Stark Phase III Provides Flexibility to Physician Recruitment

Doctors may be more familiar with the Stark Law as a statute that prohibits a doctor from ordering designated health services for patients on Medicare from entities in which the physician, or the physician’s immediate family member, has a financial interest. However, Stark also regulates what a hospital may or may not do in recruiting new physicians. Stark Phase III clarified physician recruitment dos and don’ts to ensure that any payments from a hospital to a physician are not prohibited payments for referrals.

The physician recruitment exception to the Stark Law allows a hospital to make payments to a physician to induce the physician to relocate to the geographic area served by the hospital and become a medical staff member. In order to fall within this exception all of the following requirements must be met:

• The recruitment agreement is set out in writing and signed by both parties;
• The payments must be made directly to the physician;
• The hospital does not determine (directly or indirectly) the amount of the remuneration to the recruited physician based on the volume or value of any actual or anticipated referrals by the physician or the physician practice; and
• The physician is allowed to establish staff privileges at any other hospitals and to refer business to any other entities (except as referrals may be restricted under a compliant employment or services contract).

The recruited physician must relocate his/her practice to the geographic area served by the hospital. CMS defined the geographic area of the hospital to be the area composed of the lowest number of contiguous zip codes from which the hospital draws at least 75% of its inpatients. The geographic area served by the hospital may include one or more zip codes from which the hospital draws no inpatients, provided that such zip codes are entirely surrounded by zip codes, i.e. the “donut hole” exception.

This relocation is evidenced by either (1) the recruited physician moving his/her practice at least 25 miles, or (2) the recruited physician derives 75% of his/her revenues from professional services furnished to patients not previously seen by the physician during the previous 3 years. To make things more complicated, CMS has added another exception to this exception. The recruited physician will be deemed “relocated” if he or she is a resident or physician who has been in practice 1 year or less or if he or she worked in specific public service areas.

When a hospital makes payments to a physician group additional requirements must be met. The practice must also sign the recruitment agreement. The payments must be passed directly through to and remain with the recruited physician, except for actual recruitment expenses. The practice may not impose on the recruited physician restrictions that unreasonably restrict the recruited physician’s ability to practice medicine in the geographic area served by the hospital. CMS has clarified that the following are not unreasonable restrictions: No moonlighting, No soliciting the group practice’s employees and patients, mandatory acceptance of Medicaid and indigent patients, prohibition of the use of the group practice’s confidential information, requirement that the recruited physician repay the group practice losses that are greater than the hospital recruitment payments, and requirement that the recruited physician pay liquidated damages if the physician leaves the group practice and remains in the community. Records of the actual costs and the passed-through amounts must be maintained for at least 5 years. In the case of an income guarantee of any type made by the hospital to a recruited physician who joins a physician practice, the costs allocated by the physician practice to the recruited physician do not exceed the actual additional incremental costs attributable to the recruited physician.

Although Stark Phase III provides more flexibility to physician recruitment, physicians should still make certain that the recruitment arrangement fits squarely within one of the Stark exceptions.

NOTE: This general summary of the law should not be used to solve individual problems since slight changes in the fact situation may require a material variance in the applicable legal advice.

This article appeared in the January/February 2011 edition of Cleveland-Akron-Canton MD News Magazine