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Regulatory, Stark & Kickback

Overview of Regulatory Compliance for Medical Practices

In this article, I give you a quick overview of the major regulatory compliance areas for physicians and medical practices, namely: 1. Referral Laws — Anti-Kickback and Stark Self-Referrals 2. Billing Medicare and Other Payers 3. HIPAA 4. Supervision of Staff 5. Test Case — Sharing Offices with other Health Care Providers The regulatory schemes covering medical practices are unbelievably complex, so this article only gives a bird’s eye view. For an outline of legal issues related to a medical corporation, read Legal Compliance Checklist for a Medical Corporation on my website. You should also read the related set of articles that you’ll find linked in that article. THE REFERRAL LAWS: ANTI-KICKBACK AND STARK SELF-REFERRAL Both the US and California have their own versions of the anti-kickback and Stark self-referral laws. To sum them up: Don’t make or take referrals for money. *** Under the CA and federal anti-kickback laws, a physician may not knowingly offer or pay, or even receive, anything of value for a referral of medical work. *** Under the CA and federal “Stark” self-referral laws, for certain designated health services, a physician may not refer a patient to a provider with which the physician (or a family member) has a financial relationship. Violation of these laws is punishable by fines, exclusion from participation in Medicare and Medi-Cal (see next), loss of license to practice, and even imprisonment. The federal and state referral laws are very broad and very complex. They touch on almost all financial aspects of a practice, and it is very important that you hire an attorney to run each of your transactions through a referrals analysis. For more on the referral laws as they relate to your group’s compensation plan, read Stark and Anti-Kickback laws regarding the compensation structure of a group medical practice. See also, Stark and Anti-Kickback laws re physician employment and contractor agreements. BILLING FRAUD AND EXCLUSION FROM MEDICARE AND MEDI-CAL You must be very careful when billing for services, because you do not want to inadvertently commit health care fraud. It is very easy for medical practices to become sloppy in their billings as they try to maximize reimbursement, for example, using a physician’s provider number to cover the work of a non-physician. The federal Office of Inspector General (OIG) can exclude anyone who has engaged in billing abuse from participation in Medicare. Exclusion is very serious because you cannot get reimbursement from Medicare for your medical work. The California Department of Health Services has its own exclusion (suspension) provisions regarding Medi-Cal. The OIG prohibits payment even to an innocent health care provider (e.g. a hospital) who employs an excluded individual. A provider can itself be excluded if it submits claims for payment connected with an excluded person. Hence a medical practice must be sure that all of its employees and contractors are not excluded. Both OIG and California maintain online lists of excluded health care providers. HIPAA The Health Insurance Portability and Accountability Act of 1996 (HIPAA) requires “covered entities” to protect electronic health information from unauthorized access, alteration, deletion, and transmission. Covered entities include medical practices. HIPAA is extensive and I’m sure you’ve had about all you can stand of it already. One thing to keep in mind about HIPAA is that, when working with third-party contractors who handle patient data, a health care practice must obtain contractual assurances of their HIPAA compliance. Make sure your contracts with third parties have language to this effect. SUPERVISION OF STAFF California has a multitude of regulations on your supervision of staff, including medical assistants, nurse practitioners and more. The California Medical Board’s website has many publications that address these regulations. I will not belabor them in this short outline. TEST CASE — SHARING OFFICES WITH OTHER HEALTH CARE PROVIDERS Sharing office space with other health care practices brings up all of the above issues. The primary problems are violation of the referral laws (above), creation of a de-facto partnership, and opening access to patient data in violation of HIPAA. The various health care providers may make referrals to one another, but they must comply with the state and federal referral laws (Stark and Kickback). In essence, they may not take or receive any compensation (direct or indirect) for a referral. Be extra careful of the office leases for the shared space. The Stark and Kickback referral laws have specific requirements to prevent the leases from acting as indirect conduits for financial compensation. The risk with a de-facto partnership is that patients of another practice sue you based on the argument that you and the other practice are partners. The more resources you and the other practices share, and the more integrated you look, the higher the risk. You must keep your medical practice absolutely separate from the other practices in the shared space. All health care practices in the shared space should give written disclosure of the space-sharing relationship to patients, including disclosure that the various practices are not in a partnership of any kind. One final note: Never let another health care practice bill under your provider number, no matter how many rationales that other practice has for it being OK. Most likely this would constitute billing abuse.

Stark and Anti-Kickback Laws Regarding Physician Employment and Contractor Agreements

In this article, I briefly outline the legal requirements for paying compensation to a physician-employee and to a physician-independent contractor. My prior article, Physician employment and independent contractor agreements, gives you the basics about hiring a physician as an employee or contractor. This article explains how you pay compensation to a physician employee or contractor in compliance with the referral laws for California and the fed (Stark and Anti-Kickback). EMPLOYEE PHYSICIANS In general, under Stark, compensation to an employee-physician is OK if: 1. You have a contract with the physician 2. The contract is for identifiable services 3. The contract pays compensation at FMV 4. The contract doesn’t take into account the volume or value of referrals, and is commercially reasonable even if no referrals are ever made. A medical practice rarely has Stark issues when it pays its physician employees straight salary or compensation based on an hourly rate. Productivity payments are a little more difficult. The key concept is that you may pay an employee-physician in a manner that directly correlates to the professional services that the physician personally performs (e.g. the professional component of charges). Using this key concept, you may pay a physician employee as follows: *** A percentage of collections for services personally performed by the physician *** Compensation per unit of service personally performed by the physician (e.g. per relative value unit, patient encounter, or fee schedule) *** A bonus based on the physician’s personal productivity or the achievement of specified quality indicators *** For the physician’s own labor in supervising others. You may not, however, pay an employee-physician for services performed by others or a share in the overall profits of the group, or a facility or department. The primary exception is for a physician in the employ of a group practice; for more on physician compensation in group medical practices, see Stark and Anti-Kickback laws regarding the compensation structure of a group medical practice. CONTRACTOR PHYSICIANS In general, under Stark, you may pay an independent contractor physician if: 1. You have a contract with the physician 2. The contract specifies and encompasses all of the services that the physician will provide, and the aggregate services are reasonable and necessary for legitimate business purposes 3. The contract has a term of at least one year 4. Compensation does not exceed FMV 5. The contract sets compensation in sufficient detail so that it can be verified (“set in advance”) 6. As always, the contract may not take into account the volume or value of any referrals or any other business generated between the parties. Just as for employee-physicians, you may pay to a contractor a percentage of collections or productivity bonus, but only for services performed personally by the physician, not for services provided by someone else. See the discussion above re employee-physicians for more on this concept. You can base compensation on a formula (e.g. a percentage of collections) so long as the formula is set in advance in the contract. [Note that to fit within its safe-harbor, the Anti-Kickback law requires that the contract state the total, aggregate compensation payable to the physician, hence you may not use a formula under the Kickback safe harbor.] We’ve suffered enough. The referral laws are voluminous, complex, subtle and idiotic. Get competent legal help for your group practice’s compensation plan.

Stark and Anti-Kickback Laws Regarding the Compensation Structure of a Group Medical Practice

In this article, I briefly outline the legal requirements that apply when a group medical practice pays compensation to its members (whether owners, employees or contractors). My prior article, Compensation structures for a group medical practice, explains compensation plans from a non-legal perspective, including a discussion of “eat what you kill” practices and more team-oriented compensation structures. This article is hard work because I talk about the law, specifically, medical practice compensation plans under California and federal referral laws (Stark and Anti-Kickback). In general, a group medical practice pays its physicians in some combination of three ways: (1) salary, (2) productivity payments including a percentage of collections, (3) per-share corporate dividends. Let’s start right away with how the referral laws treat salary. SALARY Salary is the first element of a compensation plan. In general, salary should be reasonable and consistent with fair market value without taking into account any referrals. Salary usually is not a problem for Stark and Kickback compliance, and I won’t belabor it here. If you want to read more on the topic, see Stark and Anti-Kickback laws regarding physician employment and contractor agreements. In all cases, make sure you have a solid employment agreement that clearly shows its compliance with the Stark and Kickback laws. For more on employment agreements, see Physician employment and independent contractor agreements. PRODUCTIVITY PAYMENTS - BONUSES & SHARES IN PROFITS OR COLLECTIONS Productivity payments are the second element of a compensation structure. They include profit-shares, percentages of collections and productivity bonuses. To make productivity payments, your group must meet the Stark definition of a “group practice.” [The definition of group practice is important for many reasons, not just making productivity payments, but that’s a topic for another day.] A group practice may compensate its physicians (regardless of status as owner, employee or contractor) based on their productivity or work as follows: 1. Based directly on DHS (designated health services) personally performed by the physician. This can be a straight percentage of collections for professional services personally rendered. 2. Based on DHS that others perform “incident to” the physician’s personally performed services and subject to his or her supervision. This can be a percentage of collections or profit share that includes the billings made by other health care providers under the doctor’s supervision. 3. Based on factors that have nothing to do with referrals, for example, tenure in the group or management services. What you may not do is base payments directly on referrals of DHS. Compensation may not be directly related to the volume or value of DHS referrals by the physician. Notes: *** The group must charge its overhead expenses and distribute its income in a manner determined prior to their occurrence (no ad-hoc allocations). The group may, however, modify its distribution method as often as desired so long as the changes are only applied prospectively and are not based upon a pattern of referrals. *** The group must have a written compensation plan for its members. Usually you see the plan as an attachment to board of director resolutions, but you also see it in shareholders agreements or even the bylaws. The compensation plan must track the Stark law without deviation. *** Word to the wise: Do not think that your compensation plan is OK just because other groups seem to pay their physicians the same way. Yes, it’s true that most medical practices pay percentages of collections or profit shares. It’s also true that the law doesn’t care what everyone else is doing. The law only cares about what you’re doing. DIVIDENDS AND OTHER PER-CAPITA SHARES IN PROFITS Dividends are the third element of a compensation plan. The group may pay per-capita shares of overall group profits, for example per-share dividends, provided that the share of profit is not directly related to DHS referrals. Dividends are straight-forward because a per-share dividend rarely has any relation to referrals. The referral laws are voluminous, complex, subtle and idiotic. Get competent legal help for your group practice’s compensation plan.

Physician Recruitment Agreements

In this article I discuss physician recruitment agreements and their package of documents. A recruitment agreement allows a hospital to loan money to a physician or to a group practice in exchange for the physician’s promise to practice in a certain geographic area. Recruitment agreement packages frequently reach 100 pages of mind-numbing prolixity and obscure complexity. The basic idea is this: the hospital loans money to the physician so that the physician’s salary is stable during the first years of practice while he or she is building up collections. This is called the income guaranty, because the physician’s monthly income is fixed. LOAN=INCOME GUARANTY MINUS COLLECTIONS The loan is the amount that the hospital pays toward the physician’s salary + any other money the hospital pays for the physician (e.g. the physician’s malpractice insurance premiums, moving expenses or housing allowances). Notice in the example below that as collections increase, the loan decreases. If collections reach the income guaranty in a particular month, the hospital does not loan money in that month. Month Collections Loan Physician Income Guaranty 1 $0 $15,000 $15,000 2 $5,000 $10,000 $15,000 3 $10,000 $5,000 $15,000 4 $15,000 $0 $15,000 5 $13,000 $2,000 $15,000 6 $20,000 $0 $15,000 PHYSICIAN IS OBLIGOR ON LOAN The physician signs a promissory note in favor of the hospital for the loan. Usually the hospital reduces the amount owed on the loan over time, for example, the loan might reduce 1/3 each year starting at the end of the first year. By this example, the loan goes away after 4 years. GROUP IS GUARANTOR ON LOAN If the physician works for a group medical practice, the group usually guaranties the loan. If the physician quits or otherwise breaches the recruitment agreement (see below), the physician (primarily) and the group (secondarily) must repay the loan. The group should consider limiting the term of the guaranty, for example, the guaranty can automatically terminate after 2 years, or it can automatically terminate when there is no amount outstanding on the loan after year 1. EXCESS COLLECTIONS Who gets the excess collections, that is, collections over the income guaranty amount? In month 6 of the example above, collections exceed the income guaranty by $5,000. The hospital usually demands the excess collections to pay down outstanding amounts on the loan. Once the loan is paid off, either the physician or group keeps the excess collections. TERMINATION The hospital usually gives itself the right to terminate the recruitment agreement with or without cause. If the hospital terminates for cause, it usually can accelerate the loan (and the guaranty) and demand immediate repayment. Cause can include many failings, but the most important is the physician leaving the hospital’s geographic area. Physicians should pay attention to the triggers for acceleration, and perhaps get a payment plan for the loan in the event of acceleration. STARK AND ANTI-KICKBACK LEGAL COMPLIANCE Recruitment agreements must comply with the Stark and Anti-Kickback laws. This is a joyous circumstance for us lawyers given the inscrutability of said laws. One interesting item of note is that the Stark law restricts non-competition covenants in the physician’s employment agreement with the group. The group that employs the physician must understand that the physician can remain and work in the service area until the loan is forgiven. For more on the employment agreement for the physician, see Physician employment and independent contractor agreements and also Termination clauses in physician employment and contractor agreements. Remember this is complex stuff. Before you do anything, get competent legal counsel to help you.

How an Unlicensed Person Can Work with a Medical Practice, Including the Use of an Administrative/ Management Services Company

In this article I discuss how an unlicensed person can work with a medical practice, including the use of an administrative / management service company. Here is my conclusion up-front: An unlicensed person can work with a medical practice so long as there is NO ownership in the practice, where ownership includes not only stock in a medical corporation but also a share in revenues. THE LAW Only physicians who are licensed in California may own shares in a medical corporation or be a partner in a medical practice (with exceptions for certain other licensed health-care professionals). The policy behind the law is to prevent unlicensed persons from interfering with the physician’s professional judgment. The physician must have sole control over all health care decisions. This includes obvious decisions such as the need for referrals outside the practice, and it also includes less obvious decisions such as: (1) how many patients the physician must see in an hour; (2) how many hours a day the physician must work; (3) hiring and firing of physician associates, technicians and assistants (at least as concerns their clinical competency); (4) setting the parameters for insurance contracts; (5) coding and billing procedures for patients; (6) selecting medical equipment and supplies; (7) content of advertising for the practice. The physician may not delegate any of these decisions to an unlicensed person, including to a management service company. The physician may consult with unlicensed persons in making these business decisions, but the physician must have ultimate responsibility for the decisions. Many people question whether this law still makes sense in today’s world, but irrespective of all that, it’s the law and you must comply. If you violate the law, you put your license at risk. WORKING WITH THE MEDICAL PRACTICE WITHOUT BREAKING THE LAW With these concepts in mind, let’s turn to how an unlicensed person (usually an administrative / management service company) can participate in a medical practice. The key is to provide goods and services to the medical practice without tripping any of the prohibitions above. For example, the unlicensed person can lease office space and certain equipment to the medical practice, or provide back-office administrative services including accounts payable and billing services, or provide staffing of unlicensed personnel. None of these functions, in themselves, involve ownership or profit-sharing in the medical practice. NO PROFIT-SHARES It is extremely important that the unlicensed person (and the administrative / management service company) receive compensation that is directly related to the goods and services provided, for example, flat lease rentals or hourly billing amounts. The compensation must be at fair market value. The medical practice should not pay any percentage or portion of its gross or net profits to an unlicensed person, as this can constitute a form of ownership in the medical practice. A share in revenues constitutes a partnership share, and that’s ownership. Notes: ***CA Business & Professions Code 650(b) on its face might permit the payment of a percentage of gross revenues to to an unlicensed person, but the payment must be fair market value. Given this, it’s best to simply pay FMV in the manner I advise above. ***Have an attorney run all forms of compensation through a CA and federal Stark and Kickback analysis. It is very easy to violate these laws when paying outsiders for services related to the practice. CORPORATE STRUCTURES The management service company is a common structure that unlicensed persons use to participate in a medical practice. Here unlicensed persons perform the administrative and back-office functions permitted by law (see above), thereby freeing the physicians to spend more time on patient care. Usually the physicians provide patient care through a professional medical corporation that they wholly own, while the unlicensed persons provide their services through an ordinary corporation or an LLC that anyone can own. The two sides use contracts to link the management service company with the medical corporation and to provide the terms of service and compensation.

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