michigan recruitment and retention network

Stark III and Physician Recruitment

Michigan Recruitment and Retention NetworkNovember 14, 2007

Linda S. Ross, Esq.Honigman Miller Schwartz and Cohn LLP

313‐465‐[email protected]

Overview of the Stark Law and its Evolution

• The Stark Law: What It Is:1. Prohibits physicians from making referrals for

“designated health services” (“DHS”) payable by Medicare to entity with which the physician (or an immediate family member) has a “financial relationship,” unless an exception applies.

2. Financial relationship can be “compensation” or “ownership” relationship.

3. Prohibits the entity from filing claims with Medicare (or billing others) for those referred DHS services.

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4. DHS include:a. Clinical lab services; b. Physical therapy;c. Occupational therapy and speech pathology;d. Radiology and certain imaging services; e. Radiation therapy and supplies; f. DME and supplies; g. Parenteral and enteral nutrients, equipment and supplies; h. Prosthetics, orthotics and prosthetic devices and supplies; i. Home health services; j. Outpatient Rx drugs; andk. Inpatient and outpatient hospital services.

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5. History: Stark Law was enacted in 1995.

Phase I regulations took effect January 4, 2002;

Phase II regulations took effect July 26, 2004; and

Phase III regulations were published on September 5, 2007, will take effect December 4, 2007.

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6. Purpose: To regulate the extent to which physicians make referrals to entities with which the physician (or an immediate family member) has a financial relationship.

To avoid over utilization of services payable by Medicare by controlling physician incentives to self‐refer.

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Overview of the Exceptions

• Implications of Stark Law on Michigan Law (MCLA 333.16221(e)(iv))1. Violation of the Stark Law constitutes

“unprofessional conduct.”

2. Violation of Stark Law can result in disciplinary action taken under Michigan laws governing physician licensure.

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• Exceptions Applicable to “Compensation” AND Ownership Arrangements1. Physician services;

2. In‐office ancillary services;

3. Services by an organization to enrollees;

4. Academic medical centers;

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5. Implants furnished by an ambulatory surgery center (“ASC”);

6. EPO and dialysis drugs;

7. Preventive screening tests, vaccines and immunizations;

8. Eye glasses and contact lenses after cataract surgery; and

9. Intra‐family rural referrals.

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• Exceptions Applicable to Ownership Arrangements Only:1. Publicly traded securities;

2. Mutual funds; and

3. Specific providers.

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• Exceptions Applicable to Compensation Arrangements Only:1. Rental of office space;

2. Rental of equipment;

3. Bona fide employment relationships;

4. Personal service arrangements;

5. Physician recruitment;

6. Isolated transactions;

7. Certain arrangements with hospitals unrelated to DHS;

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8. Group practice arrangements with a hospital;9. Payments by a physician; 10. Charitable donations by a physician;11. Non‐monetary compensation;12. Fair market value compensation;13. Medical staff incidental benefits;14. Risk sharing arrangements;15. Compliance training;

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16. Indirect compensation arrangements;

17. Referral services;

18. Obstetrical malpractice insurance;

19. Professional courtesy;

20. Retention payments in underserved areas;

21. Communitywide information network;

22. Electronic prescribing items and services; and

23. Electronic health records, items and services.

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Key Stark III Changes and Clarifications of Interest to Recruiters

• Physician recruitment

• “Stand in the Shoes” concept

• Deletion of fair market value safe harbor for certain hourly payments

• Retention payments in underserved areas

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The Medicare Physician Fee Schedule and Medicare Payment Rules

• What It Is:1. Lists DHS services and is updated annually;

2. 2008 version became final in November 2007, and takes effect January 1, 2008; and

3. Signals further revisions to the Stark Law.

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What Does it all Mean for Physician Recruitment?

• The Recruitment Exception (42 CFR 411.357(e)): For purposes of the Stark Law, a financial relationship excludes:1. Remuneration provided by a hospital to recruit a

physician that is paid directly to the physician and intended to induce the physician to relocate his/her medical practice to the geographic area served by the hospital in order to become a member of the hospital’s medical staff IF:

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a. Arrangement is written and signed by all parties (Counterparts are permitted);

b. Arrangement is not conditioned on patient referrals to hospital;

c. Hospital does not determine directly or indirectly the amount of remuneration to the physician based on volume or value of actual or anticipated referrals by the physician or other business generated between the parties; and

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d. Physician is allowed to establish privileges at any other hospital and refer business to any other entities (except as referrals may be restricted under employment exception or other qualifying services contract).

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• “Geographic Area Served by Hospital”:1. Area comprised of lowest number of contiguous zip codes

from which hospital draws at least 75% of inpatients. Contiguous zip codes means zip codes next to each other (and not necessarily contiguous to the hospital).

2. May include one or more zip codes from which no inpatients are drawn so long as such zip codes are surrounded by those from which hospital draws 75% of inpatients.

3. Includes all contiguous zip codes from which hospital draws inpatients if less than 75% are from contiguous zip codes.

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4. Rural hospital has alternative tests: area consisting of lowest number of contiguous zip codes from which hospital draws at least 90% of inpatients, OR, if less than 90% of inpatients come from contiguous zip codes, geographic area may include noncontiguous zip codes (beginning with the noncontiguous zip code in which the highest number of inpatients reside and adding noncontiguous zip codes in decreasing order of inpatient percentages).

5. Service area is hospital specific (not system specific).

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6. Relocation – unless excepted, recruited physician must be recruited from a practice located outside of the geographic service area served by the hospital and establish a practice within such service area and either move practice at least 25 miles and into the geographic area served by hospital or have a new medical practice that derives at least 75% of its revenues from services to patients (including inpatients) not seen or treated by the physician at his/her practice site during prior 3 years (measured annually).

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NOTE: “reasonable expectation” rule applies to 75% requirement for initial start up year of practice.

NOTE: Relocation requirement applies to physician’s practice location and not his/her residence.

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• Relocation Requirement Does NotApply (so long as recruit establishes practice in geographic service area of recruiting hospital):1. To residents or physicians in practice less than 1 year.2. To doctors employed full time for at least the 2

immediately prior years in specified public service settings (prisons, Indian Health Service, military department or DOD, VA) if they did not have a private practice during that time.

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3. To physicians for whom CMS issues an advisory opinion that he/she does not have a medical practice that serves or could serve significant number of patients who are or could be patients of the hospital.

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• For Remuneration by Hospital to Physician Directly or Indirectly (via a group):1. Written agreement must be signed by party to

whom payments are made.2. Except for actual costs incurred by practice in

recruiting new physician, all remuneration must be passed directly through or remain with recruited physician.

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3. For any income guaranty made by hospital to recruited physician joining a practice, costs allocated to the recruit cannot exceed actual incremental costs attributable to recruit.NOTE: Special rule for physicians joining in HPSA or who are recruited to replace a physician who in prior 12 months died, retired or relocated outside service area. In such case, costs allocated to recruit cannot exceed actual additional incremental costs attributable to recruit or lesser of per capita allocation or 20% of practice’s aggregate costs.

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4. Records of actual costs and pass through amounts must be kept at least 5 years and made available.

5. Remuneration from hospital cannot be determined in a manner that takes into account directly or indirectly volume or value of actual or anticipated referrals by recruit or practice (or other physicians) receiving direct payments from hospital.

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6. Physician practice may not impose on recruit practice restrictions that unreasonably restrict his/her ability to practice medicine in geographic area served by hospital.

7. Arrangement must not violate anti‐kickback statute or any federal or state law or regulation regarding billing or claims submission.

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What Does It All Mean For Physician Recruitment?

• Recruitment of Physician by Hospital Located in Rural Area:• With an advisory opinion confirming community need, hospitals in rural areas can recruit a physician to a site outside geographic area served by hospital.

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What Does It All Mean For Physician Recruitment?

• FQHCs and Rural Health Clinics:• Exception applies in the same manner as it applies to hospitals.

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• Commentary Insights:1. Exception contemplates that recruited physician

will practice on his/her own (solo) or as part of a group practice. It does not contemplate norpreclude the physician from becoming an employee of the recruiting hospital.

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2. Incremental costs actually incurred may, depending on circumstances, include incremental costs of employee benefits, taxes and head hunter fees, travel (airfare and hotel), visit costs, and moving expenses, tail insurance, phone calls, etc. incurred in recruiting the physician.

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NOTE: Does not include costs incurred after physician is recruited.NOTE: Payment to physicians for assistance in recruiting (vs. incremental expenses) must meet another compensation exception.

3. Requirements apply to any type of income guaranty that involves a potential cost to guarantor hospital and benefit to a doctor (e.g., gross, net, revenue, etc).

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4. Hospital can require that a physician practice guaranty funds advanced to the group on behalf of the recruited physician so long as it is not a sham (AKS concern).

5. Exception is limited to physician recruitment.

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6. Reasonable practice/credentialing restrictions requirements have been relaxed to prohibit only restrictions that unreasonably restrict the recruit’s ability to practice in the geographic service area served by the hospital.NOTE: Practice restrictions that do not comply with state and local law run a significant risk of being deemed “unreasonable.”

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7. Permitted restrictions:a. No moonlighting;

b. Mandatory acceptance of Medicare & indigents;

c. No solicitation of patients or employees;

d. Prohibition on use of confidential or proprietary information;

e. Obligation to repay practice losses in excess of amount covered by hospital recruitment payments;

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f. Obligation to pay preset, reasonable liquidated damages if leaves practice by stays in community so long as it is not significant or unreasonable;

g. Hospital may but is not required to prohibit a group from imposing a noncompete requirement; and

h. Hospital must keep and make available to CMS full, complete and accurate records regarding actual costs subsidized and passed through to a recruit for at least 5 years.

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8. Physicians already on the hospital’s medical staff (in any capacity) still cannot qualify for recruitment exception (no change).

9. Clarification of incremental cost standard (limits cost an existing practice can allocate to recruited doctor to additional incremental cost attributable to that doctor).

10. Preexisting arrangements are NOTgrandfathered.

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• Recent Stark Law Opinion on Physician RecruitmentCMS‐AD‐2007‐011. Hospital cannot amend income guarantee loan

agreement portion of recruitment agreements to omit excess receipts provision.

2. Take Away: Draft initial agreements carefully and with flexibility.

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Next Steps

• Review and update physician recruitment policies and procedures.

• Review all existing and pending recruitment agreements to ensure compliance with new rules (or another exception).

NOTE: Arrangements that previously complied but do not comply as of December 4, 2007, should be modified within 90 day grace period.

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Next Steps

• Analyze contiguous zip codes served by hospital.

• Rural hospitals should take note of increased flexibility.

• Check CMS website for further guidance: www.cms.hhs.gov/physicianselfreferral

• Be mindful of DFRR and increased scrutiny.

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http://www.cms.hhs.gov/physicianselfreferral

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