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Physician Contracts - Compliance Part 1 Stark and Anti Kickback

It's contract season again and whether you are a rushing Resident, a frantic Fellow or making a mid-career move, there are various aspects to a physician contract to be considered when drafting or reviewing an agreement. In this article, we will briefly consider some of the top issues to address, as it relates to complying with federal "Stark" and Anti Kickback laws.

In general, financial arrangements between physicians and certain other healthcare providers must be structured to comply with the federal Stark, Anti-Kickback, and Civil Monetary Penalties Laws if the physician will refer patients for items or services payable by Medicare, Medicaid or similar healthcare programs. Failure to comply may result in overpayments; failure to report and repay such overpayments within 60 days may violate the False Claims Act, subjecting the parties to additional penalties, including treble damages, fines of $5,500 to $11,000 per claim, and exclusion from Medicare and Medicaid. Given the severe penalties for noncompliance, hospitals and other healthcare providers should ensure that their physician contracts comply.

TOP COMPLIANCE CONCERNS FOR PHYSICIAN CONTRACTS. The following are some common compliance issues for services contracts with referring physicians or their family members.

1. Have a current written contract that is signed by both parties. A written contract is not required for physicians who are bona fide employees, but a written contract may help document compliance with other required elements. In contrast, contracts with physicians who are not employed by the other party (i.e., independent contractors) must be in writing and signed by both parties before compensation is paid or services performed. 

2. Ensure the contract has not expired, lapsed or terminated. Sometimes a contract will expire but the parties continue to perform as if the contract were still in force. This will not violate regulations applicable to employment contracts, but it will create compliance problems for independent contractors.Stark contains an exception that allows the parties to an independent contractor agreement to continue performance for up to six months after the contract expired if certain conditions are met; otherwise, the failure to have a current written agreement with referring independent contractors will most likely violate Stark. Parties may minimize the risk by including automatic renewal provisions.

3. Identify the services to be performed.Employment contracts must be for identifiable services. Contracts with independent contractors must specify the services to be performed. If the entity has more than one contract with the independent contractor, the contracts should reference each other or a master list of all the contracts.

4. Set the compensation formula in advance. If an employer intends to require employed physicians to refer services to the employer, the employed physician’s compensation formula must be set in advance. For independent contractors, the compensation formula must always be set in advance and be objectively verifiable. Do not adjust an independent contractor’s compensation retroactively. To comply with the Anti-Kickback safe harbor for personal services agreements, the aggregate compensation—not just the compensation formula—must be set in advance.

5. Do not pay based on the volume or value of referrals or other business generated by the physician. Paying the physician based on his or her referrals for ancillary services or services performed by others is the quintessential Stark and Anti-Kickback violation. Compensation formulas based on the overall productivity or profitability of a facility, department or practice may violate the regulations because productivity will typically vary with the volume or value of the physician’s referrals to others. With that said, an entity may pay physicians for services the physician personally performs, e.g., per work RVUs, professional fee revenue, etc. In addition, qualifying group practices may compensate physicians based on their personal productivity, “incident to” services, and/or a share of the group’s overall profits.

6. Do not require referrals unless certain conditions are satisfied. Stark expressly allows entities to require employed or independent contractor physicians to refer patients to the entity if certain conditions are satisfied. Among other things, the requirement to make referrals must be included in a written agreement signed by the parties, and the compensation formula must be set in advance for the term of the agreement and must be consistent with fair market value. The requirement to make referrals does not apply if the patient expresses a preference for a different provider; the patient’s insurer determines the provider; or the referral is not in the patient’s best medical interests in the physician’s judgment. Finally, the required referrals must relate solely to the physician’s services covered by the scope of the agreement (i.e., the entity cannot require referrals while the physician is providing services outside the agreement), and the referral requirement must be necessary to effectuate the legitimate business purposes of the contract. The Anti-Kickback Statute does not contain a similar exception.

7. Do not pay to induce reduction in services. The Civil Monetary Penalties law generally prohibits hospitals from paying physicians to reduce or limit services to Medicare or Medicaid beneficiaries. The law prohibits “gainsharing” arrangements whereby hospitals share cost savings with referring physicians unless the arrangement has been approved by the federal government in an advisory opinion or the arrangement is structured to satisfy new exceptions applicable to accountable care organizations.

8. Do not make additional payments or provide free or discounted items or services outside the contract unless the arrangement fits within a separate regulatory exception. The contract should clearly identify the compensation for the identified services. Providing additional items or services outside the contract (e.g., bonuses; payments “on the side”; free use of space, equipment or personnel; free or discounted services; perks; or any other payments or “freebies” not covered by the contract) may create a separate financial relationship that triggers Stark or the Anti-Kickback Statute unless the additional item or service fits within a separate regulatory exception.

9. Ensure that the arrangement is commercially reasonable. The arrangement must make business sense and further legitimate business purposes even if there were no referrals between the parties. Do not contract for unnecessary services. The aggregate services contracted for may not exceed those that are reasonable and necessary for the legitimate business purposes of the arrangement.

10. Ensure the parties perform the services as specified in the agreement. Paying a physician for services that were not performed may be viewed as paying for referrals. The parties to a contract may sometimes become lax or their performance may change. Both the contracts and the physician’s performance should be reviewed periodically to ensure the physician is rendering the services for which he or she is being paid consistent with contract requirements.

11. Beware contract changes during the initial year. Independent contractor arrangements generally may not be changed within the first year of the agreement. If an independent contractor agreement is terminated during the first year, the parties may not enter a new agreement for substantially similar services on different terms during the initial one-year period. Contracts for less than one-year may be renewed during the one-year period so long as they renew on the same terms so that the terms relevant to compensation do not change during the initial one-year period. The foregoing limits generally do not apply to employment agreements.

12. Remember contracts with physicians’ family members. Stark applies to financial relationships with a referring physician’s family members as well as the physician, including spouses, parents, children, siblings, grandparents, or grandchildren. If you contract or have a financial arrangement with a physician’s family members, ensure that arrangement also complies with the relevant Stark rules.

13. Include the Medicare Access Clause. If CMS will pay for or reimburse the entity for the physician’s services, independent contractor agreements must generally include a clause that requires the physician to maintain records relevant to the physician’s services and grant HHS access to such records for a period of four years. Failure to include the required access clause may result in denial of payment or repayment to Medicare.

CONCLUSION.  Given the significant penalties for noncompliance, it is better to ensure that contracts are structured properly at the outset, and that ongoing compliance is periodically monitored throughout the contract term. Better to fix small problems along the way than risk major penalties in the future.