Leverage internal audit to minimize risk in medical leadership contracting and compensation processes

Over the past two years, the “Great Resignation” has hit few industries harder than healthcare. With employee demand at an all-time high, those in the industry have taken on additional roles and responsibilities or contracted independent third parties for assistance.

Stark Law is a federal legislation that governs employed and independent physician arrangements, including those for medical directorships. Stark Law establishes detailed requirements for healthcare personal service agreements, defining limits of acceptable behavior. Violators of Stark Law are subject to fines up to $15,000 for each occurrence. Each year, the Office of Inspector General (OIG) releases its work plan outlining their areas of review concentration. Medical director arrangements are particularly vulnerable to review by the OIG as they involve compensation to physicians for non-clinical administrative services. Internal audit can play an important role in evaluating current processes and providing recommendations to refine and enhance future processes, minimizing legal and financial risk to the organization. 

The role of internal audit

How and what can internal audit do to assist healthcare organizations in their evaluation of current medical leadership contracting and compensation processes? How can internal audit help determine the effectiveness of the processes for compliance with federal rules and regulations? 

Internal auditors can evaluate the design effectiveness of the existing controls to mitigate risk, identify process gaps and provide recommendations for improvement over existing medical leadership contracting and compensation processes. 

In evaluating medical leadership contracting and compensation processes, internal audit should ask the following questions: 

• Has the organization assigned responsibility for the medical leadership contracting and compensation processes?
• What policies and procedures are in place to address the medical leadership contracting and compensation processes?
• Who maintains the list of medical leadership contracts, and does it include the appropriate information?
• Has commercial reasonableness been established for all existing contracts?
• Have agreements been set up properly? 
• Do contracted rates agree with the fair market value of services?
• If the physician or medical group has two or more agreements with the hospital, have the aggregated agreements been considered for commercial reasonableness and potential non-compliance?
• Is ongoing monitoring of hours worked and expected performance performed?

Mitigating legal and financial risks should be a priority for internal audit functions. Internal audit should review:

• Service agreements for physicians with medical leadership responsibilities to ensure contracts have not expired, lapsed or terminated.
• Service agreements for physicians with medical leadership responsibilities to ensure the contracts are commercially reasonable, include adequate detail of the services performed and corresponding compensation and are signed and dated by all necessary parties.
• Any additional service agreements with the physician or medical group to ensure the aggregated contracts are reasonable and do not cause instances of non-compliance.
• Evidence a fair market value review was performed prior to the contract start date and annually or upon occurrence of a triggering event for compliance with federal regulations.
• Time logs for completeness, accuracy and compliance with contract requirements.
• Employees' pay stubs and contractor payments to determine rates are consistent with contract requirements.

Key takeaways to minimize risk in medical leadership contracting and compensation processes

• Validate commercial reasonableness and fair market value for the position
• Review contract language and details necessary for compliance with Stark Law
• Review job descriptions to determine requirements are accurate and adhered to
• Validate medical leadership hours worked are documented and commensurate with contract requirements
• Ensure the organization is paying the appropriate rates per the agreement
• Perform continuous monitoring of arrangements for organizational transparency

For more information on this topic, or to learn how Baker Tilly’s healthcare-specialized Value Architects™ can help,  contact our team.