Blog Post May 8, 2020 COVID-19 and FMV: Navigating Physician Contracts after the Surge Authors Emma Miller The COVID-19 public health emergency (PHE) will have a significant and unpredictable impact on most physician service contracts. As the surge subsides and the PHE is lifted, it is essential that you take action on your provider contracts.ECG’s clients have sought answers to three critical questions about their physician contracts’ compliance with fair market value (FMV) and commercial reasonableness after the PHE:Are there FMV concerns about agreements executed prior to the PHE if expected productivity is not achieved in 2020? What issues exist if a pre-PHE contract uses 2020 performance to set compensation in 2021?What will be used as an FMV basis for new post-PHE agreementsif 2020 historical data and market productivity and compensation benchmarks based on this data are all skewed?Pre-PHE Contracts in 2020Actual productivity and services for many providers during the pandemic will be considerably different from the expectations set at the inception of their agreements. This doesn’t mean the arrangements are in breach of the Stark law and Anti-Kickback Statute (AKS), provided they were FMV and commercially reasonable when entered into, were based on reasonable expectations at the inception of the agreements, and the payments adhere to the agreements.Physicians who are paid based on productivity generally have the potential to earn above-average pay for above-average effort. When productivity declines, even for reasons outside of the physicians’ control, those who previously produced at high levels should no longer be compensated as such, except in certain cases. One analogy is hourly overtime rates for primary care nurses. If the demand for hours drop for external reasons, such that no nurses are needed for overtime, it is reasonable to continue paying normal hourly wages but not overtime hourly rates.Therefore, any portion of wages attributable to above-average work effort could be deemed not commercially reasonable. However, there are scenarios in which draws have been set relative to historical pay. In those cases, continuation of a draw could be regarded as continuation of a base salary. It remains important to ensure that any such temporary programs are applied in a manner that prioritizes PHE needs and not historical or expected referrals, even unintentionally.Pre-PHE Contracts in 2021In cases where 2021 compensation is based on 2020 performance statistics (e.g., base compensation is set at the average prior-year productivity multiplied by median compensation per WRVU), resulting compensation may grossly exceed or undercut an FMV level. Consequently, there should be documented provisions to use historical performance data that excludes the PHE (e.g., use 2019 data). Start planning for this eventuality and amend existing contracts now.New Post-PHE ContractsThe COVID-19 pandemic will impact the reliability and utility of market benchmarks that were once heavily relied upon. Market data released in 2020 will represent productivity and reimbursement prior to the pandemic, while data released in 2021 will be skewed by the crisis. Unless the benchmark publishers develop solutions to normalize the impacts of the PHE, we advise using prior-year market benchmarks instead of the ones to be issued in 2021.Pre–COVID-19 performance statistics, along with changes in the scope of practice, will need to be considered when establishing productivity expectations for each specialty. The following solutions for using historical productivity data in forward-looking FMV reviews are appropriate:Trend multiyear historical performance data forward while removing outliers, including the impact of the unfolding crisis. This approach is feasible if historical data beyond 2020 is available and reliable; however, the outcomes should be checked against the general outlook for the scope of practice and post-PHE changes in care delivery.Normalize productivity and collections data for 2020 by removing the period during which volumes were negatively impacted by the social distancing directives, as well as the subsequent ramp-up period; or, conversely, when the volumes surged due to the influx of the COVID-19 patients. The remaining “back to normal” period will then need to be annualized. This option should be considered if there is no historical data prior to 2020 and should also be further adjusted to reflect changes in practice that are expected to persist into the foreseeable future.For situations where the scope of practice has been altered such that the historical performance is not a good proxy for the future (e.g., a primary care provider now taking 30% of their patient visits via telehealth), a more in-depth analysis is necessary. In these cases, projections driven by productivity metrics other than WRVUs, such as encounters and assigned patient population, are appropriate.While the true impact of COVID-19 is uncertain at this time, to avoid potential Stark and AKS issues in the future, adherence to sound FMV principles over time will ensure that arrangements are defensible and mitigate clients’ exposure to risk.In an upcoming blog post on physician contracts, we will explore agreements executed or modified during the PHE that relied on the Stark law blanket waivers, offer guidance on when they should be phased out, and address other questions we have been receiving.ECG continues to monitor our country’s response to the COVID-19 pandemic. Visit our COVID-19 thought leadership page regularly for trusted advice on how healthcare leaders and providers can weather this crisis.