Excise Tax and Non-Profit Healthcare Organizations

Excise Tax: Inpact On Tax-Exempt Heathcare Organizations

A 2018 change in tax law will have a major impact on compensation for non-profit hospitals and healthcare systems. To learn more about the tax reform, we turned to Dan Mulholland and Henry Casale, partners at HortySpringer.

HortySpringer is a healthcare law firm based in Pittsburg, PA. They were the first law firm to devote its practice exclusively to health law and healthcare organizations. They take an active role in national healthcare policy, education, and publishing. Their newest creative venture, Health Law Expressions, is a podcast focused on cutting-edge topics in health law.

During the first episode, Dan and Henry discussed how the new excise tax on compensation impacts non-taxpaying hospitals and healthcare systems. We found this episode so informative, we asked to share portions of it with you.

IRC Section 4960 and why non-taxpaying healthcare organizations should be cautious

What this law did was create a new section of the Internal Revenue Code called, IRC Section 4960. It imposes a 21% excise tax on any remuneration paid in excess of one million dollars to covered employees of the organization and it applies to certain applicable tax-exempt organizations.

The reason for the tax was described in the House Ways and Means Committee report. This report was both educational and, if you’re a tax-exempt organization, quite frightening. What it specifically described is that it noted that publically-held, for-profit organizations are excluded from deducting more than a million dollars in compensation for key employees. They then use that as rational for explaining how this provision, in their view, levels the playing field so that they’re treating tax-exempt organizations in a manner that is similar to publically-held, for-profit corporations. They are now equating the benefits that tax-exempt organizations have always taken for granted, and now are describing as a benefit to the tax-exempt organizations, which we find very frightening because it may make it easier for congress to provide a rational for treating tax-exempt organizations very differently than they may have in the past.

I don’t think tax exempt organizations have ever really thought of themselves in this way, but in a time when it’s politically difficult, if not impossible, to raise taxes and when you may be facing increasing budget deficits, one way the government can raise revenue is to shrink, if not eliminate, exemptions so the tax-exempt hospitals and other tax-exempt organizations need to be on their guard to recognize that it’s not business as usual and you have to constantly be justifying and showing the benefits that accrue to the area and the community through your tax-exempt status.

Types of Organizations and Wages That Fall Under IRC 4960

This new law applies to any organization exempt from tax under section 501A of the tax code. That includes all 501C3 organizations, which means that all non-profit hospitals and health systems could potentially be covered by this. Also, it applies to state and local governmental entities. Those entities are technically exempt from tax, congress just doesn’t impose a tax because they’re run by state or local governments, but if you had a hospital district that paid somebody in excess of a million dollars, even though it didn’t have its own C3 exemption, it could be covered.

The covered employees include the five highest compensated employees in the current tax year and any employee who was one of the five highest compensated employees for any preceding tax year beginning after December 31, 2016. So that means that once you’re on the list, you’re going to continue on the list for all time.

This is a tax on the employer so that the employer is constantly going to have to pay an excise tax that they’re going to have to work into their budget. It applies basically to any wages that are reported as paid to the employee on their W2 form. It can also apply to certain deferred compensation arrangements under section 457F once the substantial risk of forfeiture goes away and the benefit vests, even though that isn’t immediately paid out to the individual. So that’s what gets calculated into the determination of whether you paid somebody more than a million bucks.

Exempt and Covered Physician Compensation

The good news to hospitals and health systems is that the remuneration paid to physicians directly related to performance of medical services is excluded from this excise tax. In other words, if you have a physician who earns more than a million dollars in compensation a year from the provision of healthcare services, the laying on of hands professional services, this excise tax would not apply to that compensation. If, on the other hand, you have a physician who provides administrative services such as a chief medical officer who makes more than a million dollars, then the excise tax would apply.

One other benefit that we don’t think congress really gave much thought to is the fact that they have in effect recognized that certain physicians earn more than a million dollars a year. By excluding physician compensation, they created an argument for Stark, Anti-Kickback, Private Inurement, and Impermissible Private Benefit under the tax laws, that just because a physician makes more than a million dollars a year doesn’t mean that they’re being paid unreasonable compensation. However, that will depend on the facts and circumstances, what the physician’s specialty is, and how reasonable it is to pay that compensation given the professional services that the physician provides.

The fact that they excluded this from remuneration—the definition of remuneration—has some interesting results. For instance, you could have a situation where the five highest employees include physicians who are all making north of a million dollars and the CEO might be the sixth highest compensated employee. The CEO is making more than a million dollars, but in that case, there’s no tax because the five highest are still counted as the five highest. If they’re doctors, you just knock their remuneration out and that means that the CEO, who’s number six on the list, doesn’t get counted. However, if the CEO got on there in the first year, and then later he’s still making north of a million, but the doctors drop off of it, there could be an imposition of the tax. So there’s a lot of permutations of this that result in some interesting things when you look at how—at least on its face—it works.

Organization Subsidiaries

The tax law specifically recognized that remuneration includes amounts paid by related organizations that control or are controlled by the tax-exempt organization…so pretty much no matter how you would want to try to divide income amongst the various boxes on your corporate diagram, you’re not going to be able to do that and avoid this tax. They’ll aggregate it for the purposes of this tax.

What Organizations Can Do to Prepare For The Changes

[Organizations are] going to have to figure out this year who your five highest compensated employees are. And then you exclude from that list doctors who are paid more than a million bucks for physician services and medical services and if any of them [are] remaining you ought to look at what their tax liability might be so at least you can budget for this because this tax would be something you’re going to have to pay next year when you file your tax return.

The other thing you should do is consider deferral opportunities. Review and revise your executive and physician compensation policies as needed, and review and revise physician contracts to make sure that clinical and administrative services and compensation for those services is clearly delineated especially as you’re getting close to that million dollar cap. Also, you may want to look at your pension plans, if you have it—a non qualified deferred comp program, you want to look at that to see what the effect of this law and this tax will be because many of those plans have been in place for a number of years now and this law is brand new.

We would like to thank Dan and Henry for their insights. To learn more about how the excise tax might impact your organization, listen to the entire first episode of Health Law Expressions, a podcast by Horty Springer.

To learn how MaxWorth can help your organization better structure your physician and executive compensation, contact us today to arrange a call with one of our consultants.

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The “Executive Benefit” Approach to ED Call Pay is Really a Unique Family Benefit

What if a physician in private practice could put incremental income into an income tax-deferred vehicle without having to include employees or even practice partners and direct the income into a broad array of investments, having the additional advantage of the gain being tax deferred without the restrictions of pension or profit sharing plans? Most physicians would jump on that opportunity.

And what if a physician could defer the income and gains on this incremental income until they needed the income to pay for a child’s college education or to take a special vacation, buy a vacation home, or new car for their spouse without penalties or restrictions? Every physician that has reached that level of taxable income that the IRS calls “highly compensated” which is about $150,000, is advised to find legitimate ways to avoid current income taxes. But the opportunities to shelter current income are very limited. This is especially true for physician practices as they typically are not eligible for traditional “executive benefits”.

In designing an alternative to traditional approaches to paying for call, our methodology creates an executive-like benefit for the physician, allowing the physician to defer current income taxes on the call pay. This arrangement applies to both private practicing and employed physicians.

With the traditional approaches to call pay, the incremental income seems to simply evaporate. We refer to the phenomenon as the “significant other conversation”. This conversation goes something like this: ”Honey, I thought that you said that you were going to get paid for call, where did that extra money go?” The ability to point to something specific that was gained from the call pay is very difficult.

Of all the things that a physician does, the one thing that impacts their families which their families are acutely aware of is call coverage. From taking two cars to the soccer game to not being able to have a glass of wine at dinner as well as holiday interruptions, et al, the families of physicians feel the impact of call. This is, as they say, a part of the “calling” but it never ceases to be a burden shared by those in the family without the medical degree.

Our approach to call pay is the only approach that provides a vehicle to allow the physician to share with their families an indefinable, specific benefit that can be a part of the physician’s personal financial objectives. Whether it is an event such as a vacation, another lifestyle enhancement, or a supplement to retirement income, the ability to take an incremental amount of income and accumulate it, defer taxes on it, and have it distributed at a specific time, has great appeal for those that step back and consider, “Why would I do it differently, even if I could?”

There is a lot of discussion today about income tax rates. Will income tax rates increase? There are two perspectives regarding the prospect of tax rates increasing that could be considered. First, an argument could be made for an increasing need to shelter current income from taxes if tax rates increase. However, what happens if a physician is in a higher tax bracket when the deferred income is distributed?

Predicting changes in the tax code is as precarious as trying to predict the market but there is evidence today that income taxes are not necessarily going to increase under the Obama administration. The Wall Street Journal reports that recent events point to the fact that Obama is moving toward the center in his position on public policies issues. In a recent Brooking Institute speech on the economy, the President put an unusual emphasis on Americans in business, specifically small business. The President claimed success in reducing taxes: “This fall, I signed into law more than $30 billion in tax cuts for struggling businesses,” and announced a new cut, the complete elimination of capital gains taxes on small business investments along with write-offs to encourage small businesses to expand in the coming year. He called it “worthwhile” to create new tax incentives. Essentially he is saying that he understands where jobs are created and that tax incentives helps fuel the economy.

However, whether tax rates increase or not, what we have learned from the success of 401(K) plans is that if we have a systematic way to set aside income, we generally are more successful at saving money. As such, the hospital’s opportunity to create such a vehicle for privately practicing and employed physicians will become increasingly appreciated as physicians take their call pay statements home and share with their spouses what they can do with the money…together.

One general surgeon said to us during an annual review of their call pay account, “I used the money to pay for my daughter’s wedding this spring and I wouldn’t have had the money if it hadn’t been for this program”. It is hard to measure the good will that is generated from experiences like this but what is interesting is that this physician was one of the ones that didn’t like the program in the beginning.

Nothing is perfect but we are taking a step in the right direction…

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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Strategic Planning in Today’s Rapidly Changing World of Healthcare

At a recent engagement, we were privileged to participate in a discussion conducted by members of the medical staff represented by a variety of specialties regarding the future of healthcare and particularly the future of their hospital paying for unassigned emergency department call coverage. Also participating were the CMO and COO of the hospital.

It was a lively exchange where a variety of prognostications were expounded such as national and local trends as well as various perspectives of the prevailing orientation of healthcare delivery. After about an hour it was obvious that there were at least ten very strong positions expressed by this esteemed group of physicians, however no consensus was ever reached as to the future of healthcare or paying for call.

While long-range strategic planning is necessary, the pace of change, the lack of clarity from various industry leaders, and the instability of the political and economic landscape, pose a challenge to the traditions and reliability of planning and forecasting. What was once primarily a science has since transformed into an art form in the world of long term strategic planning.

Considering that few facts are known and that healthcare’s future is unpredictable, we encouraged the group to take a more flexible approach. Rather than viewing the planning process as a “motion picture” moving across time and into the future, we stressed the importance of fundamentally approaching the issues surrounding paying for ED call coverage as a “snapshot” of the current situation. Through this process it is important to identify “soft landing” spots for various defined scenarios.

The old adage that “the only thing new is the history we don’t know” isn’t exactly relevant in a planning environment today. We don’t need a forensic accountant to understand that it doesn’t make economic sense for a private practicing physician to invest time and resources into covering unassigned patients in the hospital’s emergency room without being compensated for being available to take call.

These are “known” or the “facts” which we must consider today: The limiting parameters surrounding call pay primarily involve “affordability”. Going beyond affordability we have contributing factors such as fair market value, relative burden and community need. Furthermore, infused into these complexities are issues involving healthcare related laws defining hospital/physician financial arrangements.

We believe that the starting point is a realistic assessment of burden and emergent need. Regardless of how the future is defined, communities need to have qualified medical professionals providing specialized emergency medical care. For many of those physicians providing that care, there is a legitimate justification for being paid for their services. We can debate the future and invest hours in scenario forecasting but a “snapshot” of reality deserves immediate action.

The key is to build flexibility into the solution that allows for the significant changes that may take place in the future. If the immediate needs are properly assessed and the budget is fairly allocated, there are options that can be exercised to adjust for the changes that are not exactly known but are inevitably forthcoming.

Our trademarked approach, referred to as the Call Pay Solution®, is one systematic turnkey approach that establishes the basis for flexibility and “soft landings”. Whether an employment culture is instituted or the move to integration dominates, emergency medical care is certainly not going to disappear along with the need for professional services. If call compensation is cast into the form of an executive benefit as it is in the Call Pay Solution®, the hospital will have the tools to bridge physicians monetarily into employment status. As quality measures become more transparent and a dominant factor of reimbursement, quality factors are easily inserted into the compensation formulas of an “executive benefit” approach to call pay. And, if clinical integration dominates the landscape, the well-designed call pay program may be modified into an incentive rewards structure to recognize quality and efficiency of care.

Therefore, we believe that strategic planning should be revolutionized and approached more as a snapshot with soft landings as opposed to investing valuable time and resources in futile discussions about defining the future. The need is now and with qualified professional assistance, hospital and physicians can align their interest and become “partnership centric” as we navigate the uncertainty that lies ahead.

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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Horty Springer’s Physician Hospital Contracts Seminar: Lessons Learned

Keeping ER Call Pay in Perspective

One might assume that if your company’s core business is the design, implementation and on-going management of call pay programs that you would be a proponent of hospitals paying physicians for ED call coverage. That is not necessarily true at MaxWorth Consulting Group. First, we sincerely believe that “paying for call” is somewhat of a misnomer. Even at the highest percentiles of Fair Market Value, the “pay”, when justifiable, cannot be reconciled with the impact of “call” on a physician’s family and their lifestyle as well as the cost for lost revenue/opportunity from practice interruptions. However, we believe that in certain circumstances, physician demands to be paid for call is moving beyond the scope of reasonableness and perhaps could be legally challenged. Essentially paying for emergency department unassigned call coverage was created to recognize the evolution of real “pressure” in the delivery of emergency medical services. This is especially true in the small and midsize markets where community hospitals are struggling to meet increasing demands from their overly utilized emergency rooms. In the midsize and small markets there continues to be a shortage of available specialist with no end in sight and for the ones that are available, they are becoming less willing to adhere to the typical medical staff bylaw requirement to cover call without some form of compensation. Hospitals are losing revenue from the increasing number of transfers away from their facilities to nearby larger markets. This obviously puts patient care at risk and increases the challenges to maintain adequate operating margins.

In the small and midsize markets across the country it is difficult to justify complex integration strategies and employment arrangements which are becoming more common in larger hospitals and health care systems. There is an obvious “Catch 22” in play in these markets. The challenge to meet a charitable mission of providing for the poor and less fortunate is getting out of reach for some within these markets. As such, paying for call coverage becomes a necessary and justifiable strategy for aligning the interests of the hospital and meeting the EMTALA mandated emergency department coverage requirements.

Physicians who serve the small and midsize market hospitals are experiencing similar financial pressure. In addition, with 1 in 4 emergency room patients having no insurance and the perceived direct correlation of indigent patients to medical malpractice claims, physicians are experiencing increased risk without the corresponding revenue that is fundamental in most other industries.

In these situations it is certainly justifiable to consider paying for call (or enhancing and expanding current call pay arrangements) but we believe that alternatives to traditional call pay arrangements should be explored. We have found that one of the primary reasons that most hospital executives in small and midsize markets resist the demands for call pay is the fear of opening “Pandora’s Box”. Most executive leaders are (perhaps from personal experience) familiar with situations where a hospital started a call pay program with a traditional approach of paying a cash per diem to one or two specialties that were putting the most pressure on them to get paid. And what began as something manageable quickly spiralled out of control. The per diems originally agreed to are never enough and the specialties left out, begin asking, “Why not us?” This is sometimes referred to as the “slippery slope” and it is perhaps the number one threat to the sustainability of call pay arrangements.

Our firm is experiencing exponential growth because we have created a cost effective, long-term solution that provides an antidote for the "slippery slope" and "zero sum outcomes" that paying cash per diems creates. Our trademarked and patent pending methodologies includes a physician driven process for quantifying the relative value of the actual burden of call along with a budget distribution model that employs fair market value benchmarking techniques. Our turnkey solution is mutually beneficial and offers unique benefits not found in any other approach to call pay. As such, for the situations that justify paying for call, we provide education and resources that assist our clients in evaluating alternatives, defining budgets and communicating a mutually beneficial alignment strategy effectively to their medical staffs. Furthermore, we find that the ongoing management of our programs which includes a process for reinforcing the value of the program is essential in keeping physicians informed and appreciative of the features and benefits of the program.

Where the previously described conditions are not present - where coverage is adequate and doesn’t impose a significant burden, the demand to be paid hardly seems justified. We see this situation most often in large urban markets where paying for call coverage results more from responding to competition than any real burden experienced by physicians. We are particularly concerned when we see hospital-based specialties in large markets demanding or actually being paid for call. These specialties have no practice interruption and due to the number of physicians in their practice groups, they are rarely on call. In addition, they typically have exclusive contracts and most are subsidized by the hospital. Furthermore, many of the larger hospitals have residency programs, hospitalists, PA’s and other forms of support that virtually eliminate the burden of call for their medical staffs, yet, they are paying for call or experiencing pressure to pay for call.

It is clear that there are considerable risks in paying for call just to respond to physician demands. We frequently talk with executives who tell us that they are dealing with the “pay us or we are leaving” scenario. And some are working through bad decisions made in “the heat of the moment” where call payment arrangements were made that are obviously outside of fair market value and outside the scope of the OIG 07-10 opinion. However, reversing existing arrangements is difficult if not impossible without great disruptions.

So, in the large markets we believe that employment, integration and other arrangements will ultimately counteract the demands for call pay. In these environments perhaps paying for call was never the right or a legitimate response. But, for the small and midsize markets we believe that a mutually beneficial, cost effective, physician driven call pay program is not only appropriate, justifiable and rational today, it will continue to be essential for the delivery of emergency medical care for the foreseeable future.

We believe that it is important to keep emergency department call pay in perspective. The following summation will provide a good starting point for a productive discussion and hopefully help keep paying for call in perspective:

1. It is much better for all stakeholders to be proactive in initiating discussions between administration and medical staffs about call compensation.

2. Fairness, transparency and inclusion are more meaningful than the amount of pay. Based on thousands of physician interviews we surprisingly find that what drives division and disharmony has more to do with the perception of how fairly call pay is approached by administration.

3. Small and midsize markets will continue to need to address the issues of paying for call as large market alternatives will not prove to be cost effective or abundantly available.

4. The relative value of the burden of call should be taken into consideration. Most ER Physicians will say that the most important specialty is the one that they need and not necessarily the ones that are being paid or demanding to be paid for call.

5. Demands to be paid must be considered in the context of what is legally permissible and reasonable. Paying physicians in response to demands without evaluating all relevant factors is potentially dangerous.

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Horty Springer’s Physician Hospital Contracts Seminar: Lessons Learned

Horty Springer's Physician Hospital Contracts Seminar: Lessons Learned

Attending a Horty Springer seminar on any area of healthcare law has to be one of the best investments in legal education on the planet. The recent Naples seminar was certainly no exception. We attended the session on contractual relationships between hospitals and physicians presented by Dan Mulholland, Esq., Phil Zarone, Esq. and Henry Casale, Esq. The entire session was filled with practical legal guidance on a variety of topics but we were especially impressed with what we would call the “key note” section of the agenda: Healthcare Reform.

While predicting the future is always dangerous, and proper disclaimers were noted, considering the experience and expertise of the lawyers at Horty Springer, a peek into the future through their crystal ball is worth considering. (Please Note: The following statements are based on our impressions of what was said and should not be considered warranties of their material, you might say this is just our take on it; but, if you missed the Naples seminar, the session will be repeated in April in Las Vegas).

It was disturbing to learn that health insurance premiums will rise considerably in order to accommodate the rules and regulations of mandatory coverage. However, non-compliance is cheap and difficult to enforce without criminal or even civil penalties; therefore, many individuals will simply wait until they need health insurance, then buy it from one of the exchanges without fear of being denied coverage.

A recent survey said that between 30% and 50% of employers would drop their group health insurance, leaving their employees to purchase coverage on their own. Imagine 75 million people or more without coverage! Even with penalties, another survey said that by dropping coverage, employers would save 40% by taking this approach. The “poor” will get Medicaid but States are broke so reimbursements will fall further.

Insurance companies will market directly to individuals, bypassing the current reimbursement arrangements. There will be a price war that will be like “Geico on steroids”. Insurance companies will be forced to consolidate causing many of the household names to disappear overnight. The contact will be with individuals, not hospitals, which will complicate reimbursements.

Without predicting the future exactly, it is relatively certain that ER’s will be more crowded, physicians will be hard pressed to remain in private practice and the government will work harder to “claw back” money from those that abuse the regulations.

All in all, whether you are a hospital administrator or a physician in private practice it might be time to examine your survival strategies. A trip to Las Vegas in April to attend the Horty Springer seminars might be a good “bet”.

To learn about compensation strategies that will align with your survival strategies, check out www.MaxWorthConsulting.com for more information.

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Going Beyond Fair Market Value Surveys

Our firm introduced appropriate compensation measures into the emergency department design process that take into consideration factors that go exceedingly beyond commercially available survey data and traditional fair market value considerations. These factors include the quantification of the relative value of the burden of call as scored by a representative panel of physicians who are intimately familiar with the hospital’s emergency department.

The physicians’ call pay committee, consisting of 7 to 9 specialties, including a representative from the emergency department, typically invest over 20 hours of intense discussion and debate resulting in the most comprehensive and “defensible” burden of call scoring that exists in healthcare today. Our methodology intentionally introduces the budget distribution process after the committee has completed the scoring process in order to keep per diems out of the equation during the burden determination process. Naturally, as soon as per diems are introduced into the committee process, the relative value of the burden of call is subordinated by the per diems. This often times requires a return to the stated mission of the committee and core objectives of the call compensation program.

It is vital to the success of the process to put all ED Call factors into perspective, including national on-call survey data. The objective is an alignment of interest between the hospital’s community need for emergency department call coverage and the physicians’ interest in being fairly “recognized” for this service. If not properly positioned, the issue of call pay becomes isolated and again, taken out of context. The hospital’s overall vision and integrated support for physicians should be taken into consideration. For example, it is important to keep in mind that the hospital’s investment in call pay includes support elements such as hospital-employed Physician Assistants, the Hospitalist Program, Residency Programs and other investments that essentially “offload” the burden of call for some specialties.

When taken out of context, the national survey data limitations are rarely taken into consideration. The following factors are a reality but not always recognized in some of the predominant national call pay surveys:

Out of thousands of survey request, only 142 facilities respond to the survey and mostly by completing a Web-based questionnaire
Respondents for specific specialties vary greatly and for some specialties; there are fewer than the accepted minimum of 10 to be reliable for benchmarking purposes.
Example: Cardiology – General, Level 1 Trauma Centers, 6 survey responders
Almost 49% of the responders are Trauma Centers
10% of the responders are medical practices
Of the Trauma Centers, 22% pay for Trauma coverage only
30% of hospital paying for call retain professional fees
Less than ½ of the responders pay employed physicians for call
Only about ½ of hospitals today pay for call coverage
Surveys do not provide data for many of the subspecialties and use “roll up” data when response rates are low (Radiology is an example)
In Trauma Centers, 65% DO NOT pay Radiologist
In Trauma Centers, 25% DO NOT pay Neurosurgeons

Our firm’s methodology will not produce a call pay program that will be immediately embraced by every group, but if the outcome is supported by the Board, the Executive leadership and the majority of the medical staff, and it becomes the exclusive on-call compensation program, the issue of call pay will be resolved for the foreseeable future.

There will be dissenting opinions and perhaps some very difficult discussions, but over time, this approach will align interest and create a win-win relationship for the medical staff and the hospital. Perhaps most importantly, this is the only approach to call pay that is economically sustainable… that’s clearly in the best interest of all stakeholders.

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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Engaging the Medical Staff in the Call Pay Design Process Leads to Positive Outcomes

When a hospital CEO arrives at the hospital Monday morning to find a letter on her desk from the head of the general surgery department informing her that the general surgeons will no longer cover unassigned call without compensation effective immediately, the urgency to employ a cost effective, long-term, comprehensive ED call pay program rises significantly. As extreme as this scenario may sound, it is not as rare as it may seem for today's hospital executives.
To prevent a crisis, the adage: "an ounce of prevention is worth a pound of cure" could never be more appropriate. Sometimes we hear the statement from hospital executives that they don't want to open up Pandora's Box or stir the hornet's nest but an organized approach to finding a mutually beneficial solution in advance of an ultimatum will greatly enhance the possibility of a positive outcome.

The "one-off" negotiation or special arrangement with a few specialties is never a viable long-term solution. First, that approach is reactive and it puts the hospital at a distinct disadvantage. Additionally, the typical default in this scenario is to pay a cash stipend in response to the demand from the (fill in the blank) specialty.

So which specialty or specialties should be compensated? How much should they be paid? How should they be paid? How will those specialties that are not being paid react? This sets up the proverbial "slippery slope" and "zero sum game" that threaten the financial viability of the hospital and deteriorates physician / hospital relationships.

As soon as the drum beat reaches a disturbing tempo it is imperative to begin the process of creating an ED Call Compensation solution. Our clients announce that "a nationally recognized call compensation design firm has been retained...” This sends a positive signal that the executive leadership is moving forward but in a systematic way to create a comprehensive solution that is "fair but not equal" and defensible for all stakeholders.

The process begins with the establishment of a physicians' call compensation committee or task force. Our firm has a prototype for the committee bylaws which outlines the process and procedures of the committee including conditions for membership, terms of committee service, and other important features. The primary objective of the committee is to identify the specialties that should be included in a compensation program and then to evaluate the relative value of the burden of call for each of the specialties that are identified.

Our firm assists with establishing the task force and providing ongoing consulting with the task force as they employ our proprietary model for determining a quantitative value for each potentially eligible specialty’s relative “burden of call”. We have created a prototype of ideal characteristics for selecting the members of the task force within the structuring process.

The following steps are applied in the process of developing a quantitative "burden of call" score:

Collecting call burden scoring data from emergency department and hospital records
Introduction and application of the “relative burden of call” quantitative evaluation and scoring process.
Applying the burden of call scoring methodology to the potentially eligible specialties
Evaluating the burden of call scoring process and outcomes
Modeling scoring outcomes within the working budget
Creating fair market value comparisons
Refining the budget distribution model based on task force results

The physicians' will make a final recommendation to the executive team for budget distribution, eligible specialties, per diems, and tier assignments using the scoring process and data driven modeling methods. Our firm validates the committee’s recommendation with a statement of Fair Market Value as well as a determination of appropriate proportionality of the per diems. This process driven approach is inclusive and transparent. Every member of the medical staff will know how and why the specialties were selected to be included in the call pay program as well as how the per diems were determined. There will be no special arrangements and every physician will have had a "seat at the table" in the process.

There are up to five two-hour task force meetings scheduled with a maximum of two week spacing for each task force meeting. After the initial meeting, assignments are made at the conclusion of each session along with an outline for the next session. MaxWorth guides the process and models all task force decisions in real time in order to provide instant feedback on all considerations during the process.

The outcome is always positive with an appreciation for how the executive leadership of the hospital approached call pay, allowing physicians to recommend how the hospital's investment in call pay is designed and implemented. This approach eliminates the "zero sum game" and reverses the "slippery slope" that is oftentimes the outcome of the traditional approaches to call pay.

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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ED Call Pay – A Matter of When and How

After years of building rewards programs for executives of small to mid-size companies, we were thrust into the fray of the world of call pay in the summer of 2005. Invited to the party by a prestigious healthcare law firm, we were asked to address two CEO concerns surrounding the issue of paying for call: the slippery slope and the zero sum game.

In our initial meetings we heard the following concerns expressed by hospital administration:

The demands by a few specialties are intensifying; we have to do something.
The traditional approaches do not seem to resolve the issue.
We want an alternative to the traditional approaches to call pay.
If we pay one or two specialties, it is just a matter of time before all demand to be paid.
We see that those hospitals that are paying cash seem to never stop the escalating demand for more.
Currently, our bylaws require unassigned coverage so we would be paying for something we are already getting and have gotten for years in exchange for “privileges”.

In accepting this assignment we quickly learned that there were advantages to coming from the “outside” and of course, there were a few disadvantages. To overcome the disadvantages, fortunately we were able to assemble an outstanding group of strategic alliances to create what we later came to understand was a “first-of-its-kind” approach to call pay. The chief of staff, executives, board members, physician leaders, healthcare and tax lawyers all collaborated to produce a long-term, mutually advantageous, cost effective, and process driven solution to the vexing issues of how much to pay, who to pay, and why to pay. Perhaps most importantly, the “solution” that evolved actually did reverse the slippery slope and eliminated the zero sum game.

The first hospital was launched in January 2006 and we spent the following year monitoring, measuring, and refining the details of all of the components that must fit together to produce a seamless operational infrastructure that provides functional integrity and efficiency. We began speaking on the subject of call pay at various venues. There were a few articles written about the solution. To respond adequately to the increasing demand, we carved out a portion of our firm to focus exclusively on the education, design, implementation, and ongoing management of our turnkey solution to call pay.

Since those first meetings in 2005 and the ensuing year and a half of working in the “living laboratory” we have continued to experience significant interest in our unique approach to call pay. To protect the quality and integrity of the methodology, we have trademarked and filed an intellectual property patent for the components of the design and process. If we could be granted one wish it would be to be able to speak with hospital executives before they start down the path of paying for call. Being presented with the opportunity to gain from the experiences that we have acquired from interviewing thousand of physicians in hundreds of hospitals over the past three years would give executives confidence that there is an alternative to the traditional approaches to call pay.
Perhaps oddly enough, we are not proponents of paying physicians for unassigned call coverage. However, we recognize and appreciate the plight of today’s physicians. We have shadowed physicians on call and we understand the dire conditions that arise from overcrowded emergency rooms, uncompensated care, constant reductions in reimbursements, increasing practice overhead, and the list goes on forever. But, there are two sides to the issue and hospitals are equally and perhaps more challenged with budgetary issues, cost escalations, shrinking access to capital, competition from physicians, etc.

Surveys on the subject of call pay do not adequately measure the reality of the situation but the available data shows that there is an “up-trend” in the number and amount of call pay arrangements. From our perspective, it is not a matter of whether or not to pay for unassigned call coverage; even in light of healthcare reform, our experience tells us that it is a matter of when and how to pay for call. If that is true, then we hope that our wish comes true and that we have the chance to share with hospital leaders and physician that there is an alternative to the traditional approaches to call pay that offers advantages to physicians as well as to hospitals.

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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Deficiencies in Fair Market Value Surveys

The evolution of our value proposition for our clients today is centered on facilitating the physician call committees and working through the burden of call scoring process. What the BOCS recognizes and places a priority on is the relative value of the burden of call that is unique to an individual hospital and medical staff.

We find that commercially available FMV surveys are inadequate in terms of the application of Fair Market Value to a specific hospital. Additionally, FMV survey data does not directly recognize the issue of “call burden” which is the core issue involved in call compensation.
The BOCS creates the opportunity to group specialties in proximity of their burden and justifies distributing a hospital’s budget in a way that reflects FMV but is not totally dependent on commercially available FMV data. The result of our methodology is a more truly “fair” compensation structure that is inclusive and representative of the unique needs and call compensation budget of each of our clients.

It is my hope, and the mission of MaxWorth Consulting, to create a broad-based awareness that a real alternative does exist that will achieve alignment between the hospital’s need for consistent and reliable emergency department call coverage and the physicians interest in being fairly recognized for this vital community service. However, it is important to note, as our friend Dan Mulholland says…no hospital should “try this at home without close adult supervision”.

If you have any questions or would like to discuss this topic further please contact us by email at info@maxworthconsulting.com and we will notify the post author of your request.

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Call Pay Re-purposing: Enhancing Physician Retirement and Improving Retention

In the unique world of healthcare fraught with rules and regulations surrounding compensation arrangements between hospitals and private practicing physicians, there exists a unique opportunity to transform various forms of payment for services into a retirement benefit while at the same time adding significantly to the retention of key surgical specialties.

Traditional retirement plans are effective for creating substantial retirement income for the rank-and-file, but even if a physician maximizes their qualified plan contributions during their “working lifetime” they will come woefully short of accumulating enough wealth to maintain their pre-retirement lifestyle at a standard retirement age. This reality is forcing physicians to remain in practice longer than they would if they had adequately planned for retirement and/or aggressively looked for what might appear to be more lucrative opportunities “across town”.
Generally, physicians earn above average incomes and are considered “highly compensated”. With Federal regulations limiting the amount of money that may be contributed to a “qualified” retirement plan, such as a 401(k) or profit sharing arrangement, it is mathematically impossible for the “highly compensated” to adequately save for retirement.

With the help of qualified experts, Call Pay programs can be designed as a retirement benefit for physicians. This allows the physician who is being paid cash for taking call, medical directorship stipends, or other traditional compensation arrangements to convert the current incremental hospital income into a tax-advantaged accumulation strategy. This will allow non-practice revenue to grow tax-deferred and become a significant supplemental retirement income benefit.

A byproduct of this approach is that a physician will be much less likely to leave a hospital that is providing this type of benefit. Especially if leaving triggers an untimely taxable event, forcing the physician into an unfavorable income tax situation.

The hospital has much to gain by implementing this strategy. Physician turnover is very expensive and disruptive to the hospital. Reports indicate that after all things considered, a hospital will incur expenses close to $250,000 in order to recruit a physician. Lost revenue to a hospital associated with losing a key specialist can exceed $1 million. Taking the initiative to implement this type of arrangement is very cost effective for the hospital.

In today’s challenging economic environment, it is rare that a financial tool exists that is not risky or prohibitively expensive. As such, “Re-purposing” traditional forms of compensation to enhance physician retirement benefits and improve key specialist retention is something that every hospital and physician should know more about and strongly consider.

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