Title: Section 442.28 - Physician remuneration

442.28 Physician remuneration. (1680) (a) Due to the numerous types of financial and work arrangements between hospitals and hospital-based physicians, comparability of costs between hospitals may be significantly impaired. This section deals with the methods to be used in recording costs and revenues related to the services of hospital-based physicians.

(b) Financial arrangements. (1681) (1) Although the variations in financial arrangements between hospitals and hospital-based physicians are endless, there are five general types of such arrangements:

(i) Agency arrangement. The hospital bills patients for the physician's professional services, but records these billings as liabilities and the subsequent payment to the physician as a reduction of that liability. The hospital reflects no operating revenue or expense relative to the professional component.

(ii) Compensation arrangement. The hospital bills patients for the physician's contractual professional services, including this amount as hospital revenue. All cost center expenses are paid by the hospital. The hospital remits a fee or pays a salary to the physician which is included in hospital expense. The compensation arrangement can be either fixed or variable. Under a fixed compensation arrangement the physician is paid a specific dollar amount (salary) unrelated to volume of services rendered. Under the variable compensation arrangement the physician's compensation will be a percentage of departmental gross charges or net collections. The actual compensation received by the physician will vary in proportion to the number of procedures performed and to the total charges made by the hospital. This arrangement includes those physicians providing patient services in the Daily Hospital Services cost centers.

(iii) Contracted arrangement. Under this arrangement, the physician may pay any or all expenses of the cost center. The hospital bills patients for the departmental services and remits a fee to the physician. This fee would typically be designed to cover the expenses incurred by the physician and are recorded as Professional Fees (Natural classification of expense .31) regardless of the expenses incurred by the physician.

(iv) Rental arrangement. The physician bills the patients for certain of the Part A and Part B component (as defined by Medicare) and incurs all substantial direct expenses. The physician remits a fee to cover certain hospital expenses. This fee is recorded as operating revenue in the appropriate revenue center.

(v) Independent/separate arrangement. The functions are provided by an independent physician or group of physicians. Neither revenues nor expenses are incurred by the hospital. The hospital refers patients and/or specimens to the physician or group, which is usually located on separate premises. No costs are incurred and no revenue is received under this arrangement.

(2) Note. Compensation paid to interns and residents is not to be included in the revenue producing cost centers, but must be charged to the Postgraduate Medical Education cost centers, accounts 8240 and 8250.

(c) Work arrangement. (1682) (1) The services provided by hospital-based physicians may be categorized into six general types.

(i) Professional component--providing direct patient care.

(ii) Education--teaching and supervising student activity in educational programs.

(iii) Research--working on research projects.

(iv) Medical care review--serving on the hospital's Medical Care Review Committee.

(v) Hospital administration--administering overall hospital activities (including hospital committees).

(vi) Cost center supervision--supervision and other activities of the cost center.

(2) When physicians are involved in more than one of the above functional activities, their remuneration, if any, must be recorded in the cost center for which services are paid. Prior to a trial balance under the Federal uniform reporting system, their remuneration must be reclassified to the appropriate cost centers.

(3) For example, if a physician is paid and spends 40 percent of his time in direct care of patients, 10 percent in educational activities, 15 percent in research, 5 percent in medical care review activities, 10 percent in administrative duties outside the department, and 20 percent in supervision of the department, the reclassification of his remuneration would be as follows:

(i) Distribution.

40 percent Physician's Professional Component (this amount must be reported in the Medical Staff Services cost center, account 8730).

10 percent Education Costs (to account 8220-8299).

15 percent Research Projects (to account 8010-8199).

5 percent Medical Care Review (to account 8740). 10 percent Hospital Administration (to account 8610).

20 percent Cost Center Supervision (remains in the cost center).

(ii) Computation. If the above physician is assigned to the Coronary Care cost center and is paid $50,000 annually, including employee benefits, the following reclassifications would be required for reporting purposes:

Professional Component 40% of $50,000 = $20,000--to account 8730

Education 10% of $50,000 = $5,000--to account 8220-8299

Research 15% of $50,000 = $7,500--to account 8010-8199

Medical Care Review 5% of $50,000 = $2,500--to account 8740

Hospital Administration 10% of $50,000 = $5,000--to account 8610

Cost Center Supervisor 20% of $50,000 = $10,000--remains in assigned cost center.

(4) The reclassification of the professional component from the assigned cost centers to the Medical Staff Services cost center, account 8730 is necessary in order to obtain comparable direct costs between hospitals which employ physicians and hospitals which do not.

(5) The reclassification of the other components is to obtain functional comparability.