THIRD CIRCUIT CALLS wRVU COMPENSATION INTO QUESTION

by Glenn P. Prives

Recently, the United States Court of Appeals for the Third Circuit issued a decision calling into question the work relative value unit (“wRVU”) compensation structure commonly utilized by hospitals.

In U.S. ex rel. Bookwalter v. UPMC, the University of Pittsburgh Medical Center’s (“UPMC”) subsidiary physician practice entities employed neurosurgeons who performed procedures at UPMC’s affiliated hospitals. The neurosurgeons’ employment agreements provided them with a base salary based upon an annual wRVU threshold.  If a neurosurgeon exceeded the threshold, the neurosurgeon would be paid a productivity bonus of $45.00 per wRVU.  Also, if a neurosurgeon failed to achieve the annual wRVU threshold during a contract year, UPMC had the right to reduce the physician’s future base salary accordingly.

The relators argued that the wRVU compensation structure violated the Stark Law because it was an indirect compensation arrangement that did not meet any exception under the Stark Law. There were additional allegations that the Third Circuit looked at closely.  First, it was alleged that the neurosurgeons claimed to assist on surgeries when they did not, that they billed for parts of surgeries that were never performed and that they performed medically unnecessary procedures.  Second, some of the neurosurgeons recorded wRVUs that were two to three times the 90th percentile nationally.  Third, some of the neurosurgeons were compensated at or above the 90th percentile nationally, including one whose bonus alone exceeded the 90th percentile.  The Third Circuit also noted that the neurosurgical department at UPMC was among the leaders in gross revenue nationally.

The federal government previously settled with UPMC on physician billing claims for $2.5 million, but did not intervene as to allegations of false claims on the hospital side. Below, the United States District Court for the Western District of Pennsylvania dismissed the complaint for failure to state a claim, and the relators consequently appealed to the Third Circuit.

In reversing the District Court’s decision, the Third Circuit ruled in favor of the relators adopting an interpretation of the Stark Law previously utilized by the U.S. Court of Appeals for the Fourth Circuit in U.S. ex rel. Drakeford v. Tuomey. The Third Circuit held that the relators had provided enough evidence to plausibly allege a violation of the Stark Law to allow the case to move forward to the discovery phase. The relators argued that because a neurosurgeon’s aggregate compensation varied with the volume or value of the surgeon’s referrals to UPMC’s hospitals, each time the surgeon performed a procedure at a UPMC hospital, the surgeon generated a referral for the associated hospital services that could potentially constitute a violation of the Stark Law.

The Third Circuit also noted that in some instances, the compensation paid exceeded collections received by UPMC and, in fact, in other instances, the wRVU conversion factor exceeded what UPMC collected. The court opined that a healthcare provider would not want to pay a physician compensation for the physician’s professional services that exceeded collections unless the provider was making up the revenue in another way, namely, referrals for hospital services.

The decision in this case would appear to contradict previous guidance issued by the Centers for Medicare and Medicaid Services (“CMS”) that stated that productivity-based compensation is permitted under the Stark Law.

Given the Third Circuit’s decision that the relators pled a plausible cause of action, the case will now proceed to discovery to allow the relators to more fully develop their claims.

Hospitals should not necessarily rush to discontinue the use of the wRVU compensation model.  This decision allows the case to proceed to discovery, but is not a final decision on the merits of whether the conduct in question constituted a Stark Law violation.  Additionally, it should not be ignored that this decision contravenes CMS guidance and that any ultimate ruling would likely be rendered moot if the current proposed rule from CMS to amend the Stark Law becomes final.  Nonetheless, hospitals must be careful to ensure that all compensation is fair market value, that documentation of fair market value is clear and that commercial reasonableness in all such arrangements exists as well.  Hospitals should not hesitate to obtain opinions on commercial reasonableness.