Physician Recruitment Stark Compliance Update

The Stark Law Prohibits physicians from referring Medicare patients for certain “designated health services” to entities with which the physician (or an immediate family member) has a financial relationship, unless an exception applies. Prohibits the entity from billing for services provided pursuant to a prohibited referral.

The Stark Law Application to Medicaid Recently, DOJ and qui tam “whistleblowers” have brought claims under the False Claims Act to pursue providers who have made referrals of Medicaid patients when those referrals would not have been permitted if the patients had been Medicare patients. While no federal Court of Appeals has ruled on DOJ’s theories that Stark Law prohibitions apply to Medicaid patients, these theories have repeatedly survived motions to dismiss.

Designated Health Services Inpatient & outpatient hospital services Clinical laboratory Physical, occupational & speech therapy Radiology & other imaging (MRI, CAT scans, ultrasound & nuclear medicine) Radiation therapy services & supplies DME Home health Outpatient prescription drugs

Physician Recruitment Exception Permits remuneration from a hospital to recruit a physician to relocate to the hospital’s geographic service area if: The arrangement is in writing and signed by the parties; The arrangement is not conditioned on referrals; The remuneration is not determined based on referrals or expected referrals from the recruited physician or other business generated between the parties; and The physician is allowed to establish privileges at other hospitals & refer to any other facilities.

DEFINTION OF REMUNERATION “Remuneration” means any payment or other benefit made directly or indirectly, overtly or covertly, in cash or in kind …

“Geographic Service Area” The area comprised of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients. “Contiguous” means that the zip codes are contiguous to each other, not contiguous to the hospital. A hospital may include 1 or more zip codes from which the hospital draws no inpatients if that area is surrounded by the zip codes from which the hospital draws 75% of its inpatients. If fewer than 75% of inpatients are drawn from contiguous zip codes, the recruited physician can relocate to any contiguous zip code from which the hospital draws inpatients.

Geographic Service Area Flexibility A hospital may use any configuration of zip codes that meets the regulatory requirements at the time the parties enter the recruitment arrangement. A hospital may use different zip code configurations for each recruitment arrangement even if the arrangements are entered into on the same date.

Geographic Service Area Rural Hospitals “Rural”: any area that is not within a Metropolitan Statistical Area (“MSA”) as defined by the Office of Management and Budget. www.whitehouse.gov/omb If a rural hospital draws fewer than 90% of inpatients from its contiguous zip codes, then a physician can relocate to noncontiguous zip codes starting with those producing the highest percentage of inpatients for the hospital until the 90% threshold is reached.

“Relocate” Physician moves his/her practice from outside the geographic service area to inside the geographic service area; and Moves his/her practice at least 25 miles; or At least 75% of the revenue from the new practice location is generated from patients the physician did not see or treat in his/her old location.

Interpretation of “Relocate” CMS Advisory Opinion: A physician practicing 10-20% of his/her time at a practice location outside the hospital’s geographic service area would still meet the requirement of establishing a practice in the geographic service location.

Relocation Exceptions Physicians who for the 2 years immediately prior to the recruitment, had no separate private practice and were employed full-time to serve: (1) federal or state prisons; (2) Dept. of Defense or Dept. of VA; or (3) Indian Health Services Facilities. Physicians with respect to whom CMS issues an advisory opinion holding that the physician “does not have an established medical practice that serves or could serve a significant number of patients who are or could become a patient of the recruiting hospital.”

Relocation Exceptions: Residents & Physicians In Practice < 1 year Not subject to the relocation requirement. Must only locate their new practice within the geographic service area served by the hospital.

Relocate: No Current MS Membership CMS FAQ: Residents who are moonlighting at a hospital & are already members of the hospital medical staff would be ineligible for the recruitment exception. In comments, CMS noted that the physician recruitment exception clearly does not apply to a hospital’s offer or payment of recruitment incentives to any physician already on staff in any category of privileges (whether or not active). CMS likely to challenge recruitment or a physician who was a medical staff member before the written recruitment agreement is signed.

Recruiting to Existing Practice Additional Requirements: 1. Existing practice must sign the recruitment agreement if it is receiving payments from the hospital; 2. All of the remuneration must remain with, or pass through to, the recruited physician, except for “actual costs incurred by the existing practice in recruiting the new physician”; 3. In the case of an income guarantee of any type, costs allocated by the physician practice to the recruited physician do not exceed the “actual additional incremental costs attributable to the recruited physician;

Recruiting to Existing Practice Additional Requirements (continued) 4. Records of the costs and passed through amounts, must be kept for 5 years and made available to the Secretary of the Department of Health & Human Services upon request; 5. The remuneration may not be determined based on referrals or expected referrals of the recruited physician or existing practice or other business generated between the parties; 6. The existing practice may not impose on the recruited physician, any practice restrictions that unreasonably restrict the recruit’s ability to practice in the geographic area served by the hospital; and 7. The arrangement may not violate the anti-kickback statute.

Recruiting to Existing Practice (Joining v. Co-Locating) The additional requirements apply when a physician joins or becomes a part of an existing practice When a physician co-locates his/her practice (e.g. where the recruited physician shares space and/or overhead expenses with existing practice) the additional requirements do not apply If intention is for a physician to “co-locate” his/her practice, care should be taken to show the physician is not actually joining the existing practice. Precautionary steps include: Separate billing numbers Separate tax ID numbers Separate medical records No sharing of profits No collaboration on fees

Recruiting to Existing Practice (Practice Restrictions) The existing practice may not impose on the recruited physician, any practice restrictions that unreasonably restrict the recruit’s ability to practice in the geographic area served by the hospital Stark Phase II appeared to indicate no non-competes clauses could be imposed Stark Phase III– non-competes not categorically barred, but may not “unreasonably” restrict a physician from practicing in the geographic area

Recruiting to Existing Practice (Practice Restriction) Stark Phase III – commentary should not be interpreted as preventing hospitals from contractually requiring the existing practice to not impose a non-compete . Restrictions recognized as permissible: No moonlighting No solicitation of patients and employees Non-disclosure of confidential or proprietary information

IRS Guidance - Non-Compete While limited non-competes may be permitted under the Stark Law, IRS guidance for tax exempt hospitals bars non-competes because remuneration must go for community benefits.

Recruiting to Existing Physician Practice (Income Guarantee) Per Stark Phase III commentary, income guarantee is construed very broadly and includes guarantees based upon gross income, net income, revenues, or any other variation. When the hospital provides an income guarantee, only the “actual additional incremental costs attributable to the recruited physician” may be allocated by the existing practice to the new physician.

Recruiting to Existing Physician Practice (Incremental Costs) Depending on the circumstances, incremental costs directly attributable to the recruited physician may include: Headhunter fees; Travel expenses; Moving expenses; and/or Employee benefits, taxes and professional fees attributable to hiring the recruited physician. The hospital should require detailed documentation of incremental costs attributed to the recruited physician.

Recruiting to Existing Physician Practice (Income Guarantee - HPSA or Rural Area) If the physician is recruited to a Health Professional Shortage Area or a rural area, and a member of the existing practice has retired, moved away or died in the prior 12 months, then the existing practice may choose to allocate overhead to the new physician, up to the lower of a per-capita allocation of the existing practice’s overhead cost or 20% of the existing practice’s aggregate overhead costs.

Income Guarantees: Tax Reporting The issue of when income guarantee amounts are reportable to the IRS as income depends on the documentation of the payments. If the documents establish a debtor-creditor relationship with terms comparable to a commercial lending transaction (note, security agreement, etc.), likely to generate taxable income if and when amounts due are forgiven. Otherwise, guarantee advances likely to be taxable income when received by the physician.

Anti-Kickback Compliance Anti-Kickback Statute prohibits knowingly and willfully offering, paying, soliciting, or receiving remuneration to induce or reward referrals of items or services reimbursable under federal health care programs No safe harbor protection except for physician recruitment to HPSA Practice Tip: Recruitment amounts should not be tied to anticipated value of referrals Practice Tip: Recruitment amounts should constitute fair market value for relocating to the area

Changing Terms of Recruitment CMS Advisory Opinion CMS concluded that a hospital could not change the terms of an existing physician recruitment agreement, when doing so would result in additional compensation to the physician. Noted that the purpose of the exception was to allow limited compensation arrangements as an inducement for the physician to relocate to the service area. “Because the physician already relocated his medical practice, the additional compensation [was] not for the purpose of inducing relocation….”

Physician Retention Exception Permits remuneration directly to a physician on the hospital’s medical staff to retain the physician in the geographic service area if certain conditions are met. Physician retention payments may only be made when: 1) Physician’s practice is located in a rural area or HPSA; 2) The Secretary determines in an advisory opinion that the physician’s practice is in an area with a demonstrated need for the physician; or 3) At least 75% of the physician’s patients reside in a medically underserved area or are members of a medically underserved population. Additional requirements of this exception are not explained in detail here and may be found in the regulation.

Possible Sanctions For Stark Violations Denial of Payment Refunds of Payments Civil Monetary Penalties

Civil Monetary Penalties for Stark Violations Civil Monetary Penalties for Improper Claims Up to $15,000 for each improper claim May be imposed on any person that presents a bill or claim for a service that such person knows or should know violates the Stark Law Civil Monetary Penalties for Circumvention Schemes For arrangements or schemes with a principal purpose of assuring referrals by the physician to a particular entity in violation of the Stark Law, a penalty of up to $100,000 applies for each scheme or arrangement . May be imposed on the physician or the entity

Whistleblower Actions Private individuals may bring actions against an entity for its failure to comply with Stark Law . Recent rise in whistleblower actions due to potential recovery for whistleblower and his/her attorney.

Questions/Comments

Reinhardt, Whitley, Summerlin & Pittman, P.C. Contact Information Karen Summerlin, Esq. George Reinhardt, Esq. ksummerlin@rwsplaw.com greinhardt@rwsplaw.com Reinhardt, Whitley, Summerlin & Pittman, P.C. 1001 North Central Avenue Tifton, Georgia (229) 382-6135