Recruitment Agreements Run Risk of Stark Law Violations
EXECUTIVE SUMMARY
Hospitals may recruit and compensate physicians under an exception to the Stark Law. Community need is a key component.
- Hospitals must prove certain physicians are needed in the community.
- Reimbursement of expenses also can be abused.
- Stark Law violations may be alleged if physicians want out of a recruitment agreement.
Hospitals may enter into recruitment agreements to bring needed physicians into the community. However, serious legal issues can arise related to the Stark Law, which prohibits making referrals involving a compensation arrangement or investment interests.
A physician who feels misled by an agreement could blow the whistle on potential Stark violations. The issue often comes down to proving the recruitment agreement was necessary because the community was in dire need of the physician services, says Ericka L. Adler, JD, shareholder with Roetzel & Andress in Chicago. Simply saying there was a need is not enough; the hospital must prove the need was researched and documented.
Recruitment Exception
The Stark Law allows a recruitment exception for hospitals to provide money to doctors and physician groups even though they are in a position to refer patients to the hospital, but only when certain conditions are met, Adler says. Those conditions include proving a physician shortage in the area, and the physician is coming from far enough away that they do not already see patients in the area.
Hospitals may recruit specialty physicians for care not available in the community, and the agreements can involve hundreds of thousands of dollars. Adler represents physicians and has been involved with a recruiting agreement concerning more than $1 million. Typically, the agreements require the physician to practice in the community for a specified period. In the beginning, the hospital provides monetary support until the doctor’s practice is established.
Physicians May Challenge Agreement
The recruitment agreement provides a salary guarantee for the physician and reimbursement of expenses, usually to a physician group.
“You have a lot of money pouring from the hospital to group and the physician. It’s nice for the physician when the money is flowing, but then the physician is required to stay in the community to earn forgiveness for that compensation, usually between two and four years after they’ve gotten the money,” Adler explains. “Suddenly, there’s not enough work to do, and the steady income from the hospital isn’t there anymore.”
At that point, the physicians might question the hospital’s original claim of a real need for their services. If the physicians want to leave the community, they must pay back the money received from the hospital, Adler says. The physicians often are young and naïve, and they feel trapped by what they see as disingenuous claims by the hospital.
If the physicians challenge the recruitment agreement, the hospital could be accused of violating Stark, Adler explains. She has been involved in settlement discussions with hospitals in which they backed down from enforcing the recruitment agreement once her physician client raised the possibility of reporting a Stark violation.
“The physicians are not in a position to know the truth of whether there is a real need in the community, so when the hospital says there is and they offer all this money to come and practice there, the doctors sign the agreement,” Adler says. “When push comes to shove, we have to tell the hospital we believe there was no need and this was a violation of Stark recruitment exception, and if they insist on suing the physician, we will make that known. They usually back down because they know they are at real risk there.”
If federal authorities questioned the claim of community need, the hospital would have to prove that it conducted thorough research and show documentation of the need for particular types of physicians, Adler says. A general sense of need would be insufficient.
Reimbursement for expenses also can be problematic. The Stark exception allows reimbursement only for incremental expenses, meaning whatever costs the physician group incurred by adding this physician, such as building office space.
“What we often see is that the hospital is paying for a portion of the overall overhead of the group, and that is a violation of the recruitment exception. We have pointed this out many times to hospitals, and they may care or not care because there often is an overly friendly relationship between the hospital and the group, with an endless rotation of physicians, and the group being paid over and over again,” Adler says. “The physician can be at a disadvantage if they don’t look at these agreements carefully, but the hospital can be at risk of Stark violations if a dispute results in any of this coming to light.”
SOURCE
- Ericka L. Adler, JD, Shareholder, Roetzel & Andress, Chicago. Phone: (312) 582-1602. Email: [email protected].
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