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Health law attorney Dennis Hursh discusses his article, “Why hospitals are quietly capping top doctors’ pay.” For nearly 40 years, he has reviewed physician employment agreements and reveals a shocking recent trend: hospitals are increasingly capping physician salaries, often at the 90th or even 75th percentile of national benchmarks. Dennis explains that hospitals often justify this practice with the ludicrous claim that it prevents fraud, an argument that illogically presumes 10 to 25 percent of the top-earning physicians are breaking the law. The conversation details the legitimate reasons for high compensation—from top-tier productivity to practicing in undesirable locations—and exposes the flaw in allowing hospitals to use their own biased, in-house staff to determine “fair market value.” Listeners will learn actionable advice on how to demand an independent, third-party valuation and the specific contract language needed to protect their compensation. Finally, Dennis warns how this practice has an insidious, long-term effect of artificially lowering salary benchmarks for all physicians, penalizing the very workhorses the health care system relies on.

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Transcript

Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome back Dennis Hursh, health law attorney. Today’s KevinMD article is, “Why hospitals are quietly capping top doctors’ pay.” Dennis, welcome back to the show.

Dennis Hursh: Oh, thanks. It’s great to be here.

Kevin Pho: All right. What’s your latest article about?

Dennis Hursh: Well, it’s something I’ve been seeing for a while, but I’m seeing more and more of it where in a physician employment agreement, there will be a provision, and sometimes it’s: under no circumstances will your compensation exceed, and I’ve seen as low as the 75th percentile of benchmarks for total compensation. You see more at the 90th percentile, but you actually see some that say the 75th percentile. And I’ve pushed back on that and said, “Wait a minute. This guy’s a really productive physician. Why are you penalizing him?” And I’ve been told, “Oh, it’s fraud and abuse. If a regulator saw that he or she was making more than 90 percent, they’d think we were paying for referrals.”

And that’s kind of an absurd position. I mean, if you take that position, that means that if you’re at the 90th percentile, presumably 10 percent of all the physicians in your specialty must be breaking the law. It must be a fraud and abuse issue. And it’s even more absurd at the 75th percentile. You know, 25 percent of every physician in America must be breaking the law. So it’s kind of a crazy position in my mind. Sometimes they’ll kind of ease it up a little bit and they’ll say, “Well, we may review compensation if it would exceed.” But I want to emphasize, I’ve seen contracts that just flatly say, “We don’t pay more than that.”

So if you’re the most productive physician in your specialty in the country, on behalf of the CEO, I really want to thank you because you’re going to be putting a lot on my CEO bonus and, of course, nothing for you. So it’s, I think it’s kind of, if you want to incentivize somebody to work, then don’t cap their compensation at some random percentage.

Kevin Pho: Now, how common is that provision?

Dennis Hursh: I’m finding it more and more common. A couple of years ago, I’d see it once in a while. Now I’m seeing it in a large majority of physician employment agreements. And as I said, it can really—it’s almost like they don’t want productive physicians working here. Well, they only want them productive to a point, but if it passes that high benchmark, then they’re just going to cap it. That’s right. Which is great for me as a CEO, you know, “Bring in all that money. That’s great. You’re frozen, but my bonus isn’t.”

Kevin Pho: So what’s preventing physicians from working up until that artificial cap and then simply not doing anything after that?

Dennis Hursh: Well, a couple of things. One, if the patients are there, you’re not going to say, “Hey, it’s four o’clock. I’ve got a full schedule, but my productivity’s up. So, good luck, guys. I’m heading out the door; I’m playing golf.” I mean, physicians will always keep treating patients. When patients present, you’re going to keep treating them.

And another thing I see is that a lot of institutions are not very good at reporting your productivity. So even if you were inclined to do that, and I don’t think there are too many physicians that are, but even if you were inclined to do that, you frequently don’t know that you’re bumping up into the percentiles because even when they tell you, unless you have access to the benchmarks, they’ll tell you, “You’ve produced 9,500 WRVUs.” Well, unless you know what the benchmarks are, you have no idea if you’re bumping up into the cap. So it works, as I said, it works great for them. Physicians will always treat patients; as long as they keep presenting, you’ll keep killing yourself to treat them. And your compensation is just frozen, you know, maybe quite some time ago.

Kevin Pho: Well, maybe let me ask another way. As a primary care physician, if there’s an artificial cap—75th percentile, 90th percentile—maybe instead of seeing 20 patients a day, you could adjust your schedule and see maybe only 15 or 16, so you’re better aligned with that cap.

Dennis Hursh: You could try. A lot of hospitals are not going to allow that. And even private practices tend to say, “No. In this practice, we see X patients a day.” So, a lot of times, and again, they’ll do the—it always works with physicians where “you’re doing it for the patients, we’re going to be pushing off patients, and you don’t want your patients suffering.” And no, you don’t. You just want to be paid appropriately. So, yes, in theory, I think that would work. In practice, a lot of times, I don’t see it working too well.

Kevin Pho: Are there, in fact, cases where physicians get in trouble for working past the 90th percentile?

Dennis Hursh: No, I think the issue would be if you’re not very productive but you’re being paid at the 95th percentile of compensation. There’s a reasonable assumption that maybe that’s because we’re paying you for referrals, which, of course, is unlawful. But even that isn’t really the case. I mean, if you’re at the 95th percentile of productivity, you should be getting paid more than the 90th percentile.

And more importantly, there are areas in this country that physicians are just not really excited about going to, and they have to pay the physicians very well to get them there. So, you may not be all that busy, but you don’t want to go to that rural backwater. You want to be in Manhattan; you want to be in San Diego. You don’t want to go in this rural little backwater hospital, but the only reason you’ll do it is if they pay you very well. So if that’s the case, yes, your pay may be very high, and maybe you’re not productive. But again, it’s not a fraud and abuse issue.

Kevin Pho: So if physicians encounter this artificial cap, but the reporting isn’t robust enough so they don’t know where they even stand, what can they do? Can they ask for more accurate, transparent reporting?

Dennis Hursh: Yes, I think you have to ask for better reporting. And more importantly, you have to look at those provisions. Like I said, there shouldn’t be a flat cap, no matter what. You’re not going over this. I do see some that say, “We may review your compensation if you would exceed 90 percent.” Well, first of all, you should be required to review the compensation, and then the ones that do say that tend to have the hospital do it.

I’ve actually pushed back one time. I talked to a hospital and said, “Why are you experts on physician compensation?” I was actually told, “We have many CPAs and certified coders on staff, so we’re very good at that.” You know, so you are good at tax returns, and you’re good at coding, and therefore we’re going to let you do physician compensation. Even agreeing that those people were qualified, which I don’t, they’re working for the hospital. I mean, can you imagine going in and saying, “How about if it looks like my pay is going to exceed the 90th percentile? How about if I review it and let you know if I think that’s OK?” I mean, you’d be laughed right out of the room, and rightfully so. One side to the transaction shouldn’t be deciding if the pay is accurate.

Kevin Pho: Now, are you successful in getting institutions to either remove the cap or negotiate that cap up?

Dennis Hursh: Not usually negotiating the cap up. Usually, what I focus on is the ability to have it reviewed and to have it reviewed by compensation experts if it looks like it’s going to exceed the cap.

Kevin Pho: Now, when you said that physicians should have that contract reviewed by compensation experts, is that attorneys like yourself, or do they have to get a third party?

Dennis Hursh: Yes, you should get a third party. I think if you’re at that high level—I mean, you know, I have access to the MGMA benchmarks, but you want somebody who spends their life doing physician compensation looking at this because there is a risk. I don’t want to downgrade it. There is a fraud and abuse risk if somebody comes in and says, “You’re paying this physician too much; you must be paying for referrals.” So you do want an expert. But yes, it is a third party usually. I, of course, ask that the hospital should pay for the third party, not the physician.

Kevin Pho: And in general, what kind of institutions are you seeing these caps in? Private practice, academic, hospital-owned? Are there any specific types of practices that are more likely to have this provision?

Dennis Hursh: Hospital-owned are more likely. In academic settings, a lot of times you don’t see a very robust productivity incentive, so even if you’re working very, very hard, you’re not likely to exceed these percentiles. So it’s mostly the hospital-owned practices where I see it.

Kevin Pho: So if you were to speculate on the reason why these caps are there and you don’t think it’s fraud or abuse, what would you say is the real reason that they’re implementing these caps?

Dennis Hursh: Well, I think maybe they legitimately are doing it for fraud and abuse. I mean, you know, if you really want to be safe, if we paid all our physicians minimum wage, I can pretty much guarantee you that the OIG is never going to look at you. They’re going to be perfectly satisfied with this. So you’re always safe underpaying physicians. That’s always the conservative, safe approach. The thing is, then don’t expect them to be very productive. And that’s where it’s bad, where you put in a productivity bonus but then cap it and say, “We’ll pay you for being productive, but only so far.”

Kevin Pho: Productive but not too productive.

Dennis Hursh: Exactly. But hopefully, you’ll be extremely productive because, again, my CEO really loves those bonuses.

Kevin Pho: So in your article, you also talk about some of the macro effects of these caps. Talk about some of the insidious long-term effects.

Dennis Hursh: Well, I think the biggest thing is that every year, the employers are surveyed by MGMA, SullivanCotter, and the other big surveys. So if you are unfortunately working at one of those hospitals, and you’re the most productive physician in the country in your specialty, and you’re working at a hospital that caps your pay at the 75th percentile, you get those statistics that say, “This is WRVU production, and this is a salary.” Well, all that is going to get blended in next year. And next year, it’s going to lower the overall compensation for everybody in the specialty, and especially at the high percentiles. So it really is not just you that’s getting hurt by this. It literally is all the physicians in your specialty next year who are going to pay.

Kevin Pho: So how about a physician who already has a contract and just discovers this language? Is there anything that they can do?

Dennis Hursh: Well, again, if you’re not super productive and you’re not bumping into the cap, it’s probably not a big deal. But yes, I think you have to go in and renegotiate. And bear in mind, if that describes you, you are extremely productive. And we’re talking about somebody that’s in the top 10 percent of productivity in the country. So they should very much be listening to you and saying, “Hey, we’ve got to change this. I don’t mind working hard. I am working hard; I’m demonstrating that I’m working hard. But I need to be appropriately compensated.”

Kevin Pho: It doesn’t seem to be a good long-term strategy for hospitals to antagonize their most productive clinicians.

Dennis Hursh: It isn’t, but a lot of things hospitals do don’t seem to make any sense. And you’re right, the people that this impacts the most are your most productive physicians. If you’re in the bottom 10 percent of productivity, I mean, capping it at the 75th percentile is no big deal.

Kevin Pho: We’re talking to Dennis Hursh, health law attorney. Today’s KevinMD article is, “Why hospitals are quietly capping top doctors’ pay.” Dennis, as always, let’s end with some take-home messages that you want to leave with the KevinMD audience.

Dennis Hursh: Look at your contract. Make sure that you know if there is a cap on compensation. If you’re not getting reports on your productivity, you should start getting reports. And if you are very productive, then you really need to go in and renegotiate that and make sure that you’re being appropriately paid for your productivity.

Kevin Pho: Dennis, as always, thank you so much for sharing your insight and perspective, and thanks again for coming back on the show.

Dennis Hursh: Oh, it’s always a pleasure. Thanks.