I have been following news reports about recent OIG (Office of Inspector General) investigations related to physician compensation. These investigations have resulted in fines related to alleged Stark Law and FCA (False Claims Act) violations. There seems to be more activity recently, including investigations in response to whistle-blower lawsuits.


Here is my take: Hospitals and health systems that use survey data (such as MGMA and AMGA) to set compensation levels for newly employed physicians are under intense scrutiny. This scrutiny results because:

  • it appears that collections generated by the employed physicians do not support the salaries being provided, or
  • salaries of newly employed physicians significantly exceed compensation previously generated in their independent practices.

The Stark and FCA regulations require that physicians that care for Medicare patients not be paid for referrals. And health systems must pay employed physicians based on fair market value. In the past, it was assumed that direct evidence of payment for referrals (e.g., emails, memos, board meeting minutes, etc.) was needed in order to demonstrate such a violation.

More recent cases seem to indicate that if a practice is not profitable, and a hospital system continues to pay a physician in spite of perpetually losing money on the practice, the OIG will infer that such losses are only being allowed as a result of referrals that otherwise benefit the system.


It is fairly common for a procedural specialist such as a cardiologist or orthopedist to be paid at the median salary survey level, even as their collections and worked RVUs only reach the 25th percentile or less.  This may represent a loss to the practice in excess of $100,000 per year, when considering only the payments received for the care personally provided by the physician.

I once asked a physician that was unable to build a practice to leave our medical group, in part because of his inability to generate the income needed to justify his salary (in spite of years of aggressively marketing his practice).

Such losses may be acceptable in situations where the system is the only provider of important services. But when system board members or executives indicate that such losses are balanced by “downstream” services like imaging and surgical care, the OIG may interpret that as a violation of Stark and FCA regulations.


What can you do to reduce this risk as you hire new physicians into your medical group? Here are five suggestions:

  1. Be aware of these issues and NEVER imply that your system can afford to pay a higher salary because of “downstream revenues”. Instead focus on the actual patient encounters and procedures that the new physician must provide in order to generate the collections needed to cover her salary.
  2. Once hired, assist new physicians with marketing themselves so that you can build visits and worked RVUs as quickly as possible. Your organization can allow for a negative bottom line for a practice initially, but must strive for a financial break-even after a year or two.
  3. Work closely with the billing office and teach new recruits about billing and coding so that they can appropriately capture the payments for the work that they do.
  4. Provide employed physicians with regular (at least quarterly) reports listing the following: encounter volumes, coding distribution, billings, collections, worked RVUs and income and expenses for the practice. Teach physicians how to interpret these reports.
  5. Require your management team to meet with their physicians regularly to go over the reports, track their performance, define goals for the practice and develop joint plans to meet those goals.

With a good team, clear communication, and effective goal setting and execution, you should be able to build a practice for your new physicians that they can be proud of, that reaches a financial break-even, and that enables you  to avoid allegations of Stark and FCA violations.

What other employment issues have you had to address in your organization?

Disclaimer: I am not an attorney and I do not provide legal advice. I offer advice about management and leadership topics that can assist physician executives in addressing common management issues. You should always engage a qualified attorney in negotiating and executing employment agreements with physicians and in evaluating your organization's potential risk for OIG investigations related to physician employment.