Author: Scott Safriet, MBA, CVA

Given the ever increasing competitive landscape underlying hospitals’ efforts to recruit and hire quality physicians and health care providers, we are seeing a higher frequency of employment agreements that embody aggressive commitments of provider time and effort.  Perhaps in an effort to compete for scarce providers, an increasing number of arrangements are (i) including the expectation that a wide variety of services (i.e., clinical, administrative, excess call coverage, mid-level provider supervision, graduate medical education services, etc.) will be performed for minimum number of annual hours, rather than (ii) including separate compensation rates for each category of service that may be performed, and providing remuneration to the provider when (and only when) those services are actually rendered.

While it is not uncommon and/or unreasonable for a physician to provide more than just clinical services, or to work more than 40-hours per week, it can be very difficult should an organization find itself in a position of having “overcommitted” a physician…unknowingly or not.  Furthermore, simply evaluating the fair market value of each of the agreement components is not enough, as the totality of the contemplated services also need to be evaluated through a careful lense.  For example, when an agreement assumes that an employed physician will provide full-time clinical services; 30 hours per month of medical director/administrative services;  and eighteen, 24-hour days of on-call coverage, all the while supervising several advanced practice providers, in exchange for the physician receiving a guaranteed base salary for these services, it potentially raises not only fair market value concerns, but also the issue of commercial reasonableness.  Best case, the hospital is setting itself up for enhanced scrutiny of the arrangement.  Worst case, the hospital finds itself in a situation of a negative retrospective analysis, and resulting overcompensation to the physician because it paid for services that were not fully performed.  Best practice would be to ascribe fair market value to each service component that is expected to be provided on its own, include each compensation component as part of the comprehensive employment agreement, and then administer the arrangement accordingly.  In this manner, should a physician provide more clinical services than were expected, and fewer administrative hours than contemplated, the entirety of the arrangement becomes self-normalizing.   

FMV Pitfall: Requiring a health care provider to render a wide array of services is not inherently problematic …but creating an employment agreement with unreasonable service commitments and paying for services that were never rendered can have catastrophic outcomes.  To avoid the “crush” of an overly optimistic employment arrangement, evaluate each component on a stand-alone basis, provide for separate remuneration to the provider for each aspect of the arrangement, and commit to compensate appropriately.