Legal Considerations in Recruitment and Hiring Justin Runke Partner Harris Beach PLLC jrunke@harrisbeach.com 585-419-8734 Nicole Ozminkowski Partner Harris Beach PLLC nozminkowski@harrisbeach.com 585-419-8602

First things first Identifying the need: The importance of the Community Needs Assessment ACA requires tax-exempt hospitals to complete a community health needs assessment every 3 years CNAs are intended to identify key health concerns for the community One piece of the CNA may be a Physician Need Analysis

Identifying the need (cont.): First things first Identifying the need (cont.): Physician need analysis: Verifies a need for additional physician services and recruitment priorities Provides evidence of need in the event of government audit Demonstrates a need to potential recruits

Identifying the need (cont.): First things first Identifying the need (cont.): Physician need analysis: IRS requires documented need for recruitment May impact fair market value analysis of compensation High need + difficulty recruiting = justifiably higher compensation FMV is critical to Stark and AKS compliance

First things first Recruitment Policy: Physician recruitment guidelines should be reviewed periodically by board of directors Ensure compliance with hospital’s tax-exempt purpose Understand and approve recruitment needs Approve budget and incentives offered to recruits

Employee or Independent Contractor Hospital Engagement Employee or Independent Contractor Employee: Accepts direction from employer as to manner, place, and time for performance Independent Contractor: Agrees to achieve hospital’s goals, but not subject to direction as manner of performance

Employee or Independent Contractor (cont.): Hospital Engagement Employee or Independent Contractor (cont.): Who supplies equipment? Malpractice Coverage Fringe Benefits Restrictive Covenants

Employee or Independent Contractor (cont.): Hospital Engagement Employee or Independent Contractor (cont.): What drives the decision? Physician preferences Financial Analysis Cost of employment (salary, benefits, taxes, etc.) Negotiated compensation

Stark Requirements for Employment Hospital Engagement Stark Requirements for Employment 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.

Stark Requirements for Employment (cont.): Hospital Engagement Stark Requirements for Employment (cont.): No requirement to have a written agreement No requirement to establish the compensation formula in advance Complying with Stark parameters should also satisfy the AKS and applicable IRS rules.

Hospital Engagement Employment Agreement? Why have one?: Document manner in which compensation is determined Cannot include the volume or value of referrals or non-personally performed services Modify at-will employment rules Specifically spell out duties and expectations Exclusivity provisions Include restrictive covenants

Employment Agreement (cont.)? Hospital Engagement Employment Agreement (cont.)? Restrictive Covenants: Non-Compete: Must protect a legitimate business interest Must be reasonable in geographic scope and duration Cannot impose any undue hardship on the employee Cannot cause public harm Preclude from all competition or from joining a competing hospital or health system?

Employment Agreement (cont.)? Hospital Engagement Employment Agreement (cont.)? Restrictive Covenants: Non-Solicitation: Other Employees Patients

Interview Best Practices: Hospital Engagement Interview Best Practices: Be consistent in what you ask each candidate Retain interview notes but be careful what they say Permissible questions: Legally eligible to work? Physically satisfy requirements of the job? Education, work history, required certifications and licenses

Interview Best Practices: Hospital Engagement Interview Best Practices: Impermissible questions: Age Gender Religion Marital status Sexual orientation Country of origin Health status/Disability

Hospital Engagement Hiring Decisions: Cannot be based on protected status (race, sex, national origin, religion, disability, pregnancy, age, sexual orientation, U.S. citizenship, veteran status, marital status, conviction record) Articulate a legitimate, non-discriminatory reason for hiring decision Statements about fit are not a best practice

Independent Contractor Agreement Hospital Engagement Independent Contractor Agreement Stark Requirements: There must be a written contract signed by the parties. The written contract must specify all the services to be performed by the physician. The contract must specify the term of the arrangement, which can be for any period of time and contain a termination clause, provided that the parties enter into only one arrangement for the same items or services during a year.

Independent Contractor Agreement Hospital Engagement Independent Contractor Agreement Stark Requirements (cont.): The written contract must specify the compensation formula, which must be set in advance (i.e., no retroactive adjustments to compensation), and the compensation formula may not change within the first year of the agreement.

Independent Contractor Agreement Hospital Engagement Independent Contractor Agreement Stark Requirements (cont.): The compensation and anything else provided to the physician must be consistent with fair market value. The compensation may not take into account the volume or value of referrals or other business generated by the physician.

Independent Contractor Agreement Hospital Engagement Independent Contractor Agreement Stark Requirements (cont.): The arrangement must be commercially reasonable even if there were no referrals by the physician, and must further the legitimate business purposes of the parties.

Independent Contractor Agreement Hospital Engagement Independent Contractor Agreement Employers Beware! Even if you characterize an arrangement as an independent contractor agreement, for legal purposes the arrangement can be determined to be an employment arrangement. Results in assessment of penalties and interest

Hospital Engagement Fair Market Value The value in arms length transactions consistent with the general market value. Compensation included in service agreement as a 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. Seek an independent, third-party valuation of the compensation to be paid. Must include all compensation, benefits, bonuses, stipends, incentive compensation.

Fair Market Value (cont.): Hospital Engagement Fair Market Value (cont.): Seek an independent, third-party valuation of the compensation to be paid. Consult published data (MGMA, Sullivan & Cotter) Must include all compensation, benefits, bonuses, stipends, incentive compensation.

Fair Market Value (cont.) Hospital Engagement Fair Market Value (cont.) Best Practices to minimize scrutiny: Rely on the data Don’t opinion shop Document need and recruiting efforts Be wary of unusual compensation arrangements Be as consistent as possible and document and explain any inconsistency

Recruitment of Physicians to Private Practice Stark Requirements: Hospitals and certain other entities may pay more than fair market value or provide additional benefits to recruit physicians (whether or not the physician is an employee or contractor of the hospital) if certain standards are satisfied: The physician must not already be a member of the hospital’s medical staff. With limited exceptions, the physician must relocate his or her practice from more than 25 miles away and into the hospital’s service area.

Recruitment to Private Practice Stark Requirements (cont.): The arrangement must be set out in writing and signed by all parties prior to the physician’s relocation. The arrangement may not be conditioned on the physician’s referral of patients to the hospital. The hospital may not base any payments to the physician on the volume or value of referrals or other business generated by the referring physician.

Recruitment to Private Practice Stark Requirements (cont.): The hospital may not prohibit the physician from establishing staff privileges at other hospitals or referring business to other entities except as referrals may be restricted under an employment contract that complies with certain terms. This may preclude non-compete clauses in recruitment contracts directly with the physician.

Recruitment to Private Practice Stark Requirements (cont.): If the physician is going to join an existing practice, the recruitment arrangement must also satisfy the following additional terms: The existing practice must also sign the recruitment agreement. The remuneration paid by the hospital must be passed directly through to or remain with the recruited physician except for actual costs incurred by the physician practice to recruit the physician.

Recruitment to Private Practice Stark Requirements (cont.): If the hospital provides an income guarantee, the costs allocated by the physician practice to the recruited physician may not exceed the actual additional incremental costs attributable to the recruited physician (i.e., the hospital cannot subsidize the other physicians in the existing physician practice). The physician and/or practice must maintain records of the actual costs and passed-through amounts for at least 5 years.

Recruitment to Private Practice Stark Requirements (cont.): The remuneration paid to the physician or practice cannot take into account the volume or value of referrals by either the physician or the practice. The physician practice may not impose practice restrictions that unreasonably restrict ability to practice in the hospital’s service area. CMS commentary suggests that a physician practice may impose reasonable non-compete clauses, but they should not be overly broad. The Stark safe harbor appears to prohibit non-compete clauses if the physician is not joining an existing practice.

Recruitment to Private Practice Stark Requirements (cont.): The AKS contains a separate recruitment safe harbor with additional requirements, e.g., it only applies to recruitment into a HPSA, and does not apply to recruitment into groups. It is difficult to satisfy the AKS recruitment safe harbor. Document that not “one purpose” of a recruitment arrangement is to generate referrals from the recruited physician or existing physician practice. Document a legitimate community need for the recruited physician.

Recruitment of NPPs to Private Practice Stark Requirements: Permits the provision of remuneration from a hospital, FQHC or RHC to a physician or physician organization for the purpose of recruiting certain primary care NPP into the geographic area served by the hospital, FQHC or RHC. CMS recognized the significant changes in health care delivery and payment systems, the “alarming trends” in the projected primary care workforce shortage and the increasing demand for primary care.

Recruitment of NPPs to Private Practice Stark Requirements (cont.): Requirements of the new exception include: The arrangement must be set out in writing and signed by the hospital, physician and the NPP. NPPs include physician assistants, nurse practitioners, clinical nurse specialists, certified nurse-midwives, clinical social workers and clinical psychologists. Substantially all of the services provided by the NPP to the physician’s or physician organization’s patients must be primary care services or mental health services,

Recruitment of NPPs to Private Practice Stark Requirements (cont.): Requirements of the new exception include: No practice restrictions may be imposed on the NPP that unreasonably restrict its ability to provide patient care services in the hospital’s geographic area. The remuneration cannot exceed 50% of the actual aggregate compensation, signing bonus and benefits paid to the NPP for a period not to exceed the first 2 consecutive years of the compensation arrangement between the physician or physician organization and NPP.

Recruitment of NPPs to Private Practice Stark Requirements (cont.): Requirements of the new exception include: The NPP must not have practiced, within 1 year, in the geographic area serviced by the hospital, or been employed or otherwise engaged to provide patient care services by a physician or physician organization that has a medical practice site in the geographic area, regardless of whether the practice site was in the geographic location of the hospital.

Recruitment of NPPs to Private Practice Stark Requirements (cont.): Requirements of the new exception include: The arrangement must not be conditioned on the physician’s or NPP’s referrals to the hospital The compensation, signing bonus and benefits to the NPP must not exceed the fair market value of the NPP’s services. The arrangement must not otherwise violate the federal anti-kickback statute or any federal or state billing and claims submission regulations.

Recruitment of NPPs to Private Practice Stark Requirements (cont.): Requirements of the new exception include: Assistance may only be provided to the same referring physician no more than once every 3 years, unless the NPP is replacing a NPP who terminated the contractual arrangement with a physician or physician organization within the first year. The two-year assistance period, in this case, is still measured from the commencement of the original arrangement.

Thank You! Nicole Ozminkowski Partner Harris Beach PLLC nozminkowski@harrisbeach.com 585-419-8602