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Physician Contracts: Navigating Anti-Kickback and Stark Laws

Added by Hawley Troxell in Articles & Publications, Health Law on June 20, 2011

The government is concerned that paying physicians for referrals may improperly affect the physician’s judgment and increase the cost of Medicare and Medicaid. Accordingly, the government has enacted statutes and regulations designed to prevent the payment of “kickbacks” in exchange for referrals or referrals to entities in which a health care provider has a financial interest, including employment or professional services contracts.

1. Federal Self-Referral (“Stark II”) Law, 42 U.S.C. § 1395nn and 42 C.F.R. § 411.351 et seq. The Stark II law generally prohibits a physician from referring patients for certain designated health services to an entity with which the physician or a member of the physician’s family has a financial relationship unless the transaction fits within a regulatory exception or “safe harbor”. Stark II also prohibits an entity from billing Medicare for services rendered per an improper referral unless a safe harbor applies. The net effect is that employment or professional services contracts with physicians or their family members must satisfy Stark II safe harbors as described below if the physician will be referring patients to the facility for designated health services. A violation of the statute may result in civil fines and exclusion from Medicare.

2. Federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7(b) and 42 C.F.R. § 1001.952. The federal Anti-Kickback Statute (“AKS”) prohibits anyone from knowingly and intentionally offering, paying, or receiving remuneration in exchange for referring a patient for goods or services covered by Medicare or Medicaid unless the transaction fits within a regulatory safe harbor as described below. The AKS may be implicated where physicians are paid more than their legitimate services are worth, thereby suggesting that the overpayment is really for referrals. Violations may result in civil and criminal fines, imprisonment, and exclusion from Medicare.

3. Idaho Anti-Kickback Statute, I.C. § 41-348. Although not well known and rarely applied, Idaho’s Anti-Kickback Statute also prohibits health care service providers from accepting or paying others for a referral. Violations may result in a $5000 fine.

4. Safe Harbors for Professional Services. Both the federal AKS and Stark II law have safe harbors that apply to employment and professional services contracts such as clinical service or medical director agreements.

Employment Contracts. The federal AKS does not apply to bona fide employment contracts. However, to satisfy Stark II, an employment contract with a physician or a member of the physician’s family must satisfy the following: (1) the contract must be for identifiable services; (2) the compensation must be consistent with fair market value and generally may not depend on the volume or value of referrals; and (3) the arrangement must be commercially reasonable even if no referrals were made (i.e., the contract must make business sense regardless of referrals by the physician). See 42 C.F.R. § 411.357(c).

Professional Services Contracts. To satisfy the AKS and Stark II safe harbors for independent contractor agreements, the contract must generally satisfy the following: (1) the contract must be in writing, specify the services to be performed, and be signed by the parties; (2) the contract must be for at least one year, and if terminated earlier, may not be renegotiated upon the same or substantially similar terms during the one-year period; (3) the services must not exceed those that are reasonably necessary for legitimate business purposes; and (4) the compensation to be paid must be set in advance, represent fair market value, and not vary with the volume or value of referrals. See 42 C.F.R. §§ 411.357(d) and 1001.952(d). In addition, to satisfy the AKS, the aggregate compensation must be set in advance, not just the method of compensation. Id. at § 1001.952(d)(5).

There are no safe harbors under the Idaho AKS; however, health care entities should not have any problems so long as they comply with federal standards and pay fair market value for legitimate services actually received.

5. Compensation. The Stark and AKS laws have specific requirements for the method and amount of compensation that may be paid.

6. Conclusion. Health care entities can properly enter medical director or other professional services arrangements with physicians and other health care providers; however, the arrangements must generally comply with the statutory and regulatory requirements described above. Entities should review their existing contracts to ensure they comply and review new contracts as they are negotiated and executed.

If you have questions about these or other legal issues, please contact a member of our Health Law group call 208.344.6000.