With more and more hospitals buying physician practices, both the purchasing hospitals and the practices being acquired must make sure the compensation arrangements are compliant with Federal law.  The Federal government is closely monitoring these arrangements, and settlements for violations can run into the many millions of dollars.

There are three main Federal laws related to these arrangements: the Stark law, the Federal Anti-Kickback Statute and Internal Revenue Service guidelines.  Together, these laws cover all financial arrangements between hospitals and physicians, including compensation.

One key is the bona fide employment arrangements exception in the Stark law, which is more strict than the Anti-Kickback Statute. This law permits compensation to physicians as long as it is for identifiable services, is consistent with fair market value for those services, and is not based on volume or value of referrals to the hospital.

Scott Becker, an attorney with McGuireWoods (www.McGuireWoods.com) suggests the following for hospitals entering into compensation arrangements with owned physicians.

  1. Ensure all compensation contracts with physicians are in writing, signed by all parties, and do not take into consideration the volume or value of referrals.  Additionally, documentation should be retained to support the fair market value nature of the compensation.
  2. Arrangements should include a clear job description outlining the specific duties and services to be performed, as well as an analysis and record of why a physician position is reasonably needed.
  3. Hospitals should strongly consider obtaining third-party support for physician compensation arrangements where the physician is unusually productive or the compensation structure is outside normal practice.
  4. The hospital and physician should ensure that all agreements meet a core exception under Stark and comply or substantially comply with a safe harbor to the Anti-Kickback statute.
  5. Compensation agreements should be periodically reviewed to ensure compensation remains consistent with fair market value.
  6. Hospitals should consider adopting a reasonable compensation cap, especially if the arrangement is pursuant to a productivity-driven compensation structure.
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Categories: Physician Compensation

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