April 25, 2025 • 43 mins
Community Health Network, Inc. of Indiana (CHN) entered into an agreement with the Department of Justice (DOJ) in December 2023 to settle alleged violations of the False Claims Act. The settlement amount of $345 million was the largest settlement of its kind in history. Dave Hesselink, Managing Principal, SullivanCotter, A.J. Orille, Consulting Principal, SullivanCotter, and Mark Ryberg, Practice Leader, Physician Workforce, SullivanCotter, discuss the particulars of the 2023 CHN settlement with DOJ, with a focus on the valuation components. They also share some practical takeaways for health care organizations looking to maintain their physician compensation compliance programs. Sponsored by SullivanCotter.
Essential Legal Updates, Now in Audio
AHLA's popular Health Law Daily email newsletter is now a daily podcast, exclusively for AHLA Premium members. Get all your health law news from the major media outlets on this podcast! To subscribe and add this private podcast feed to your podcast app, go to americanhealthlaw.org/dailypodcast.
Stay At the Forefront of Health Legal Education
Learn more about AHLA and the educational resources available to the health law community at https://www.americanhealthlaw.org/.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Speaker 2 (00:04):
Support for A HLA comes from Sullivan Kotter,
which partners with healthcareorganizations to drive
performance and improveoutcomes. Through the
development and implementationof integrated workforce
strategies, the firm's provenapproach helps organizations
align their business strategyand performance objectives. For
more information, visitsullivan kotter.com .
Speaker 3 (00:31):
Hello, we're delighted that you're joining
us today. I'm Dave Hess Linkwith Sullivan Kotter. We're a
workforce advisory firm for thehealthcare industry. I'm a
managing principal in ourphysician workforce practice
and have been advising clientson physician compensation
regulatory compliance matters.
Since I joined the firm 12years ago. I'm joined today by
(00:54):
AJ Elli , a consultingprincipal in our physician
workforce practice. AJ has beenadvising clients on physician
compensation regulatorycompliance matters for the
entirety of the 14 years thathe has worked for Solve Connor
. So welcome, aj.
Speaker 4 (01:10):
Thanks, Dave. It's a pleasure to be with you today.
Speaker 3 (01:14):
Great. The focus of our discussion today is an
intriguing topic, as I'm sure aHLA listeners are aware.
Community Health Network ofIndiana entered into an
agreement with the Departmentof Justice in December of 2023
to settle alleged violations ofa false claims act. The
settlement amount of 345million was a staggering
(01:38):
amount, the largest settlementof its kind in history. Now
since then, CHN has enteredinto an agreement with the
whistleblower in December oflast year to resolve both non
intervened False Claims Act ,uh, false Claims Act claims,
and the Keam Relatorsemployment related claims. That
(01:59):
latest settlement plus the 2023settlement brings ch N's total
settlements to $480 million.
These settlements resolvedwhistleblower allegations that
CHN Senior Management conductedan illegal scheme to recruit
physicians for employment tocapture their downstream
downstream referrals during aperiod of time from 2008
(02:20):
through 2020. In publicstatements, CHN has not
admitted liability, nor did theDOJ admit that the
whistleblower's complaints wereunsupported. Sullivan Kotter
has been identified in the DOJDOJs complaint and intervention
as one of the valuation firmsthat CHN retained during the
period of time covered by thesettlement. As a consultant to
(02:45):
CHN Sullivan, Kotter is boundby our client confidentiality
agreement. So all of ourcomments today will be based on
publicly available informationand also proprietary
information related to our fairmarket value methodology and
survey data. Let me also notethat neither AJ nor I have been
involved in providing CHN withfair market value services or
(03:07):
any consulting advice. So withthat set up , uh, in today's
podcast, AJ and I will discussthe information released by the
DOJ regarding the 2023 CHNsettlement, focusing in
particular on the valuationcircumstances. We'll do that
for about 20 minutes, and thenpivot to an interview with Mark
(03:28):
Ryberg , who is a leader ofSullivan Kotter's physician
workforce practice. And like aj and i, mark has not been
involved in providing CHN withfair market value services or
other consulting advice either.
So we think this will be aninteresting podcast. Our goal
in today's discussion is toshare our perspective as
evaluators and to share somepractical takeaways for
(03:49):
healthcare organizations thatare striving to stay on track
with their physiciancompensation compliance
programs. So with thatintroduction, let's dive right
into our discussion about theparticulars of this settlement
with the DOJ . So AJ in theKeam Relators original
complaint, CHN was alleged tohave deployed a defensive
(04:13):
strategy beginning in 2009 toemploy hundreds of key
referring physicians to preventtheir referrals from leaking to
CH N's competitors. Now, weboth know that CHN is certainly
not the only health system toconsider and act on employing
private practice physicians ontheir medical staff, whether
(04:33):
that's done as a so-calleddefensive strategy or whether
that's done for other reasons,health systems around the
country have employed andcontinue to employ private
practice physicians in theirmarket. So that leads me to a
question about whether thatpractice is risky from a
compliance standpoint or ifperhaps the way it was executed
(04:54):
by CHN leadership put theorganization at risk. So what
are your thoughts on thatquestion?
Speaker 4 (05:01):
Well, given that health system employment of
previously independentphysicians is so common around
the country, I , I think theanswer to that question must be
that the circumstances specificto CH N's execution of that
practice is what put theorganization at risk. In
particular, CHN pursuedemployment of key referring
(05:22):
physicians as a strategypromising to increase referring
physician compensation wellbeyond what they made in
private practice. According tothe complaint, CHN used
historical referral andutilization patterns to
determine which specificindependent physicians would be
receiving employment offers.
(05:43):
And I would distinguish thisapproach from most of the
employment circumstances we seewhere , uh, health systems are
employing physicians to fill apatient access need in their
market that's currently notbeing met by the private
practice community. Sosometimes private practice
physicians will approach theirlocal health system to discuss
(06:05):
employment either because theirpractice isn't financially
sustainable or because ofanother need, like getting help
with practice call coverage.
And these circumstances don'tconstitute a health system
strategy per se, but rather ameans to preserving patient
access to existing physiciansin their market who would
(06:26):
otherwise be forced to leavethat market, thereby reducing
patient access. So while thesecircumstances are, are
different than what the key TAMrelator and the DOJ alleged in
the CHN settlement , healthsystems still need to approach
these situations cautiously.
For example, consideration ofthe private practice
(06:48):
physician's referrals to thehealth system should never be
factored into an employmentcompensation offer. And as we
know from the DOJs interventioncomplaint in the 2023 CHN
settlement, CHN allegedlyconsidered and directly
factored in the value ofphysician referrals for
hospital ancillary servicesinto the employment
(07:10):
compensation offers.
Speaker 3 (07:14):
Aj, I I think that brings up a couple more
observations. Uh , one would bethat to the extent the health
system has a defined employmentcompensation plan and the
previously private practicingphysician is brought into that
plan and paid consistent withthe terms of that standard
employment compensation plan,the health system has a logical
(07:34):
defense even if the employmentcompensation is higher than
what the physician earned intheir private practice. Would
you agree with that?
Speaker 4 (07:45):
I do agree with that promise , Dave. I , I think ,
uh, another importantconsideration here is equity,
right? So even if the privatepractice physician is brought
into the employment model , uh,uh, at , uh, histor lower than
their historical pay level, the, the organization likely
wouldn't be able to maintainthat differential for very long
(08:08):
from an equity standpoint.
Speaker 3 (08:10):
Yeah, that's a great point. I I think the second
observation I have is thissituation brings up some , uh,
commercial reasonableness andhow consideration of commercial
reasonable should impactemployment decisions. The , the
government alleged that therewas no apparent legitimate
reason to employ the privatepractice physicians pursued by
(08:30):
CHN other than preserving theirmarket share of referred
services from these physicians.
So one of the key tests ofcommercial reasonables is
whether there is a legitimatebusiness purpose to the
arrangement other thanconsideration of physician
referrals. In the example youprovided a few moments ago,
employment as a means ofpreserving patient access to
(08:52):
key services would be alegitimate business purpose and
would meet that test ofcommercial reasonable
Speaker 4 (08:59):
Y You're exactly right, Dave. We find that many
health system clients arediligent about documenting fair
market value, but far less soabout documenting commercial
reasonableness in its 2020regulatory update. CMS was
clear about stating that thequote big three, so meaning
(09:20):
fair market value, commercialreasonableness, and the volume
or value standard, those stillapply in assessing physician
compensation arrangements andthat each of those elements is
a separate standard that needsto be met. So just because an
arrangement is fair, marketvalue doesn't necessarily make
the arrangement commerciallyreasonable. And documenting the
(09:41):
business purpose of a physiciancompensation arrangement is
just as important asdocumenting FMV. So remember
that at , at the time of theseemployment arrangements, the
competitive environment inIndianapolis was especially
hot, and in times of heightenedpressure, organizations should
expect heightened scrutiny. Soa well-developed business
(10:04):
purpose justification isespecially important. That
brings us to our, our seconddiscussion topic , uh,
commercial reasonableness ofincreases in physician
compensation throughemployment. And this topic of
commercial reasonablenessbrings up another interesting
discussion point from the , theCHN settlement. The key tamra
(10:24):
later alleged that physiciancompensation was not
commercially reasonable becausein many cases, CN proposed
substantial increases over PRIprivate practice compensation,
and there later raised thatissue with regard to 18
orthopedic surgeons beingrecruited by CHN in 2011 . So,
(10:46):
Dave, what is Sullivan Kotter'sposition on this topic?
Speaker 3 (10:51):
Yeah, that's, that's indeed an interesting point ,
uh, brought by the relay . Um ,when the key TAM complaint was
filed in July of 2014, therewas no definition of commercial
reasonable that had beenpublished in any of the Stark
or any kickback statuteregulation iterations. Up to
that point, commercial list wasa requirement of meeting stark
(11:13):
and anti kickback statute safeharbors, but CMS had never
provided a definition orguidance about how to meet that
requirement. And there was oneinteresting settlement in April
of 2015 that a lot of folksreferenced, and that's the, the
, uh, $22 million CitizensMedical Center settlement , uh,
that was referenced widely inthe legal evaluation community
(11:35):
as a potential marker ofcommercial reasonable related
to, and , and that particularcase was related to
compensation increases fromprivate practice to an
employment setting. So in thatcase, if you recall, several
private practice cardiologistswere employed by Citizens
Medical Center , uh, in TexasCompensation for those newly
(11:57):
employed cardiologists wasestablished at rates below the
median of then current nationalmarket survey data for
cardiology. So seemingly veryreasonable. And , and while
that compensation level doesn'tseem particularly risky, the
proposed compensation was morethan double what those
cardiologists were earning inprivate practice. The presiding
(12:18):
judge's comments about thecommercial reasonableness of
operating a cardiology practiceat a loss ranging from, in that
case, 400,000 to a milliondollars per year, resulted in a
viewpoint within the industry,including us at Sullivan
Kotter, that commercialreasonable might include
consideration of the change incompensation resulting from
(12:40):
employment regardless of thelevel of compensation. That
viewpoint wasn't reallymodified until the latest stark
in NA Kickback statuteregulations were released in
December of 2020. And recallthat those regulations included
that two test definition ofcommercial reason list . One,
is there a legitimate businesspurpose, and two, is a
(13:01):
compensation arrangement asensible way to achieve the
business purpose. That newdefinition in the accompanying
commentary by CMS clearlystated that there are many
legitimate business purposesfor offering a medical practice
at a loss other than securingreferrals. Those business
purposes should be documentedas well as the fair market
(13:22):
value of the compensationarrangement. So since that ,
uh, regulatory update, we've rerevised our commercial
reasonable guidelines atSullivan Kotter to be
consistent with a newdefinition and CMSs two-pronged
test. Now, those new guidelinesare not definitive as to the
potential increase in physiciancompensation going from private
(13:46):
practice to employment. And asI stated earlier, if there's an
established comp employmentcompensation plan that will pay
physicians consistent with fairmarket value, bringing private
practice physicians into anemployment model in accordance
with that plan, even if itresults in an increase in
compensation, is defensiblefrom a commercial reasonable
(14:08):
standpoint, as long as the twotests of commercial reasonable
are net . So I think the keyhere is having a , a consistent
plan design. Certainly if youhave increases in compensation
resulting from employment in aone-off compensation model and
exception, those are far lessdefensible and should be
factored into an overallcommercial reasonable
(14:28):
assessment. Aj, this topic ofSullivan Kotter's guidelines
was cited by the DOJ in theirintervention complaint.
Specifically, they summarizedour fair market value
guidelines several times. Uh,could you, for the audience ,
uh, benefits here, could yourecap those guidelines and
explain how they weredeveloped? Certainly,
Speaker 4 (14:51):
Dave , in a nutshell, we use the 75th
percentile total cashcompensation or TCC reflecting
a blend of national marketsurveys as our initial top . If
the proposed physiciancompensation arrangement falls
at or below the 75th percentilethe market, we believe that
arrangement falls within themiddle of the market and within
(15:13):
fair market value. Now, we'vemodified that test somewhat
since the time period coveredby this settlement, and I'll
explain that modification injust a moment. But for
arrangements that exceed the75th percentile, the national
market, we look first topersonally performed physician
productivity as the supportingfactor. And that's because when
(15:36):
we look at physicians withreported TC levels , um, that
are above the 75th percentile,the number one factor driving
that comp compensation by faris their personal productivity.
And so the tests that we'vedeveloped using our survey data
to gauge alignment are TCC toproductivity ratio tests . And
(15:58):
the test that was referencedseveral times in the DOJs
intervention complaint was theTCC to work RVU ratio during
the time period covered by thissettlement. Sullivan Kotter
used a single TCC to work RVUratio test, which was at or
below the 60th percentile,regardless of the specialty.
(16:22):
And since that time, we'verefined our guidelines to
distinguish that ratio byspecialty category. So we're
using the 60th percentile, TCCper work, RVU for medical and
surgical specialties using the65th percentile, TCC per work,
RVU for primary carespecialties and the 55th
(16:43):
percentile TCC per work RVU forhospital based specialties.
Again, those ratios aresupported by our survey data as
producing reasonable alignmentbetween pay and productivity in
the national market. And thatalignment between pay and
productivity is, is really thebedrock of our fair market
value guidelines. And we testthose ratios each year against
(17:08):
the current survey additions toensure they're still
appropriate. And finally,there, there are some physician
compensation arrangements thatexceed the 75th percentile of
the national market and are notsupported by personally
performed productivity. Um,these could be situations where
a situ , uh, physician isworking an extraordinary amount
(17:30):
but doesn't generate supportingproductivity as in the case of,
say, a hospitalist who might beworking extra shifts but
doesn't generate commensurateproductivity due to maybe a low
census or the type of shiftwork . And in that situation,
we can evaluate that extra workeffort if it's documented.
(17:51):
However, we, we alsoacknowledge that there are some
physicians or particularcircumstances that warrant
compensation exceeding the 75thpercentile of the market
without supporting productivityor work effort. And the facts
surrounding those individualsor situations should be
documented , and they may besupportive from a fair market
(18:12):
value perspective. Examplesinclude a luminary physician
who might be a renownedclinical leader in his or her
field, or perhaps maybe asituational circumstance where
recruitment is very difficultand compensation must be in the
top quartile to attract anycandidate. The facts
(18:34):
surrounding those individualsor situations are what we call
business judgment factors. Andthat term was referenced in the
DOJs intervention complaintwhen they recited our fair
market value guidelines.
Speaker 3 (18:48):
Thanks for that recap, aj. Uh , could I infer
that by citing SullivanConnor's fair market value
guidelines, the DOJ indirectlyendorsed Sullivan Cotter's
approach to determining fairmarket value?
Speaker 4 (19:03):
We believe so by, by documenting where CHN
Management allegedly proceededwith executing a physician
compensation arrangement, evenwhen it exceeded our fair
market value guidelines, theDOJ was essentially relying on
our FMV guidelines to pursuealleged false Claims Act
violations against CHN andultimately to settle that case.
(19:27):
And whether those identifiedarrangements were within fair
market value was never disputedby cnm .
Speaker 3 (19:35):
Well , and I think that brings up a point related
to market survey data. 'causewe certainly rely on market
survey data for much of ourfair market value testing. A as
our listeners are probablyaware, CMS included some
commentary in the 2020 Starkand in a kickback statute
regulations regarding surveydata that some observers in the
(19:56):
industry have used to dismisssurvey data as irrelevant in
determining fair market value.
And in particular, CMS statedin their commentary that the
industry should be cautiousabout making fair market value
determination on market surveydata alone, and that federal
agencies do not consider that75th percentile is a bright
line test in determining fairmarket value. On the other
(20:19):
hand, there are commentary alsostated that market survey data
continues to be relevant and inmany cases, maybe all that is
required. So in thissettlement, since the DOJs case
rested, at least in part onSullivan Kotter's fair market
value determinations, whichrelied heavily on comparisons
to market data and the factthat the settlement was
(20:41):
announced three years after thepublication of these revised
star and anti kickback statuteregulations, I , I think
couldn't we surmise that theDOJ relied heavily on market
survey data to pursue thesealleged violations and reach a
settlement with CHM ?
Speaker 4 (20:59):
I think you can.
Yes, that , that's, that'sexactly the conclusion that our
listeners can arrive at whenconsidering the details that
have been released publicly bythe DOJ in their intervention
complaint , it seems like astretch to interpret the CMS
commentary to mean that surveydata is irrelevant. It's , uh,
it's hard to dismiss therelevance of market survey data
(21:21):
when in essence the DOJ reliedon it in negotiating the
settlement . I think the 2020regulatory updates serves
notice to the industry thatblind reliance on market survey
data as a bright line test doesnot necessarily satisfy the FMB
requirement. And thatindividual facts and
circumstances of a particulararrangement must also be
(21:44):
considered. Now , um, listenersmay be puzzled by our reliance
on the 75th percentile , uh,TCC as our first test of fair
market value. So let me, let mecircle back to a statement that
I made earlier in ourconversation on this topic.
Recall that during the timeperiod covered by this
(22:05):
settlement, Sullivan Kotter'sFMV guidelines had a 75th
percentile TCC test or whatsome might call a bright line
test. Well, prior to theDecember, 2020 star and
anti-kickback statuteregulatory update, we had
concluded through our annualreview of the survey data that
(22:27):
we needed to modify that testto require some degree of
productivity alignment, evenfor arrangements that fell
below the 75th percentile. Soour revised FMV guideline
requires a , a fairly loose 25percentile point alignment
between pay and productivitywhen pay falls between the 50th
(22:47):
and 75th percentile of themarket. So to use an example
for a compensation arrangementwhere TCC approximates the 70th
percentile, we'd requireproductivity to be at or
greater than the 45thpercentile. Now, there could be
supporting factors other thanpersonally performed
(23:08):
productivity, perhaps somethingsimilar to the business
judgment factor concept wediscussed earlier. But if a
compensation arrangement fallsbetween the median and 75th
percentile and the TCC marketpositioning exceeds that of
work RVs by more than 25percentile point , we'd require
(23:28):
documentation of thosesupporting factors.
Speaker 3 (23:31):
Oh , great. Thanks for that clarification, AJ and
, and that thorough discussion.
Uh, the final topic I want tocover before we pivot to our
interview with Mark is thealleged multiple bad factors
that were described in the DOJsintervention complaint. And
those included , um, the, thefollowing. CHN allegedly
(23:54):
considered the incrementalimpact of hospital based
reimbursement differentialsfrom referrals to hospital
ancillary departments in theircompensation formula, CHN
allegedly openly considered thedownstream impact of physician
referrals In managementmeetings where compensation was
discussed, CHN allegedlyprovided evaluators including
(24:16):
Sullivan Cotter with incorrectdata, with the intent of
obtaining , uh, favorable fairmarket value opinion. CHN
allegedly used multiplevaluation firms attempting to
at obtain a favorable fairmarket value opinion. And at
their request, CHN managementallegedly pledged to CHN board
(24:38):
members. That's the veracity ofemployment. Pro forma
assumptions would be tested andbrought back to the board for
review at periodic intervals,but they didn't follow through
on those promises. So AJ, as a, as a evaluator, what's your
reaction to those alleged badfacts?
Speaker 4 (24:58):
Yeah, I think this settlement reinforces the peril
that organizations can putthemselves in when engaging in
misconduct similar to what wasalleged in this case. Although
CHN was a Sullivan Kotterclient, when on the witness
stand or in a deposition, ourconsultants are obligated to
testify truthfully about ourapproach, our opinions, and our
(25:20):
interactions client. Soengaging a valuation firm like
Sullivan Kotter does notinsulate an organization from
potential prosecution whenthere's evidence of potential
wrongdoing. Secondly, ouropinions are conditioned upon
receipt of accurate data. Um,evaluators typically don't
audit that data and theyclearly state so in their
(25:43):
opinion, falsifying data toobtain a favorable opinion from
a evaluator is easilydiscovered in an investigation
like this one. And finally,using multiple valuation firms
to obtain the opinion you want, uh, what we would call
opinion shopping is , isproblematic. We know that some
(26:05):
organizations have establisheda list of approved valuation
firms and individual physicianarrangement negotiators are
able to choose a preferred firmfrom that list to perform a
particular valuation. And whilewe understand that that might
seem like an approach tomaintain competition among
(26:25):
valuation firms, it doesintroduce a potential valuation
bias where over time aparticular valuation firm is
identified as providing morefavorable opinions and
therefore preferred for thatreason , unless managed
carefully that practice couldprove to be risky in the event
of a regulatory investigation.
Speaker 3 (26:48):
Yeah. Good, good comments, good observations,
aj. And let me just alsocomment that , um,
incorporating hospital-basedreimbursement differentials or
discussion of downstreamreferrals in compensation deli
, uh, deliberations areobviously problematic
practices. Uh, we believe thatorganizations that have created
(27:08):
a firewall between theknowledge or understanding of
the impact of downstreamreferrals and compensation
decisions have effectivelycontrolled for that risk. So
we'd recommend that as a bestpractice . Thanks, AJ for a
great discussion. It's time nowfor us to pivot to our
interview with Mark Ryberg, whois the practice leader for
(27:29):
Sullivan Kotter's physicianworkforce practice. So let's,
let's get to Mark included inthis conversation now. Uh ,
listeners, it's my pleasure tointroduce, introduce Mark
Ryberg . Mark is a managingdirector, currently serves as
Sullivan Kotter's physicianworkforce practice leader. Mark
also serves on SullivanKotter's Board of Directors.
(27:51):
Mark , uh, thanks so much forjoining us on this podcast.
Speaker 5 (27:55):
Thanks, Dave. Happy to be here.
Speaker 3 (27:57):
Mark, I think the first question our listeners
might have is what, if anythingwas known about this
D-O-G-D-O-J investigation atSullivan Cotter before it was
announced, and what actionswere contemplated by firm
leadership at the time?
Speaker 5 (28:15):
Given the nature of our work, we tended to get
involved with key TMS on arelatively regular basis as the
competitiveness of physiciancompensation is often a central
issue in these challenges.
There are typically two ways weare involved in the first
scenario, our prior workproduct may be part of the
government's investigation. Inthese scenarios, we typically
(28:36):
receive a document hold fromthe client, or in some
instances, as was the case inthe community example, we
receive a subpoena from thefederal government. In the
community case, we followed ourstandard process, which was to
secure outside counsel and setabout to ensure compliance with
the subpoena. That includesactive engagement of the client
team and in establishedprotocol around document
(29:00):
retention, email, andcommunication etiquette as
well, as well as walling offall relevant information from
the remainder of the firm. Youasked what we knew at the time
of the subpoena relative to thecase, and the answer is, as is
the case in most of thesesituations, very little. We
were not privy to the specificsof the complaint at that time,
which is a fairly common factpattern. In the second
(29:23):
scenario, we may be called uponas an expert to support a
client in the defense of aketan where we have not
historically reviewed or opinedon the particular physician
compensation at the center ofthe challenge. These
engagements tend to be directedby counsel and subject to the
attorney client privilege .
It's important to note that weapply the same analytical model
(29:44):
and process that is ourstandard quantitative testing
criteria AJ previouslyelaborated on in our approach
to these assessments.
Speaker 3 (29:53):
Thanks, mark. A , a , a second question there is,
how can board members ensurethat their concerns regarding
particular physiciancompensation arrangements or
physician compensation ingeneral, let's say, are
adequately addressed bymanagement?
Speaker 5 (30:09):
First and foremost, board members should be very
familiar with the overallphysician compensation
governance process within theorganization, particularly the
review and approval process forphysician compensation. That
affords them the ability toinquire about certain aspects
of the program at a level ofdetail fitting of their
responsibility. Second, boardmembers should ensure there is
(30:33):
sufficient time and committeemeetings for active discussion
and deliberation, particularlyto the extent that high risk
arrangements are on the agenda.
If there is an unresolved issuein a meeting and or there is a
need for follow-up frommanagement, that should be a
priority at the next meeting oraddressed in a special session
if time is sensitive. Thirdboard members must be afforded
(30:56):
access to other stakeholders inthe organization other than
just the CEO or a member of theC-suite. Fourth board members
should also be entitled to askfor access to the external
valuation experts providingsupport to management in an
effort to understand the fullscope of their work as well as
their findings and supportingrationales. In some instances,
(31:17):
boards may also request requestaccess to external legal
counsel to provide guidancerelative to potential risk,
whether in the process or aspecific physician compensation
arrangement.
Speaker 4 (31:31):
Mark the key TAM environment is challenging for
healthcare organizations.
Whistleblowers are incented tobring complaints forward by the
prospect of sharing up to 30%of a potential settlement, and
as a result, the DOJs AnnualHealthcare Fraud and Abuse
Control program reports thatthey receive an average of more
(31:52):
than 13 key TAM suits filedeach week. How do you think
healthcare organizations canprotect themselves against KET
TAM activity?
Speaker 5 (32:02):
Well, I believe it starts with sound governance
practices. Aj, the organizationshould have an established
compliance program with thefocus on transparency and
consistency. By that I meanthat healthcare organizations
should be transparent abouttheir physician compensation
governance processes withphysicians, with management,
and even more broadly withemployees. Moreover, a highly
(32:24):
consistent process for theoversight of physician
compensation tends to developsound habits and ensure
consistent and regular reviews.
Organizations should alsoensure that they have the
appropriate talent in place toeffectively manage physician
compensation, and that theorganizational stakeholders
involved with the complianceprogram have the requisite
training and experience toensure that management is
(32:48):
effectively utilizing theauthority. It has been
delegated by the board.
Although this list is notexclusive, it is a solid
foundation to a program decideto avoid potential
whistleblowers. By the sametoken, physician compensation
plan, consistency is anotherstrong defense. If employed
physicians understand that theorganization has a compensation
(33:11):
plan in place, and that thatplan is adhered to consistently
sus suspicion about favoritismor potential reward for
referrals is largely mitigated.
Neither of these actions is aguarantee, of course, and bad
behavior can negate goodintentions quickly. One last
point with respect to goodgovernance, and that is that
(33:31):
mistakes happen. Most arelikely unintentional, some may
be intentional, but either way,it is critically important when
an organization's complianceprogram has an established
process to handle potentialcomplaints related to stark or
anti-kickback violations. Adangerous fact pattern on the
government's radar is awarenessof a problem coupled with
(33:53):
failure to correct. Once aproblem is known, it is
imperative that an organizationdevelops a plan of action to
course correct and demonstratesthe fortitude to execute on
that plan.
Speaker 3 (34:07):
Thanks, mark. You know, somewhere in an
organization like CHN , theimpact of the physician
affiliation strategy must beunderstood in order to make
good business decisions. So howshould healthcare organizations
navigate those inevitablecomparisons between say,
further investment in theirphysician affiliation strategy,
(34:29):
which might include employmentand the potential growth and
market share that might accruefrom that strategy?
Speaker 5 (34:37):
Dave, healthcare organizations can and should
understand that relationshipthat is the relationship
between physician affiliations,whether through employment or
independent contractorrelationships and operating
margin. That said thatunderstanding should be limited
to a finite pool ofstakeholders responsible for
making informed businessdecisions. For example, the
(34:58):
C-suite. The CFO, the financedepartment organizations should
have a wall separating those,evaluating the broader
economics from those tasks withdeveloping and administering
physician compensation plans.
Stated more simply, therelationship between an
employed physician and thevolume of referrals he or she
generates for the health systemcan in no way factor into
(35:19):
compensation decision makingfor that physician. Many
organizations create a firewallbetween those responsible for
negotiating individualphysician compensation
arrangements, and those whounderstand the financial impact
of those potential physicianrelationships. That firewall
serves as a barrier to any inintentional or inadvertent
(35:39):
disclosure of the financialimpact of potential physician
referrals.
Speaker 3 (35:46):
Mark, I've, I've heard that term firewall used
before. Practically speaking,how does that work in real
life?
Speaker 5 (35:54):
Typically what we see is restricted access to any
information regarding thefinancial impact of physician
referrals and centralization ofphysician compensation
negotiations. Among a fewselect individuals who are
familiar with the regulatoryguardrails and who are not
privy to the financialinformation that may be
reported at the physician orservice line level. These folks
(36:16):
very intentionally live in asheltered environment where
they cannot be influenced byhospital financial performance
data. When it comes todetermining physician
compensation, compensationdecisions are made entirely
based on market factors andequity with other similarly
performing physicians withinthe organization. Performance
in this context is based solelyon the physician's professional
(36:38):
practice and the outcomesachieved on behalf of that
physician's patients.
Speaker 4 (36:45):
Mark, do do you think healthcare organization
boards understand thatchallenge and how they must
hold management accountable formaintaining that firewall to
protect the organization ?
Speaker 5 (36:56):
A great question, aj. I think experienced and
well-functioning boards andboard committees who have
competent legal and valuationcounsel understand the inherent
risks of physician compensationarrangements in these
organizations. Boards, boardcommittees and management work
together to ensure thatmanagement has taken the steps
necessary to minimizewhistleblower concerns and to
(37:18):
ensure that those concerns arethoroughly addressed through
the organization's complianceprograms. These board members
also tend to receive regular,at least annual education and
or updates on market trends andbest practices in the
governance of physiciancompensation. These are
essential to theirunderstanding of how to both
identify and mitigate risks. Isincerely hope that this CHN
(37:40):
settlement serves as a wake upcall to those organizations and
their boards who have beenlulled into thinking that this
couldn't happen to them . Aheadline grabbing settlement
like this can happen if boardsand management are not
attentive to the risk.
Speaker 4 (37:55):
Mark, another important question that I'm
sure our listeners have is whatare the the key lessons learned
from the DOJs investigation ofCHN and the eventual
settlement?
Speaker 5 (38:07):
Aj, we often advise our clients to pay close
attention to these settlementsas they can be directionally
informative as to the focus ofcurrent and future enforcement
efforts. Additionally, theyprovide a wonderful opportunity
for every organization toconduct a critical
self-assessment of their owngovernance procedures to ensure
they remain both contemporaryand well-managed. In terms of
(38:30):
the most poignant lessonslearned, there are a few, as we
previously noted, anorganization can't take into
account the impact ofdownstream referrals or
provider-based billingreimbursement differentials
when determining physiciancompensation Following the
acquisition of a group, thatexplains why it is so important
for organizations to ensure asufficient firewall between
(38:53):
those stakeholders, assessingthe business rationale for
physician arrangements fromthose charged with developing,
implementing, and managingphysician compensation
agreements and programs. Withrespect to external evaluators,
there are a few lessons tonote. First, FMV opinion
shopping creates adocumentation trail that may be
(39:13):
problematic at best and atworst, evidence of bad intent.
Second, as an accountinggarbage in equals garbage out.
Providing a third partyevaluator with incorrect or
incomplete information exposesthe organization to risk as it
can no longer reasonably relyupon the work product of that
(39:33):
evaluator. That is particularlychallenging if that work
product was used to obtainboard support for a given
arrangement. As we often tellour clients, it is imperative
that organizations don'tsacrifice discipline for speed.
Third, ignoring the guidance ofthird party evaluators can lead
to poor decision making . If anorganization receives counsel
(39:55):
or advice for an out from anoutside expert that is
contradictory to its course ofaction, it should ensure
sufficient deliberation andthoroughly document the
rationale for maintainingcourse to the extent that
matter is within the purview ofthe board. We would also advise
a robust discussion at theboard level to ensure awareness
(40:17):
and consensus relative to theproposed course of action. With
respect to the board and or thecompensation Committee,
organizations should ensurethey're actively engaged with
the govern overall governanceprocess. That should include
regular, at least annualeducation on market trends and
best practices, and governance.
(40:38):
Organizations should conductregular audits of their
compensation programs to ensurethat compensation plans are
operating as intended, thatindividual physician
compensation arrangements aredefensible, and that any
outliers have been evaluated,and the supporting rationale
for the compensation has beenthoroughly documented. These
processes should be summarizedand or reviewed at the board
(41:00):
level to support the board'sdetermination that management
is effectively managing thefiduciary responsibility de
delegated to it by the board.
Finally, and most importantly,off the heels of the CHN
settlement, when organizationsare engaging board members and
those board members raiseconcerns and or provide
direction, organizationalmanagement should act
(41:23):
accordingly. Finally, we can'temphasize enough how impactful
poor electronic communicationetiquette is in the majority of
the settlements, both large andsmall. In our experience, when
the government begins aninvestigation, one of their
first asks is for any and allrelated email traffic. Given
(41:44):
the relatively lax attention,most organizational
stakeholders pay to the waythey communicate over email, it
follows that email is often atreasure trove of unhelpful
information that can sync eventhe most robust governance
process. Organizations would bewise to focus education on the
dos and don'ts of electroniccommunication.
Speaker 3 (42:08):
Mark, thank you, I , I think that's a good note to
end on. I want to thank you foryour time and insights today
into the CHN settlement andgood position compensation
governance practices. I'mconfident this has been
valuable to our A HLAlisteners, and thank you as
well, AJ, for your insights andcommentary. On behalf of
(42:29):
Sullivan Cotter and a HLA,thank you for listening. Have a
great day.
Speaker 2 (42:39):
Thank you for listening. If you enjoyed this
episode, be sure to subscribeto ALA's speaking of health law
wherever you get your podcasts.
To learn more about a HLA andthe educational resources
available to the health lawcommunity, visit American
health law.org.
Speaker 2 (00:04):
Support for A HLA comes from Sullivan Kotter,
which partners with healthcareorganizations to drive
performance and improveoutcomes. Through the
development and implementationof integrated workforce
strategies, the firm's provenapproach helps organizations
align their business strategyand performance objectives. For
more information, visitsullivan kotter.com .
Speaker 3 (00:31):
Hello, we're delighted that you're joining
us today. I'm Dave Hess Linkwith Sullivan Kotter. We're a
workforce advisory firm for thehealthcare industry. I'm a
managing principal in ourphysician workforce practice
and have been advising clientson physician compensation
regulatory compliance matters.
Since I joined the firm 12years ago. I'm joined today by
(00:54):
AJ Elli , a consultingprincipal in our physician
workforce practice. AJ has beenadvising clients on physician
compensation regulatorycompliance matters for the
entirety of the 14 years thathe has worked for Solve Connor
. So welcome, aj.
Speaker 4 (01:10):
Thanks, Dave. It's a pleasure to be with you today.
Speaker 3 (01:14):
Great. The focus of our discussion today is an
intriguing topic, as I'm sure aHLA listeners are aware.
Community Health Network ofIndiana entered into an
agreement with the Departmentof Justice in December of 2023
to settle alleged violations ofa false claims act. The
settlement amount of 345million was a staggering
(01:38):
amount, the largest settlementof its kind in history. Now
since then, CHN has enteredinto an agreement with the
whistleblower in December oflast year to resolve both non
intervened False Claims Act ,uh, false Claims Act claims,
and the Keam Relatorsemployment related claims. That
(01:59):
latest settlement plus the 2023settlement brings ch N's total
settlements to $480 million.
These settlements resolvedwhistleblower allegations that
CHN Senior Management conductedan illegal scheme to recruit
physicians for employment tocapture their downstream
downstream referrals during aperiod of time from 2008
(02:20):
through 2020. In publicstatements, CHN has not
admitted liability, nor did theDOJ admit that the
whistleblower's complaints wereunsupported. Sullivan Kotter
has been identified in the DOJDOJs complaint and intervention
as one of the valuation firmsthat CHN retained during the
period of time covered by thesettlement. As a consultant to
(02:45):
CHN Sullivan, Kotter is boundby our client confidentiality
agreement. So all of ourcomments today will be based on
publicly available informationand also proprietary
information related to our fairmarket value methodology and
survey data. Let me also notethat neither AJ nor I have been
involved in providing CHN withfair market value services or
(03:07):
any consulting advice. So withthat set up , uh, in today's
podcast, AJ and I will discussthe information released by the
DOJ regarding the 2023 CHNsettlement, focusing in
particular on the valuationcircumstances. We'll do that
for about 20 minutes, and thenpivot to an interview with Mark
(03:28):
Ryberg , who is a leader ofSullivan Kotter's physician
workforce practice. And like aj and i, mark has not been
involved in providing CHN withfair market value services or
other consulting advice either.
So we think this will be aninteresting podcast. Our goal
in today's discussion is toshare our perspective as
evaluators and to share somepractical takeaways for
(03:49):
healthcare organizations thatare striving to stay on track
with their physiciancompensation compliance
programs. So with thatintroduction, let's dive right
into our discussion about theparticulars of this settlement
with the DOJ . So AJ in theKeam Relators original
complaint, CHN was alleged tohave deployed a defensive
(04:13):
strategy beginning in 2009 toemploy hundreds of key
referring physicians to preventtheir referrals from leaking to
CH N's competitors. Now, weboth know that CHN is certainly
not the only health system toconsider and act on employing
private practice physicians ontheir medical staff, whether
(04:33):
that's done as a so-calleddefensive strategy or whether
that's done for other reasons,health systems around the
country have employed andcontinue to employ private
practice physicians in theirmarket. So that leads me to a
question about whether thatpractice is risky from a
compliance standpoint or ifperhaps the way it was executed
(04:54):
by CHN leadership put theorganization at risk. So what
are your thoughts on thatquestion?
Speaker 4 (05:01):
Well, given that health system employment of
previously independentphysicians is so common around
the country, I , I think theanswer to that question must be
that the circumstances specificto CH N's execution of that
practice is what put theorganization at risk. In
particular, CHN pursuedemployment of key referring
(05:22):
physicians as a strategypromising to increase referring
physician compensation wellbeyond what they made in
private practice. According tothe complaint, CHN used
historical referral andutilization patterns to
determine which specificindependent physicians would be
receiving employment offers.
(05:43):
And I would distinguish thisapproach from most of the
employment circumstances we seewhere , uh, health systems are
employing physicians to fill apatient access need in their
market that's currently notbeing met by the private
practice community. Sosometimes private practice
physicians will approach theirlocal health system to discuss
(06:05):
employment either because theirpractice isn't financially
sustainable or because ofanother need, like getting help
with practice call coverage.
And these circumstances don'tconstitute a health system
strategy per se, but rather ameans to preserving patient
access to existing physiciansin their market who would
(06:26):
otherwise be forced to leavethat market, thereby reducing
patient access. So while thesecircumstances are, are
different than what the key TAMrelator and the DOJ alleged in
the CHN settlement , healthsystems still need to approach
these situations cautiously.
For example, consideration ofthe private practice
(06:48):
physician's referrals to thehealth system should never be
factored into an employmentcompensation offer. And as we
know from the DOJs interventioncomplaint in the 2023 CHN
settlement, CHN allegedlyconsidered and directly
factored in the value ofphysician referrals for
hospital ancillary servicesinto the employment
(07:10):
compensation offers.
Speaker 3 (07:14):
Aj, I I think that brings up a couple more
observations. Uh , one would bethat to the extent the health
system has a defined employmentcompensation plan and the
previously private practicingphysician is brought into that
plan and paid consistent withthe terms of that standard
employment compensation plan,the health system has a logical
(07:34):
defense even if the employmentcompensation is higher than
what the physician earned intheir private practice. Would
you agree with that?
Speaker 4 (07:45):
I do agree with that promise , Dave. I , I think ,
uh, another importantconsideration here is equity,
right? So even if the privatepractice physician is brought
into the employment model , uh,uh, at , uh, histor lower than
their historical pay level, the, the organization likely
wouldn't be able to maintainthat differential for very long
(08:08):
from an equity standpoint.
Speaker 3 (08:10):
Yeah, that's a great point. I I think the second
observation I have is thissituation brings up some , uh,
commercial reasonableness andhow consideration of commercial
reasonable should impactemployment decisions. The , the
government alleged that therewas no apparent legitimate
reason to employ the privatepractice physicians pursued by
(08:30):
CHN other than preserving theirmarket share of referred
services from these physicians.
So one of the key tests ofcommercial reasonables is
whether there is a legitimatebusiness purpose to the
arrangement other thanconsideration of physician
referrals. In the example youprovided a few moments ago,
employment as a means ofpreserving patient access to
(08:52):
key services would be alegitimate business purpose and
would meet that test ofcommercial reasonable
Speaker 4 (08:59):
Y You're exactly right, Dave. We find that many
health system clients arediligent about documenting fair
market value, but far less soabout documenting commercial
reasonableness in its 2020regulatory update. CMS was
clear about stating that thequote big three, so meaning
(09:20):
fair market value, commercialreasonableness, and the volume
or value standard, those stillapply in assessing physician
compensation arrangements andthat each of those elements is
a separate standard that needsto be met. So just because an
arrangement is fair, marketvalue doesn't necessarily make
the arrangement commerciallyreasonable. And documenting the
(09:41):
business purpose of a physiciancompensation arrangement is
just as important asdocumenting FMV. So remember
that at , at the time of theseemployment arrangements, the
competitive environment inIndianapolis was especially
hot, and in times of heightenedpressure, organizations should
expect heightened scrutiny. Soa well-developed business
(10:04):
purpose justification isespecially important. That
brings us to our, our seconddiscussion topic , uh,
commercial reasonableness ofincreases in physician
compensation throughemployment. And this topic of
commercial reasonablenessbrings up another interesting
discussion point from the , theCHN settlement. The key tamra
(10:24):
later alleged that physiciancompensation was not
commercially reasonable becausein many cases, CN proposed
substantial increases over PRIprivate practice compensation,
and there later raised thatissue with regard to 18
orthopedic surgeons beingrecruited by CHN in 2011 . So,
(10:46):
Dave, what is Sullivan Kotter'sposition on this topic?
Speaker 3 (10:51):
Yeah, that's, that's indeed an interesting point ,
uh, brought by the relay . Um ,when the key TAM complaint was
filed in July of 2014, therewas no definition of commercial
reasonable that had beenpublished in any of the Stark
or any kickback statuteregulation iterations. Up to
that point, commercial list wasa requirement of meeting stark
(11:13):
and anti kickback statute safeharbors, but CMS had never
provided a definition orguidance about how to meet that
requirement. And there was oneinteresting settlement in April
of 2015 that a lot of folksreferenced, and that's the, the
, uh, $22 million CitizensMedical Center settlement , uh,
that was referenced widely inthe legal evaluation community
(11:35):
as a potential marker ofcommercial reasonable related
to, and , and that particularcase was related to
compensation increases fromprivate practice to an
employment setting. So in thatcase, if you recall, several
private practice cardiologistswere employed by Citizens
Medical Center , uh, in TexasCompensation for those newly
(11:57):
employed cardiologists wasestablished at rates below the
median of then current nationalmarket survey data for
cardiology. So seemingly veryreasonable. And , and while
that compensation level doesn'tseem particularly risky, the
proposed compensation was morethan double what those
cardiologists were earning inprivate practice. The presiding
(12:18):
judge's comments about thecommercial reasonableness of
operating a cardiology practiceat a loss ranging from, in that
case, 400,000 to a milliondollars per year, resulted in a
viewpoint within the industry,including us at Sullivan
Kotter, that commercialreasonable might include
consideration of the change incompensation resulting from
(12:40):
employment regardless of thelevel of compensation. That
viewpoint wasn't reallymodified until the latest stark
in NA Kickback statuteregulations were released in
December of 2020. And recallthat those regulations included
that two test definition ofcommercial reason list . One,
is there a legitimate businesspurpose, and two, is a
(13:01):
compensation arrangement asensible way to achieve the
business purpose. That newdefinition in the accompanying
commentary by CMS clearlystated that there are many
legitimate business purposesfor offering a medical practice
at a loss other than securingreferrals. Those business
purposes should be documentedas well as the fair market
(13:22):
value of the compensationarrangement. So since that ,
uh, regulatory update, we've rerevised our commercial
reasonable guidelines atSullivan Kotter to be
consistent with a newdefinition and CMSs two-pronged
test. Now, those new guidelinesare not definitive as to the
potential increase in physiciancompensation going from private
(13:46):
practice to employment. And asI stated earlier, if there's an
established comp employmentcompensation plan that will pay
physicians consistent with fairmarket value, bringing private
practice physicians into anemployment model in accordance
with that plan, even if itresults in an increase in
compensation, is defensiblefrom a commercial reasonable
(14:08):
standpoint, as long as the twotests of commercial reasonable
are net . So I think the keyhere is having a , a consistent
plan design. Certainly if youhave increases in compensation
resulting from employment in aone-off compensation model and
exception, those are far lessdefensible and should be
factored into an overallcommercial reasonable
(14:28):
assessment. Aj, this topic ofSullivan Kotter's guidelines
was cited by the DOJ in theirintervention complaint.
Specifically, they summarizedour fair market value
guidelines several times. Uh,could you, for the audience ,
uh, benefits here, could yourecap those guidelines and
explain how they weredeveloped? Certainly,
Speaker 4 (14:51):
Dave , in a nutshell, we use the 75th
percentile total cashcompensation or TCC reflecting
a blend of national marketsurveys as our initial top . If
the proposed physiciancompensation arrangement falls
at or below the 75th percentilethe market, we believe that
arrangement falls within themiddle of the market and within
(15:13):
fair market value. Now, we'vemodified that test somewhat
since the time period coveredby this settlement, and I'll
explain that modification injust a moment. But for
arrangements that exceed the75th percentile, the national
market, we look first topersonally performed physician
productivity as the supportingfactor. And that's because when
(15:36):
we look at physicians withreported TC levels , um, that
are above the 75th percentile,the number one factor driving
that comp compensation by faris their personal productivity.
And so the tests that we'vedeveloped using our survey data
to gauge alignment are TCC toproductivity ratio tests . And
(15:58):
the test that was referencedseveral times in the DOJs
intervention complaint was theTCC to work RVU ratio during
the time period covered by thissettlement. Sullivan Kotter
used a single TCC to work RVUratio test, which was at or
below the 60th percentile,regardless of the specialty.
(16:22):
And since that time, we'verefined our guidelines to
distinguish that ratio byspecialty category. So we're
using the 60th percentile, TCCper work, RVU for medical and
surgical specialties using the65th percentile, TCC per work,
RVU for primary carespecialties and the 55th
(16:43):
percentile TCC per work RVU forhospital based specialties.
Again, those ratios aresupported by our survey data as
producing reasonable alignmentbetween pay and productivity in
the national market. And thatalignment between pay and
productivity is, is really thebedrock of our fair market
value guidelines. And we testthose ratios each year against
(17:08):
the current survey additions toensure they're still
appropriate. And finally,there, there are some physician
compensation arrangements thatexceed the 75th percentile of
the national market and are notsupported by personally
performed productivity. Um,these could be situations where
a situ , uh, physician isworking an extraordinary amount
(17:30):
but doesn't generate supportingproductivity as in the case of,
say, a hospitalist who might beworking extra shifts but
doesn't generate commensurateproductivity due to maybe a low
census or the type of shiftwork . And in that situation,
we can evaluate that extra workeffort if it's documented.
(17:51):
However, we, we alsoacknowledge that there are some
physicians or particularcircumstances that warrant
compensation exceeding the 75thpercentile of the market
without supporting productivityor work effort. And the facts
surrounding those individualsor situations should be
documented , and they may besupportive from a fair market
(18:12):
value perspective. Examplesinclude a luminary physician
who might be a renownedclinical leader in his or her
field, or perhaps maybe asituational circumstance where
recruitment is very difficultand compensation must be in the
top quartile to attract anycandidate. The facts
(18:34):
surrounding those individualsor situations are what we call
business judgment factors. Andthat term was referenced in the
DOJs intervention complaintwhen they recited our fair
market value guidelines.
Speaker 3 (18:48):
Thanks for that recap, aj. Uh , could I infer
that by citing SullivanConnor's fair market value
guidelines, the DOJ indirectlyendorsed Sullivan Cotter's
approach to determining fairmarket value?
Speaker 4 (19:03):
We believe so by, by documenting where CHN
Management allegedly proceededwith executing a physician
compensation arrangement, evenwhen it exceeded our fair
market value guidelines, theDOJ was essentially relying on
our FMV guidelines to pursuealleged false Claims Act
violations against CHN andultimately to settle that case.
(19:27):
And whether those identifiedarrangements were within fair
market value was never disputedby cnm .
Speaker 3 (19:35):
Well , and I think that brings up a point related
to market survey data. 'causewe certainly rely on market
survey data for much of ourfair market value testing. A as
our listeners are probablyaware, CMS included some
commentary in the 2020 Starkand in a kickback statute
regulations regarding surveydata that some observers in the
(19:56):
industry have used to dismisssurvey data as irrelevant in
determining fair market value.
And in particular, CMS statedin their commentary that the
industry should be cautiousabout making fair market value
determination on market surveydata alone, and that federal
agencies do not consider that75th percentile is a bright
line test in determining fairmarket value. On the other
(20:19):
hand, there are commentary alsostated that market survey data
continues to be relevant and inmany cases, maybe all that is
required. So in thissettlement, since the DOJs case
rested, at least in part onSullivan Kotter's fair market
value determinations, whichrelied heavily on comparisons
to market data and the factthat the settlement was
(20:41):
announced three years after thepublication of these revised
star and anti kickback statuteregulations, I , I think
couldn't we surmise that theDOJ relied heavily on market
survey data to pursue thesealleged violations and reach a
settlement with CHM ?
Speaker 4 (20:59):
I think you can.
Yes, that , that's, that'sexactly the conclusion that our
listeners can arrive at whenconsidering the details that
have been released publicly bythe DOJ in their intervention
complaint , it seems like astretch to interpret the CMS
commentary to mean that surveydata is irrelevant. It's , uh,
it's hard to dismiss therelevance of market survey data
(21:21):
when in essence the DOJ reliedon it in negotiating the
settlement . I think the 2020regulatory updates serves
notice to the industry thatblind reliance on market survey
data as a bright line test doesnot necessarily satisfy the FMB
requirement. And thatindividual facts and
circumstances of a particulararrangement must also be
(21:44):
considered. Now , um, listenersmay be puzzled by our reliance
on the 75th percentile , uh,TCC as our first test of fair
market value. So let me, let mecircle back to a statement that
I made earlier in ourconversation on this topic.
Recall that during the timeperiod covered by this
(22:05):
settlement, Sullivan Kotter'sFMV guidelines had a 75th
percentile TCC test or whatsome might call a bright line
test. Well, prior to theDecember, 2020 star and
anti-kickback statuteregulatory update, we had
concluded through our annualreview of the survey data that
(22:27):
we needed to modify that testto require some degree of
productivity alignment, evenfor arrangements that fell
below the 75th percentile. Soour revised FMV guideline
requires a , a fairly loose 25percentile point alignment
between pay and productivitywhen pay falls between the 50th
(22:47):
and 75th percentile of themarket. So to use an example
for a compensation arrangementwhere TCC approximates the 70th
percentile, we'd requireproductivity to be at or
greater than the 45thpercentile. Now, there could be
supporting factors other thanpersonally performed
(23:08):
productivity, perhaps somethingsimilar to the business
judgment factor concept wediscussed earlier. But if a
compensation arrangement fallsbetween the median and 75th
percentile and the TCC marketpositioning exceeds that of
work RVs by more than 25percentile point , we'd require
(23:28):
documentation of thosesupporting factors.
Speaker 3 (23:31):
Oh , great. Thanks for that clarification, AJ and
, and that thorough discussion.
Uh, the final topic I want tocover before we pivot to our
interview with Mark is thealleged multiple bad factors
that were described in the DOJsintervention complaint. And
those included , um, the, thefollowing. CHN allegedly
(23:54):
considered the incrementalimpact of hospital based
reimbursement differentialsfrom referrals to hospital
ancillary departments in theircompensation formula, CHN
allegedly openly considered thedownstream impact of physician
referrals In managementmeetings where compensation was
discussed, CHN allegedlyprovided evaluators including
(24:16):
Sullivan Cotter with incorrectdata, with the intent of
obtaining , uh, favorable fairmarket value opinion. CHN
allegedly used multiplevaluation firms attempting to
at obtain a favorable fairmarket value opinion. And at
their request, CHN managementallegedly pledged to CHN board
(24:38):
members. That's the veracity ofemployment. Pro forma
assumptions would be tested andbrought back to the board for
review at periodic intervals,but they didn't follow through
on those promises. So AJ, as a, as a evaluator, what's your
reaction to those alleged badfacts?
Speaker 4 (24:58):
Yeah, I think this settlement reinforces the peril
that organizations can putthemselves in when engaging in
misconduct similar to what wasalleged in this case. Although
CHN was a Sullivan Kotterclient, when on the witness
stand or in a deposition, ourconsultants are obligated to
testify truthfully about ourapproach, our opinions, and our
(25:20):
interactions client. Soengaging a valuation firm like
Sullivan Kotter does notinsulate an organization from
potential prosecution whenthere's evidence of potential
wrongdoing. Secondly, ouropinions are conditioned upon
receipt of accurate data. Um,evaluators typically don't
audit that data and theyclearly state so in their
(25:43):
opinion, falsifying data toobtain a favorable opinion from
a evaluator is easilydiscovered in an investigation
like this one. And finally,using multiple valuation firms
to obtain the opinion you want, uh, what we would call
opinion shopping is , isproblematic. We know that some
(26:05):
organizations have establisheda list of approved valuation
firms and individual physicianarrangement negotiators are
able to choose a preferred firmfrom that list to perform a
particular valuation. And whilewe understand that that might
seem like an approach tomaintain competition among
(26:25):
valuation firms, it doesintroduce a potential valuation
bias where over time aparticular valuation firm is
identified as providing morefavorable opinions and
therefore preferred for thatreason , unless managed
carefully that practice couldprove to be risky in the event
of a regulatory investigation.
Speaker 3 (26:48):
Yeah. Good, good comments, good observations,
aj. And let me just alsocomment that , um,
incorporating hospital-basedreimbursement differentials or
discussion of downstreamreferrals in compensation deli
, uh, deliberations areobviously problematic
practices. Uh, we believe thatorganizations that have created
(27:08):
a firewall between theknowledge or understanding of
the impact of downstreamreferrals and compensation
decisions have effectivelycontrolled for that risk. So
we'd recommend that as a bestpractice . Thanks, AJ for a
great discussion. It's time nowfor us to pivot to our
interview with Mark Ryberg, whois the practice leader for
(27:29):
Sullivan Kotter's physicianworkforce practice. So let's,
let's get to Mark included inthis conversation now. Uh ,
listeners, it's my pleasure tointroduce, introduce Mark
Ryberg . Mark is a managingdirector, currently serves as
Sullivan Kotter's physicianworkforce practice leader. Mark
also serves on SullivanKotter's Board of Directors.
(27:51):
Mark , uh, thanks so much forjoining us on this podcast.
Speaker 5 (27:55):
Thanks, Dave. Happy to be here.
Speaker 3 (27:57):
Mark, I think the first question our listeners
might have is what, if anythingwas known about this
D-O-G-D-O-J investigation atSullivan Cotter before it was
announced, and what actionswere contemplated by firm
leadership at the time?
Speaker 5 (28:15):
Given the nature of our work, we tended to get
involved with key TMS on arelatively regular basis as the
competitiveness of physiciancompensation is often a central
issue in these challenges.
There are typically two ways weare involved in the first
scenario, our prior workproduct may be part of the
government's investigation. Inthese scenarios, we typically
(28:36):
receive a document hold fromthe client, or in some
instances, as was the case inthe community example, we
receive a subpoena from thefederal government. In the
community case, we followed ourstandard process, which was to
secure outside counsel and setabout to ensure compliance with
the subpoena. That includesactive engagement of the client
team and in establishedprotocol around document
(29:00):
retention, email, andcommunication etiquette as
well, as well as walling offall relevant information from
the remainder of the firm. Youasked what we knew at the time
of the subpoena relative to thecase, and the answer is, as is
the case in most of thesesituations, very little. We
were not privy to the specificsof the complaint at that time,
which is a fairly common factpattern. In the second
(29:23):
scenario, we may be called uponas an expert to support a
client in the defense of aketan where we have not
historically reviewed or opinedon the particular physician
compensation at the center ofthe challenge. These
engagements tend to be directedby counsel and subject to the
attorney client privilege .
It's important to note that weapply the same analytical model
(29:44):
and process that is ourstandard quantitative testing
criteria AJ previouslyelaborated on in our approach
to these assessments.
Speaker 3 (29:53):
Thanks, mark. A , a , a second question there is,
how can board members ensurethat their concerns regarding
particular physiciancompensation arrangements or
physician compensation ingeneral, let's say, are
adequately addressed bymanagement?
Speaker 5 (30:09):
First and foremost, board members should be very
familiar with the overallphysician compensation
governance process within theorganization, particularly the
review and approval process forphysician compensation. That
affords them the ability toinquire about certain aspects
of the program at a level ofdetail fitting of their
responsibility. Second, boardmembers should ensure there is
(30:33):
sufficient time and committeemeetings for active discussion
and deliberation, particularlyto the extent that high risk
arrangements are on the agenda.
If there is an unresolved issuein a meeting and or there is a
need for follow-up frommanagement, that should be a
priority at the next meeting oraddressed in a special session
if time is sensitive. Thirdboard members must be afforded
(30:56):
access to other stakeholders inthe organization other than
just the CEO or a member of theC-suite. Fourth board members
should also be entitled to askfor access to the external
valuation experts providingsupport to management in an
effort to understand the fullscope of their work as well as
their findings and supportingrationales. In some instances,
(31:17):
boards may also request requestaccess to external legal
counsel to provide guidancerelative to potential risk,
whether in the process or aspecific physician compensation
arrangement.
Speaker 4 (31:31):
Mark the key TAM environment is challenging for
healthcare organizations.
Whistleblowers are incented tobring complaints forward by the
prospect of sharing up to 30%of a potential settlement, and
as a result, the DOJs AnnualHealthcare Fraud and Abuse
Control program reports thatthey receive an average of more
(31:52):
than 13 key TAM suits filedeach week. How do you think
healthcare organizations canprotect themselves against KET
TAM activity?
Speaker 5 (32:02):
Well, I believe it starts with sound governance
practices. Aj, the organizationshould have an established
compliance program with thefocus on transparency and
consistency. By that I meanthat healthcare organizations
should be transparent abouttheir physician compensation
governance processes withphysicians, with management,
and even more broadly withemployees. Moreover, a highly
(32:24):
consistent process for theoversight of physician
compensation tends to developsound habits and ensure
consistent and regular reviews.
Organizations should alsoensure that they have the
appropriate talent in place toeffectively manage physician
compensation, and that theorganizational stakeholders
involved with the complianceprogram have the requisite
training and experience toensure that management is
(32:48):
effectively utilizing theauthority. It has been
delegated by the board.
Although this list is notexclusive, it is a solid
foundation to a program decideto avoid potential
whistleblowers. By the sametoken, physician compensation
plan, consistency is anotherstrong defense. If employed
physicians understand that theorganization has a compensation
(33:11):
plan in place, and that thatplan is adhered to consistently
sus suspicion about favoritismor potential reward for
referrals is largely mitigated.
Neither of these actions is aguarantee, of course, and bad
behavior can negate goodintentions quickly. One last
point with respect to goodgovernance, and that is that
(33:31):
mistakes happen. Most arelikely unintentional, some may
be intentional, but either way,it is critically important when
an organization's complianceprogram has an established
process to handle potentialcomplaints related to stark or
anti-kickback violations. Adangerous fact pattern on the
government's radar is awarenessof a problem coupled with
(33:53):
failure to correct. Once aproblem is known, it is
imperative that an organizationdevelops a plan of action to
course correct and demonstratesthe fortitude to execute on
that plan.
Speaker 3 (34:07):
Thanks, mark. You know, somewhere in an
organization like CHN , theimpact of the physician
affiliation strategy must beunderstood in order to make
good business decisions. So howshould healthcare organizations
navigate those inevitablecomparisons between say,
further investment in theirphysician affiliation strategy,
(34:29):
which might include employmentand the potential growth and
market share that might accruefrom that strategy?
Speaker 5 (34:37):
Dave, healthcare organizations can and should
understand that relationshipthat is the relationship
between physician affiliations,whether through employment or
independent contractorrelationships and operating
margin. That said thatunderstanding should be limited
to a finite pool ofstakeholders responsible for
making informed businessdecisions. For example, the
(34:58):
C-suite. The CFO, the financedepartment organizations should
have a wall separating those,evaluating the broader
economics from those tasks withdeveloping and administering
physician compensation plans.
Stated more simply, therelationship between an
employed physician and thevolume of referrals he or she
generates for the health systemcan in no way factor into
(35:19):
compensation decision makingfor that physician. Many
organizations create a firewallbetween those responsible for
negotiating individualphysician compensation
arrangements, and those whounderstand the financial impact
of those potential physicianrelationships. That firewall
serves as a barrier to any inintentional or inadvertent
(35:39):
disclosure of the financialimpact of potential physician
referrals.
Speaker 3 (35:46):
Mark, I've, I've heard that term firewall used
before. Practically speaking,how does that work in real
life?
Speaker 5 (35:54):
Typically what we see is restricted access to any
information regarding thefinancial impact of physician
referrals and centralization ofphysician compensation
negotiations. Among a fewselect individuals who are
familiar with the regulatoryguardrails and who are not
privy to the financialinformation that may be
reported at the physician orservice line level. These folks
(36:16):
very intentionally live in asheltered environment where
they cannot be influenced byhospital financial performance
data. When it comes todetermining physician
compensation, compensationdecisions are made entirely
based on market factors andequity with other similarly
performing physicians withinthe organization. Performance
in this context is based solelyon the physician's professional
(36:38):
practice and the outcomesachieved on behalf of that
physician's patients.
Speaker 4 (36:45):
Mark, do do you think healthcare organization
boards understand thatchallenge and how they must
hold management accountable formaintaining that firewall to
protect the organization ?
Speaker 5 (36:56):
A great question, aj. I think experienced and
well-functioning boards andboard committees who have
competent legal and valuationcounsel understand the inherent
risks of physician compensationarrangements in these
organizations. Boards, boardcommittees and management work
together to ensure thatmanagement has taken the steps
necessary to minimizewhistleblower concerns and to
(37:18):
ensure that those concerns arethoroughly addressed through
the organization's complianceprograms. These board members
also tend to receive regular,at least annual education and
or updates on market trends andbest practices in the
governance of physiciancompensation. These are
essential to theirunderstanding of how to both
identify and mitigate risks. Isincerely hope that this CHN
(37:40):
settlement serves as a wake upcall to those organizations and
their boards who have beenlulled into thinking that this
couldn't happen to them . Aheadline grabbing settlement
like this can happen if boardsand management are not
attentive to the risk.
Speaker 4 (37:55):
Mark, another important question that I'm
sure our listeners have is whatare the the key lessons learned
from the DOJs investigation ofCHN and the eventual
settlement?
Speaker 5 (38:07):
Aj, we often advise our clients to pay close
attention to these settlementsas they can be directionally
informative as to the focus ofcurrent and future enforcement
efforts. Additionally, theyprovide a wonderful opportunity
for every organization toconduct a critical
self-assessment of their owngovernance procedures to ensure
they remain both contemporaryand well-managed. In terms of
(38:30):
the most poignant lessonslearned, there are a few, as we
previously noted, anorganization can't take into
account the impact ofdownstream referrals or
provider-based billingreimbursement differentials
when determining physiciancompensation Following the
acquisition of a group, thatexplains why it is so important
for organizations to ensure asufficient firewall between
(38:53):
those stakeholders, assessingthe business rationale for
physician arrangements fromthose charged with developing,
implementing, and managingphysician compensation
agreements and programs. Withrespect to external evaluators,
there are a few lessons tonote. First, FMV opinion
shopping creates adocumentation trail that may be
(39:13):
problematic at best and atworst, evidence of bad intent.
Second, as an accountinggarbage in equals garbage out.
Providing a third partyevaluator with incorrect or
incomplete information exposesthe organization to risk as it
can no longer reasonably relyupon the work product of that
(39:33):
evaluator. That is particularlychallenging if that work
product was used to obtainboard support for a given
arrangement. As we often tellour clients, it is imperative
that organizations don'tsacrifice discipline for speed.
Third, ignoring the guidance ofthird party evaluators can lead
to poor decision making . If anorganization receives counsel
(39:55):
or advice for an out from anoutside expert that is
contradictory to its course ofaction, it should ensure
sufficient deliberation andthoroughly document the
rationale for maintainingcourse to the extent that
matter is within the purview ofthe board. We would also advise
a robust discussion at theboard level to ensure awareness
(40:17):
and consensus relative to theproposed course of action. With
respect to the board and or thecompensation Committee,
organizations should ensurethey're actively engaged with
the govern overall governanceprocess. That should include
regular, at least annualeducation on market trends and
best practices, and governance.
(40:38):
Organizations should conductregular audits of their
compensation programs to ensurethat compensation plans are
operating as intended, thatindividual physician
compensation arrangements aredefensible, and that any
outliers have been evaluated,and the supporting rationale
for the compensation has beenthoroughly documented. These
processes should be summarizedand or reviewed at the board
(41:00):
level to support the board'sdetermination that management
is effectively managing thefiduciary responsibility de
delegated to it by the board.
Finally, and most importantly,off the heels of the CHN
settlement, when organizationsare engaging board members and
those board members raiseconcerns and or provide
direction, organizationalmanagement should act
(41:23):
accordingly. Finally, we can'temphasize enough how impactful
poor electronic communicationetiquette is in the majority of
the settlements, both large andsmall. In our experience, when
the government begins aninvestigation, one of their
first asks is for any and allrelated email traffic. Given
(41:44):
the relatively lax attention,most organizational
stakeholders pay to the waythey communicate over email, it
follows that email is often atreasure trove of unhelpful
information that can sync eventhe most robust governance
process. Organizations would bewise to focus education on the
dos and don'ts of electroniccommunication.
Speaker 3 (42:08):
Mark, thank you, I , I think that's a good note to
end on. I want to thank you foryour time and insights today
into the CHN settlement andgood position compensation
governance practices. I'mconfident this has been
valuable to our A HLAlisteners, and thank you as
well, AJ, for your insights andcommentary. On behalf of
(42:29):
Sullivan Cotter and a HLA,thank you for listening. Have a
great day.
Speaker 2 (42:39):
Thank you for listening. If you enjoyed this
episode, be sure to subscribeto ALA's speaking of health law
wherever you get your podcasts.
To learn more about a HLA andthe educational resources
available to the health lawcommunity, visit American
health law.org.
Popular Podcasts
Bookmarked by Reese's Book Club
Welcome to Bookmarked by Reese’s Book Club — the podcast where great stories, bold women, and irresistible conversations collide! Hosted by award-winning journalist Danielle Robay, each week new episodes balance thoughtful literary insight with the fervor of buzzy book trends, pop culture and more. Bookmarked brings together celebrities, tastemakers, influencers and authors from Reese's Book Club and beyond to share stories that transcend the page. Pull up a chair. You’re not just listening — you’re part of the conversation.
On Purpose with Jay Shetty
I’m Jay Shetty host of On Purpose the worlds #1 Mental Health podcast and I’m so grateful you found us. I started this podcast 5 years ago to invite you into conversations and workshops that are designed to help make you happier, healthier and more healed. I believe that when you (yes you) feel seen, heard and understood you’re able to deal with relationship struggles, work challenges and life’s ups and downs with more ease and grace. I interview experts, celebrities, thought leaders and athletes so that we can grow our mindset, build better habits and uncover a side of them we’ve never seen before. New episodes every Monday and Friday. Your support means the world to me and I don’t take it for granted — click the follow button and leave a review to help us spread the love with On Purpose. I can’t wait for you to listen to your first or 500th episode!
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Follow now to get the latest episodes of Dateline NBC completely free, or subscribe to Dateline Premium for ad-free listening and exclusive bonus content: DatelinePremium.com