What Kind of Limits are there on Physician Agreements?

By Michael Broxterman and Jacques Couvillon

In today’s competitive market place, receiving incentives as part of one’s compensation package is common practice. However, in a world where companies are constantly being investigated by government agencies for illegal practices, physicians must be careful of what they are receiving. The government understands the importance of incentives. Their main objective is to prevent illegal financial relationships between physicians and hospitals. Even if every incentive a physician accepts is legal, the act may catch the attention of government officials and ignite an investigation. So what are acceptable incentives, and how do physicians avoid an investigation?

The following article highlights the laws that monitor physician recruiting transactions as well as ways for physicians to protect themselves 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 of this 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.

PHYSICIAN PROTECTING

Needs

Physicians should request from the hospital involved in the recruitment, why there is a need for their services in the community. Regardless of a facility’s size or location, they 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 the facility and physician if an agency questions their 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:

1. One time signing bonus: Physicians may spend as they want.
2. Tail coverage: Physicians may also be paid by recruiting entities.
3. Liability coverage: Hospitals may provide for a limited period.
4. Below-fair market value office rent: Highly frowned upon by the HHS inspector, but the IRS approves for a set number of years.
5. Start-up financial assistance: Acceptable if provided aid is documented, reasonable, and for a limited period.
6. Moving expenses: Reimbursement for meals and house hunting trips.
7. New income guarantees: Limited number of years.
8. Incentive compensation or signing bonus: More permissible if the physician becomes a hospital employee. Should be capped at a reasonable level.
9. 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.
10. 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.
11. 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 themselves, physicians must make sure that certain contract rules are being followed.

1. Agreement must be in writing.
2. Agreement must be negotiated at arm’s length.
3. 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.
4. Deal cannot include any off agreement benefits.

PHYSICIANS’ OBLIGATIONS

Physicians are obligated to follow the law. They should not agree to refer patients to a facility in exchange for money or other benefits nor should they accept financial incentives significantly higher than current norms.

CONCLUSION

Physician recruiting laws aren’t always clear and can sometimes be very difficult to interpret. It should be noted that the government is searching for obvious offenders. Hopefully lawyers have covered all the bases and are helping physicians and facilities to abide by all recruiting laws. However, a basic knowledge of the rules can protect physicians as well as decrease the chances of an investigation.

References

• 1. Steer Clear of Physician Recruiting Violations. By Jennifer Moody, for HealthLeaders News, July 21, 2003.
  2. Fair or Foul by John Allevato, Unique Opportunities® The Physician’s Resource Nov/Dec 1998.
  3. IRS Feeling Charitable on Doctor Recruiting Incentives? AM News Staff by Julie Johnsson, AMNews staff. June 23/30, 1997.