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Regulatory and Legal Considerations Regarding Salary Equity

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Closing the Gender Pay Gap in Medicine

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Abstract

Women have historically been paid less than men for the performance of the same work. To address this disparity, Congress enacted the Equal Pay Act and Title VII of the Civil Rights Act of 1964 to prohibit gender (and other) discrimination in employment and to provide robust remedies for disparate treatment and discrimination where it persists. Claims under each statute are analyzed and, therefore, prosecuted, somewhat differently, with different burdens on each party. State legislatures and various municipalities have also enacted laws to incentivize employers to ameliorate pay inequities and to prevent employers from using past discriminatorily low compensation to justify pay disparities between men and women. The Stark Law, the Anti-Kickback Statute, and the Internal Revenue Code and regulations also impose specific additional restrictions on healthcare systems’ compensation of physicians. All of these laws militate for the creation and construction of careful compensation plans that prevent pay inequities and the continuing review of employee compensation to ensure compliance.

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  98. See San Francisco Ordinance No. 142-17, available from: https://sfgov.legistar.com/LegislationDetail.aspx?ID=3015043&GUID=DAFA9BFB-6960-40A3-81C7-670DD91444BA; Kansas City, Missouri Code of Ordinances Sec. 38-101, 102; NYC Admin. Code § 8-107(25); Albany County Local Law No. P for 2016, available from: http://albanycounty.com/Libraries/County_Executive/20171030-PH-16-LL_P.sflb.ashx; Wage Equity; Suffolk County Code, Art. II. § 528-7 (2018); Laws of Westchester County Sec. 1, Sec. 700.03; Cincinnati Municipal Code, Chapter 804; Toledo Municipal Code Chapter 768, Pay Equity Act to Prohibit the Inquiry and Use of Salary History in Hiring Practices in the City of Toledo; Philadelphia, Pa., Code § 9-1131. See also Visconti D. Keeping Compliant with Expanding State and Local Equal Pay Laws. Littler. August 19, 2019 [cited December 17, 2019]. Available from: https://www.littler.com/publication-press/publication/keeping-compliant-expanding-state-and-local-equal-pay-laws?utm_source=Mondaq&utm_medium=syndication&utm_campaign=View-Original.

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  104. Reasonable compensation is defined by IRS Treasury Regulations, 26 C.F.R. 1.162-7(b)(3): “It is, in general, just to assume that reasonable and true compensation is only such amount as would ordinarily be paid for like services by like enterprises under like circumstances. The circumstances to be taken into consideration are those existing at the date when the contract for services was made, not those existing at the date when the contract is questioned.” Id. Moreover: [t]he IRS has stated that when determining whether a physician's compensation is appropriate, the tax-exempt hospital should ensure the total compensation package provided to a physician is reasonable for the physician's specialty and area. The IRS created a rebuttable presumption whereby physician compensation is reasonable if: (i) the compensation arrangement is approved in advance by an authorized body of the applicable tax-exempt hospital, which is composed of individuals who do not have a conflict of interest concerning the employment arrangement, (ii) prior to making its determination, the authorized body obtained and relied upon appropriate data as to comparability, and (iii) the authorized body adequately and timely documented the basis for its conclusion concurrently with making that determination. If, however, an employment arrangement does not satisfy the rebuttable presumption requirements, a facts and circumstances approach will be followed, and intermediate sanctions may be imposed if it is found that the compensation is excessive. Intermediate sanctions may include the imposition of an excise tax against the physician and the hospital manager who approved the employment arrangement. The intermediate sanctions rules only apply to compensation arrangements with "disqualified persons." Disqualified persons are persons who are in a position to exercise substantial influence over the organization; this can include employed physicians, especially where the employed physician is highly compensated or holds an administrative position. However, even if a compensation arrangement does not involve a disqualified person, a tax-exempt institution cannot pay more than fair market value due to the restrictions on private inurement. Becker’s Hospital Review. Physician Compensation: 10 Core Legal and Regulatory Concepts. August 19, 2013 [cited December 17, 2019]. Available from: https://www.beckershospitalreview.com/legal-regulatory-issues/physician-compensation-10-core-legal-and-regulatory-concepts.html (referencing Rebuttable presumption that a transaction is not an excess benefit transaction, 26 C.F.R. 53.4958-6).

  105. IRC 501(c)(3) prohibits inurement of the net earnings of an organization to any private shareholder or individual. 26 C.F.R § 1.501(c)(3)-1states that an organization is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private individuals. See also Brauer LM, Kaiser CF. C. Physician Incentive Compensation. U.S. Internal Revenue Service. [Cited December 18, 2019.] Available from: https://www.irs.gov/pub/irs-tege/eotopicc00.pdf.

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  107. “Fair market value is defined by the Stark Law as the ‘value in arm's length transactions, consistent with the general market value…’ The federal regulations have interpreted ‘general market value’ to refer to the compensation that would be included in a service agreement as the result of a bona fide bargaining arrangement between well-informed parties to the agreement who are not otherwise in a position to generate business for the other party, at the time of the service agreement.” Becker’s Hospital Review. Physician Compensation: 10 Core Legal and Regulatory Concepts. August 19, 2013 [cited December 17, 2019]. Available from: https://www.beckershospitalreview.com/legal-regulatory-issues/physician-compensation-10-core-legal-and-regulatory-concepts.html.

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  110. Becker’s Hospital Review recommends that: (a). A hospital should ensure that all compensation contracts with physicians are in writing, signed by all parties, do not take into consideration the volume or value of referrals and internal documentation should be retained to support the fair market value nature of the compensation. The documentation should include the manner in which the compensation was determined, the surveys utilized and whether an opinion from a third-party valuation firm was sought. (b) All physician compensation arrangements should include a clear job description outlining the specific duties and services to be performed. Hospitals should also maintain an analysis and record of why a physician position is reasonably needed by the hospital. This may be particularly important where the need for the position may not be inherently clear or where a newly created position is being filled. (c) Hospitals should strongly consider obtaining third-party support for physician compensation arrangements where the physician is unusually productive or the compensation structure is outside normal practice. (d) As part of periodic compliance reviews, the hospital and physician should ensure that all agreements meet a core exception under the Stark Law and with comply or substantially comply with a safe harbor to the Anti-Kickback Statute. (e) It is also important that each compensation relationship is periodically reviewed on an on-going basis to ensure the compensation is still consistent with FMV and complies with applicable law. (f) A hospital should also consider adopting a reasonable compensation cap, especially if the arrangement is pursuant to a productivity-driven compensation structure. This concept is based on IRS guidance and may be more important where the arrangement has the potential for unusually high compensation. Becker’s Hospital Review. Physician Compensation: 10 Core Legal and Regulatory Concepts. August 19, 2013 [cited December 17, 2019]. Available from: https://www.beckershospitalreview.com/legal-regulatory-issues/physician-compensation-10-core-legal-and-regulatory-concepts.html.

  111. Massachusetts provides an affirmative defense to a Massachusetts Pay Act claim if the employer can show that within the prior three years, it completed a reasonable self-evaluation of its pay practices in good faith; and can demonstrate that reasonable progress has been made towards eliminating wage differentials based on gender for comparable work. Mass. Gen. Laws c. 149 § 105A. Oregon also provides a limited safe harbor to employers who conduct audits. Or. Rev. Stat. Ann. §§ 652.210 et seq.

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With thanks to my associate, Brendan T. Sweeney, Esq.

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Washienko, P.A. (2021). Regulatory and Legal Considerations Regarding Salary Equity. In: Gottlieb, MD, FACP, A.S. (eds) Closing the Gender Pay Gap in Medicine. Springer, Cham. https://doi.org/10.1007/978-3-030-51031-2_4

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