By Michael Broxterman and Jacques Couvillon
In today’s competitive market place, it is essential to offer incentives when recruiting physicians. However, in a world where companies are constantly being investigated by government agencies for illegal practices, you must be careful of what you are offering. The government understands that hospitals and medical groups need to offer physicians incentives to relocate in their areas. Their main objective is to prevent illegal financial relationships between physicians and hospitals. Even if all your practices are legal, they may catch the attention of government officials and ignite an investigation. So how do you competitively recruit talented physicians, avoid an investigation, and support your practices?
The following article highlights the laws that monitor physician recruiting transactions as well as ways for your facility to protect itself in the event of an investigation.
THE LAWS AND AGENCIES
Stark Law
- The official name of this law is the Ethics in Patient Referrals Act. It prohibits a physician who has a direct or indirect financial relationship with an organization from making a referral to the organization for the furnishing of designated health services, which Medicare or Medicaid would pay. Certain exceptions apply, but if a financial arrangement between a physician and an organization does not meet all of the requirements of one of the exceptions, then the financial arrangement violates the statute.
IRS
- Tax-exempt health-care providers must pay careful attention to their physician-recruiting efforts and incentives. The IRS is concerned with individuals who unjustly profit from a tax-exempt organization. An example is that no part of a tax exempt entity’s earnings may inure to the benefit of any private individual. Both the facility and the physician can be penalized for this.
The Anti-Kickback Statute
- Monitored by Human Health Services, this statute prohibits offering anything of value to any person or entity to induce or reward referrals of items or services paid for by a federal health care program.
PROTECTING YOUR FACILITY
Prove Your Needs
Regardless of your facility’s size or location, you should document the need for new medical services by taking inventory of existing physicians in the area, reviewing community demographics, analyzing disease incidence, and interviewing their medical staffs. This protects and prepares your facility if an agency questions your motives.
- For example, cross-town recruiting is acceptable when there is objective evidence of need for the recruiting facility and if patient referral patterns won’t be affected by the recruitment. However, it is highly frowned upon and according to Stark II, the physician must geographically relocate to the community.
Incentives
Deciding what incentives are appropriate can be difficult. Physicians are not allowed to profit substantially through a financial relationship with a tax-exempt entity. Therefore, financial incentives should be kept in line with current norms in a particular specialty. Also, incentives should not be tied to the amount of referrals a physician makes.
New rules on physician recruitment by hospitals now allow the following:
- One time signing bonus: Physicians may spend as they want.
- Tail coverage: Physicians may also be paid by recruiting entities.
- Liability coverage: Hospitals may provide for a limited period.
- Below-fair market value office rent: Highly frowned upon by the HHS inspector, but the IRS approves for a set number of years.
- Start-up financial assistance: Acceptable if provided aid is documented, reasonable, and for a limited period.
- Moving expenses: Reimbursement for meals and house hunting trips.
- New income guarantees: Limited number of years.
- Incentive compensation or signing bonus: More permissible if the physician becomes a hospital employee. Should be capped at a reasonable level.
- Income guarantee: Should be acceptable if offered for a limited period of time and with a reasonable cap. Terms should be negotiated in advance and in writing.
- Loan guarantee and inducement: If the physician stays in the community, loans can be forgiven. Terms of all loans should be documented and payback terms indicated.
- Office space guarantee: Permissible provided all the compensation, including below market rent, is reasonable. If up front rent reductions are provided and the physician cancels the lease early, penalties should be applicable.
It is usually easier for tax-exempt hospitals to justify incentives provided to a physician who becomes a hospital employee. While not specifically prohibited, recruiting incentives provided to physicians entering private practice should be more limited as they invite closer observation by the IRS.
Contracts
In order to protect your facility, there are certain contract rules that must be followed.
- Agreement must be in writing.
- Agreement must be negotiated at arm’s length.
- Agreement must be approved by the hospital’s board of trustees or the board’s designees, or it must comply with guidelines established by the board.
- Deal cannot include any off agreement benefits.
PHYSICIANS’ OBLIGATIONS
Physicians are also obligated to follow the law. They should not agree to refer patients to a facility in exchange for money or other benefits. They should also not accept financial incentives significantly higher than current norms. Physicians should also request from the hospital involved in the recruitment, why there is a need for their services in the community.
CONCLUSION
Physician recruiting laws aren’t always clear and can sometimes be very difficult to interpret. However, it should be noted that the government is searching for obvious offenders. By having the hospital board prepare a document confirming the hospital’s commitment to adhere to recruiting laws and regulations, you can gain their trust. Hopefully your lawyers have covered all the bases and are helping you to abide by all recruiting laws. Nevertheless, a basic knowledge of the rules can save your organization time as well as decrease the chances of it being investigated.
References
- Steer Clear of Physician Recruiting Violations. By Jennifer Moody, for HealthLeaders News, July 21, 2003.
- Fair or Foul by John Allevato, Unique Opportunities® The Physician’s Resource Nov/Dec 1998.
- IRS Feeling Charitable on Doctor Recruiting Incentives? AM News Staff by Julie Johnsson, AMNews staff. June 23/30, 1997.