Employee compensation in the healthcare industry will be a significant area of focus for the Department of Health and Human Services in the year ahead that could result in controversial new pay caps.
The Office of Inspector General for the Department of Health and Human Services (HHS-OIG) announced in its Work Plan for fiscal year 2014 that it will begin reviewing hospital compensation data included in operating costs reported to and reimbursed by Medicare. HHS-OIG said it's seeking to determine what effect imposing limits on the compensation amounts hospitals may report to Medicare would have on the Medicare Trust Fund.
Under the Medicare program, hospitals may include employee compensation in operating costs reported to and reimbursed by Medicare only to the extent that the compensation represents “reasonable remuneration for administrative, managerial, professional, and other services related to facility operations and furnished in connection with patient care,” according to the work plan. Currently, Medicare does not impose limits on the salary amounts that hospitals may report.
Oversight of Contracts
The HHS-OIG work plan also said it will closely review the salaries of contractor employees charged to Medicare to determine whether any potential cost savings can be gained if contractors were required to apply the same benchmark that currently applies only to senior executives to all employee compensation.
Currently, the benchmark applies to the top five highest paid executives. “We will determine the potential effect of expanding the executive compensation benchmark to all employees,” the work plan stated.
“During this assessment, the health care entity should review comparability data from ‘similarly qualified' or ‘functionally comparable' facilities in determining and establishing reasonable compensation for their executives and independent contractors,” Brian Dickerson, a partner with law firm Roetzel, said in a client alert.
From a practical standpoint, healthcare entities should evaluate current pay practices, polices, and controls by preparing or reviewing its compensation charter, and obtaining approval by an independent board of directors, or other governing body that won't pose a conflict of interest, advised Dickerson. In addition, he said, healthcare entities should review and evaluate comparability data, and put these compensation arrangements in writing.
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