Understanding physician compensation caps
Physician compensation caps are a relatively new phenomenon but one that is likely to grow as more physicians become employees instead of independent practitioners. Here's what you need to know about them and how they could affect your career.
Compensation caps were developed as a result of healthcare organizations’ concerns about violating anti-kickback statutes, the Stark law, and IRS inurement regulations. Typically the cap is set at a specific percentile-90th percentile is a common choice-of national pay based on surveys, such as those from the
They can affect physicians in any specialty because they each have their own benchmarks for what is fair market value. A surgeon might earn more than a pediatrician, but they aren’t being compared to one another.
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“Hospitals get concerned around fair market value for compensation to physicians so that’s where the caps really begin to come into play,” says Mark Mertz, MHA, FACMPE, vice president of
These organizations are worried that the government would say a physician is earning far more than market value, and claim this is occurring to entice the physician to send more referrals to the hospital, he adds.
“The IRS looks at the tax return that comes from the organization and asks if the salaries being paid to administrators and other high earners are reasonable for an organization that basically isn’t paying taxes,” says Jeff Milburn, MBA, of the
He says the issue can generate even more confusion today because compensation caps in the past were based on a fee-for-service model. As value increasingly enters the reimbursement equation, many terms are being redefined as contracts come up for renewal.
“Incentive plans will start to include quality measures such as patient satisfaction that have to be factored in and justified in relation to how you are paying the doctor,” Milburn says. “Let’s say 80 percent of the plan is based on productivity and the doctor is doing fine on that part, but when you add the incentive plans, it can blow the doctor through the cap.”
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