Paying Physicians for Services Performed by Nurse Practitioners

Recently at an American Health Lawyers Association conference, a session included a discussion of paying physicians for services performed by another individual. Specifically, paying a physician for the productivity generated by a nurse practitioner or a physician assistant.

What was interesting about the presentation was the explanation that it is perfectly okay under the Stark Law to pay an employed physician for the productivity of a nurse practitioner or physician assistant so long as the total compensation to the physician is fair market value. Spoiler: This is Incorrect!

The speaker resoundingly signaled that any other interpretation was incorrect. After thinking about it, I felt it was necessary to explain why this experienced attorney is incorrect and why you cannot pay an employed physician for the production of a nurse practitioner or physician assistant

Step One: The Employment Exception’s “Identifiable Services” Requirement

If the physician in question is a physician that is not in a group practice but otherwise needs to meet the employment exception, the physician can only be paid for personally perform services. To interpret otherwise would be a significant deviation from case law on the topic and common sense of the law.

Identifiable Services Threshold

The threshold requirement under the employment exception is that the employment is for identifiable services. This is directly from the exception (see above). The interpretation of the attorney was that this language does not require any personal performance. In other words, so long as you have identified some service, even if not personally performed, you could still meet this threshold requirement.

This would be incorrect and would be going against a common sense approach to the exception. First, the employment exception covers any amount paid by an employer to a physician who has a bona fide employment relationship with the employer for the provision of services. Thus, in order to meet the exception the physician must be providing services individually. If the services are not provided by that physician individually then how could in arrangement outline identifiable services?

Let’s assume that the identifiable services that you are paying for are personally performed in that they are supervision services of the nurse practitioner and the physician assistant. In the event a physician is supervising a nurse practitioner or a physician assistant, this is certainly identifiable and personally performed service. It is the next requirement though that is the downfall of the argument.

Step Two: Compensation for Personally Performed “Supervision” Services

At this point it is clear that under the employment exception there needs to be some sort of personally performed service that the physician is providing to the employer. It cannot be some sort of service that the physician is not performing. Nevertheless, the attorney explained that so long as the overall compensation is fair market value for the services then it would be appropriate to pay a physician bonuses based upon the production of a nurse practitioner or physician assistant.

Identifiable Services = Supervision, Payment Based Upon = NP and PA Production

This is extremely problematic for multiple reasons.

First, there is an assumption in the attorney’s argument that so long as the total compensation is fair market value then any individual compensation being not fair market value is not a problem under the exception. This is problematic on its own.

Therefore, it is highly probable that although the total compensation is fair market value, the compensation for the medical directorship is not fair market value and therefore would not meet the exception.

The point is that Stark law compliance requires fair market value compensation for the services. It does not state that so long as the total compensation is fair market value then the exception is met. Thus, in order to even get to a spot where you can pay a physician for another individual’s productivity, you have to make the assumption that total compensation is all that matters. This would be inconsistent with a significant number of settlements and common approaches to the Stark law.

Let’s assume that we can continue the analysis for arguments sake.

Step 3: Fair Market Value Requirement

The ultimate problem is that when you list supervision services as the identifiable services, the payment for those services must be fair market value and cannot take into account directly or indirectly the volume or value of any referrals by the referring physician. Which gets me to my second point, payments based upon the production of another individual are highly unlikely to be fair market value.

The employment exception requires that the compensation paid to the physician for the identifiable services is consistent with fair market value of the services. Let’s assume a physician is working with for nurse practitioners. The physician sees his or her own patients but also assists in managing the overall panel. If each nurse practitioner sees 3000 patients, the physician will get a $50,000 bonus.

From a valuation standpoint the first question is going to be what is the $50,000 for? In this case, the problem with the argument is that the attorney is saying the $50,000 is for supervision services. In reality though, the $50,000 is clearly for the production that is being generated by a nurse practitioner. When evaluating this service, it is highly unlikely that a valuator is going to state that this is fair market value for the supervision services. At the end of the day, it must be fair market value for the services.

For example, let’s try to justify the compensation from an hourly rate perspective. If a physician was paid $50,000 bonus for the productivity of a nurse practitioner or a physician assistant and it was stated that the bonus was actually for supervision services, even using $125 per hour the physician would have to work nearly a full day per week for 52 weeks a year to achieve a $50,000 bonus. Where the attorney’s argument falls apart is that it is highly unlikely that a physician is spending a full day of week supervising healthcare professionals that require minimal supervision.

Step 4: Final Concerns

There are two final issues that also inhibit this type of compensation model. First, the employment exception states that the compensation cannot be determined in a manner that takes into account directly or indirectly the volume or value of any referrals by the referring physician. Unfortunately, the definition and application of referral only applying to designated health services does have an expansive meaning. If the physician is getting paid based upon his or her downstream referrals to other healthcare professionals, this cuts extremely close to paying the physician indirectly for the volume or value of referrals.

For example, in nearly all office visits there is some sort of designated health service component such as imaging or labs. If a physician initially saw a patient and then the subsequent visit was with a nurse practitioner, but the physician received those productivity units, it creates a situation in which it seems as though a hospital or health system is attempting to pay for those downstream professional and technical services.

Finally, the Stark law also states that compensation provided under an employment arrangement must be commercially reasonable. The unfortunate part about the attorneys analysis is that it completely ignores whether supervision services are required and whether it should even be paid for. For example, in nearly half the states nurse practitioners don’t require any sort of direct oversight. In addition, it is very uncommon to pay a physician for supervision of clinical support staff such as medical assistants and registered nurses. Therefore, a foundational component of this analysis is whether it is even commercially reasonable to pay a physician at all for supervision services that may or may not be occurring.

The Bottom Line When Paying Physicians

While I appreciate the attorneys aggressive approach to compensating physicians for the services of another healthcare professional, it requires about five leaps to get there. Five risky leaps. First, you have to assume that the identifiable services are supervision services. In other words, you have to specifically identify what those are and cannot merely state I am paying a $50,000 bonus for supervision services and not explain. Second, compensation individually must be fair market value for those supervision services. His assumption is that if the total compensation is fair market value then you are fine. This I believe is an incorrect and risky assumption the Stark Law given my example above.

Third, the remuneration that is being paid to the physician is not actually based upon personally performed services but rather is based upon the services personally performed by others. This I believe is one of the bigger issues because on one hand to meet the exception we are stating that the services are for supervision but on the other we are actually paying compensation based upon the services of others. Fourth, it is highly unlikely that compensation being paid in the form of a productivity bonus by nurse practitioners and physician assistants is fair market value for supervision services. For example, some states merely require a random chart review over the course of the year and to justify significant payments for this would be unwise. Finally, this type of arrangement could be viewed as an arrangement that is designed to circumvent the Stark Law for indirect referrals and is not commercially reasonable.

Feel free to leave comments and I hope you enjoyed this in-depth analysis and please read our in depth analysis on the Stark Law immediate family member definition.