by Kim C. Stanger, Holland & Hart LLP

Hospitals and other entities that offer incentives to recruit physicians must ensure their arrangements comply with federal and state laws governing financial relationships with physicians, including the the Ethics in Patient Referrals Act (“Stark”), Anti-Kickback Statute (“AKS”), and the IRS’s 501(c)(3) requirements. Recruitment arrangements usually need to fit within one of the following safe harbors:

1. Employment Arrangements. If you are going to hire the physician as an employee and pay him or her no more than fair market value, you can structure the deal to fit within Stark’s bona fide employment safe harbor, which requires the following:

• The employment must be for identifiable services.
• The compensation (including benefits, housing, relocation reimbursement, stipends, and anything else of value given to the physician) must be consistent with fair market value.
• The compensation may not take into account the volume or value of referrals. For example, you may not compensate the physician based on, or give the physician a percentage of, services performed by other persons or ancillary tests ordered by the physician. You may, however, compensate the physician based on services the physician personally performs.

(42 CFR 411.357(c)). Under the employment safe harbor, you are not required to have a written agreement or establish the compensation formula in advance, but it is generally a good idea to do so to avoid misunderstandings. Complying with the foregoing Stark parameters should also satisfy the AKS and 501(c)(3) rules. (See 42 CFR 1001.952(i); IRS Healthcare Provider Reference Guide, 2004 EO CPE Text at p.18). If you need to pay more than fair market value or provide additional incentives to recruit the physician, you will likely need to structure the deal to satisfy the Stark recruitment safe harbor described below. Continue reading →

by Teresa Locke, Holland & Hart LLP

The Fourth Circuit Court of Appeals recently issued an alarming decision affirming a $237 million judgment against Tuomey Healthcare Systems, a nonprofit hospital located in a small, largely rural South Carolina community that is a federally-designated medically underserved area. The judgment resulted from a jury’s finding that Tuomey submitted 21,730 false claims to Medicare for reimbursement knowing that the claims were generated through part-time physician employment contracts that violated the referral constraints found in the Stark Law. The decision clarifies that hospital “facility fees” associated with outpatient procedures performed by physicians constitute “referrals” under the Stark Law even when the “referring” physician is personally performing the outpatient procedure. The false claims themselves had a total value of $39 million, but with automatic treble damages and civil penalties in the minimum amount for each violation, the resulting judgment was for $237 million. Despite its affirmance of the judgment, the Fourth Circuit panel recognized “the troubling picture this case paints: An impenetrably complex set of laws and regulations that will result in a likely death sentence for a community hospital in an already medically underserved area.” U.S. ex rel. Drakeford v. Tuomey.

The part-time employment contracts at issue in Tuomey allowed the physicians to maintain their private practices, but required them to perform all outpatient surgical procedures exclusively at the hospital. The contracts had multiple compensation components, two of which proved problematic under Stark. First, each physician was paid an annual guaranteed base salary which was adjusted from year to year based on the amount the physician collected from all services rendered the previous year. Second, the bulk of the physicians’ compensation was earned in the form of a productivity bonus, which paid the physicians 80% of the amount of their collections for that year. Continue reading →