Joe Wolfe: Hello, and welcome to Hall Render’s Practical Solutions Podcast and our health care regulatory update. I’m Joe Wolfe and I’m an attorney with Hall Render. We are the largest healthcare focused law firm in the country. Today we’re discussing the impact of recent Medicare Physician Fee Schedule changes on physician compensation plans. I’m the practice group leader for Hall Render’s health regulatory practice group that covers our advocacy, compliance, fraud and abuse and litigation service lines. My practice also focuses on physician compensation issues, and I’ve been working with health systems nationwide on the very issues we’re going to be talking about today. With me, I have Keith Dugger and Alyssa James. Keith, and Alyssa, could you introduce yourself?

Keith Dugger: Sure, absolutely. Joe, thanks for the introduction. My name’s Keith Dugger and I am a shareholder in Hall Render based in the Dallas, Texas office.  Alyssa and I are co-chairs in the fraud abuse service line. We spend a lot of time focusing on issues that have a fraud or abuse impact on healthcare provider relationships.

Alyssa James: Thanks. I’m Alyssa James, a shareholder here in Hall Render’s Indianapolis office. My practice, similar to Keith’s and Joe’s, focuses primarily on fraud and abuse matters, particularly dealing with the Stark Law, Anti-Kickback Statute, and Civil Monetary Penalty beneficiary inducement issues.

Joe Wolfe: Great. Thanks, Keith and Alyssa. Today in a very short podcast we’re intending to talk briefly about the recent changes to the Medicare Physician Fee Schedule and its impact on physician compensation plans. Framing this up, back in 2021 there were several modifications of the Fee Schedule that included several increases in the wRVUs that were allocated to certain common evaluation and management service codes or E&M codes.  For those healthcare leaders listening in you likely know that E&Ms are typically associated with primary care and other office based visits, but these increases impacted several different specialties.

Joe Wolfe: So we saw an increase in the wRVUs associated with certain E&Ms visits, so a bump up. But then on the other side of this due to budget neutrality rules, there was a reduction in the conversion factor that health care organizations receive in reimbursement for physician services. So these changes have had an impact on physician compensation plans, and that’s what we’re here to talk about today. And so let’s just start off with an initial question to Keith and Alyssa, how are these changes to wRVU calculations and conversion factors within the Fee Schedule affecting physician compensation plans?

Keith Dugger: Yeah, thanks Joe. Appreciate it. And I think generally these changes are potentially affecting both the economic viability of certain arrangements and the ability of these arrangements to come within applicable Stark and Anti-Kickback safe harbors and exceptions. As you mentioned for office based providers who do a lot of E&M codes, there is likely to be an increase in revenue associated with their performance of services, but it’s also going to be coupled with an increase in RVUs. And for those practices that use RVUs as a measure of productivity and compensation, the question is going to be, do the increased number of RVUs result in compensation for a physician that outpaces the increase in revenue from that physician’s services

Joe Wolfe: Thanks, Keith. Alyssa, do you have thoughts as well?

Alyssa James: Yes, I think what Keith has described is exactly right. And I think providers, even though this has been in place for a little over a year now or this shift has been occurring for a while, are still struggling with their physician compensation and what to do about it. Looking at the numbers of how the RVU modifications may impact compensation and looking at that in conjunction with the physician contracts to figure out the best path forward and what the options are.

Joe Wolfe: Great. Thanks. I think what Keith and Alyssa are also hitting on is that all physician arrangements need to align with a Stark exception like Keith described. And those exceptions typically require also that the compensation generated is consistent with fair market value, that the arrangement is commercially reasonable and that the compensation model doesn’t take into account the volume of value of referrals. Those three standards are always applicable. And so this issue with the Fee Schedule, it’s critical for healthcare organizations to have a coherent strategy around how they’re going to align with those three standards, regardless of their ultimate approach. I’m going to move on to question two here. What are the two of you seeing in the marketplace with respect to physician group responses to the fee schedule changes? What are you seeing health care organizations do in their response?

Alyssa James: I think the clients that I’ve been working with primarily have stayed on the 2020 fee schedule for 2021. Now for 2022, some folks are continuing on that 2020 fee schedule. I have worked with a couple of clients that are now moving into the 2021 fee schedule for 2022 as a transition year. And then there are some that even if they hadn’t implemented 2021 last year, they’re deciding to rip the band aid off, so to speak, and implement 2022 now going forward. I think it is something where there’s no one size fits all.

Alyssa James: I think it’s very organization dependent and again, what they are or aren’t permitted to do under their physician contracts. If they have to get the physicians to agree via an amendment, obviously that’s a different hurdle than some compensation models where the RVU calculation and conversion factor can be implemented by the employer without that agreement. I haven’t seen a one size fits all. I think it’s something that folks really grappled with in 2021 and are continuing to do so in 2022. Keith, I don’t know if you’ve had any different experiences down there in Dallas or with the clients that you’re working with.

Keith Dugger: I think the experiences are very similar. When the changes to the fee schedule came out in 2021, I think people were really hesitant. You had those changes coupled with unique market circumstances stemming from the pandemic. And I think people, I think entities were a little hesitant to jump too far into it until they could see the impact that these changes had on revenues and compensation. And I also think it’s one of those things that people, although Medicare had been threatening for a while to make changes. I just don’t think people were necessarily prepared.

Keith Dugger: Some clients were in many respects a little bit backed into the corner because their contract did not provide an easy pathway to modification. And so there was a lot of not frozen, but a lot of hesitancy to move forward until they saw what the market was going to do. And as we’ve seen in 2022, there’s been a further modification to the fee schedule. And so I think people are realizing now, entities are realizing now that they need to start to address this and they’ve got to do it in a way that fits within their corporate goals, their organizational goals, but in a way which allows them to maintain the viability of the arrangement.

Joe Wolfe: Thanks, Alyssa and Keith, my observations have been consistent with yours. This a challenging issue. I think the health care organizations that are reacting in the market need to engage the different stakeholders within their organization. They need to bring together a team to model out potential scenarios and determine what the potential strategies might look like if they’re going to continue to freeze or move on the new fee schedule like Alyssa and Keith mentioned. They are going to have to develop perhaps even specialty specific approaches. Maybe they take the same approach for all their physicians or when they actually engage and do the modeling, they might decide that it makes sense to take a bifurcated approach. It’s going to be dependent on that organization’s ultimate strategy.

Joe Wolfe: Keith mentioned the contractual language. I’ve seen that as well. That’s something that needs to be looked at. It’s really important to proactively assess these different strategies and determine the right way forward for the organization. So again, I’ve had consistent observations like what Keith and Alyssa mentioned. I’ll give each of you, Alyssa and Keith, a last opportunity to share what you’re seeing around the adoption of new productivity based , compensation formulas, your observations from working with clients and maybe what other impacts on compensation might you be seeing in the industry. So just some final thoughts from the two of you on these issues.

Keith Dugger: Yeah, absolutely. Well, I think one of the things that there’s a lot of uncertainty about is how  these RVU changes as well as the pandemic related effects impact their ability to assess fair market value. I think everybody in the industry recognizes that all of that together is going to have a significant impact upon survey data. And so while traditionally organizations might look to, just to throw out an example, MGMA or Sullivan Cotter data to say, Hey, we are fair market value – Our compensation structure is fair market value because it fits within this, “75th percentile of MGMA.”

Keith Dugger: Well, Stark has disabused us from thinking, “Hey, it’s automatically fair market value if it fits within that 75th percentile”. And secondly, the data, because of factors related to the pandemic where physicians  might have received their full compensation without meeting full productivity or historical productivity because of the influx of PPP dollars and other ways that providers were made whole. All of this is going to have an impact on the compensation survey data and thus providers are going to be, I think they’re going to be struggling to find a way to confirm that this is fair market value, or to make the best argument. So I think that there’s going to be a need to involve both attorneys and valuation entities in the process to make sure that you are making best argument possible in case that your compensation structure is ever looked at.

Alyssa James: I think that’s right. And I agree, I think there is uncertainty around fair market value and some of the survey data right now. Because of COVID volumes were down but a lot of employers and organizations kept physician compensation as stable as they could (and they were able to do that under the Stark COVID waivers). But I think the end result is that we’ve got some survey data that maybe isn’t the most reliable. And then when you couple that with these RVU changes and other issues going on in the health care space right now, such as reimbursement changes and things like PPP loans and funding and the CARES Act, that all plays into physician compensation for certain organizations. I think it’s a little bit of an unsteady time or an uncertain time.

Alyssa James: I agree with you, Keith, I think now more than ever, it’s important for folks to be reaching out to their legal counsel, as well as any valuation experts they may be working with.  If historically they’ve done those fair market value assessments internally within the organization, now might be a good time to, at least for some of their higher compensated physicians, to reach out to outside experts and really just get some more stable footing given all of the uncertainty in the market right now.

Joe Wolfe: Thanks, Alyssa, and thanks, Keith. And thanks to everyone for listening in. We’re obviously here to help as health care organizations work through these issues, whether it’s providing education or assisting with some of the modeling and strategy and analysis. We’re more than happy to work with you. Thanks to all of you for joining us today. If you’d like to learn about the changes to the Medicare Physician Fee Schedule and its impact on physician compensation, please visit our website at www.hallrender.com or reach out to me, or Alyssa or Keith by email. Please remember the views expressed in this podcast are those of the participants only and do not constitute legal advice. Thanks and have a great day.