Structuring compensation for physicians with administrative duties

As healthcare organizations focus on expanding physician leadership, they may find themselves needing to determine how to compensate practicing providers for time spent on administrative duties. Research suggests that annual, hourly, or per-meeting stipends are typical compensation structures for part-time administrative responsibilities. But the real challenge often lies in determining a payment rate that’s fair market value (FMV) and commercially reasonable, as required by provisions like the Stark Law, Anti-Kickback Statute, and IRS guidelines.

Given the complexity of these rules, we’ve seen conflicting reports on what’s permissible—for that reason, and because The Academy does not provide organizations with legal advice, we ultimately recommend that organizations work with their legal counsel to ensure compliance.

All that being said, we’ve looked into the issue based on member interest, and this post explores one specific question we’ve been posed: Is it acceptable to compensate a specialist in a part-time administrative role at a higher rate than a primary care provider, since the former has a higher clinical opportunity cost?

Determining a Fair Basis

Overall, it seems that basing payment for administrative duties on clinical opportunity cost alone may not necessarily be sufficient basis for FMV, nor hold up under regulatory scrutiny. Instead, it’s important to consider the specific administrative services each physician will be expected to perform and the FMV for that particular set of duties—since the FMV for administrative and clinical work can be different.

CMS commentary on the Stark Law Phase III Final Rule speaks to this, saying:

“A fair market value hourly rate may be used to compensate physicians for both administrative and clinical work … We note that the fair market value of administrative services may differ from the fair market value of clinical services.”

Rates published in market data for administrative work are reportedly lower than those for clinical work, further suggesting that payment for administrative duties may not always equate to earnings for clinical care.

Factors Impacting FMV

While basing an administrative payment rate on clinical opportunity cost alone could be a risk, it appears that opportunity cost could be one of multiple factors considered. If a specialist’s and a primary care provider’s administrative duties were to differ in terms of the actual scope, responsibilities, time demands, or level and type of medical knowledge required, that could also potentially justify higher compensation for one than the other.
Further, some industry groups have described exceptions or cases where using clinical compensation data could be an acceptable basis for determining administrative payments.

One example is “Paying Physicians for Attending Meetings: Assessment Tools and Recent Litigation,” an article published in the American Bar Association’s The Health Lawyer (volume 26, number 5). This piece suggested that organizations may be able to compensate a physician for attending meetings—and use clinical compensation data to set a rate for doing so—as long as the administrative function requires a physician in active practice and their specialty is critical to performing the required duties.