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In this episode, Jana Kolarik, a partner in Foley’s Health Care Practice Group and Angie Caldwell, CFO and managing principal of PYA, discuss the importance of work relative value units (WRVUs) and fair market value (FMV) under the Stark Law and what this can mean for how health care organizations pay their physicians.

For more information regarding the “Let’s Talk Compliance” podcast series, please click here.

Please note that the interview copy below is not verbatim. We do our best to provide you with a summary of what is covered during the show. Thank you for your consideration, and enjoy the show!

Jana Kolarik

Hello and welcome to the Let’s Talk Compliance podcast series of Health Care Law Today, presented by ��������; Lardner and PYA. I’m your co-host, Jana Kolarik, a partner in Foley’s health care practice group.

Angie Caldwell

And I’m your other co-host, Angie Caldwell, principal with PYA. We are excited to have you join us today. Before we begin our show, we want to remind you to subscribe to Health Care Law Today on your preferred podcast app. Please visit healthcarelawtoday.com or pyapc.com. For today’s show, Jana and I will be discussing some potentially problematic provider compensation topics.

I am excited to be podcasting with you today, Jana.

Jana Kolarik

Me too, Angie. So I think our first topic today is we’re going to talk through maybe work relative value units (wRVU) and productivity models. I think this has been a topic that you and I have spent a lot of time discussing. And I think just as a beginning structure issue, thinking through this particular issue with the lens from my perspective as a lawyer, thinking through personally performed services under the Federal Physicians Self-Referral Law, commonly known as Stark Law, and also sort of thinking through fair market value (FMV), which we’ll talk about as FMV under Stark as well. But also thinking through that personally performed aspect of WRVUs will kind of be peppered through this and is affected not only from a Stark perspective, but a kickback perspective. I mean, you and I have spoken about this in multiple different ways.

The concept as we were talking through this before the podcast of not all [w]RVUs are created equally was something that just struck me, frankly, people’s understanding and, frankly, physicians’ understanding of what work RVUs are, I think is important because it’s a component of how they are being paid by payers. And it’s again, also this component of how they’re being paid through their practices or through health systems.

But let’s talk a little bit about what we’ve seen as far as issues with inaccurate or inconsistent determinations of wRVUs. Do you want to kick us off on some things that you found and then let’s just talk through them?

Angie Caldwell

Absolutely. So if you think about the prevalence of the productivity model as a compensation model type, probably 70% of hospital employed physicians are on a productivity-based compensation model. So it is very important then to ensure that the input to the compensation model surrounding work RVUs is correct and accurate. So what most often happens when measuring the work RVUs is around ensuring that the work RVUs are modifier-adjusted and personally performed.

Systems have limitations. No system is entirely perfect, but what we’ve seen happen in several instances is a system might not be able to compute or handle modifiers. A system between the billing system and the provider compensation system, the modifiers might be dropped out of the calculus. There are many, many things that can happen related to computing those work RVUs. So it is incredibly important to ensure that they are correct.

Jana Kolarik

Right. And I think some of this is, so when we talk about modifier adjustment, those modifiers are present in the billing itself. So they’re there in how it’s billed with the Current Procedural Terminology (CPT) code. And sometimes there’s, I don’t know, a misunderstanding about whether or not to keep them or leave them off when it comes to the physician compensation. So obviously the modifier adjustments are reducing, in many cases, the wRVUs that are then attributed (or the work RVUs that are being attributed) not only from a billing context, but also from a compensation context. So by leaving them off, essentially you’re attributing more WRVUs, which is then attributing more compensation from a productivity perspective to that physician.

So thinking through the modifier adjustment issue and the systems issue that you’ve encountered, systems are obviously the best situation. So if it’s calculated through a system, through an electronic health record (EHR), through something that is not touched by human hands, it could be more accurate. But how do you verify or touch up against when you come into it, a new client, whether or not their wRVU calculations are accurate? How do you figure that out?

Angie Caldwell

Sure. And I know you and I have talked about effective compliance programs and compliance audits, and this is one of those areas that the compliance team or even the internal audit team can help an organization ensure that the work RVU computations are accurate and that the modifiers are included within that calculation. To the extent that they are not, and it does happen, then on the other end, accommodations/mitigations need to be made within the compensation plan design to ensure that the overstatement of work RVUs in one part of the mathematical formula is offset by a reduction in the compensation per work RVU in the other side of the formula so that the overall compensation then doesn’t run afoul of FMV and the applicable regulations.

One of the things here that I think often gets misunderstood/overlooked or even perhaps becomes a complication is that the multiple payment procedure reduction, of course, that is a modifier, but many payers, because of the sophistication of the billing systems and the way that the information transmits between the hospital and payer, that modifier is often not even required to be billed compliantly. And so the payer knows that a multiple procedure has been done, but perhaps the modifier has been left off internally for compensation purposes. And that’s one that frankly can have a significant impact on a work RVU determination.

But it is important, again, within the compensation design to ensure that what we are measuring from a work RVU perspective is as accurate as possible and includes all modifiers, including the multiple procedure payment reduction modifier.

Jana Kolarik

Yeah, that makes a lot of sense. To me, there’s two buckets here. There’s the systems accuracy, and then there’s the compliance overlay related to the accuracy of the data. So is your system spitting out data that is accurate with regard to the modifier inclusion, as you’ve just mentioned? And then is the base CPT or coding that’s present for that particular physician accurate based on compliance audits? So let’s touch on that really quickly, just because it can affect it. And I think sometimes is overlooked and thought of separately when it should be thought of as a combined issue.

So if you have a healthy compliance program and a healthy auditing function within that compliance program that is testing the billing and coding of claims, we’ve talked about individuals coding their own claims, belief that the work provided was very high and that the medical decision making was very complex and coding things at higher levels – level fives – which can spin off higher wRVUs. But if you have a coding and documentation expert come into that information and looking strictly at what the documentation can support, it’s possible that the coder can say, “Look, it’s not a level five, it’s a lower level code.”

So ensuring that that documentation is correct, which then documentation is reflective of what has been coded and billed is important because it then affects not only sort of accurate billing and coding, which is important from a payer perspective and from a overpayment rule perspective and False Claims Act (FCA) perspective, but is then important from a compensation perspective. And I think frequently, if you have an issue with your coding documentation, your error rates, that disconnect sometimes will happen without realizing how it is affecting physician compensation until somebody like you comes along, Angie, and those questions are asked and really pushed on to make sure that if there is a productivity model that takes into account wRVUs, are those true and accurate wRVUs?

Angie Caldwell

The old adage garbage in, garbage out.

And it really does start with the documentation in the record from which that bill is then coded and that CPT and modifier is then attached. Not every service is going to be a level five service. And that’s where effective compliance programs can help. An easy test is to compare the physician coding frequency to a normal frequency from Centers for Medicare & Medicaid Services (CMS). So CMS will show you the frequency of the CPT code by physician specialty. Comparing that frequency, comparing that bell curve from a standard bell curve to the physician in question is a really easy way to see if that billing is perhaps off. And if it is, if the bell curve is completely to the right showing all level fives and very few {level} ones, then it’s an opportunity to ask more questions and find out exactly what’s going on. But that is the first step in ensuring that the compensation model then doesn’t get awry as a result of that incorrect billing or perhaps coding irregularities that may happen.

Jana Kolarik

Absolutely. And so let’s talk a little bit about other things that may affect what is being attributed to a physician as a wRVU. So we’ve had, there’s a distinct difference between billing and what’s being attributed to a physician under their national provider identifier (NPI) from a billing context and what is considered to have been personally performed by that physician. So what comes into play there is something that you want, which is collaboration between physicians and advanced practice practitioners (APPs), including physician assistants and nurse practitioners. So in the incident to context, in the global surgery package context, in the split shared situation, you have things that may have been billed under the physician’s NPI that may have been worked by an APP.

So as you’re looking at a particular physician, and I think you and I have talked quite a bit about surgical specialties and the use of APPs and when they’re used and how they’re used, how do you take that into account when you’re trying to discern whether or not the wRVUs that are being attributed to a particular physician or physician’s NPI are truly worked or performed by that? Does that make a difference in kind of your assessment?

Angie Caldwell

It sure does. And what we’re trying to get to from evaluation perspective, of course, is measuring the physician’s personally performed work effort. The work RVUs and the way that the billing is designed may not always capture only personally performed work effort. For example, in the split shared billing that you spoke of, or perhaps in a global surgical package situation.

So first, it’s always important when collecting the population of work RVUs to apply to the compensation model is to start with work RVUs that are rendered by the physician. So most billing systems will show you the codes by a rendering provider or billing provider. First capture it by rendering provider which will strip out all of the incident-to services that are not personally performed by the physician. Then it’s a matter of assessing the use of the APP and frankly, how the physician uses the advanced practice provider. Are they using them as an extender to do those post-surgical examinations? How are they using them? Or does the APP have a separate and complete patient panel from the physician? It’s important to know how the physician is using the APP.

In those instances where the physician is using the APP as an extender, it’s then important to understand that the way the billing system works is different from how the personally performed service is being determined because the APP is part of some of those codes. And those global surgical packages, the APP’s work is part of that CPT code. So understanding that-

Jana Kolarik

Pre and post.

Angie Caldwell

Yes. And understanding that and understanding how that impacts physician compensation is important. And most often from a valuation perspective, some consideration is made either in assessing and valuing the compensation per work RVU (the conversion factor), or within looking at the total value of the work RVUs attributed to the physician themselves. So in other words, some discount is likely applied to one or the other to ensure that the compensation ultimately results in FMV and to really assess what the physician is personally performing.

Jana Kolarik

Yeah, makes a ton of sense. Talk to me about, because we’ve talked about this from time to time, a wRVU for everything. So I’m sure that that statement sends a thrill of just pain through you. But the belief that under a wRVU model or a component that if you’re performing a service, there should be some type of wRVU for that service that I’m performing, even if it’s not something that’s a true wRVU that’s been calculated, that’s been set up through the CPT and through WRVUs through CMS. So talk to me about what that looks like and some of the questions that have come up about that and what is maybe a more effective way to deal with that situation than really creating a wRVU for everything.

Angie Caldwell

Yeah. And you and I have had some conversations about this, about how work RVUs as part of the total value of the CPT code, it’s truly a reimbursement methodology and initially was not intended to be how physicians were paid and compensated. Because the work RVU, again, it’s easy to measure, it’s consistently measured, it’s agnostic as to payer, and so it has become a great measure of physician work effort. {However we} know that it was not intended to be the one and only way to compensate a physician, there is a desire by the industry to make everything a work RVU because it is consistently measured, consistently applied, agnostic into payer, all of those wonderful things, but it doesn’t always work.

So translating administrative services into work RVUs, for example, within a compensation model, in my opinion, I’ve seen that be a very dangerous approach simply because the risk and the value of that clinical and administrative time is so different. Proxy work RVUs for clinical services where perhaps CMS has not provided a work RVU value, those are other areas where I can get behind a proxy work RVU in some instances for clinical services, but there are others where it just simply does not make sense and perhaps a collections-based or a per-encounter-based compensation methodology would make more sense and frankly be easier administratively.

Jana Kolarik

Yeah, 100%. And you and I have sort of fixed modeling that dealt with that latter issue, so a 100%. So let’s talk a little bit, I want to talk a little bit about specialties and wRVU compensation models. And I’d like to talk a little bit also after that about the mismatch of compensation and productivity. So in looking at wRVU compensation models, you and I have had multiple discussions over the years related to why is that specialty or why are we trying to shoehorn a hospital-based specialty into wRVU compensation model?

So let’s talk a little bit about where that makes sense to say no, to say, let’s try this a different way because it doesn’t make sense in this particular context. So context of hospital-based physicians, can you talk to me a little bit about compensation modeling that makes more sense just based on kind of flow of patients and control of schedule, those types of things and sort of in that context?

Angie Caldwell

So if we think about hospital-based physicians, they are “catchers.” The universe is in control of who arrives in the emergency room that day, how many patients are on the floor, and how many patients are in the intensive care unit (ICU) unit. They are catchers and not immediately responsible, if you will, for driving the procedures, the visits, and the encounters. There’s so many other things at play for that hospital-based physician. So a productivity model then makes a lot of sense when the patient is in … Or I’m sorry, when the physician is in – control of that schedule, the number of procedures, the number – by reputation -the number of patients that are coming to them, all of those things, it makes a lot of sense.

In a hospital-based setting, it starts to make a little bit less sense simply because we talked a minute ago about not everything is a level five. So a physician in a more of a coverage type role, coverage, meaning coverage of the floor, coverage of the emergency department (ED), coverage of the ICU, again, if their compensation model is based upon productivity, then they are incentivized, just because of the way their compensation model is designed, to drive work RVUs. And that perhaps puts the incentive to making more level fives when there aren’t level fives. So it makes more sense in those hospital-based settings to have more of a coverage type, a shift-based model, and then perhaps consider some productivity incentive for surge times or other high volume times.

Jana Kolarik

Yeah, makes sense. And to that point, and to underline the point that you’re making as well, if you do have those types of productivity components for those particular types of specialties, then again, not the billing compliance is ever unimportant, but it makes it all the more important if you have, especially if you have physicians in some way coding their own work, to have that double check and that audit over it, just to make sure that that billing is tight and accurate.

Angie Caldwell

Absolutely. And a word on, I know you and I have talked frequently about when is a productivity incentive appropriate for a hospital-based specialty. And there are times. It’s a compensation design – it does get tricky – it’s a compensation design skill that needs to be carefully and thoughtfully applied. But the base for the physicians working in these hospital-based specialties should be the normal, the value of that base compensation should be based upon the normal environment, the normal flow, the normal census, the normal number of visits, and then understanding that that’s going to fluctuate up or down, but rewarding the physician. No one intends to create a compensation model that doesn’t reward the physician for their skill and hard work. So recognizing when perhaps a surge incentive or a productivity incentive is warranted is a good thing to add to a compensation plan.

And that could be, again, carefully designed so that you know when that surge is actually occurring within a unit. And it doesn’t even have to be based upon work RVUs and a traditional work RVUs times conversion factor kind of methodology. It could be based upon some kind of another incentive, an engagement incentive, or another incentive that’s valued a different way. So there are ways to accomplish it without the productivity being the main calculus of the compensation plan.

Jana Kolarik

Yeah, that makes total sense. And I do believe, and you and I have talked about this as well, there is kind of, I don’t know, this general pressure or belief among physicians that the productivity method of compensation is in some ways better than other ways. And I just want to say on this podcast that is not accurate, and I welcome your thoughts on that as well, because I do think there’s the pressure, internal pressure from physicians who should be paid the value of their work, and as you said, for their expertise, et cetera. But that pressure to believe that the WRVU methodology is in some way better than the others is something that just needs to be debunked. Thoughts on that?

Angie Caldwell

Absolutely. I’m with you. It’s not always the best model. I think it gets back to – it’s easy. It’s something to understand this times this equals that. And I think there’s a notion that the shift value or the salary value will be somehow be deflated because it’s not represented by the physician’s ({work RVU} work effort, but showing them and demonstrating to them that the compensation is fair, it’s FMV, it’s based upon the services provided, is important to help debunk that.

Jana Kolarik

Yeah. Fair. Thank you. So let’s talk a little bit about the mismatch of compensation and productivity and the belief and again, we’ve talked about this before, but there still is this clinging to the 75th percentile, this belief that that is really the amount that physicians in some way should be paid. And what does that look like though, this is the issue, when the productivity is not at the 75th percentile? And how do you deal with situations or how do you, as a valuation expert, deal with situations where you’re trying to educate your clients as to why the 75th percentile may not work with somebody who may is at the 25th percentile, they’re at the end of their career or they are just slower or less productive than others? How do you deal with those conversations? How do you explain that?

Angie Caldwell

Yes. And so it gets back to, number one, the myth that anything at lower than the 75th percentile is FMV. So number one, that’s just simply not true. But there are instances where the methodologies for determining FMV within an organization are based upon that threshold, that 75th percentile threshold, and nothing else.

Effective thresholds have more than one level of test, whether that be compensation per work RVU, whether it be a difference in the productivity level and the compensation level. Normally it’s a combination of those to determine if a physician’s compensation is within the range of FMV. In that testing and in determining the differential between productivity and compensation for a physician, there could be very good reasons as to why someone is compensated at the 75th, but producing at the 25th.

And I’ll give you a few of those reasons. So one is someone in a rural setting. So if you think about someone, a provider in a rural setting who may not have the volume simply because the population does not support volume for that physician, but that physician is needed desperately in a community. So to get the physician to that community to provide the service, sometimes 75th percentile compensation or more is required to provide them to the community to provide that service, but they will not have, likely, the productivity to support that level of compensation.

So again, understanding the facts and circumstances around that difference between productivity level and compensation level is extremely important.

Jana Kolarik

Yeah. So then it comes to the … And I think about this and the thing that strikes me as you’re going through the example, I think having folks internally at your practice, at your health system, at your hospital to evaluate compensation and then go out to valuation experts circumstantially. So let us rely on several different resources from a survey perspective. And then being able to know the point in time when it makes sense to then go to somebody like you to say, do we have enough behind this? We’re paying at the 75th, but their wRVUs or their productivity is much lower than that. Is there support for paying them at this level?

I mean, when you talk to clients about having those triggers in place for evaluation of compensation for their physicians, how do you talk to them about making sure that they’re careful in that analysis and when that trigger is frankly sprung for you to be brought in? How do you talk to folks about that? Because what you don’t want to obviously have happen is to not have a rule situation or not have an exception to this rule and have physicians paid at the 75th percentile, but producing at the 25th and not have the rationale around how that is still FMV for that particular physician. Talk to me about triggers.

Angie Caldwell

It is a very important conversation right now and one that PYA has advised on a lot lately because I think in the past, historically, the thought was is that every FMV opinion had to be generated by a third party valuator. And that’s simply not true. So much valuation work can be done internally by the organization created by, and that valuation work can be done through work of a compensation committee through an effective compliance program, and together then creating those thresholds that the organization can use to assess and determine a compensation valuation before sending something outside.

And so setting those parameters again, it’s organization-dependent, it’s going to be dependent upon an organization’s risk tolerance as to what they’re able to handle as an organization. And it’s going to be based upon, again, their location, their geography, their population. So we work with several organizations that have small urban facilities, but then they have very rural facilities in their system. And navigating the dynamics from an internal valuation threshold perspective of the two becomes complex. Having that active compliance program, having that active physician compensation governance committee is really important. And having more than one threshold, I think is also very important because just because it’s over the 75th doesn’t mean it’s not FMV, but being under the 75th doesn’t mean that it is. And so having multiple thresholds allows you to internally to better assess where your physicians are.

Jana Kolarik

Yeah, that makes total sense. I think that this has been a fantastic conversation just to key people into these issues with regard to these wRVU or productivity models and things that people should be thinking about. We’ll talk in another podcast about things that we can do and that we would recommend that folks do to add on to what you just said at the end of this conversation. What structures can you put in place? What are best practices with regard to compliance in this space? And I think that’ll be a nice second podcast in this series.

But I welcome final thoughts from you, Angie, on this. I mean, I think wRVU methodology, as you had mentioned, from my perspective, is something that is all over and that has come into spaces and specialties where it may not fit ideally, so has created issues from that. And from my perspective as well, the billing and coding and documentation issues can impact the compensation as can the use of physician extenders/APPs. So there’s a bunch of things in there from my perspective as a health care lawyer and from a compliance perspective that we can look at and be thoughtful about and work compliance around.

But from your perspective, what are the takeaways that you want to leave people with with regard to this particular topic?

Angie Caldwell

Absolutely. If your primary method of paying physicians is on a work RVU productivity basis, it’s imperative that the calculation process surrounding those work RVUs is excellent. It must be excellent. Notice I didn’t say perfect. I don’t know that any calculation process is going to be perfect, but it does need to be excellent to ensure that the overall compensation plan doesn’t run afoul of FMV.

Jana Kolarik

Yeah. Thank you. This has been a great conversation. Really always appreciate your thoughts and the discussion on these topics and hope that our listeners find it equally as instructive and helpful. Thank you.

Angie Caldwell

Thank you. Thank you, Jana.

Jana Kolarik

We want to thank our listeners for joining our Let’s Talk Compliance podcast series with Health Care Law Today, your connection to timely legal updates in the health care and life sciences industry. We encourage you to subscribe to this podcast and be sure to be on the lookout for part two of this series. Visit Foley’s Health Care Law Today blog at healthcarelawtoday.com and pyapc.com. If you like the show, don’t forget to subscribe and be sure to rate us five stars. Until next time, I’m Jana Kolarik of ��������; Lardner.

Angie Caldwell

And I’m Angie Caldwell at PYA. Thanks for listening.