Legal Issues Impacting Physician Recruitment Relationships

In general, two of the primary laws that are applicable to recruitment arrangements are: (1) the Federal “Stark” law; and (2) the Federal Anti-kickback law and the accompanying safe harbor for physician recruitment.

FEDERAL STARK –PHSYICIAN RECRUTIMENT EXCEPTION

The Federal Stark law prohibits a physician from making a referral to an entity for the furnishing of “designated health services” (“DHS”) and the entity from submitting a claim for the service if there is a financial relationship between the physician and the DHS entity, unless an exception exists. An exception exists for physician recruitment.  Under Stark, a hospital is permitted to pay a physician to relocate to the hospital’s geographic area in order for the physician to be a member of the hospital’s medical staff.

Specifically, the recruitment arrangement must meet the following requirements

(1)  The arrangement is set out in writing and signed by both parties;

(2)  The arrangement cannot be conditioned on the physician’s referrals;

(3)  The amount of remuneration under the agreement may not be determined in a manner that takes into account (directly or indirectly) the volume or value of any referrals by the physician; and

(4)  The physician must be allowed to establish staff privileges at any other hospital and to refer business to other entities.

Relocation:

A hospital is permitted to pay a physician to relocate to the hospital’s geographic area.  In order to meet the relocation requirement, the physician must:

(1)   Relocate his/ her practice a minimum of twenty-five (25) miles; or

(2)   At least seventy-five percent (75%) of the physician’s revenues must come from care provided to new patients.

Note, however, the Stark regulations afford special treatment to residents and new physicians (physicians who have been in practice less than one year).   These physicians will be eligible for the physician recruitment exception regardless of whether they actually move their practices.

Geographic Area:

With regard to the geographic area, the regulations define the geographic area served by the hospital as 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 requirement dictates both the area from which the hospital may not recruit established physicians, and also as an area within which the recruited physician must relocate his/her practice.

Payments Made to a Physician Who Joins a Group:

The Stark regulations add additional conditions when a recruitment payment is made (1) indirectly through another physician or group practice or (2) directly to a physician who is joining an existing physician or group practice.  To meet these additional conditions, the following requirements must be met:

(1)   The arrangement between the hospital and physician practice is in writing and signed by the parties: in a situation where a physician joins a host practice, the recruitment contract will be a three- party agreement signed by the hospital, recruited physician and host PC or PLLC;

(2)   The remuneration is passed directly through to, or remains with, the recruited physician (except for actual costs incurred by the practice in recruiting the new physician);

(3)   In the case of an income guarantee made by the hospital to a physician who joins a local physician practice, costs allocated by the physician practice to the recruited physician may not exceed the actual additional incremental costs to the practice attributable to the recruited physician;

(4)   The new physician must establish a medical practice in the hospital’s geographic area and join the hospital’s medical staff;

(5)   The practice’s arrangement with the recruited physician must be set out in writing and signed by the parties;

(6)   The new physician may not be required to refer patients to the hospital and is allowed to establish staff privileges at any other hospital and to refer business to other entities;

(7)   The remuneration from the hospital is not determined in any manner that takes into account (directly or indirectly) the volume or value of any referrals (actual or anticipated) by the recruited physician or by the physician practice receiving the direct payments from the hospital (or any physician affiliated with that physician practice;

(8)   The physician practice receiving the hospital payments may not impose additional practice restrictions on the recruited physician (e.g., a covenant not to compete), but may impose conditions related solely to quality considerations; and

(9)   The arrangement must not violate the anti-kickback statute and must comply with all relevant billing laws and regulations.

FEDERAL ANTI-KICKBACK LAW AND SAFE HARBOR

Under the Federal Anti-kickback law, a person is prohibited from knowingly and willfully soliciting or receiving, offering or paying any remuneration in return for referring or inducing referrals for goods and services paid for under federal government programs. However, there is a regulatory safe harbor that protects physician recruitment payments.  Of note, however, is that unlike Stark, the Federal Anti-kickback safe harbor applies to recruitment payments to induce recruitment into a health care professional shortage area (“HPSA”).  The safe harbor does not protect recruitment payments in connection with recruitment into areas that are not designated as HPSAs.  The recruitment safe harbor applies to payments by an entity in order to induce a practitioner who has been practicing within his or her current specialty for less than one year to locate, or to induce any other practitioner to relocate, his or her primary place of practice into a HPSA for his or her specialty area that is served by the entity, as long as the following requirements are met:

• The arrangement is set forth in a written agreement signed by the parties that specifies the benefits provided by the entity, the terms under which the benefits are to be provided, and the obligation of each party. 
• If a practitioner is leaving an established practice, at least 75 percent of the revenues of the new practice must be generated from new patients not previously seen by the practitioner at his or her former practice. 
• The benefits are provided by the entity for a period not in excess of 3 years, and the terms of the agreement are not renegotiated during this 3-year period in any substantial aspect; provided, however, that if the HPSA to which the practitioner was recruited ceases to be a HPSA during the term of the written agreement, the payments made under the written agreement will continue to satisfy this paragraph for the duration of the written agreement (not to exceed 3 years). 
• There is no requirement that the practitioner make referrals to, be in a position to make or influence referrals to, or otherwise generate business for the entity as a condition for receiving the benefits; provided, however, that for purpose of this paragraph, the entity may require as a condition for receiving benefits that the practitioner maintain staff privileges at the entity. 
• The practitioner is not restricted from establishing staff privileges at, referring any service to, or otherwise generating any business for any other entity of his or her choosing. 
• The amount or value of the benefits provided by the entity may not vary (or be adjusted or renegotiated) in any manner based on the volume or value of any expected referrals to or business otherwise generated for the entity by the practitioner for which payment may be made in whole or in party under Medicare, Medicaid or nay other Federal health care programs. 
• The practitioner agrees to treat patients receiving medical benefits or assistance under any Federal health care program in a nondiscriminatory manner. 
• At least 75 percent of the revenues of the new practice must be generated from patients residing in a HPSA or a Medically Underserved Area (MUA) or who part of a Medically Underserved Population (MUP), all are as defined in paragraph (a) of this section. 
• The payment or exchange of anything of value may not directly or indirectly benefit any person (other than the practitioner being recruited) or entity in a position to make or influence referrals to the entity providing the recruitment payments or benefits of items or services payable by a Federal health care program.

Notably, the Anti-kickback statute is an intent based statue, which is broadly worded and has been interpreted to include any arrangement, one purpose of which is to induce referrals.  The safe harbor regulations define practices that are not subject to the Anti-kickback statute but failure to comply with a safe harbor, does not make an arrangement per se illegal.  Instead, the particular facts and circumstances surrounding the arrangement must be carefully scrutinized.  In this regard, although there is not a safe harbor that applies to recruitment payments outside of the HPSA context, it may reduce risk if all of the other requirements of the safe harbor, which do not involve HPSA issues, are met.

Summary

Physicians involved in recruitment arrangements must be mindful of the complex legal requirements.  Violations of the Stark and the Anti-kickback law are severe.  Any physician contemplating entering into a recruitment arrangement should seek the advice of experienced counsel to ensure that the laws are complied with and in order to obtain protections in the agreements should the physician be terminated.