Negotiating a clear and fair compensation contract with a physician can be a difficult thing to navigate, due to numerous laws and regulations that surround such a contract. Not least of these are the Stark laws, which ensure that a physicians compensation cannot be tied to referral of medicare patients. There are also CMS compliance program regulations for hospitals and pharmaceutical companies which ensure that payments are not extracted for unnecessary or repeated procedures.

CMS stated recently that “the general rule of thumb is that any remuneration flowing between hospitals and physicians should be at fair market value for actual and necessary items furnished or services rendered based upon an arm’s-length transaction”.

Fair market value itself has no proper definition in the scope of health care, but it will generally depend on the location of the organization doing the hiring, the physician’s particular abilities, and their area of specialty. The most important term in this opinion is “actual and necessary items furnished or services rendered”. This is expressly to avoid unnecessary billing practices that bring up the cost of healthcare for everyone.

Recently, CMS approved a variable bonus arrangement for physicians working in an organization where the bonus was granted upon meeting quality targets. In a recent advisory opinion, the OIG signaled that incentives may be used when related to work performed, as long as their documentation is clear. Variable bonus programs have been in play for some time now in many different organizations which employ physicians, mostly accompanied by a salary.

Organizations have been standardizing physician contracts for some time. This is generally necessary because of the legal implications involved, and each request for changes to the contract must be analyzed legally before moving ahead with the hiring process, in light of all of the complexities involved. It is certain that most physicians have moved beyond the contractor model to being employed by a particular organization, where their compensation is now tied to performance.