The number of physicians seeking employment with hospitals seems once again to be on the rise and not surprisingly, physicians negotiating those arrangements will do their best to ensure that they are paid fairly for their services.  In light of the recent settlement of a federal False Claims case, however, physicians should be careful to ensure that their compensation – even as W-2 employees of a hospital – is consistent with fair market value and commercially reasonable. 

According to a US Department of Justice Press Release, Covenant Medical Center in Iowa has agreed to pay the United States $4.5 million to resolve allegations that it violated the False Claims Act by paying employed physicians compensation in excess of fair market value in violation of the federal Stark statute.  While there is an exception under the Stark law for compensation paid to a W-2 employee, the compensation must (1) be consistent with the fair market value of the services; (2) may not be determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the referring physician; and (3) be pursuant to an agreement that would be commercially reasonable even if no referrals were made to the employer.

According to the Press Release, the compensation to the 5 physicians in question far exceeded fair market value, and in fact, the physicians were among the highest paid hospital-employed physicians in the entire United States.