Qui Tam Complaint Raises the Question: Are Multiples of the Median a Test of FMV?

The United States recently joined a whistleblower complaint against Chattanooga, Tennessee-based Erlanger Health System (“Erlanger”), alleging that the health system violated the Stark Law by maintaining improper financial relationships with affiliated physicians from 2014 to 2021. “The government’s complaint alleges that Erlanger compromised Stark Law compliance to boost its financial standing, knowingly overpaying physicians whose practices generated profits for the hospital,” said U.S. Attorney Dena J. King for the Western District of North Carolina. In addition to paying certain physicians above fair market value (“FMV”), the complaint alleges that Erlanger knowingly overbilled for unnecessary services, overlapped procedures, and did not sufficiently supervise residents.

The complaint includes compensation-related allegations such as stacking high-dollar components, exceeding pay caps, and not heeding third-party valuation opinions. Additionally, the complaint mentions several instances of physician compensation benchmarking at multiples of the median. For example, compensation being “three times the comparable median salary” and “more than twice the comparable median salary” were used as the judgment bases for compensation being above FMV.

This stood out to us as an uncommon way to evaluate compensation and begged several questions from us:  

What about highly productive physicians whose production levels may also register at multiples of the comparable median?  

How does compensation 2 to 3 times the median compare to the 90th percentile, a more common benchmark for evaluating compensation? FYI - BFMV looked at one physician compensation survey and found that 2x the median is about 130% of the 90th percentile, and 3x the median is about 200% of the 90th percentile.

Is the multiple of median the government’s new test for extremeness in compensation?

We will be interested in following developments in this case and seeing what the median concept's multiples reveal.

BFMV has reviewed and consulted on nationwide physician arrangements with health systems and physician practices. Contact us for more information.