authority. I’ll say it’s an indirect connection.

The concept of Chevron is if the Congress passes a law that is ambiguous and an executive agency is charged with administering or interpreting that law, then Chevron gave that executive agency the ability to make reasonable inferences and interpretations of any ambiguity in the congressionally enacted legislation. That’s an issue here, because what we’re talking about is a statute that has a relatively vague provision in it that gives the FTC the ability to adopt rules of practice and procedure.

And so, there was always an atmospheric argument that if there’s some ambiguity in whether Congress has given this power to the FTC, then that ambiguity, it is reasonable for the FTC to interpret that ambiguity in the way that the FTC finds will best serve its purpose of preventing unfair methods of competition. But it’s an ancillary issue, and the court really didn’t have to make a Chevron determination, because the court just looked at the statute and said, ā€œHey, I’m reading the statute just as a judge reading a statute, and there’s not an ambiguity in here for me to interpret. Just based on the clear structure of the statute the FTC does not have the ability to just write laws for itself.ā€ And so the court wasn’t squarely faced with the Chevron issue, but these things are all very interconnected.

David McMillan

Interesting. Thank you for connecting those two dots for many of us who were struggling to keep up with what’s coming down from our judiciary branch right now and trying to navigate, especially in our world of health care, which as we all know has a substantive body of regulation within which to navigate. It helps us all to better understand what we’re hearing. As we move from this initial ruling to what’s next, do we have any advice to give our listeners that will help them navigate the here and now? It’s easy enough for us to say, well, the latest motion expects or asks for some clarification by the 17th, and that Judge Brown said that they would have the complete ruling done by the 30th. And it’s easy enough for us to say, oh, that’s just a couple of weeks or six weeks away. But in the meantime, employment situations, employment matters come and go daily and folks are being recruited and hired and folks are leaving and the world continues to turn.

So is there any advice or thoughts that you would want to share with our listeners as they try to navigate this very uncertain time they find themselves in as an employer?

Ben Dryden

Yes. A few practical pointers come to mind. And this all comes from just the high-level lay of the land that we seem to be drifting in a direction that will result in a relatively broad order vacating the FTC’s Non-compete Ban. But we don’t know that that’s going to be the case. And the scope of the ultimate remedy really is unclear and businesses should care not only about, ā€œAm I going to get sued by the FTC for an unfair method of competition?,ā€ but what businesses really care about is, ā€œIf I have a non-compete with my employee and my employee breaches that, can I successfully enforce my non-compete against that employee? Or, is that employee going to be able to tell a court that the non-compete agreement is void for public policy because the Federal Trade Commission has found it to be an unfair method of competition?ā€

So I unfortunately think that businesses need to assume that there’s going to be some holes in the ultimate order that the court adopts. And we can’t just assume that this Rule is going to be broadly invalidated. It really might be broadly invalidated; that’s a distinct possibility. But until we see it in writing, we need to assume that some vestige of the FTC’s Non-compete Ban is going to survive.

So what do you do with that? I have a couple ideas. One is the first thing that would be required if the Non-compete Rule is to stand, either in whole or in part, the first action that’s required is that businesses are required under the FTC’s Non-compete Rule to affirmatively notify current and former employees who are subject to non-compete agreements and give them notice that their non-compete agreements are no longer going to be enforced. So that notice has to be made by September 4^th, 2024.

The court, again, will issue an order no later than August 30^th, so a few days before the deadline to give notice. But it’s going to take some time to just compile the contact list to figure out who are the employees, the current and former employees who are subject to non-compete agreements, and what is the last known mailing address or email address or cell phone number to allow us to give the notice to those employees if it turns out that we are required to give that notice. So I would say between now and let’s say August 30^th, businesses should start to undertake that effort to compile the information of who are the employees who are subject to non-competes and what is their last known contact information? I wouldn’t send out any notice until after August 30^th, let’s see what the court’s ultimate ruling is, but it’s going to take some time to compile that information. So we should get the ball rolling on that information compilation now.

The other thing I would say is, and again this is something that could probably wait until after August 30^th but before September 4^th, is businesses might need to join the US Chamber of Commerce. If it turns out that the judgeā€™s order only applies to bona fide, dues-paying members of these plaintiff associations, then that’s going to mean if you want to enforce your non-compete agreements, you have to be a bona fide, dues-paying member of the US Chamber of Commerce. So I’m not going to say write a check to the Chamber of Commerce immediately, but be prepared to do so in short order after August 30^th if that’s the direction that the court takes.

The last point that I would make ā€” and this is just, there’s so many issues to unpack in the Non-compete Rule. This is one we haven’t spoken about yet, but there’s a big exception in the Non-compete Rule that is relevant to this audience, the listeners of this podcast, which is that due to probably an historical accident, the Federal Trade Commission doesn’t have jurisdiction to prevent unfair methods of competition against bona fide nonprofits.

And so, to the extent listeners of this podcast represent a not-for-profit health care system, that not-for-profit health care system falls outside the FTC’s jurisdiction on this issue. Now sometimes there’s some wrinkles to that or complications to that. The classic example is you have a not-for-profit health care system that’s the parent organization, but it has set up a for-profit medical group subsidiary, which is the vehicle for employing physicians or other caregivers. If there’s a for-profit legal entity that is the employer of record, then that for-profit legal entity probably is subject to the FTC’s jurisdiction. And the Non-compete Rule probably will apply to that entity. But for listeners who represent or are members of true, bona fide not-for-profits, where every employer of record within the corporate hierarchy is a bona fide not-for-profit, you can sit tight because the Non-compete Rule doesn’t apply to those types of organizations, due to an historical error in how the FTC Act was drafted.

David McMillan

Well, that is a fascinating tidbit and likely very important for a number of our listeners; to make sure that they comprehend that and understand it. And just to reiterate the point, just because the parent corporation is nonprofit, the exception that prevents the FTC from having jurisdiction over nonprofits would not extend to any for-profit subsidiary of that nonprofit, to the extent that for-profit subsidiary was an employer of record. Should the FTC ban on non-competes be upheld through the judicial process, that for-profit subsidiary would still be subject to that ban. I just want to make sure that I said that correctly and so that our listeners hear that a couple of times.

Ben Dryden

Yeah, you said that correctly. I should say that the parameters of where the FTC’s jurisdiction begins and ends with respect to nonprofits and for-profits is very hazy. And so I think the line that if it’s a bona fide not-for-profit parent, but it has a for-profit subsidiary, I think that line is sound. Thatā€™s certainly the position that the FTC has taken publicly that, in that case, the FTC does have jurisdiction over the for-profit subsidiary. But these issues have not really been litigated and there’s sometimes unique facts and unique cases that need to be considered.

The other situation that comes up with some regularity is you have a bona fide, not-for-profit health care system that contracts with a staffing company, and the staffing company is actually providing locums or traveling nurses or what have you. If the staffing company is a for-profit ā€” which, they all are for-profits ā€” in that case it could be a not-for-profit hospital, but the doctor’s employer is the for-profit staffing company, and in that case, the non-compete agreement between the staffing company and the doctor or the nurse or whoever is presumably subject to the FTC’s authority.

David McMillan

Interesting. Thank you for that clarity as well because as we all know, especially since the pandemic, the use of staffing companies such as travelers for clinical caregiving has increased dramatically. And so I’m sure a lot of our listeners find themselves in that particular circumstance. So Ben, anything else that we want to make our listeners here aware of as we continue to wait for the courts to clarify this temporary or initial response that we received on July 3^rd?

Ben Dryden

I don’t know how satisfying of a conclusion this is going to be for listeners, but we are really in a chaos scenario here where it seems quite plausible that we’ll have one decision from one federal court that conflicts with another decision from another federal court. The one federal court that is likely to rule that the Non-compete Ban is illegal, it’s unclear what remedy is going to be imposed there and how many businesses will be able to take advantage of that remedy. So this remains a fast-moving situation where there’s briefing, there could be emergency appeals or could well be a conflict between one court and another court. So this is one to just really stay tuned on, but we unfortunately do have to assume the worst and be prepared for the possibility, even if it’s a small possibility, but be prepared for the possibility that this Non-compete Rule gets implemented come September 4^th.

David McMillan

So just to remind our listeners, if you’re an employer who would otherwise be subject to the FTC’s Non-compete Rule, it’s best to go ahead and be making that listing of current and former employees and their last known point of contact. Having that pulled together just in case you do need to make that notification to be compliant with whatever decision comes down with respect to the ban. So that was good advice and I wanted to repeat it for our listeners as they think about the next few weeks and what they need to be doing.

Ben Dryden

That’s right.

David McMillan

Well, in our first episode, Ben, you made the comment that, prior to this ruling, employers were faced with this patchwork of state law for those employers who have employees in multiple states, and that those employers have to navigate this patchwork of state regulation as it relates to non-competes or other types of restrictive covenants and employment agreements. It sounds like all we’ve done is added another layer of uncertainty and patchwork at the federal level to that existing state regulation. And so, like a lot of difficult situations, this seems to be getting more complex before it gets easier. We’ll hope that there’s something easier on the other side of August 30th, but we’ll prepare as if there isn’t. Is that a fair statement?

Ben Dryden

That’s fair. What I’ll say is the only solution to the complexity and the patchwork and there being 46 different sets of rules across the country, the only solution there is a federal solution, a uniform rule of non-competes. And so it’s a question whether the FTC is the proper source of that rule or instead whether that rule needs to come from Congress. And I think just to tie everything up, given what the Supreme Court said in the Loper Bright case, if there’s a solution to be had here to achieve federal uniformity on non-competes, the onus is on Congress to make that happen.

David McMillan

Well, that’s well said, Ben. And so for our listeners, we hope you’ll stay with us. Ben and I will be back as we hear more from our judicial system and as we learn more about the forthcoming decisions. As Ben has already referenced, we’ll be back to unpack that with you as those are known. We hope that you will join us again to hear Ben’s perspectives on those new rulings. Obviously, he is an expert whose counsel in this area is valuable, and we’re happy to have the opportunity to provide these particular installments of Let’s Talk Compliance in the midst of what Ben referred to as chaos. So stay tuned. We’ll be back with you just as soon as we have some more clarity. We thank you for listening again today, and now we’ll turn this back over to Angie and Jana. Thanks so much, Ben.

Ben Dryden

Thank you.

Jana Kolarik

Thank you, Ben and David for another great discussion. We appreciate you taking the time to join us today. We want to thank our listeners for joining our Letā€™s Talk Compliance podcast series with Health Care Law Today, your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast, and visit Ā鶹ֱ²„ā€™s Health Care Law Today blog at healthcarelawtoday.com, and pyapc.com. If you liked this show, donā€™t forget to subscribe and be sure to rate us five stars. Until next time, Iā€™m Jana Kolarik at Ā鶹ֱ²„ & Lardner.

Angie Caldwell

And Iā€™m Angie Caldwell with PYA. Thanks so much for listening.

In this episode, Benjamin Dryden, vice chair of Ā鶹ֱ²„ā€™s Antitrust & Competition Practice Group and David McMillan, managing principal of consulting and chief financial officer at PYA, discuss the FTCā€™s most recent decision to ban non-competes and how this ban will affect the health care & life sciences industry.

For more information regarding the ā€œLetā€™s Talk Complianceā€ podcast series, please click here.

Please note that theĀ interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Angie Caldwell

Hello, and welcome to the Let’s Talk Compliance podcast series on Health Care Law Today, presented by Ā鶹ֱ²„ & Lardner and PYA. I’m your co-host, Angie Caldwell, consulting principal of PYA.

Jana Kolarik

And I’m your other co-host, Jana Kolarik, a partner in Ā鶹ֱ²„’s Health Care Practice Group. We’re excited to have you join us today. Before we begin our show, we want to remind you to subscribe to Health Care Law Today, either on iTunes or your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com.

For today’s show, Ben Dryden, the vice chair of Ā鶹ֱ²„’s Antitrust and Competition Practice Group and David McMillan, PYA’s managing principal of consulting and chief financial officer, are discussing the U.S. Federal Trade Comissionā€™s (FTC) most recent ruling on banning non-competes and how this will affect the healthcare compliance industry. I’m going to turn it over to Ben and David to introduce themselves.

Ben Dryden

Thank you, Angie and Jana. I’m Ben Dryden. I am an antitrust partner in the Washington D.C. office at Ā鶹ֱ²„ & Lardner LLP, where my practice focuses on antitrust issues that arise in mergers and acquisitions as well as antitrust issues facing the health care sector and antitrust issues in labor and employment.

David McMillan

And I’m David McMillan. I’m a principal of PYA leading our consulting practice. I’ve spent time with primarily health care providers throughout the last three decades working on transactions and various other opportunities and compliance matters. I have had the great fortune of working with our friends at Ā鶹ֱ²„ for almost three decades, and happy to be with you here today.

So as we get started, Ben, since the FTC’s non-compete rule was released, there’s been all sorts of discussion and literature and podcasts so we want ours to be a little bit different. We’re going to dive a little deeper into some of the background behind non-competes in general. Talk about some things like ethics and some things that are maybe just a little different than what our listeners may have heard in other podcasts, but then we absolutely want to finish with looking ahead to this July 3^rd ruling and what we might expect there. So with that as a brief agenda, Ben, why don’t you get us started by just highlighting what is this FTC non-compete rule all about for those who might be listening and have heard about it but perhaps don’t have any context to process some of what we might talk about today?

Ben Dryden

Sure. Thank you, David. First things first, we’re talking about employee non-compete agreements, which are agreements between an employer and an employee that prevent that employee from working for a competitor after the end of their employment or starting a new competing business after the end of their employment. And employee non-compete agreements go back centuries. They’re enforceable in 46 of the 50 states under various levels of scrutiny that vary on a state by state basis. They’re very common.

The Federal Trade Commission came out and in one fell regulatory swoop banned non-compete agreements. They said that, in their view, employee non-compete agreements are an unfair method of competition prohibited by the Federal Trade Commission Act and the FTC has voted to adopt a regulation that in black letters bans non-competes on the basis of them being unfair methods of competition.

They’ve made a little bit of an exception for non-compete agreements with senior executives, which they define as people who have C-suite authority and who make at least $151,164 a year. But the focus is really on C-Suite authority. And they say for non-compete agreements entered into with senior executives, those people have a little bit more bargaining power than, say, employees making minimum wage. So for senior executives, the FTC has said, going forward, we are going to ban non-compete agreements, but if non-compete agreements are already in place with senior executives, we won’t retroactively invalidate those. But otherwise, for the 99 plus percentage of workers who are not senior executives as defined by the FTC, their non-compete agreements will be banned by this FTC rule effective September 4^th.

David McMillan

So, when we look back at the Federal Trade Commission Act itself, which I think is the basis for the interpretation that the FTC is taking today, that act was signed into law in 1914. So this interpretation is a new interpretation of a very old, if we will, piece of legislation. Is that right, Ben?

Ben Dryden

That is right. And the history here really is fascinating. I mean, going back to 1914, the Federal Trade Commission was established, and they were given this charge of preventing unfair methods of competition. And for their first 50 some odd years of existence, the FTC would go about identifying and stopping unfair methods of competition on a case-by-case enforcement basis. They would see something out in the marketplace being done by a particular company, and they would sue that company alleging that that company is engaged in an unfair method of competition. Well, starting in the ’60s and going into the ’70s, the FTC came to the view that they have a broader power than just bringing case-by-case enforcement actions. In the ’60s and in the ’70s, the FTC started to pass regulations that would identify certain types of conduct as unfair methods of competition.

And these regulations were very, very just hyper-specific. I mean, one example was The Tablecloth Rule. They said that if a tablecloth manufacturer didn’t disclose the cut and finished sizes of the tablecloth, then that’s an unfair method of competition. So there was nothing that broadly applied to the entire American economy. But the FTC, what they’re arguing today is that, hey, they set this precedent in the ’60s, that they have the power to pass regulations. And the FTC’s view is that this is just a continuation of that power from the ’60s and ’70s to adopt substantive regulations defining what an unfair method of competition is.

Now that raises the question, well, what’s happened since the ’60s and ’70s, and the answer to that question is the FTC after about 10 years of very aggressive rulemaking faced a very strong backlash in Washington, where the Chamber of Commerce was calling the Federal Trade Commission the second most powerful legislative body in the United States, and it prompted a backlash.

And so Congress scaled back some of the FTC’s powers and just through the political process and through regulatory self constraint, the FTC stopped for about 40 years doing these regulations that define business conduct to be unfair methods of competition. But what the FTC is doing here is they’re rediscovering this power that they just haven’t flexed for 50 years. And it’s a very live issue whether this power that they flexed in the ’60s and ’70s was valid back then or whether it’s still valid today. And so this is drifting into litigation, which you previewed, but it’s a very live issue whether the FTC has this power or not.

David McMillan

So to be specific, on the 23^rd of April, they flexed their muscle and put this rule into place pertaining to the prohibition against non-competes and decided to make that prohibition effective as of September 4^th of this calendar year, which doesn’t give a lot of runway between the actual vote and the effective date, as you mentioned, for this litigation to occur. So it sounds like things have been moving pretty quickly since the rule was voted and adopted by the FTC back at the end of April.

Ben Dryden

That’s exactly right. And the history here is kind of funny. The FTC first began this rulemaking process early in 2023, and right off the bat groups like the U.S. Chamber of Commerce more or less threw down the gauntlet and said that [this] poses an existential threat to the rule of law for businesses in this country. So the Chamber of Commerce made clear over a year ago, if the FTC goes forward with a rule like this, they’re going to take it all the way to the Supreme Court. And so this has been simmering for over a year and there was a rulemaking process and tens of thousands of comments were submitted with thoughtful comments in favor of the ban and very thoughtful comments opposing the ban.

Well, in the middle of April, the FTC put out a press release, “One week from today we’re going to vote on the proposed non-compete rule.” And so the vote was on a Tuesday, the Monday before the vote, the Chamber of Commerce held a press conference and they said, “We are going to file a lawsuit on Wednesday, two days from today, on Wednesday we’re going to file a lawsuit challenging whatever rule the FTC might adopt on Tuesday.” So jump forward to the next day the FTC votes in the afternoon to go forward with this rule to adopt the rule. Everyone knew the Chamber of Commerce was going to file a lawsuit within 24 hours, but in the intervening 24 hours, some other party filed a lawsuit in a different court. It was a tax preparation firm represented by Gibson, Dunn & Crutcher and a former secretary of the Department of Labor, they wanted to be the first in court.

And so that’s the case that’s actually the leading case. The Chamber of Commerce case filed the next day ended up getting more or less consolidated with the case brought by the tax preparation firm, but everyone was moving at breakneck speed and they immediately filed a motion for a preliminary injunction. And the court said, pursuant to the local rules of that court, there is a set schedule that the court has to rule on a motion for a preliminary injunction. And under that schedule set forth under the court’s local rules, July 3^rd is the date. So by July 3^rd of this year, we will know whether the court is granting a preliminary injunction to block this rule or whether this rule will be allowed to move forward. And if the decision from the judge is to allow this rule to move forward the effective data is set for September 4^th.

David McMillan

Interesting, and thanks for all that history. That’s really helpful. And for the process itself, it’s sort of fascinating to understand how this has unfolded so quickly since the 23^rd. Like you said, there have been comments in the process that certainly predated that for the better part of the year.

Well, before we go any further, there may be some folks listening to this that are wondering, “Gosh, I may have some sort of restrictive agreement or I am aware of clients of mine who utilize restrictive agreements.” When we look at non-competes through the broader lens of restrictive agreements such as non-solicitation agreements and perhaps others, can you give us just a little bit more color there? Is this particular rule specific to non-competes, or is it broader and does it cover some of those other types of restrictive agreements? And in answering that, Ben, do you mind to introduce our listeners that may not be familiar with it, with maybe some other types of restrictive agreements and whether theyā€™re included or not?

Ben Dryden

Absolutely. And the short answer is going to be it depends and itā€™s not entirely clear, but let me try to unpack that. So the rule that the FTC is adopted applies to non-compete clauses, which thereā€™s a definition for in the rule, itā€™s, ā€œA term or a condition that prohibits, penalizes, or functions to prevent a worker from either seeking or accepting a job in the United States with a different employer at the end of their employment, or operating a business in the United States after the end of their employment.ā€

So it doesnā€™t have to be a freestanding contract that says at the top ā€œRestrictive Covenantā€ or ā€œNon-Compete Agreement.ā€ It doesnā€™t have to be that at all. It could be a single paragraph in a 100-page agreement Thereā€™s no requirement to revise or reform the 100-page agreement, just the effect of the FTC rule is that one paragraph in the larger agreement can no longer be enforced and you canā€™t represent that it can be enforced. In fact, youā€™re obligated to inform an employee that that clause cannot be enforced.

So thatā€™s the idea that theyā€™re preventing non-compete clauses, not necessarily non-compete agreements. Where this gets very messy is it happens all the time that a non-compete clause will be included in an agreement that has other restrictive covenants, and so you give the example of a non-solicitation agreement. Thereā€™s a lot of different species of non-solicitation agreements, but a classic one is, ā€œEmployee, after you leave this company, after your time here, you wonā€™t solicit any of the customers who you interacted with during your employment,ā€ and we call that a customer non-solicit clause. Another type of clause is, ā€œEmployee, after the end of your employment here, you wonā€™t solicit any of your former coworkers.ā€ We call that an employee non-solicitation clause. You wonā€™t solicit your former coworkers to join you to whatever future organization youā€™re going to after the end of your employment.

So non-solicitation clauses of either species probably are not non-compete agreements as defined, but I say probably because the FTC and the rulemaking notice said, ā€œWell, we have to think about them. We have to look at a case-by-case basis.ā€ They give an example, not of a non-solicitation agreement, but a non-disclosure agreement, something that prohibits an employee from disclosing company trade secrets after the end of their employment, or if not trade secrets, other confidential company information. The FTC said, sometimes youā€™ll see a nondisclosure agreement thatā€™s written just breathtakingly broadly to prohibit an employee from using information that they may have learned in the course of their employment to benefit a future employer. Even if thatā€™s publicly available information that theyā€™re just learning about how the industry works, sometimes employers will aggressively say, ā€œNo, you canā€™t use anything that you learned while you were an employee of me to go benefit a competitor.ā€ And the FTC said, in that situation, that might be a non-compete. If it functions to prevent an employee from taking another job after the end of their employment, thatā€™s the test under the FTC rule.

So theyā€™ve not been very clear about where the line begins and ends, and I think it probably is ultimately going to be a case-by-case judgment call.

David McMillan

Fascinating, really helpful information, Ben, and I hope that folks listening to this episode of our podcast are finding this really practical information helpful to them as well.

So let’s keep digging and pulling on that thread just a little bit. So, “it dependsā€, which is everybody’s least favorite answer from any of us providing professional services, is very real, right? This ā€œit dependsā€ answer also applies to the July 3^rd ruling, and what that might mean in terms of the landscape we’re operating under today. “It dependsā€ also depends on what state you’re in, because as an employer there’s this tapestry of different rules, regulations, and legislation on a state- by- state basis that employers need to be aware of as it relates to restrictive agreements and non-compete agreements. Anything you want to add to that perspective for those that may be listening that have employees in multiple states?

Ben Dryden

Absolutely. One of the issues that’s really animating the FTC here is that the FTC has cited research that finds that even in states that ban non-competes, the classic example is California. California has banned employee non-compete agreements for over a century, but the FTC found that even California or other states that ban non-compete agreements, you still see non-compete agreements. You’ll have these multi-state employers that just have a template employment agreement that they ask everyone to sign and sometimes employers aren’t good about tailoring those from state to state to state. Or maybe an employee moves in the course of their employment and they thought that they were governed by the same contract but by virtue of moving locations, a new state’s law applies.

And so there is a tremendously complicated patchwork of laws and it varies from state by state by state by state. There are four states that broadly ban non-compete agreements. There are some states that have no statute at all on the books, but just evaluate the enforceability of a non-compete on a classic, common law, case-by-case basis, and that is the quintessential, ā€œit dependsā€ situation where it just depends on the facts, it depends on this particular employee and you really don’t know what the result is until you get it before a judge. In a very real sense it depends on the judge.

Other states still have adopted statutes that might draw clear lines. And as a lawyer, I like clear lines;it allows me to give clients advice other than ā€œit depends.ā€ What’s really interesting, and I think germane for this audience is a lot of states have passed statutes like this setting clear lines for when non-competes can be enforced or not that are specific to the health care sector. So it’s something like 20-odd states have laws that are specific about when a non-compete agreement can be signed with a physician. Because in the case of physicians, the non-compete agreement affects more than just the doctor, it affects the doctor’s patient and it affects the health of the overall community. So a lot of states have come to recognize that health care is special, health care is different, and the rules for non-compete agreements in health care need to be specially tailored for these special problems.

David McMillan

So probably the best advice we can give to those listening who are not experts in this area and have employees in multiple states, is contact a good counsel who has experience in this area before you get too deep into a one size fits all approach on your restrictive agreements.

Ben Dryden

This is the quintessential situation where one size does not fit all. Under current state law there is a very diverse patchwork of approaches, and you need to know which state’s law applies, what are the particulars of this employee, what is the legitimate business purpose that’s being served by the non-compete? And you just have to think through all these issues before you bind someone to a non-compete agreement.

David McMillan

Great. I understand. So we’ve talked a lot about the rule, the regulation, the body of law that have sort of been building over the course of many years surrounding restrictive agreements and this most recent rule from the FTC, that’s really the subject that’s resurfaced all this dialogue. But underlying all of this is certainly business ethics and the idea of, well, just because something is legal doesn’t mean it’s right, or just because something’s illegal doesn’t mean that it’s not right. And so I would imagine that all of this dialogue around restrictive agreements and non-competes have begun to surface some of those old ethical arguments or perspectives as it relates to non-competes and other types of agreements, and maybe fostering conversation about new ethical considerations. Can you give us a glimpse into what you’re hearing and what you’re experiencing with respect to not simply the regulation, but just the idea of, hey, let’s look at this from a more holistic perspective?

Ben Dryden

Absolutely, and I’ll approach this two ways. I’ll talk about the economic literature and then I’ll talk about ethics, right and wrong and good and bad. So the economic literature in this area is relatively new. And what’s prompted this, there have been a number of states over the past, I’ll say 20 years, that have tinkered with their non-compete rules. They’ve either restricted the parameters where a non-compete can be enforced or they draw up categories where, such as physicians, we are going to say non-competes are no longer permissible for this set of employees, or they’ll draw a salary band above $100,000 is only where a non-compete is enforceable. That change on a state-by-state basis has enabled a new area of economics where academic economists are now able to study, okay, what are the actual empirical effects of non-competes. When a state changes its non-compete law, what does that mean for the people who work in the state?

And I’m not an economist, but I’ve read the literature pretty well and I’m not yet persuaded that the methodology is terribly sound. But, there have been some interesting results and these results are really what are animating the FTC here. I’ll just say what the FTC has found to be the teachings of the economic literature: According to the FTC, banning non-compete agreements is going to result in between $400 billion and $488 billion in increased wages over the next decade, which translates to over $500 per worker per year. They’re saying that employees make more money when there are no non-compete agreements. Interestingly, the FTC finds that that effect holds whether an employee is bound by a non-compete agreement or not. In other words, the FTC is finding that even if you’ve never signed a non-compete agreement, you will make more money if non-compete agreements are banned because that just means there’s more competition out in the marketplace for jobs in general. And the view of the FTC is that there’s going to be a rising tide that lifts all boats.

The FTC has also found that banning non-competes is going to result in 8,500 new businesses being created each year, tens of thousands of additional patent filings being made each year. So the FTC’s view is that this is going to be just a tremendous, tremendous stimulus for the American economy. It is going to result in not only a larger economy but more wealth trickling down to the people who need it the most.

Now, one thing the FTC has also found is that physician spending is going to go down, they estimate, by between $74 billion and $194 billion over the course of the next decade. What I would posit right there is, well, how can that be that wages go up, but spending on physician services goes down? How can that be? Either there’s something wrong in the math, or there’s just a tremendous market failure where health care systems are pocketing money that should be going to physicians. Those are the two possible explanations.

And I would suggest based on my own independent read of the academic literature that the FTC’s analysis is wrong. Because there’s only been one study done that’s really looked at an apples-to-apples basis, just asking the simple question, okay, doctors, how much money do you make? How much money have you made over your career? And are you subject to a non-compete? There’s only one study that that was the methodology, just direct surveys to primary care physicians. And they did this across five different states. And the authors of that study found that doctors actually make more money when they are subject to non-competes, a lot more money, 14% more money to start. And, doctors enjoy greater earnings growth over time when they are subject to a non-compete agreement.

And intuitively you say, “Well, how could that be? How can someone make more money when they’re bound by a non-compete?” The authorsā€™ theory is, well, the nature of a medical practice is it’s not so much the doctor that goes out and attracts the patients, it’s the practice that runs ads on buses or on television, and it’s the practice that generates the patient relationships and gets the patients in the door. And then once the patient’s foot’s in the door and meets their doctor, then the relationship really translates to the doctor, it becomes a true personal relationship. But to allow a practice to have the confidence to make those investments of running advertisements, the doctor has to be bound by a non-compete. In other words, the practice needs to be confident that the doctor’s not going to just ramp up a panel of patients, get really busy and then immediately bolt, go across the street and poach all the patients. So the theory is that non-compete agreements, at least in the business of medicine, create a win-win that benefits both the employer and the employee. So that’s a pretty interesting finding.

Pivoting to the ethics of the question, meaning good/bad, right/wrong, the economics is certainly informative of what’s good/bad and right and wrong. But I’m a lawyer. I just have to begin with the observation that it’s long been the rule that for lawyers, non-compete agreements are unethical. And the reason is that lawyers are adversarial agents for their clients. And anything that restricts the ability of an independent adversarial agent from switching jobs has an indirect effect on the client. And so to protect clients, lawyers have agreed that it is a rule of ethics that lawyers will not be bound by non-competes.

And you can make the exact same argument for doctors. Because as we’ve been discussing, non-competes for doctors or other health care providers affect more than just the worker, they also affect the patients. And in fact, the American Medical Association (AMA) has a provision in their Code of Medical Ethics about non-competes. And it doesn’t ban non-competes, but according to the AMA Code of Medical Ethics, “Physicians should not enter into covenants that unreasonably restrict the right of a physician to practice medicine after the end of their relationship.ā€ And, physicians also ā€œshould not enter into covenants that do not make reasonable accommodation for a patient’s choice of physician.” Now those rules of ethics don’t have the force of law and doctors aren’t going to get, they’re not going to lose their license if they sign a non-compete that’s overbroad. But it’s interesting that that is a fairly longstanding provision in the AMA Code of Medical Ethics.

David McMillan

That is pretty fascinating. And I like the way that you described the reasoning for attorneys’ view on the ethics of a non-compete and how that might have some similarities to the physician/patient relationship.

I think the one thing that might deserve a little more explanation whether we do this now or in a future episode following the July 3^rd ruling, is whether that non-compete is for the entirety of professional services within a prescribed geography or a subset of those services. For example, if I’m an owner-physician that has ownership interest let’s say in some sort of outpatient venture, an ambulatory surgery center, is a non-compete associated with my ownership in that ambulatory surgery center, is that restrictive covenant reasonable because the patient has choice about where they might receive that service even if I’m the one providing it as opposed to the entirety of my professional services within a geography? So Ben, I don’t want to put you on the spot by trying to answer that today, but I think to your point about it, it depends, there are nuances within these restrictive covenants that have to be considered.

Ben Dryden

Yeah, well, what I would say about that just quickly is it’s not immediately clear whether that form of a non-compete agreement, that’s just a clause in the limited liability company agreement that makes the doctor a partner of the ambulatory surgery center, however that’s structured, that’s not necessarily a non-compete clause within the meaning of the FTC rule because the FTC rule is focused on non-compete agreements with employees, but there’s a whole species of non-compete agreements that apply outside of the employee/employer context. A quintessential example is a staffing agreement. If I’m hiring a staffing firm, I can expect that staffing firm not to compete with me in my primary business. If I’m going to bring in employees to come in and treat my patients, I can expect those staffing employees not to turn around and poach the patients, and that’s not going to be affected by the FTC rule. So I mean, there’s certainly a whole other podcast we could do on that topic, but itā€™s a really interesting point.

David McMillan

Well, it is interesting. And for firms like PYA who are involved in compensation plan design, certainly compensation valuation opinions associated with various professional services and certainly a vast majority of those being services provided by physicians and other providers, these issues are very real because as you mentioned in the empirical evidence cited in the study that you were referencing, oftentimes the presence of a non-compete can be and often is of interest to a valuator and trying to apply judgment with respect to whether that value is, like you were just most recently mentioning, the value of an interest in a business or whether that has to do with the value of compensation associated or between an employer and an employee, in this case of physician. These promulgations, these regulations from a force of law standpoint have one perspective, but I think the audience and I certainly appreciate your perspective about when you’re thinking through the ethics, did the economics in terms of how the marketplace rewards that sort of restrictive covenant, consistent with the philosophy underpinning the law that’s trying to create an equal playing field.

And so all of that is to say there’s a very real possibility if on July 3^rd the rule is upheld that through economic forces, some physicians and others that might’ve been subjected in the past to a restrictive covenant that is now no longer released, I think what we hear the empirical evidence saying is in time we might see that that’s actually a depression of wages on those providers. I know that’s not anything that’s for certain, but is it a fair statement to make that that’s a possibility that we might see emerge over time?

Ben Dryden

It’s absolutely a fair statement to say that that’s a possibility. I go back to the California example, where non-compete agreements have been banned in California for over a century. And doctors are able to make a living in California. So I don’t think this is necessarily going to be a ā€œsky is fallingā€ situation, but on the margins, it’s going to have an effect. And effects do happen on the margins. So if that means that doctors make a little bit less money after graduating from med[ical] school, well that’s going to mean there are that many fewer doctors applying to school or fewer qualified doctors applying to med[ical] school. And in a country that has tremendous physician shortages as it is, that’s a cause for concern.

David McMillan

I appreciate that logical thinking. Well, as we start to wrap up our time together here with our audience today, we started our podcast with an overview of the FTC proposed rule, and we’ve tried to give our listeners some more context within which to process not just the rule itself, but some of the challenges that are surfacing to the rule. Can you give our listeners in anticipation of July 3^rd, what are some things to potentially look for in that ruling or just some other material that a practitioner and employer may want to keep in mind while we wait on this July 3^rd ruling?

Ben Dryden

Sure, I’ll begin with this litigation’s very interesting, and it has the potential to turn into a seminal Supreme Court case about the separation of powers because it really is an issue where Congress has decided not to pass a law. I mean, Congress has considered non-compete legislation every term going back years and years and years, and there’s never been the political will to do something. So Congress has declined to act. The states have tremendous historical and current regulation of non-competes, but the executive branch has come in and with one stroke of a pen purported to do something that Congress has never done and to override the laws of 46 states. So now it’s falling on the courts to say what is the power of the executive branch in comparison to 46 states and in a situation where the legislative branch has declined to take action for failure to achieve political consensus.

And so it’s a fascinating separation of powers question, and we can get really, really in the weeds. I’ll say that the parties that filed their lawsuit within hours after the FTC vote, they have a certain political agenda. They don’t just want to stop the non-compete rule. They want it to be the case that it is a settled principle of law that the FTC does not have the power to pass any substantive regulations, and they’re trying to get the court to do something more than just prevent this non-compete rule from taking effect. And when you reach farther than you need to reach, you are taking a risk of overreaching.

And so it’s going to fall on this judge to decide, does the FTC have the statutory authority under the FTC Act? Do they have the power to do this? If they do, does that pose some constitutional separation of powers issue?

David McMillan

It is certainly going to be interesting, and as you mentioned, it has the potential to be a seminal case that I think as you’re sort of referencing, whose implications might go further than the FTC’s ability in the future to do rulemaking like this, but really to the beginning of your comment could impact the executive branch’s ability to do this outside the reach of Congress. Did I understand you correctly in case there are other non-attorneys listening who are trying to interpret that?

Ben Dryden

That’s right. And the phrase the Supreme Court has used over the past three terms is ā€œmajor questions.ā€ When the Supreme Court is asked to review major rulemakings or major regulatory actions by federal agencies such as the decision to forgive student loans, the Supreme Court has asked, is this a major policy question? And if the answer is yes, this is a major policy question, the Supreme Court says, okay, if a regulatory agency is making a major regulatory policy decision, they’re asked to be, at a minimum, a very, very clear congressional delegation of authority from Congress to the regulator to allow the regulator to make that policy decision. Congress has to be very clear that the regulator is authorized to make this decision, and that’s the test that the Supreme Court has articulated. But I can’t say that direction clearly controls the outcome of this case. It’s going to be really interesting to see.

David McMillan

Well, it’s a fascinating topic. Thank you for sharing your expertise with me and with our audience today, Ben. We certainly welcome any feedback from our audience and questions. You should be able to look Ben’s name up on the Ā鶹ֱ²„ website and get to his contact information, you can do the same on the PYA website to get to me. We’re all looking forward to what happens next.

And the optimist in me says, “Hey, look, no matter what direction this comes down on July 3^rd, we know that there’s a chance that the litigation and the legal process is going to continue up to and including a Supreme Court ruling,” but the dialogue… we’re all better for the dialogue. We’re more informed. It’s making us think more critically about these matters, both in terms of contract law for contracts between employees and employers, but as we’ve talked about today, the ethical issues surrounding it, and the economics that surround this matter. Like I said, the optimist in me says, “Hey, we’re better for the conversation.” And so Ben, we’re better for your expertise today in the conversation that you’ve led us through, and we thank you for your time.

Ben Dryden

Well, thank you, David, and thanks to PYA and to Ā鶹ֱ²„ for having me.

David McMillan

Absolutely. Well, with that, Jana and Angie, we’ll turn it back over to you.

Angie Caldwell

Thank you, Ben and David for a great discussion. We appreciate you taking the time to join us today. We want to thank our listeners for joining our Let’s Talk Compliance podcast series with Health Care Law Today, your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast. Please visit Ā鶹ֱ²„’s Health Care Law Today blog at healthcarelawtoday.com, and pyapc.com. If you liked this show, don’t forget to subscribe and be sure to rate us five stars. Until next time, I’m Angie Caldwell at PYA.

Jana Kolarik

And I’m Jana Kolarik at Ā鶹ֱ²„ & Lardner. Thanks so much for listening.

Editorā€™s Note: PYA and Ā鶹ֱ²„ & Lardner hosted the 6^th Annual ā€œLetā€™s Talk Complianceā€ two-day Virtual Conference on January 18 and 19, 2024. Panelists included Ā鶹ֱ²„ & Lardner attorneys and PYA experts. The event was hosted by Ā鶹ֱ²„ partner, Jana Kolarik and PYA Tampa office managing principal, . Below are a few major takeaways from Session #3. Please reach out to us if you have any questions.

During Session 3 of the Letā€™s Talk Compliance series, PYA principal and Ā鶹ֱ²„ and Lardner partner Michael Tuteur spoke about the changing landscape related to government scrutiny and oversight around Medicare Advantage (MA) plans and their payments. Key areas included:

• A definition of MA, as well as foundational differences between it and Fee-for-service (FFS) Medicare, otherwise known as ā€œtraditionalā€ Medicare.
• How payments for medical services flow from the payer to the provider in an MA plan.
• The differences in reimbursement between MA and FFS Medicare, as well as how those differences affect compliance with regulatory requirements.
• Data requirements for reporting within an MA plan, along with the associated risk factors and potential scenarios that impact the accuracy of that data.
• Results of the April 2022 Department of Health and Human Servicesā€™ Office of Inspector General (OIG) study around the capitated payment model.
• Notable changes to the MA program in Contract Year 2024.
• Increased interest in MA plans and payments, and subsequent scrutiny by the U.S. Congress, the OIG, and the Centers for Medicare and Medicaid Services (CMS).
• Proposed additional changes for Contract Year 2025 and their possible impact on the MA plans.

Tuteur and Rock expand on two of the key considerations discussed below:

Should providers add MA plan focused reviews to their compliance work plans?

As providers develop and modify their compliance work plans in 2024 and going forward, they will need to assess the cascading risk of CMSā€™ new requirements for MA plans to follow CMS or their own published guidance. Historically, we considered MA plans much like commercial payers and did not escalate the risk to the risk level of traditional Medicare and Medicaid claims. We typically used Local Coverage Determinations (LCDs) and National Coverage Determinations (NCDs) to provide general guidance for potential coverage expectations but understood that the LCDs would not be the standard or criteria by which the service was considered covered or not. For the most part, the MA plans followed the commercial plansā€™ more expansive coverage. However, the opposite could be true if the plan did not cover a service more arbitrarily. MA plans are paying for the services rendered with federal government funds; however, the payer and provider responsibility under the Overpayment Rule (also known as the ā€œ60 Day Ruleā€) and the Federal False Claims Act (FCA) are being contemplated (as described further below). So, while CMS, Congress, and the Supreme Court move toward a conclusion on the matter, responsibility will continue to be a part of current enforcement dialogue. All things considered, it would be prudent to include MA claims in government reviews, base MA reviews on current and active coverage policies, and ensure errors are assessed separately from Medicare claims populations. Conflating the two populations of claims is likely to result in the risk of overstating the error of one population if the coverage requirements are actually different – e.g., when the MA plan publishes a policy for coverage that is not also published by Medicare or is different from the published LCD.

A Key Issue Involving the Federal Anti-kickback Statute (AKS) and FCA May be Resolved Soon ā€“ or Not:

An issue that has been brewing for the past few years ā€“ the nature of the causal relationship between alleged violations of the AKS and FCA ā€“ is reaching a boiling point. In two recent cases in the District of Massachusetts, U.S. v. Teva Pharmaceuticals and U.S. v. Regeneron, the judges applied dramatically different interpretations to that relationship, following an already-existing split in the Circuits on the same point. The crux of the issue is whether a violation of the AKS establishes a per se violation of the FCA if there is some link between the two; or if, instead, the violation of the AKS needs to be at least a but for cause of the alleged false claim. The difference between which causation ultimately wins could have enormous consequences for FCA damages: if all the Government (or qui tam relator) must prove is a link, then otherwise minor causal connections could yield millions (or even billions) of dollars of damages that were allegedly associated with that link. But if the Government must prove actual but-for causation between the kickback and the claim, damages will only be assessed on those false claims directly in the causal chain. Presently, the Third Circuit has adopted the link formulation, while the Sixth and Eighth have insisted on but-for causation. The First Circuit agreed to accept the two District of Massachusetts cases on interlocutory appeal, and a decision is expected later this spring or early summer. Regardless, it appears likely that the Supreme Court will get the final word on this significant issue within the next year or two.

Want To Learn More?

Episode 28: Letā€™s Talk Compliance: Medicare Advantage Compliance Enforcement Underway

Stay Connected

For more information on our ā€œLetā€™s Talk Complianceā€ insights, subscribe to our ā€œLetā€™s Talk Complianceā€  and podcast series.

Join Ā鶹ֱ²„ and PYA for a co-hosted reception at the National Museum of African American Music on April 15th from 6-8 pm CT. Click  to RSVP for a night of food, live music, drinks, and great conversations.

Editorā€™s Note: PYA and Ā鶹ֱ²„ & Lardner hosted the 6^thĀ Annual ā€œLetā€™s Talk Complianceā€ two-day Virtual Conference on January 18 and 19, 2024. Panelists included Ā鶹ֱ²„ & Lardner attorneys and PYA experts. The event was hosted by Ā鶹ֱ²„ partner, Jana Kolarik and PYA Tampa office managing principal,Ā . Below are a few major takeaways from Session #2. Please reach out to us if you have any questions.

In January 2024, Ā鶹ֱ²„ partner Jennifer Hennessy and PYA principalĀ  addressed hot topics in health care privacy and cybersecurity, including the following, in a session that was part of the 6^thĀ Annual ā€œLetā€™s Talk Complianceā€ series. The recording and slides from this session (and other sessions that were part of the series) can be foundĀ here.

• Challenges and trends regarding the use of artificial intelligence (AI) in the health care space,
• Recent trends in health care cybersecurity, including a discussion of health care-related dark web activity,
• A refresher on HIPAAā€™s right for patients to access their own information in light of the HIPAA Right of Access Initiative,
• Considerations on the use of tracking technologies in the health care space, and
• Other trends reflected in recent Department of Health and Human Services (HHS) investigation settlements.

Artificial Intelligence

AI has quickly become a commonplace term in many industries across the U.S. and the world. There are lively debates on what is true AI or simply smart algorithms. In this webinar, AI is discussed as an impact on health care and the potential risks it may bring as more and more turn toward AI for assistance. Wider AI adoption could save the U.S. 5% to 10% or $200 billion to $360 billion a year, according toĀ Ā from Harvard University and McKinsey & Company. Here are just a few adoption facts as presented in an NantHealth

• 99% of health care leaders anticipate tangible cost savings as a result of investing in AI.
• 96% say AI plays a crucial role in their efforts to reach the organizationā€™s equity goals.
• 39% believe AI presents opportunities to ease administrative burdens.
• 72% of health care leaders trust AI to support non-clinical tasks.

Cybersecurity

This portion of the session discussed recent and expected changes to law and guidance impacting health care cybersecurity. Some of those changes include the following:

• HHS will propose updates to the HIPAA Security Rule this year to include new cybersecurity requirements, according to HHSā€™ strategy report on . The HIPAA Security Rule has not been substantively revised since 2003.
• Although we are still awaiting a proposed rule, in 2022, HHS released a Request for Information seeking input from HIPAA covered entities and business associates on how the industry understands and is implementing what are defined as ā€œrecognized security practicesā€ under the Health Information Technology for Economic and Clinical Health (HITECH) Act. This followed the amendment to the HITECH Act to require HHS to take into consideration ā€œrecognized security practicesā€ of covered entities and business associates that were in place for the previous 12 months when determining fines, audit results, or other remedies for resolving potential violations of the HIPAA Security Rule. See Ā鶹ֱ²„ā€™s blog on this topic for more information.
• Mathis also discussed emerging AI tools designed to harm rather than help, such as WormGPT and FraudGPT.

HIPAA Right to Access

HHS has vigorously enforced the HIPAA Right to Access Initiative with enforcement actions over the past couple of years. The HIPAA Privacy Rule requires covered entities to provide individuals, upon request, with access to the protected health information (PHI) about them maintained in one or more Designated Record Sets, subject to limited exceptions. Entities generally must respond within thirty (30) calendar days of the request. The definition of ā€œDesignated Record Setā€ is broad ā€“ including medical and billing records, health plan enrollment, payment, claims adjudication, and case or medical management records, and any records used, in whole or in part, by or for the covered entity to make decisions about individuals.

Most HIPAA Right to Access Initiative settlements involved HIPAA covered entities failing to respond in a timely manner, often after repeated requests by individuals. Under these settlements, HHS generally imposes a civil monetary penalty plus a period of monitoring by HHS. This often includes a requirement to update policies and train workforce on the policies, submit information to HHS on access requests the organization received and the responses, as well as a requirement for the organization to self-report failures to comply with HIPAA policies to HHS.

Tracking Technologies

Health care organizations should carefully assess their use of tracking technologies on their platforms, including how these technologies are applied and whether information is shared with any third parties, and then assess their compliance with federal and state regulatory requirements.

Trends in HHS Investigations

The session concluded with the discussion of recent trends in HHS HIPAA investigations, including the importance of conducting an accurate and thorough assessment of the potential security risks and vulnerabilities to the confidentiality, integrity, and availability of electronic PHI. and developing a written risk management plan to address and mitigate security risks and vulnerabilities identified in the risk analysis.

Please reach out to Jennifer or Barry if you have any questions on the topics covered in this session of the Letā€™s Talk Compliance annual event.

Stay Connected

For more information on our ā€œLetā€™s Talk Complianceā€ insights, subscribe to our ā€œLetā€™s Talk Complianceā€ and podcast series.

Join Ā鶹ֱ²„ and PYA for a co-hosted reception ā€œCompliance Conversations & Cocktailsā€ at the National Museum of African American Music on April 15th from 6-8 pm CT. Click to RSVP for a night of food, live music, drinks, and great conversations.

Editorā€™s Note: PYA and Ā鶹ֱ²„ & Lardner hosted the 6^th Annual ā€œLetā€™s Talk Complianceā€ two-day Virtual Conference on January 18 and 19, 2024. Panelists included Ā鶹ֱ²„ & Lardner attorneys and PYA experts. The event was hosted by Ā鶹ֱ²„ partner Jana Kolarik and PYA principal . Below are a few major takeaways from Session #4, as well as links to bios and contact information for the subject matter experts involved. Please reach out to us if you have any questions.

On January 19, 2024, as part of the 6th Annual ā€œLetā€™s Talk Complianceā€ series, Ā鶹ֱ²„ partner Jana Kolarik and PYA principal Angie Caldwell welcomed , Division Corporate Responsibility Officer, Central Florida Division of AdventHealth, and , Chief Compliance Officer of Summa Health, to a panel discussion on compliance hot topics. The recording and slides from this session (and other sessions that were part of the series) can be found here. 

The panelists focused on four discussion topics ā€“ (1) the health care landscape around artificial intelligence (AI), (2) practical recommendations for incorporating the Office of Inspector General (OIG) General Compliance Program Guidance (GCPG), (3) compliance considerations around advanced practice provider (APP) and physician collaboration, and (4) physician compensation challenges in analyzing physician productivity, subsidy arrangements, and call pay.

The following provides key insights from each of the four discussion topics.

(1) The Health Care Landscape Around AI.

• Vogelien and Cloud noted that as it relates to AI policy, governance, and controls, health care organizations are in various stages of maturity.
• Vogelien noted the AI health care landscape is moving fast, with rapid expansion of technology offerings, and he mentioned policy and governance frameworks coming from numerous sources. As one of AdventHealthā€™s clinical leaders put it, ā€œWe need to balance innovation with being responsible.ā€ Vogelien emphasized the need to evaluate workflows that can be improved or problems that can be solved and then explore whether there is an AI tool to help achieve that goal, not just implementing the newest and coolest thing.
• Vogelien noted that the best first steps are to make sure AI is incorporated in your organizationā€™s overall enterprise risk management framework and identify an interdisciplinary leadership group tasked with monitoring ongoing policy and regulatory developments, tracking AI strategy, activities, and tools, and shaping the organizationā€™s AI governance and policy. This may include Legal, Compliance, IT, Risk, and Clinical leadership.
• Cloud agreed that the landscape of AI in health care is rapidly evolving, presenting both opportunities and challenges. Organizations must critically evaluate AI solutions to ensure alignment with their specific needs and understand the potential impact on workflows and patient care. While the integration of AI holds great promise, she noted that AI necessitates a thoughtful approach to navigating challenges related to privacy, ethics, patient safety, federal and state regulations, and education. Achieving the full potential of AI in improving patient outcomes and healthcare delivery requires a collaborative environment involving healthcare professionals, technology developers, and policymakers.
• Together, the panelists agreed that each organizationā€™s approach to the incorporation of AI in its operation will vary in type, pace, and scope based on the size and needs of the organization. Governance surrounding such incorporation will be important for compliance as AI evolves.

(2) Practical Considerations for Incorporating the GCPG.

• Cloud discussed how it is crucial to recognize that the GCPG is not a one-size-fits-all solution or a one-stop-shop. Each organization should tailor its approach to align with its unique structure and specific risks. Flexibility and adaptability are key, as compliance frameworks require customization to address the intricacies of the organization’s compliance landscape.
• Cloud recommends sharing key elements with various committees and stakeholders, emphasizing the importance of continually evaluating and evolving your compliance program alongside the organization’s growth. It is particularly insightful to establish channels for feedback from employees and stakeholders regarding the effectiveness of the compliance program. This ensures that the compliance strategy remains responsive to the practical challenges and dynamics within the organization. Regular assessments of the compliance program are essential to identify areas for improvement and maintain alignment with the GCPG. 
• Cloud also noted that fostering connections with other professionals can be beneficial – creating a network of professionals allows for engagement and the exchange of ideas, enabling continuous learning and improvement in compliance practices. This collaborative approach enhances the organization’s ability to stay informed about best practices, industry trends, and potential challenges, ultimately contributing to the overall effectiveness of the compliance program.
• Vogelien commented that the GCPG includes a number of helpful updates and recommendations that can inform an assessment of current state and considerations for compliance program improvements.
• In describing the GCPG, Vogelien heard a few compliance professionals say, ā€œitā€™s really a lot of the same stuff in a different format.ā€ Vogelien recommends not falling into that trap. There are many good GCPG summaries available at this point, but he recommends that any compliance officer read the guidance in its entirety and make notes of the things that stand out with specific consideration given to the program being evaluated. The result of this exercise is likely to be a page or two of notes and ideas.
• Vogelien further noted that when speaking about the topic of compliance program effectiveness or a new industry update such as the GCPG, he shares the concept of a compliance program effectiveness plan. It is a good practice to have a continuous improvement or strategic plan for your compliance program. There is no science to this, but it could be a three-year plan or a five-year plan. The idea is that a plan is organized around ā€œthe seven elementsā€ of an effective compliance program. Based on specific government or industry guidance and regulatory changes, the current ā€œmaturityā€ level of a program, complianceresources and staffing, your organization can prioritize focus areas to implement, modify, or enhance over time. You might prioritize and focus on some areas highlighted by your risk assessment this year then enhance the compliance education program next year.
• The panelists referenced the key takeaways from ā€œLetā€™s Talk Complianceā€ Session #1, and agreed it is important to evaluate how to customize the incorporation of the GCPG into an organizationā€™s compliance work plan. Each organizationā€™s focuses will be facts and circumstances specific.

(3) Compliance Considerations Around Advance Practice Provider (APP) and Physician Collaboration.

• Kolarik noted this hot topic continues to develop, with complex and ever-changing guidance for split-shared visit billing and potential Physician Self-Referral Law and Anti-Kickback Statute regulatory considerations.
• The panelists agreed that continuing education is key as physician and APP practice patterns change.
• Vogelien noted the importance of physician coding and revenue integrity experts and auditors. It is a best practice to proactively educate physician and APPs on various collaborative care models and current clinical documentation requirements. Education needs to be updated as guidance changes. Auditing such collaborative arrangements should also be part of your compliance work plan. If you do not have the internal resources or expertise to do this in-house, there are options out there and firms you can engage.
• Cloud commented that collaboration between APPs and physicians highlights the need for a thorough approach, focusing on professional awareness and educational efforts. Consistently conducting audits related to this collaboration to ensure adherence to compliance standards is a best practice.
• Cloud further remarked that successfully addressing compliance considerations in APP and physician collaboration requires a multifaceted strategy, including promoting professional awareness, implementing educational initiatives, and conducting regular audits – all of which are essential components of a strong compliance framework. By prioritizing continuous learning, transparent communication, and proactive monitoring, healthcare organizations can cultivate a collaborative environment. This not only ensures compliance with standards, but also enhances the delivery of high-quality patient care.
• Caldwell shared an APP Impact Case Study with attendees, demonstrating the underlying compensation plan impact of APP and physician collaboration. 

(4) Physician Compensation Challenges in Analyzing Physician Productivity, Subsidy Arrangements, and Call Pay.

• Caldwell noted as pay for performance and value-based reimbursement continue to increase, analyzing physician productivity via metrics other than work relative value unit productivity will become more important in the future.
• Kolarik noted the complexity of subsidy arrangements, particularly related to ensuring the underlying provider compensation is fair market value and the expenses applied to the subsidy calculation are commercially reasonable.
• Cloud concurred with the insights shared by the panelists, and further commented that in the ongoing shift of the healthcare industry towards value-based reimbursement, it is important to adopt a nuanced and adaptable approach to physician compensation. To effectively tackle the challenges within this evolving landscape, healthcare organizations should broaden their metrics, embrace value-based models, and regularly reassess compensation structures. This proactive strategy enables organizations to navigate physician compensation challenges successfully, ensuring alignment with the dynamic trends shaping the industry.
• With regard to subsidies, Vogelien shared that reconciliations post-implementation are also important to ensure the agreement is implemented as intended, assumptions hold true, and fair market value is maintained.

Want To Learn More?

Episode 27: Subsidy Arrangements Between Hospitals and Physicians Practices: What You Should Know

Stay Connected

For more information on our ā€œLetā€™s Talk Complianceā€ insights, subscribe to our ā€œLetā€™s Talk Complianceā€ and podcast series. Join Ā鶹ֱ²„ and PYA for a co-hosted reception ā€œCompliance Conversations & Cocktailsā€ at the National Museum of African American Music on April 15th from 6-8 pm CT. Click to RSVP for a night of food, live music, drinks, and great conversations.

Editorā€™s Note: PYA and Ā鶹ֱ²„ & Lardner hosted the 6^th Annual ā€œLetā€™s Talk Complianceā€ two-day Virtual Conference on January 18 and 19, 2024. Panelists included Ā鶹ֱ²„ & Lardner attorneys and PYA experts. The event was hosted by Ā鶹ֱ²„ partner, Jana Kolarik and PYA Tampa office managing principal, . Below are a few major takeaways from Session # 1. Please reach out to us if you have any questions.

The HHS Office of Inspector General (OIG) issued its 91-page General Compliance Program Guidance (GCPG) in November 2023. In January 2024, Ā鶹ֱ²„ partner and Co-chair of the firmā€™s Health Care Practice Group, Judy Waltz, and PYA principal, , addressed the implications of the GCPG ā€“ and how to refresh existing compliance programs in response to and alignment with the GCPG ā€“ in a session that was part of the 6^th Annual ā€œLetā€™s Talk Complianceā€ series. The recording and slides from this session (and other sessions that were part of the series) can be found here. 

GCPG Themes. Waltz observed that themes from the GCPG include a focus on assessing and improving operational effectiveness of the compliance program in addition to maintaining the structural basics of the program (the traditional seven elements of compliance programs); a focus on the fluidity of compliance risks and a need to assess an organizationā€™s potentially changing risk areas on a regular basis; increased expectations for the compliance committee; and a focus on personal accountability for entity compliance ā€“ including the accountability of compliance committee members, the board, and owners (potentially private equity).

GCPG Key Insights. Sumner summarized some of the GCPGā€™s key insights, including the intersection of compliance with quality oversight; delineation of the compliance roles of the compliance officer, compliance committee, counsel, and board; measures for assuring that training is successful (e.g., requiring participation as a condition of employment); and an evaluation of incentives for those within the organization who further the goals of compliance. 

Action Items. Although OIG confirms that adherence to the GCPG is not mandatory, its suggestions are likely to become the standards against which the compliance programs will be measured. OIG has also promised that sector specific compliance guidance will be issued to supplement the GCPG (e.g., specific guidance for managed care programs or types of providers). In addition to comparison of existing program operations against the GCPGā€™s suggestions, two recommendations from the GCPG stand out for immediate consideration. 

• Annual Internal Risk Assessments. While the GCPG largely incorporates earlier OIG guidance in its recommendations, the GCPG newly underscores the value of an annual internal risk assessment (a requirement of recent corporate integrity agreements). The GCPG recommends that the risk assessment be the responsibility of the compliance committee ā€“ rather than the compliance officer ā€“ reflecting its importance to the entity and the need for ā€œbuy-inā€ from the members of the committee (who are usually on the committee because they perform a key function within the organization). Specific external references for risk assessment design are included in the GCPG. Until sector specific compliance guidance is issued, OIG suggests some common areas of focus: billing, coding, sales, marketing, quality of care, patient incentives, and arrangements with physicians, other health care providers, vendors, and other potential sources of referrals or recipients of health care business. The identified entity-specific risks should then be used for the design of audit work plans or other compliance measures. Note that while the OIG-recommended risk assessments are internal, there is no preclusion of the use of external resources as needed (e.g., auditors or counsel). Entities may wish to address the possibility of outside resources in designing their risk assessment policy. 
• Checking State-Specific Exclusion Lists. As with recent corporate integrity agreements that now require checks of state exclusion lists, the GCPG recommends that all organizations have a policy and procedure on the screening of employees, contractors, and other individuals and entities against the List of Excluded and Individuals/Entities (LEIE) and any applicable State Medicaid program exclusion lists. As noted in the presentation, states may have different names for their exclusion lists; in California, for e.g., the exclusion list is called the ā€œSuspended and Ineligible Listā€.  Compliance requires a check against the OIGā€™s web-site list AND each stateā€™s list; individuals or entities may appear on one list and not the other. States may have additional penalties for employment or contracting with an individual/entity on their lists in addition to the potential federal civil monetary penalty (CMP).  
  • This topic produced the most questions from the audience. Below we provide some basic guidance (beyond that of the GCPG) and underscore the caveat that individuals and entities should check their own state laws to assure full compliance. 
    • Federal regulations, 42 C.F.R. Ā§ 1003.200(b)(4), reflect a CMP for arranging or contracting (by employment or otherwise) with an individual or entity that the person knows, or should know, is excluded from participation in the Federal health care programs (including Medicare and Medicaid). The current amount of the CMP is $24,164. The OIGā€™s Health Care Fraud Self-Disclosure Protocol (updated in 2021) includes a discussion as to how to disclose conduct involving excluded persons (individuals and entities), with a possible pre-determined and potentially lesser penalty for self-disclosure. See .
    • State-specific laws and lists are specific to that stateā€™s federal health care programs.  There may be state-specific CMPs for submitting claims to the state Medicaid program for items or services furnished by an excluded person or entity and/or a penalty for contracting with an excluded person or entity. The state laws and exclusion lists should be checked for each state where items or services are provided, the entity is enrolled in Medicaid, and/or Medicaid claims are submitted (including as an out-of-state provider). Other statesā€™ lists might be checked in situations where, for e.g., the individual recently changed their state of residence, for purposes of background assessment.
    • The Affordable Care Act, Section 6501, amended Social Security Act section 1902(a)(39) to set up a requirement that states shall terminate the individual or entityā€™s Medicaid enrollment when that individual or entity has ā€œfor causeā€ lost their enrollment in another state (in accordance with guidance from Centers for Medicare and Medicaid Services (CMS) as to what that means). See also: 42 C.F.R. Ā§ 445.416 (ā€œMust deny enrollment or terminate the enrollmentā€). However, until such time as the other state(s) take an action to do so, the individual or entityā€™s enrollment in that state remains in place. OIG has noted challenges in implementation of section 1902(a)(39)ā€™s collateral termination provision, including confusion as to when a state is obligated to take action. See e.g., OEI-06-12-00030 (Aug. 2015).
    • With respect to Medicare managed care, CMS provides a ā€œPreclusion Listā€ to Medicare Advantage (MA) plans and Part D plans that precludes payments to individuals or entities included on the list. A preclusion is not the same as an exclusion imposed by the OIG or a termination by a particular state. Moreover, only the MA and Part D plans have access to the preclusion list (meaning that providers and suppliers are not expected to check it). The preclusion list is not applicable to Medicaid. See generally,
  • Enforcement Activities. Waltz and Sumner also discussed recent court cases/settlements that provide examples of risk areas that might be considered for upcoming risk assessments. These included cases involving allegedly improper physician compensation agreements (resulting in a settlement of $345 million); a settlement in which the compliance officer was the relator in a qui tam action involving clinical support services provided by a hospital system that were then billed by a physician group; primary care physicians who were alleged to have submitted unsupported diagnoses to MA plans, causing the plans to submit false claims; and criminal charges relating to a telemedicine marketing structure and involving a ā€œlook behindā€ of signed physician orders to assess the physician-patient relationship.

What to do next? As noted, adopting the recommendations in the GCPG is not mandatory. However, the GCPG provides opportunities for a fresh look at existing compliance programs, and guidance in developing new programs. For example, the OIGā€™s detailed discussion of the compliance officer role, recommendations for keeping that role free of other conflicting roles and ensuring that the compliance officer has a reporting relationship with the board/executive team may provide structural guidance to improve program effectiveness. Compliance programs may also wish to revisit the role of the compliance committee and the introduction of the concept of performance evaluations and compensation that takes into account that committee role, with consideration of the GCPGā€™s views. And, as noted above, the entity may also wish to consider a review of its internal risk assessment approach and its monitoring of state exclusion lists. 

Want To Learn More?

HHS OIG: New ā€œGeneral Compliance Program Guidanceā€ Provides Voluntary Steps Towards Increased Effectiveness

Stay Connected

For more information on our ā€œLetā€™s Talk Complianceā€ insights, subscribe to our ā€œLetā€™s Talk Complianceā€ and podcast series.